Document of The World Bank FOR OFFICIAL USE ONLY Report No. 16835 IMPLEMENTATION COMPLETION REPORT MEXICO HYDROELECTRIC DEVELOPMENT PROJECT LOAN 3083-ME June 27, 1997 Infrastructure Sector Leadership Group Mexico Department Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency unit Mexican Peso (Mex$) New Mexican Peso (MXN) US$1.00 Mex$ 2326.00 (March 15, 1989) US$1.00 MXN$ 7.80 (January 23, 1997) WEIGHTS AND MEASURES kVA (kilovolt-ampere) = 1,000 VA (volt-ampere) kV (kilovolt) 1,000 V (volts) kW (kilowatt) 1,000 W (watts) MVA (megavolt-ampere) 1,000 kVA MW (megawatt) 1,000 kW kWh (klowatt hour) = 1,000 Wh (watt hour) MWh (megawatt hour) = 1,000 kWh GWh (gigawatt hour) - 1,000,000 kWh MVA (megavolt ampere) - 1,000 kVA MVAR (megavar) 1,000,000 VAR (reactive volt-ampere) ton (T) 1,000 kg Tcal (teracalories) 88.02 TOE = 10^12 calories TOE (ton of oil equivalent) = 0.0102 Tcal FISCAL YEAR OF BORROWER January I st - December 31 st ABBREVIATIONS AND ACRONYMS CFE = Comisi6n Federal de Electricidad (Government owned national electric utility) CLFC = Compaffia de Luz y Fuerza del Centro (Government owned Electricity distribution company, serving the metropolitan area of Mexico City and environs) CONAE = Comisi6n Nacional de Ahorro de Energia FRA Financial Rehabilitation Agreement (Between Government and CFE) IDB = Inter-American Development Bank INAH = Instituto Nacional de Antropologia e Historia (National Institute of Anthropology and History) NAFIN = Nacional Financiera, S.N.C. (Government owned national development financial institution) PEMEX Petr6leos Mexicanos (Government owned national oil company) SARH = Secretaria de Agricultura y Recursos Hidraulicos (Ministry of Agriculture and Hydro Resources) SEDUE Secretaria de Desarrollo Urbano y Ecologia (Ministry of Urban Development and Ecology) SEMIP Secretaria de Energia, Minas e Industria Paraestatal (Ministry of Energy, Mines and State Enterprise) SHCP = Secretaria de Hacienda y Credito P[blico (Ministry of Finance and Public Credit) SRA Secretaria de Reforma Agraria (Ministry of Agrarian Reform) SPP Secretaria de Programaci6n y Presupuesto (Ministry of Planning and Budget) SAR = Staff Appraisal Report SEMARNAP = Secretaria del Medio Ambiente, Recursos Naturales, Agricultura y Pesca (Ministry of the Environment, Natural Resources, Agriculture and Fishery) Vice President Shahid Javed Burki Director Olivier Lafourcade Country Sector Leader Richard Clifford Staff Member Marcelo Osorio FOR OFFICIAL USE ONLY TABLE OF CONTENTS PREFACE EVALUATION SUMMARY . .............................................................i PART I: PROJECT IMPLEMENTATION ASSESSMENT A. Project Objectives 1....................................................... B. Achievement of Project Objectives ...................................................... 2 C. Implementation Record and Major Factors Affecting the Project ........... 4 D. Project Sustainability ....................................................... 9 E. Bank Performance ....................................................... I 0 F. Borrower Performance ......................1........................ . ....... 1 G. Future Project Operation ..................... .................................. 12 H. Key Lessons Learned ................... .................................... 13 PART II: STATISTICAL ANNEXES APPENDICES: A. AIDE MEMOIRE OF THE IMPLEMENTATION COMPLETION REPORT B. SUMMARY OF THE TRANSLATION OF THE BORROWER'S CONTRIBUTION C. OPERATIONAL PLAN TO MONITOR CFE'S FUTURE OPERATIONS Available in Project Files. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. IMPLEMENTATION COMPLETION REPORT MEXICO HYDROELECTRIC DEVELOPMENT PROJECT LOAN 3083-ME PREFACE This is the Implementation Completion Report (ICR) for the Hydroelectric Development Project in Mexico, for which Loan 3083-ME in the amount of US$460 million equivalent was approved on June 8, 1989 and made effective on January 18, 1990. The loan was closed on December 31, 1996, the original closing date. It was fully disbursed, and the last disbursement took place on October 4, 1995. The ICR was prepared by Mr. Marcelo Osorio (LASLG) and Ms. Maria Clara Mejia (LATEN) and reviewed by Mr. Luis Cosenza (Task Manager) of the Infrastructure Group within the Latin America Sector Leadership Group (LASLG). Other Bank Resettlement and Environmental Specialist contributed to assess final outcomes: William Partridge, George Ledec (LATEN); Scott Guggenheim (EARS); Salomon Nahmad (LAMXC); Shelton Davis (ENVSP); Theodore Downing (Consultant). Mr. Manzoor Rehman (Consultant) contributed to the ICR by preparing some statistical tables. Preparation of this ICR began at the time of the Bank's completion mission during February, 1997. It is based on materials in the project file. The borrower contributed to the ICR by preparing its own evaluation of the project execution. (Appendix B). i IMPLEMENTATION COMPLETION REPORT MEXICO HYDROELECTRIC DEVELOPMENT PROJECT LOAN 3083-ME EVALUATION SUMMARY Introduction 1. The Hydroelectric Development Project was the twelfth operation approved by the Bank for the power sector in Mexico. Project preparation was supported mainly by an engineering loan which financed studies to improve the situation of Comision Federal de Electricidad's (CFE) thermal power plants and distribution networks. The US$460 million Bank loan financed four project components: the Aguamilpa and Zimapan hydroelectric plants; environmental and resettlement programs; energy conservation and efficiency studies, and other studies (system optimization, management and tariff studies) (para. 17). Most of the funds were allocated to the construction of the two hydroelectric plants. The Borrower was Nacional Financiera, S.N.C. (NAFIN), who acted as a financial intermediary, and the Government was the Guarantor of the operation. NAFIN onlent the proceeds of the loan to the Comision Federal de Electricidad (CFE) which was the executing agency for the project components other than the energy related studies, which were executed by Comision Nacional de Ahorro de Energia (CONAE) (para. 1). Project Objectives 2. The project objectives were to assist the sector in: (a) promoting the efficient use of electricity through realistic pricing policies, energy conservation and improvement of sector operations; (b) diversifying the sources of power generation and reducing the participation of oil- based generation; (c) strengthening CFE's financial situation by increasing electricity rates and implementing a Financial Rehabilitation Agreement; (d) making electricity available to an increasing number of consumers; and (e) improving CFE's ability to deal with the social and environmental aspects of hydroelectric power projects (para. 2). 3. The project objectives addressed the main problems in the energy sector. One of these was the high consumption of energy per unit of economic output, which was due partly to an inefficient use of energy, fostered by very low prices and lack of conservation programs. The project objectives were consistent with the Government's economic strategy and energy sector policy. The energy policy sought to reduce the size of the subsidies to the power sector and keep petroleum exports as a source of foreign exchange. Implementation Experience and Results 4. The project accomplished its objectives substantially, except for that related to the improvement of the financial situation of CFE which was only partially achieved, and the likelihood of project sustainability is high: a) Efficiency in the use of electricity increased. Use of the standards prepared by CONAE under the project for electric appliances has produced substantial energy savings. In addition, CONAE established 15 regional centers to provide assistance to private and public companies in preparing feasibility studies for energy efficiency projects (para. 8). ii b) Cogeneration and the installation of private power plants are now allowed in Mexico. In March 1991, the Government enacted guidelines for cogeneration ("Reglamento de la Ley de Servicio Piublico de Energia Electrica en Materia de Autoabastecimiento") to allow electric cogeneration and issued an inter-ministerial resolution to allow the installation of private power plants under a modified BOT system, the "Construcci6n, Arrendamiento y Transferencia con Cesi6n de Derecho de Propiedad" (para. 9). However, the cogeneration program has not enjoyed much success because the peso devaluation, and the insufficient tariff adjustments made thereafter, resulted in artificially low electricity tariffs which make cogeneration financially unattractive (para. 20). c) The construction of the Aguamilpa (960 MW) and Zimapan (292 MW) power plants represented an increase of about 16% in the hydroelectric installed capacity which existed at the start of the project (1988). Average annual energy expected to be produced by both power plants totals 3,422 GWh, which represents a 13.6% increase over the hydroelectric generation in 1988. CFE also built other hydroelectric projects so that in the 1989-94 period, hydroelectric capacity increased by 21 % from 7,749 MW to 9,413 MW (para. 12). d) CFE managed some substantive improvements in its productivity and operations (paras. 21- 22), although CFE's finances suffered in 1993 due to a Government's decision to lower the tariffs for large industrial consumers. e) The number of customers increased from 15.5 million in 1989 to 20.1 million in 1995. Electricity coverage is about 95% now (para. 14). Quality of electric service is good: interruption time is low (251 minutes per customer in 1994); number of complaints has been reduced (18 complaints for every 1000 customers in 1994); and period of connection to new customers is acceptable (3 days). f) CFE's ability to deal with the social and environmental aspects of hydroelectric project developments improved (para. 15). An Environmental Management Unit and a Social Management Unit were established within CFE to coordinate, plan and implement social and environmental mitigation programs. Summary of findings, future operations and key lessons learned 5. The project was completed in December 1995, which was six months ahead of the SAR schedule. The loan was closed as scheduled on December 31, 1996 (para. 17). The Aguamilpa power plant has been in satisfactory commercial operation since July 1994, one year ahead of the SAR schedule, while the Zimapan power plant has been in satisfactory commercial operation since December 1995 (para. 18). 6. The project cost amounted to US$1,687.9 million before interest during construction which is about 47.5% higher than the estimate of the SAR (US$1,143.7 million). The difference, US$544.2 million, is due to higher than estimated construction cost of the Zimapan power plant (para. 32). The cost of the engineering and administration, resettlement and electromechanical equipment for the Zimapan power plant was underestimated during appraisal, while its construction experienced a substantial cost overrun. The cost estimate for engineering and administration estimated as a percentage of the project cost, increased in accordance with the project construction cost; the cost estimate for resettlement was based on experiences in less iii complex cases; and the estimate for electromechanical equipment was based on informal quotations provided by potential suppliers. The cost overrun in the construction of the Zimapan power plant were due to: (i) geological conditions (along the line of the power tunnel and power house) less favorable than expected at the design stage; (ii) inclusion of some elements to increase the safety of the project which were not originally contemplated; (iii) the construction of infrastructure not required by the project itself but demanded by the communities living the project area, such as the Zimapan-Boquilla road; (iv) large amounts claimed by the civil works contractor as compensation for change in conditions, items for which there were no unit prices and late payments, among others; (v) political pressure on CFE to close the reservoir and inaugurate the project before the presidential period was over, while in the process having to accept some excessive demands of the comrnmunity leaders and local government; and (vi) budgetary ceiling imposed by the Government on the project which caused delays and extra costs to the contractors (para. 34). The Bank supervision missions detected these problems along project implementation and collaborated actively with the Borrower to solve them and complete the Project within schedule. 7. The Comisi6n Nacional de Ahorro de Energia (CONAE) was responsible for the following studies: (i) preparation of technical standards for electrical appliances and industrial electrical equipment; (ii) improvement of the efficiency of water pumping and air conditioning equipment and establishment of demonstration centers; (iii) establishment of regional centers to promote energy efficiency; (iv) identification of the training needs for the implementation of energy conservation programs; and (v) selection of options and incentives to foster cogeneration. Implementation of the first study, preparation of technical standards for electrical appliances and industrial electric equipment, has already produced effective results. CONAE estimates that these standards have resulted in some 25% reduction in their electricity consumption (para. 20). 8. CFE introduced several measures to improve its efficiency; staff was reduced from 63,909 m 1989 to 62,360 in 1995, mainly due to the elimination of CFE's own construction unit, as most of this type of work is now outsourced. The ratio of the number of customers to the number of employees increased from 182 in 1989 to 247 in 1995; thermal plant availability increased from 77.9% in 1989 to 87.3% in 1995; however, electricity losses also increased, from 11.0% in 1989 to 12.0% in 1995. CFE's financial position improved from 1989 to 1991 but declined somewhat in 1992 and deteriorated in 1993 and even more in 1994 as a consequence of the crisis that affected Mexico (para. 13). The covenanted operating ratio (1.0) was achieved in 1990 and 1991 but it could not be maintained and declined slightly to 0.96 in 1992 and 1993 and sharply to 0.82 in 1994. Average tariffs increased by 23.0% in real terms from 1989 to 1992 but declined after the peso crisis (para. 7). Subsequently, CFE has begun to progressively adjust tariffs again. At present, the average revenue per kWh is the equivalent of US cents 4.54 which is 10.8% higher in US current dollars than was the 1989 average revenue per kWh (para. 13). 9. Project implementation was negatively affected by a budgetary ceiling imposed by the Government on all public sector institutions as a measure to combat inflation (para. 26). This ceiling caused delays in the construction program and, consequently, resulted in contractors' claims and increased construction costs. In 1993, the construction budget for Aguamilpa and Zimapan was reduced by 57%. To minimize the effects of this reduction, CFE concentrated the available resources in one of the two power plants, Aguamilpa, with Zimapan suffering most of the budgetary constraints. Iv 10. Another factor that negatively impacted project implementation was the economic crisis that affected the country in 1994 (para. 13). It affected the Project in several ways: first, CFE's finances deteriorated as tariffs declined in real terms as a consequence of the devaluation of the peso. Second, the resulting low tariffs hampered the development of cogenerating plants, as private generation was not able to compete with CFE's artificially low tariffs (para. 27). 11. The resettlement programs were affected by the lack of an overarching legal and policy framework that specifies principles, responsibilities, procedures and mechanisms to deal with involuntary resettlement. Due to the lack of a policy framework, CFE had to improvise strategies and assume responsibilities that should have corresponded to other governmental agencies (para. 28). The requirement for the establishment of a policy framework is an important lesson for future projects (para. 52). 12. It is likely that achievement of most of the project objectives wvill prove to be sustainable. The Aguamilpa and Zimapan power plants are operating (juitc satisfactorily. The highly qualified Board of Consultants contributed constantly with recommnendations to improve the safety of the works. As a result, these power plants were built to very high standards, and a trouble-free long life can be expected (para. 35). Efforts to promote an efficient use of electricity continue. CONAE continues working very actively in the preparation of standards for the manufacturing of electrical appliances. Creation of the fifteen regional ccnters lo promotc electricity savings ensure that this program will continue in the future (para. 39). 13. The Bank's performance was satisfactory ovcrall despite somc weakness in the supervision of environmental aspects. The Bank properly identificd the sectoral issues that had accumulated during the extended period in which the Bank was not involved in the sector. The Bank also assisted CFE and the Government to identify and address environmenltal and resettlement issues, but failed to demand the establishment of compensatorv protected areas ecologically similar to the areas flooded, in accordance with the Bank's Wildlands Policy (para 41). However, resettlement plans were not available at the time of the appraisal and. consequently, their cost estimates were not adequately supported. During project implementation, the Bank's assistance was timely and appropriate. Bank staff, aware of the negative impact that the macrocconomic crisis would have on project execution, made arrangements to modify Loan Agreement 31149-ME in order to allocate uncommitted funds to the Zimapan power plant which vsas suffering major cost overruns (para 42). Problems related to compliance with the Financial Rehabilitation Program (FRA), particularly regarding tariffs, emerged in late 1993, and were noticed at that time by a Bank's supervision mission. However, the Bank did not strongly insist that CFE and the Government take steps to maintain tariff levels in constant terms and eventually accepted the reduction of electricity tariffs for large industrial consumers in late 1993 (para. -X3j. 14. The Borrower's performance was satisfactory despite some inconsistency on the management of the tariff policy. The Government improved CFE's financial situation and performance by monitoring the implementation of the FRA, by capitalizing CFE's debt and by authorizing tariff increases during the initial years of operations (para. 21). However, in late 1993, the Government made a highly inconsistent decision on tariffs that negated the advances achieved during the initial years of the project and had severe adverse impact on the sector. As a consequence of the decision to lower the industrial electricity tariff, CFE's finances deteriorated significantly (para. 13), and the program to promote cogmneration did not succeed because of the resulting low tariff level (para 20). v 15. NAFIN played a limited role as CFE had enough experience and capability to mange the loan without the support of an intermediary financial instution (para. 47). 16. CFE's performance was satisfactory in spite of problems resulting from budgetary constraints (para. 48), low tariffs (para. 13) and difficulties faced in the resettlement of population (para. 28). The construction of two large and complex hydro power plants as scheduled attests to CFE's technical and management ability. CFE improved the design of the two hydro power plant to increase their safety and was open to discuss and follow the recommendations of the Board of Consultants appointed for the project. CFE also submitted information and reports as required by the loan agreement, and implemented a satisfactory dam monitoring system. CFE was open to learn from the experiences of othcr countries and adopted the recommendations made by consultants in order to improve its performance by reorganizing its operations and implementing new norms and procedures (para. 48). 17. CFE's management of the environmental aspects of both projects and the resettlement in Aguamilpa was also satisfactory but it was less so when obstacles were encountered in the resettlement program for Zimapan. Suitable specialists were hired and institutional changes were made to incorporate resettlement and environmental management within the project's overall management. Agreements with other involved governmental institutions were made, and a highly participatory process was put in place by CFE. Approximately 155 families from three indigenous communities affected by the construction of the Aguamilpa hydroelectric power plant were satisfactorily resettled. Resettlemcnt of three indigenous and three mestizo communities directly affected by the Zimapan hydro power plant with a total of 2,452 inhabitants had mixed results. While communal lands and traditional economic activities were restored and even improved for the indigenous families, the economic situation of the displaced mestizo famnilies did not improve because the reservoir flooded the only irrigated lands suitable for agriculture available in the project area. The affected communities rejected land that CFF had purchased to replace those flooded by the reservoir and subsequently asked that the land be sold and that they be compensated in cash. The money was quickly spent in consumer goods and only in a few cases was used to purchase new land. As a result, both those that had rights to the communal agricultural land, as well as others who were landless and worked as wage labor in the irrigated fields, were left without jobs and therefore without a sustainable source of income (para. 30). 18. Project performance wvill be monitored through specific and comprehensive programs. The stability of the main physical project components will be monitored through the instrumentation installed in the project dams and other key structures; CFE's performance and the standard of living of the population resettled under the project will be monitored and evaluated through the indicators included in table 0 (para. 5). 19. There are four main project-related and four sector-related lessons learned from project execution: Lesson 1. To minimize the cost overruns in the construction of hydro power plants, the following should be taken into account: (i) the bidding documents for the construction of civil works should include unit prices for all possible work concepts and site conditions to avoid the need for negotiated prices after the signing of the contract; (ii) suitable assistance from experienced international construction managenment firms should be required; (iii) budget ceilings during the construction of complex hydroelectric projects should be avoided. They are the cause of not only construction delays but also of costly contractor claims derived from the underutilization of the vi construction equipment and workers; and (iv) the construction of main civil works should be carefully coordinated with the program for constructing the new settlements to avoid costly renegotiations with the resettled communities and with the civil works contractors (including those responsible for the physical works needed for the resettlement) (para. 34). Lesson 2. The resettlement and social studies should start early, at the prefeasibility stage, in parallel with the technical, economic and environmental studies, and should include the design of not only the physical works needed to resettle the affected communities, but, more important, programs for restoring the economic and social well-being of the population to be resettled (para. 41). Lesson 3. Progress in the construction of physical works accompanied by delays in the social and resettlement components in the compensationlrestoration of affected assets, will result in negotiations under extreme pressure and a subsequent tendency to solve problems and complaints by means of monetary compensation or costly expenditures in the physical works of the new settlement (para. 30). Lesson 4. Establishment of an independent monitoring system to accompany and assess the resettlement process is a key tool in managing relocation processes of indigenous communities, as proved by the success in Zimapan and Aguamilpa. Likewise, putting social teams in direct contact with the affected communities during the entire relocation process has proved to be of great help to ensure the success (para. 49). Lesson 5. A sector related lesson is that the establishment of an overarching legal and policy framework that specifies principles, responsibilities, procedures and mechanisms to deal with involuntary resettlement is fundamental for the implementation of projects with complex or large resettlement programs (para. 49). Lesson 6. Another sector-related lesson is that the financial rehabilitation of a power utility is sustainable only if the tariff setting process is independent of political events and influence (para. 13). This independent process is possible only if there are both an adequate regulatory framework and an independent commission responsible for tariff setting. Lesson 7. Another sector-related lesson is that the key requirements for the implementation of successful energy conservation programs are: (i) electricity tariffs for public service must reflect the economic cost of service, and (ii) implementing agencies must be provided with sufficient independence so that they can train and retain their staff (para. 20). Lesson 8. The participation of an intermediary institution, such as NAFIN in this project, and the corresponding costs, could be avoided when the executing agency has adequate related experience (para. 47). 1 IMPLEMENTATION COMPLETION REPORT MEXICO HYDROELECTRIC DEVELOPMENT PROJECT LOAN 3083-ME PART I: PROJECT IMPLEMENTATION ASSESSMENT A. Project Objectives 1. The Hydroelectric Development Project was the twelfth operation approved by the Bank for the power sector in Mexico. Project preparation was supported mainly by an engineering loan which financed studies to improve the situation of Comision Federal de Electricidad's (CFE) thermal power plants and distribution networks. The US$460 million Bank loan financed four project components: the Aguamilpa and Zimapan hydroelectric power plants; environmental and resettlement programs; energy conservation and efficiency studies, and other studies (system optimization, management and tariff studies) (para. 17). Most of the funds were allocated to the construction of the two hydroelectric plants. The Borrower was Nacional Financiera, S.N.C. (NAFIN), whose role was to act as a financial intermediary, and the Govermment was the Guarantor of the operation. NAFIN onlent the proceeds of the loan to the Comisi6n Federal de Electricidad (CFE) which was the executing agency for the main project components. The Comisi6n Nacional de Ahorro de Energia (CONAE) was responsible for the execution of the energy related studies. 2. The project objectives were: (a) promoting an efficient use of electricity through realistic pricing policies, energy conservation and improvement of sector operations" (b) diversifying sources of power generation and reducing the participation of oil-based generation; (c) strengthening CFE's financial position by increasing electricity rates and implementing a Financial Rehabilitation Agreement (FRA); (d) making electricity available to an increasing number of consumers; and (e) improving CFE's ability to deal with the social and environmental aspects of hydroelectric power projects. 3. The project objectives were intended to deal with the main problems of the energy sector. A major problem was the high consumption of energy per unit of economic output, which was due partially to an inefficient use of energy, fostered by very low electricity prices and lack of conservation programs. To address these problems, the project included a program to promote energy conservation and efficient use of energy, and a cogeneration study (para. 17). 4. A second problem was the high dependency of electricity generation on non-renewable resources, due partly to a biased pricing policy which favored hydro-carbons. The Project included 2 the construction of two large hydro power plants, Aguamilpa with 960 MW and Zimapan with 292 MW to diversify the sources of power generation (para. 17). 5. A third problem was the poor financial situation of CFE. To deal with this problem, a Financial Rehabilitation Agreement (FRA) had been signed between the Government and CFE, which included commitments for substantial rate increases in real terms, improvements of productivity (efficiency targets and operating costs) and actions to institutionally strengthen CFE. The Project included commitments from the Government and CFE to: (i) extend the period of validity of the FRA until December 31, 1994; (ii) limit CFE's short-term borrowing to no more than 10% of its annual cash operating expenses; (iii) reformulate the criteria for establishing electricity rate increases to link them to their economic costs; (iv) limit Government contributions to 10% and borrowing to 50% of new investments; and (v) set performance and financial targets for CEE. Furthermore, the Project included several studies: (i) an Operation Improvement Study for a better operation of CFE's electric power system; (ii) a Management Study to streamline CFE's organization and management systems; and (iii) a Tariff Study to set up a tariff system based on marginal costs for medium voltage consumers (para. 17). 6. The project objectives were consistent with the Government's economic strategy and energy sector policy. The Government's economic strategy included a program of structural reforms aimed at opening up the economy to external competition, limiting the role of the State in the productive sectors and fostering the development of non-traditional exports. In addition, the stabilization program that was put in place in November 1987 was designed to sharply reduce inflation by addressing the fiscal deficit issue by, amongst other measures, raising the prices for goods and services provided by public enterprises, and by following a restrictive monetary and fiscal policy and implementing short-term price and wage controls. The energy policy was to reduce the size of the subsidies to the power sector and keep petroleum exports as a source of foreign exchange. B. Achievement of Project Objectives Overall Objectives. 7. The project accomplished its objectives substantially, except for those in the financial arena which were only partially achieved. CFE 's finance position weakened in 1994 as a consequence of the large devaluation of the peso which occurred in that year which caused a deterioration of electricity tariffs in real terms. The following paragraphs assess the achievements of the project objectives. 8. Promoting an Efficient Use of Electricity. The CONAE prepared and issued several technical standards to improve efficiency of locally manufactured electrical appliances, trained its staff in the implementation of programs to save electricity and to promote energy conservation, and established regional centers to provide assistance for electricity efficiency projects. Use of the new standards has produced substantial energy savings. Standards for refrigerators alone have produced savings estimated at 186 GWh per year and a reduction of about 118,000 tons of C02. CONAE established 15 regional centers to provide assistance to private and public companies in preparing feasibility studies for electricity saving projects (para. 20). 9. To promote cogeneration and private participation in generation, the Government enacted guidelines for cogeneration ("Reglamento de Ia Ley de Servicio Niblico de Energia Elctrica en 3 Materia de Autoabastecimiento") on March 1991. Subsequently, an inter-ministerial resolution was issued to allow the installation of private power plants under a modified BOT system, the "Construcci6n, Arrendamiento y Transferencia con Cesi6n de Derecho de Propiedad". 10. Finally, the Government traditionally controlled sector investment through the review and approval of the Ten-year Investment Plan ("Programa de Obras e Inversiones del Sector Electrico- POISE") prepared yearly by CFE. In 1994, this responsibility was transferred to SEMIP, which began a publication of a report "Prospectiva del Sector Electrico" (Power Sector Prospective), which includes an indicative plan for the power sector in place of the POISE (Ten Year Investment Plan). 11. Following the recommendations of a tariff study financed by the loan, a new tariff schedule was implemented introducing the concept of "time-of-day" tariff, currently 35% of the energy is sold under this tariff. 12. Diversifying Sources of Power Generation from Oil-based Generation. The construction of the Aguanilpa (960 MW) and Zimapan (292 MW) power plant under the project represented an increase of about 16% over the hydroelectric installed capacity existing in 1988. Average annual energy produced by both power stations totals 3422 GWh, which represents a 13.6% increase over the hydroelectric generation in 1988. Considering all hydroelectric plants built by CFE in the 1989-1994 period, hydroelectric installed capacity increased by 21 % from 7,749 MW to 9,413 MW. The Aguamilpa power plant has been operating normally since July 1994; it generated 2124 GWh in 1995. Operation of the electro-mechanical equipment is normal, leakage through the dam is normal (about 50 Its/seg) and settlement and movement of the dam is smaller than expected. The Zimapan power plant is operating normally since December 1995; it generated 1070 GWh in 1996 (para. 18). 13. Strengthening CFE's Financial Condition. This objective has not been fully achieved. Although CFE accomplished some substantive improvements in its productivity (paras. 21-22), operations and resource management, its financial condition deteriorated during 1993 and 1994 because average tariffs declined as a consequence of a decision to reduce tariffs to a group of consumers and to the economic crisis that affected the country in that period. From 1993 to 1995, CFE's revenues decreased by 30%, rate of return dropped from 5.7% to 1.2%, operating income decreased by 78% and the self-financing ratio went from 69.5% to -51.6%. The target for the ratio of total operating revenues to the sum of total operating expenses (1.0) was achieved in 1990 and 1991 but it could not be maintained and declined slightly to 0.96 in 1992 and 1993 and sharply to 0.82 in 1994. Average tariff increased by 23% in real terms from 1989 to 1992 but declined subsequently. During 1993 and 1994 residential tariffs were kept constant in real terms, while high voltage tariffs were reduced about 20% in real terms as a result of an adjustment of the tariff structure (to reflect economic costs) and a general reduction of charges for large industries to supposedly improve their competitive position prior to the signature of NAFTA. Furthermore, during the severe economic crisis that Mexico faced in late 1994, the Mexican currency was devalued by about 100% in a five-month period and the producer price index increased by about 30%. This crisis caused a further deterioration of the average tariff level, which as a percentage of long-run marginal costs decreased on average from about 80% in early 1994 to 50% in March, 1995. After that, CFE started to progressively adjust tariffs again and expects to have all tariff levels in line with their corresponding long-run marginal costs by end of 1998. 4 14. Making Electricity Available to an Increasing Number of Consumers. The number of customers increased from 15.5 million in 1989 to 20.1 million in 1995. Electricity coverage is about 95% now. Quality of electric service is good: interruption time is low (251 minutes per customer in 1994); number of complaints has been reduced (18 complaints for every 1000 customers per year); and period of connection to new customers is acceptable (3 days). 15. Improving CFE 's Management of the Social and Environmental Aspects of Hydroelectric Power Projects. Substantial improvement was achieved by CFE on its environmental and social management, although CFE has yet to develop and implement a set of policy guidelines. Both Aguamilpa and Zimapan are perhaps the first successful relocation/rehabilitation process of indigenous population in Bank projects (paras. 29-30). This has demonstrated that involuntary resettlement need not be an insurmountable obstacle for timely project execution but instead a development opportunity to improving the standards of living, provided it is properly planned and executed with the informed participation of those affected. Aguamilpa has also demonstrated the need of culturally sensitive strategies for the implementation of successful resettlement and rehabilitation programs. During project implementation, CFE created a Central Unit of Socioeconomic Affairs and also a Unit for Environmental Affairs. Both were staffed with interdisciplinary teams that were adequately trained. These units played a key role in the relocation of the affected population and in the mitigation of environmental impacts. In spite of these achievements, intemalizing the lessons learned and adopting official guidelines for directing resettlement and rehabilitation in hydroelectric projects, is still a pending task. Economic Analysis. 16. In order to verify that the proposed hydroelectric projects are part of the least-cost solution in the SAR, the Aguamilpa and Zimapan Hydroelectric Projects were compared with an equivalent thermal project based on oil fired steam power plants for base load and diesel-oil fired gas turbines for peak load. The resulting present value, calculated at an 1 1% rate of discount, was 41% higher for the thermal project, as compared to the Aguamilpa and Zimapan. A similar calculation was made with the actual cost of the Aguamilpa and Zimapan and an updated estimate of the investment and operation costs of an equivalent thermal project as prepared by CFE. The resulting present value, calculated at the same 11% rate of discount, is 5% higher for the thermal project (Table 9). The SAR also included the calculation of the rate of return of CFE's total investment program. Updating this calculation has been deemed unnecessary because the project cost is only marginal to CFE's total investment cost and, therefore, the result of this calculation would be meaningless. Furthermore, for reasons totally exogenous to the project, CFE's investment progran suffered major changes from the appraisal date, making comparison not only meaningless, but also practically imposible C. Implementation Record and Major Factors Affecting the Project 17. The project was completed in December 1995, six months ahead of the SAR estimate. The loan was closed as originally scheduled on December 31, 1996. As previously mentioned, the project included four basic components: (a) construction of the 960 MW Aguamilpa and the 292 MW Zimapan Hydroelectric Power Plants and resettlement of the population living in the reservoir areas; 5 (b) preparation of a social and environmental programn designed to strengthen CFE's ability to construct and operate hydroelectric projects with due consideration to the affected people and the environment; (c) energy related studies on energy conservation and efficient use of energy, cogeneration and optimization of the operation of CFE's power system; and (d) management and electricity tariff studies. 18. The Aguamilpa hydroelectric power plant has been in satisfactory commercial operation since July 1994, one year ahead of the SAR schedule. Its construction period was shortened by one year as a result of an special agreement with the civil works contractor. The Zimapan hydroelectric power plant has been in satisfactory commercial operation since December 1995. 19. CFE created an special Unit to deal with the socioeconomic and environmental affairs of project implementation and staffed it with interdisciplinary teams that were properly trained. This Unit played a key role in managing the relocation of the affected population and in the mitigation of the environmental impacts. Moving the resettlement and environmental team to the field from the beginning of construction and keeping it there all along the process, produced positive results in terms of the social assistance provided to the affected population and in fostering good relations between communities, CFE and local governmental institutions. 20. The CONAE carried out the energy related studies included in the project such as: (i) preparation of technical standards for electrical appliances and industrial equipment; (ii) identification of methodologies to improve efficiency of water pumping and air conditioning equipment and establishment of demonstration centers; (iii) establishment of regional center to promote energy savings; (iv) a study on the training needs for the implementation of energy conservation programs; and (v) a study on options and incentives for cogeneration. Implementation of the results of first study produced effective results, as the new standards for refrigerators have resulted in some 25% reduction of their electricity consumption. So far, CONAE has issued II technical standards, has other 5 standards ready to be issued and 7 more in preparation and has established 15 regional centers to promote energy efficiency and conservation. CONAE is also prepared to provide technical assistance to industry for the preparation of feasibility studies to support credit applications for financing energy conservation programs. It has trained its technical staff and has access to the laboratory facilities of several universities. On the other hand, CONAE lacks institutional autonomy, which renders it vulnerable to political influence. This has resulted in a high turnover in its management and technical staff. The recommendations to improve efficiency of water pumping equipment have not been implemented yet because of political opposition. As the electricity tariff for water pumping is heavily subsidized, efficiency and conservation proposals fall on deaf ears. The cogeneration programs have not progressed much either because CFE's electricity tariffs have fallen to artificially low values (para. 13) which make cogeneration unattractive (para. 27). 21. To strengthen CFE's financial condition, the Government and CFE agreed on the implementation of a Financial Rehabilitation Agreement (FRA) which included productivity, operational efficiency and resource management targets, as well as Capitalization of CFE's debt by Government, a commitment to tariff increases and steps to improve CFE's investment policies. CFE introduced several measures to improve efficiency; staff was reduced from 63,909 employees 6 in 1989 to 62,360 in 1995, mainly due to the elimination of CFE's own construction units, as most of this type of work is now hired with outside contractors. 22. To improve CFE's efficiency, the FRA included productivity and technical indicators to be monitored. The main indicator to measure productivity was the ratio of the number customers to the number of employees. The ratio effectively increased from 182 in 1989 to 247 in 1995. With respect to the technical indicators, the most relevant are the availability of the thermal plants and the electricity losses. Thermal plant availability has increased from 77.9% in 1989 to 87.3% in 1995 but electricity losses has also increased, from 11.0% in 1989 to 12% in 1995 for CFE's system and from 14.0% to 15.9% for the entire system. 23. In an effort to diversify its financing sources, CFE raised US$250 million in the international capital markets backed by peso-denominated receivable. This was the first of 2 such operation by CFE, but it had limited success and was purchased entirely by the underwriting bank, Citibank. 24. Under the project, CFE took steps toward greater regionalization as recommended in the Management Study. CFEs activities were organized into strategic business units (SBU): (i) 154 generating units; (ii) 13 distribution units; and (iii) a transmission unit. Each SBU is provided with operating and financial information (cost, transfer prices and financial statements), and they compete for resources within CFE. 25. The Government initiated an institutional reform in the power sector that was expected to create a competitive environment for CFE: it enacted legislation in late 1992 to allow the development of independent power generation projects (IPPs), created an Energy Regulatory Commission (CRE) in early 1994 as an advisory body to the Ministry of Energy and Mines (SEMIP), and in 1994 and 1995, SEMIP issued regulations on wheeling charges, energy sales to the grid by self-producers and cogenerators, and back-up power charges, which are necessary for the successful operation of IPPs. Unfortunately, the impetus for reform and competition subsequently dwindled and consequently the process remains mired in its incipient stages. 26. A factor external to CFE that affected project implementation was the budgetary ceiling that the Government imposed on CFE as part of its macroeconomic management. This budgetary ceiling caused delays in the construction program of the project and, consequently, increased construction costs. In 1993, the budget for Aguamilpa and Zimapan was reduced to 43% of their requirements. To minimize the effects of this reduction, CFE concentrated the resources in one of the power plants, Aguamilpa, with Zimapan suffering most of the budgetary constraints. 27. Another factor out of the control of CFE that imperiled project implementation was the economic crisis that affected the country in 1994 (para. 13). It affected the Project in several ways: first, CFE's finances deteriorated as the tariffs declined in actual terms as a consequence of the devaluation of the peso. Second, the lowered tariffs hampered the possibilities of cogeneration, since private generation was not able to compete with CFE's artificially low tariffs (para. 20). Resettlement Issues. 28. The resettlement programs were affected by the lack of an overarching legal and policy framework that specifies principles, responsibilities, procedures and mechanisms to deal with involuntary resettlement. Due to the lack of a policy framework, CFE had to improvise strategies 7 and assume responsibilities that should have corresponded to other governmental agencies. The requirement for the establishment of a policy framework is an important lesson for future projects (para. 52). 29. In the Aguamilpa power plant, approximately 155 families from three communities (two indigenous Huichol settlements, Colorado de la Mora and Playa de Golondrinas, and one mestizo community, Los Sabinos) living in the reservoir area were resettled. Almost 70% of the affected land was indigenous community land and 30% was private property. In the case of the Huichol communities, the best land near the rivers were affected. The Resettlement Plan consisted of a series of actions designed to replace the affected land, to build the new villages and to the restoration of the socioeconomic environment. Solar energy, drinking water, a community center, schools and other facilities were built in each new settlement. Resettlement of the affected population finished a year before filling of the reservoir. The successful resettlement of indigenous communities in Aguamilpa became a model for future projects. 30. In Zimapan, there were three indigenous and three mestizo communities, 2,452 persons, directly affected by the power plant. The relocation of the indigenous communities was a success but in the case of the mestizo families, the results were mixed. Some 141 Otomi indigenous families displaced by the Zimapan plant were relocated in new settlements. Their productive system was not dismantled and communal land and agricultural activities were not only reestablished but improved; 140 houses were built and services replaced and considerably improved. In contrast, the 412 mestizo families displaced by the Zimapan plant suffered the disruption of their agricultural activities. They were relocated in an urban setting with construction standards far above those applicable to rural areas; however, the economic situation of the population did not improve. The reservoir flooded the only land suitable for agriculture located in the project area and the nearest irrigated farm land in the area was located more than one hour by car far from the settlements. Unclear and lengthy procedures for buying and preparing the land to replace lost irrigated land, the uncertainty regarding the availability of water for irrigation and the requirement that the irrigation system be collectively managed, created community distrust. Lacking detailed agro-environmental studies, CFE offered to pump water from the reservoir to irrigate the semi-arid lands located in the plateau above the reservoir. Further studies demonstrated that this was not feasible due to high pumping costs and to the degree of contamination of the reservoir water, which made it unsuitable to cultivate vegetables and other market crops. As a result, frustration and distrust set in and negatively affected the negotiations that had to be carried out during project construction. Subsequently, new legislation was enacted to allow the sale of communal land, and based on this, the leaders of the resettled communities rejected the land purchased by CFE and requested that an equivalent amount of money be deposited in a special account in the name of those with land rights. After extremely difficult negotiations with leaders who had lost their agrarian roots, payment in cash was finally made in compensation for the lost land. The money was quickly spent in consumer goods and only in a few cases was used to buy new land. As a result, both those with rights to the communal agricultural land, as well as landless workers that used to work as wage labor in the irrigated fields, were left without jobs and a sustainable source of income. Installation of a maquila industry by private investors has somewhat alleviated the economic plight of some of the poorest families, especially those headed by women, by creating 120 new jobs. The physical facilities for the maquiladora were provided by CFE as part of the resettlement process. 8 Environmental Aspects. 31. The "Gerencia de Protecci6n Ambiental" managing the environmental aspects of CFE's projects was strengthened and gained substantial and unique experience under the Project. The Aguarnilpa and Zimapan plants involved many of the environmental issues that are typical of large hydroelectric dams, including their impact on native fish, flooding of archaeological sites, floating aquatic weed proliferation, and risks of water- or vector-borne disease spread. Two of the most significant problems for both subprojects were loss of natural habitats and reservoir water quality. The Aguamilpa reservoir inundated about 13,000 hectares (ha) of land, of which about 12,575 ha were covered by tropical deciduous forest. The Zimapan reservoir flooded about 23,000 ha, about 90 percent of which was botanically rich desert vegetation. Both reservoirs also faced water quality problems, largely due to upriver pollution. In terms of specific mitigation actions, particularly noteworthy are the biological inventory and plant and animal rescue activities at Zimapan. According to CFE, 3,901 animals of 74 species were rescued and relocated under the Zimapan subproject. However, the project failed to address biodiversity concerns through the establishment of compensatory protected areas, ecologically similar than the areas flooded. At Zimnapan, three new protected areas totaling 1,120 ha (much smaller than the natural area flooded) were proposed, but never implemented under the project (para. 41). Project Cost. 32. The project cost amounted to US$1,687.9 million before interest during construction which is about 47.5% higher than the estimate of the SAR of US$1,143.7 million. The difference, US$544.2 million is due to higher than the estimated construction cost of the Zimapan power plant. The construction cost of the Aguamilpa power plant was US$850.3 million, which compares favorably with the US$858.0 million estimated in the SAR. The cost includes the compensation agreed with the contractor of civil works to shorten the construction period. A more detailed comparison of costs estimated in the SAR for Aguamilpa and the actual costs are as follows, in milion of US Dollars: SAR ACTUAL Engineering and Administration 128.7 121.3 Civil Works 473.0 485.2 Resettlement and Environment 12.5 17.9 Electro-mechanical Equipment 207.4 204.2 Transmission Line 36.4 21.7 858.0 850.3 33. Tne construction cost of Zimapan was US$829.2 million, which is 98% higher than the estimate included in the SAR. A comparison between the costs estimated at the SAR and the actual costs are as follows, in millions of US Dollars: SAR ACTUAL Engineering and Administration 49.5 94.4 Civil Works 269.0 416.1 Resettlement and Environment 17.6 172.2 Electro-mechanical Equipment 56.3 135.6 Transmission Line 25.6 10.9 418.0 829.2 9 34. The main causes for the substantial difference between the actual cost and the estimate in the SAR were: (i) the cost of the engineering and administration, resettlement and electromechanical equipment for the Zimapan power plant was underestimated at the time of the SAR. The cost estimate for engineering and administration was estimated as a percentage of the project cost. As the actual project cost was substantially higher than the estimate, the engineering and administration cost increased accordingly. The cost estimate for resettlement was based on CFE's experiences in less complex resettlement programs that required far less socioeconomic restoration. Finally, the estimate for electromechanical equipment was based on informal quotations provided by potential suppliers, which, under the formal bid, quoted substantially higher prices; (ii) the civil works contract had a substantial cost overrun because of geological conditions that were less favorable than those expected at the design stage, addition of some elements not originally contemplated in the Project, and substantial claims submitted by the contractor. The geological conditions along the line of the power tunnel and power house were less favorable than expected at the design stage; these conditions led to the use reinforced concrete in some portions of the tunnel and to a change in the orientation of the powerhouse. New works, originally not contemplated, were included. Some were needed to increase the safety of the project, such as the construction of a second spillway discharge tunnel, the construction of additional injection galleries, and the paving of the road to the power house; others were needed to satisfy the requests of the communities living the project area such as the Zimapan-Boquilla road. The claims submitted by the civil works contractor were based on changes in contractual conditions, items for which there was no unit price and late payments. Although many of these claims were duly justified, some of them could have been avoided or reduced had CFE had the experience and the resources to anticipate and deal with contractors' claims, particularly in major underground works; (iii) excessive demands made by community leaders and local governments, The political pressure on CFE to close the reservoir and inaugurate the project before the presidential term was over, forced CFE to accept some excessive demands made by community leaders, local governments and supported by the more than 50 contractors involved who welcomed any new additional work. CFE was forced to resort to cash compcnsation and to accept extravagant requests as a way to reduce opposition to the project and assure compliance with its construction schedule (para. 30). It is therefore not surprising that the cost of resettlement reached extraordinary levels; and (iv) the budgetary ceiling imposed by the Government on the project which caused delays and extra costs to the contractors. Because of this budgetary constraint, the construction of this power plant suffered delays and the cost of storing and insuring as it waited for the completion of the civil works. Budgetary constraints also resulted in the underutilization of contractors' resources which eventually resulted in claims which CFE had to pay. The Bank supervision missions detected these problems along project implementation and collaborated actively with the Borrower to solve them and complete the Project within schedule. D. Project Sustainability 35. It is likely that achievement of most project objectives will prove sustainable. The Aguarnilpa and Zimapan power plants are operating satisfactorily. The highly qualified Board of Consultants contributed constantly with recommendations to improve the safety of the works. As a result, these power plants were constructed with verv high standards, and expectations for a long a productive useful life are well founded. 36. One of the most outstanding results of the resettlement process in Aguamilpa has been the strengthening of the communal organization and the creation of new social capital, fundamental to the sustainability of new settlements. In 1990, in the midst of the relocation process, a strong 10 communal organization was established: "Union de Comunidades y Ejidos Indigenas de Nayarit (UCEI)", encompassing 14 indigenous Huichol communities (several of them affected by the construction of Aguamilpa and 2 of them displaced and relocated by the Project). The reservoir has become an asset for the economic development of the local communities by diversifying family income structure, including transportation, fishing and some domestic business (para. 29). Fishing represents 60% of the productive activities of the indigenous communities relocated. However, its sustainability will depend on the quality of the water of the already highly polluted river and on the environmental changes that the reservoir will undergo. Fishing and public health will be monitored by the corresponding governmental agencies to ensure that water quality does not threaten either one. 37. On the other hand, the sustainability of the new settlement in Zimapan for the mestizo population is not guaranteed. The consequences of the loss of the only productive communal property can not be yet fully assessed (para. 30), but there is a risk of social disruption and economic impoverishment, specially for those that depended on wage labor in communal lands, those that did 3not benefit from the compensation in cash and those that spent the money solely in consumer goods. Women, children and the elderly are among the most severely affected. 38. CFE has begun to decentralize its operations and has granted greater autonomy and accountability of its business units. These changes, albeit modest and not yet far reaching, are conducive to sustaining the achievements generated by the Project (para. 24). 39. Efforts to promote the efficient use of electricity continue. CONAE actively prepares standards for the manufacturing of electrical appliances. Operation of fifteen regional centers to promote electricity savings ensure that this program will continue in the future. However, lack of CONAE's institutional autonomy, and the high turnover in its management and technical staff are matters of concern (para. 20). E. Bank Performance 40. The Bank's performance was satisfactory overall despite some weakness in the supervision of environmental aspects. In 1984, the Bank identified properly the sector issues that had accumulated during an extended period in which the Bank had been absent from the sector (the previous loan to the power sector had been completed in 1974) and assisted CFE in defining and preparing a new project. Two years later, in October, 1986, discussions with the CFE had progressed enough to allow the identification of a new project. This was to be the partial financing of the 1987-1990 time slice of CFE's investment program to support the following objectives: (i) improvement of CFE's financial position; (ii) adherence to a least-cost program; (iii) implementation of an institution-building program; and (iv) opening CFE's procurement to international competition. 41. Project preparation and appraisal took about one and a half years. Four preparation missions visited Mexico during this period, including missions to help the Government to identify and address environmental and resettlement issues. The basis for defining the project, CFE's ten year investment program, was reviewed in detail with the assistance of consultants. However, resettlement plans were not available at the time of the appraisal and, consequently, their cost estimate did not have adequate support. Submission of the resettlement plan was a condition for Board presentation. This condition was met but the corresponding resettlement costs were not updated at that point in time (para. 34). The Bank however failed to demand the establishment of 11 compensatory protected areas ecologically similar to the areas flooded by the reservoir (para. 31) as a condition for project effectiveness and to include the investments required for their demarcation and management in the project cost in compliance with the Bank's Wildlands Policy (OP 4.04). 42. Project implementation was supervised by twelve Bank's missions from 1990 to 1995 (table 12). Although the frequency of the missions (about two per annum) might have been insufficient considering the complexity of the Project, the composition of the missions was adequate; they included a variety of specialist in key fields, particularly in the social and environmental aspects. On technical matters, the Bank relied mainly in the periodic assessment and advise provided by the highly qualified Board of Consultants (para. 35). The Bank responded timely and effectively to the financial crisis that affected the country in 1994. Bank staff, aware of the negative impact on project execution of the macroeconomic crisis, discussed with the borrower and made arrangements to modify the loan agreement of Loan 3189-ME in order to allocate uncommitted funds to the Zimapan power station which was by then in need of additional financing. This situation was the result of cost overruns caused, at least partly, by the crisis. 43. Problems related to meeting the targets of the Financial Rehabilitation Program, particularly regarding tariffs, emerged in late 1993, and were noticed at that time by a Bank's supervision mission. However, the Bank did not strongly insist that tariff levels be maintained in constant terms and eventually acquiesced to the reduction of electricity tariffs for large industrial consumers in late 1993 (para. 13). 44. Bank performance regarding social aspects both during planning and implementation was adequate. Prior to project approval, the Bank insisted on having adequate socioeconomic and environmental data-base and mitigation plans and insisted upon hiring specialists and involving pertinent governmental agencies, especially for the treatment of indigenous issues in both projects. During implementation, the Bank provided support continuously through supervision missions, assisting the borrower to solve unexpected problems encountered in the resettlement process. 45. The Bank devoted much less attention to supervising the environmental aspects. No environmental specialist visited either the Aguamilpa or Zimapan subprojects since at least 1993 and the Bank failed to demand the establishment, prior to project effectiveness, of compensatory protected areas ecologically similar to the areas flooded, in accordance with the Bank's Wildiands Policy (para. 41). Both Aguamilpa and Zimapan are large hydroelectric dams with significant environmental issues (para. 31), which should have received greater attention from the Bank during both project preparation and supervision. F. Borrower Performance 46. The Borrower's performance was satisfactory despite some inconsistency on the management of the tariff policy. The Government made major advances in improving CFE's financial situation and performance by implementing the FRA, capitalizing CFE's debt to the Government and authorizing tariff increases during the initial years of the Project (para. 21). However, in late 1993, the Government made a highly inconsistent decision on tariffs that negated the progress made during the early years of the project and had severe adverse consequences for the sector and for the Govermnent budget. The decision, probably prompted by political considerations to gain support for a free-trade policy, was to reduce electricity tariffs for large industrial customers (para. 13). As consequence of this decision, which lowered the average 12 electricity tariff, CFE's finances deteriorated significantly, and the Government had to provide a substantial subsidy to CFE from the central budget. Additionally, the program to promote cogeneration did not succeed because CFE's tariffs had been lowered to the point where cogeneration was no longer feasible (para. 20). 47. NAFIN played a limited role as CFE had enough experience and capability to mange the loan without the support of an intermediary financial instution (para. 47). 48. CFE's performance was satisfactory in spite of problems resulting from budget ceilings (para. 26), inadequate tariffs (para. 13) and significant problems in the resettlement of the population of the Zimapan area (para. 30). The construction of two large and complex hydro power developments as scheduled confirmed CFE's technical know-how. CFE's staff was constantly alert to introduce improvements in the design of the two hydro power plants to increase their safety and was open to discuss and follow the recommendations of the Board of Consultants appointed for the project. CFE submitted information and reports as indicated in the loan agreement, and implemented a satisfactory monitoring system. CFE was open to learn from experiences in other countries and adopted the recommendations of consultants to improve its performance by reorganizing operations and implementing new norms and procedures. Deficiencies were detected in construction management, resettlement and in the ability to sustain the reform effort so as to reap the benefits of competition. 49. In the social area, CFE's performance was also satisfactory although when obstacles were encountered in the Zimapan project, its resolve began to wane (para. 30). Specialists were hired and institutional changes were made to incorporate resettlement and environmental management the project's overall management. Agreements with other involved governmental institutions were made as well. CFE's performance on environmental management in both projects and resettlement in Aguamilpa should be highlighted. It is important to mention that once the project started implementation, a highly participatory process was put in place by CFE. There were hundreds of working sessions with the different committees of the communities in order to address their questions, suggestions and concerns, including the problems generated by the process. Soon after completion of the physical relocation in Zimapan, CFE quickly attempted to transfer the economic rehabilitation responsibility to the state government. The process was aggravated since some government agencies did not easily collaborate with CFE. It took the Secretaria de Pesca de Nayarit nearly two years to issue fishing licenses to the Huichol population and it has taken more than three years for the affected community to get effective support from state governmental agencies to initiate alternative production projects. 50. CONAE's performance was satisfactory, in spite of the significant turnover of key management and technical staff. G. Future Project Operation 51. Future project operation will be monitored through three specific and comprehensive programs. The safety of the main project structures will be permanently monitored through the instrumentation installed in the project dams and other key structures, and their records evaluated on an annual basis in accordance with CFE's monitoring program entitled "Programa para atender en 1997 las Principales Centrales Generadoras en las Regiones de Generaci6n Hidroelectrica Grijalva, Balsas, Santiago, Ixtapantongo, Yaqui-Mayo y Papaloapan" (Appendix B, Attachment 1). The second program will monitor the changes in the social conditions of the populations 13 resettled under the project. This will be accomplished by means of the indicators included in Table 6. Finally, monitoring of CFE's financial and management performance would be accomplished through an extension of the FRA. H. Key Lessons Learned 52. There are four main project-related and four sector-related lessons leamed from project execution. Related to the Project, one of the main lessons is related to the social aspects of involuntary resettlement, since the Project required the resettlement of two distinct population groups with very different results. In the case of the Aguamilpa hydroelectric power plant, and for part of the population resettled in Zimapan, the resettlement program was successful despite the fact that it included resettlement of indigenous groups. In contrast, the resettlement of the mestizo population for the construction of the Zimapan hydroelectric power plant was very costly and far less successful. Lesson 1. To minimize the cost overruns in the construction of hydro power plants, the following should be taken into account: (i) the bidding documents for the construction of civil works should include unit prices for all probable work concepts and site conditions to avoid the need for negotiated prices after the signing of the contract. To request unit prices only for a minimum number of items will inevitably lead to negotiating prices for items not contemplated and since these negotiations typically take place under adverse conditions for the client, the contractor will usually have a privileged negotiating position; (ii) suitable assistance from experienced intemational construction management firms should be required in order to minimize cost overruns and construction delays. Zimapan and Aguamilpa were the first two major hydro power plants that CFE built by hiring private construction companies. Previously, CFE designed and built power plants by force-account. In this context, it would seem clear that it would not have been reasonable to expect that CFE would be experienced in the management of large civil works, including major underground construction contracts; (iii) budget ceilings during the construction of complex hydroelectric projects should be avoided. They are the cause of not only construction delays, but also of costly contractor claims derived from the underutilization of the construction equipment and workers; and (iv) the construction of main civil works should be carefully coordinated with the program for constructing the new settlements to avoid costly renegotiations with the resettled communities and with the civil works contractors (including those responsible for the physical works needed for the resettlement) (para. 34). Lesson 2. The resettlement and social studies should start early, at the prefeasibility stage, in parallel with the technical, economic and environmental studies, and should include the design of not only the physical works needed to resettle the affected communities, but, more important, programs for restoring the economic and social well-being of the population to be resettled (para. 41). In addition to the traditional institutions for decision-making, other participatory modalities that assure voice to women and youth are highly desirable. Adequate social analysis is needed to fully understand the social structure of the population and lack of a wide, highly inclusive and participatory approach for the decision-making process will often lead to failure (para. 49). Lesson 3. Progress in the construction of physical works accompanied by delays in the social and resettlement components and in the compensation/restoration of affected assets, will result in negotiations under extreme pressure and a subsequent tendency to solve problems and complaints by means of monetary compensation or costly expenditures in the physical works of the new settlement. Cash compensation for the loss of productive land is not an adequate strategy for the 14 restoration of the economic well-being of the resettled population, particularly in the case of farming communities (para. 30). What is important is to preserve job opportunities, which is not accomplished through cash compensation Lesson 4. Establishment of an independent monitoring system to accompany and assess the resettlement process is a key tool in managing relocation processes of indigenous communities, are proved by the success in Zimapan and Aguamilpa. Likewise, putting social teams in direct contact with the affected communities during the entire relocation process has proved to be of great help to ensure success (para. 49). Lesson 5. A sector related lesson is that the establishment of an overarching legal and policy framework that specifies principles, responsibilities, procedures and mechanisms to deal with involuntary resettlement is fundamental for the implementation of projects with complex or large resettlement programs (para. 49). Lesson 6. Another sector-related lesson is that the financial rehabilitation of a power utility is sustainable only if the tariff setting process is independent of political events and influence (para. 13). This independent process is possible only if there are both an adequate regulatory framework and an independent commission responsible for tariff setting. Lesson 7. Another sector-related lesson is that the key requirements for the implementation of successful energy conservation programs are: (i) electricity tariffs for public service must reflect the economic cost of service, and (ii) implementing agencies must be provided with sufficient independence so that they can train and retain their staff (para. 20). If qualified staff leave the continuity of the programs is greatly affected. Lesson 8. The participation of an intermediary institution, such as NAFIN in this project, and the corresponding costs, could be avoided when the executing agency has adequate related experience (para. 47). 15 IMPLEMENTATION COMPLETION REPORT MEXICO HYDROELECTRIC DEVELOPMENT PROJECT (LOAN 3083-ME) PART II: STATISTICAL ANNEXES Table 1: Summary of Assessments A. Achievements of objectives Substantial Partial_ Negligible Not Applicable Financial objectives x Institutional development x Physical objectives x Enviromnental objectives x B. Project Sustainability Likely Unlikely Uncertain Highly C. Bank performance Satisfactory Satisfactory Deficient Identification X Preparation x Appraisal x Supervision x Highly D. Borrower performance Satisfactory Satisfactory Deficient Preparation x Implementation x Covenant Compliance x Highly Highly E. Assessment of outcome Satisfactory Satisfactory Unsatisfactory Unsatisfactory x 16 IMPLEMENTATION COMPLETION REPORT MEXICO HYDROELECTRIC DEVELOPMENT PROJECT (LOAN 3083-ME) Table 2: Related Bank Loans Loan No. Loan Amount Year of and Project Name (USSmillion) Purpose Approval Status Loan 0012-ME 24.1 First Power Project 1949 Closed 1956 Loan 0013-ME 10.0 Second Power Project 1949 Closed 1950 Loan 0024-ME 26.0 Third Power Project 1950 Closed 1953 Loan 0056-ME 29.7 Fourth Power Project 1952 Closed 1959 Loan 0186-ME 11.0 Fifth Power Project 1957 Closed 1960 Loan 0194-ME 34.0 Sixth Power Project 1958 Closed 1962 Loan 0316-ME 130.0 Seventh Power Project 1962 Closed 1965 Loan 0436-ME 16.6 Eighth Power Project 1965 Closed 1968 Loan 0544-ME 90.0 Ninth Power Project 1968 Closed 1972 Loan 0659-ME 125.0 Tenth Power Project to finance the Sector 1970 Closed 1972 Program for the period 1970-71 Loan 0834-ME 125.0 Eleventh Power Project to finance the 1972 Closed 1975 Sector Program for the period 1972-74 Loan 3189-ME 450.0 To fund CFE's transmission and 1990 Closed 1994 distribution program for 1991-92 17 IMPLEMENTATION COMPLETION REPORT MEXICO HYDROELECTRIC DEVELOPMENT PROJECT (LOAN 3083-ME) Table 3: Project Timetable Date planned 1' Date actual/ Event latest estimate Identification 8/86 8/86 Preparation 10/86-5/87 10/86-5/87 Appraisal 11/87 11/87 Negotiations 9/1/88 9/88-4/89 Board Approval 6/89 6/8/89 Signing 8/89 9/25/89 Effectiveness 9/89 1/18/90 Last Disbursement 6/30/96 10/4/95 Project Completion 6/30/96 12/1/95 Loan Closing 12/31/96 12/31/96 1/ As provided in the Staff Appraisal Report (SAR) No. 7391 -ME. 18 IMPLEMENTATION COMPLETION REPORT MEXICO HYDROELECTRIC DEVELOPMENT PROJECT (LOAN 3083-ME) Table 4: Loan Disbursements: Cumulative Estimated and Actual (in US$ million) Bank Fiscal Appraisal Actual Actual as % Date of final Year estimate of estimate disbursement FY90 46.0 51.6 112% FY91 73.0 92.2 126% FY92 145.0 232.6 160% FY93 244.0 322.4 132% FY94 339.0 374.9 111% FY95 406.0 435.3 107% FY96 460.0 460.0 100% 10/4/95 IMPLEMENTATION COMPLETION REPORT MEXICO HYDROELECTRIC DEVELOPMENT PROJECT (LOAN 3083-ME) Table 5: Key Indicators for Project Implementation. Key Implementation Indicator in SAR report 1989 1990 1991 1992 1993 1994 1995 Performance Indicators Emnployees 1/ Estimated (Sector) 79,700 81,700 83,700 85,800 87,900 90,000 92,200 Actual (Sector) 77,045 78,993 81,263 82,396 82,515 82,630 85,604 Actual (CFE) 63,909 64,427 64,902 63,614 62,545 60,560 62,360 Customers/employee Estimated (Sector) 184 184 185 185 185 185 185 Actual (Sector) 201 206 212 218 227 235 235 Actual (CFE) 182 190 199 213 226 244 247 Energy losses% Estffmated (Sector) 13.1% 13.1% 13.0% 13.0% 12.8% 12.7% 12.6% Actual (Sector) 14.0% 13.8% 14.5% 14.5% 15.0% 15.2% 15.9% Actual (CFE) 11.0% 10.8% 11.0% 11.3% 11.4% 11.3% 12.0% Average heat rate (kcal/kWh) Estimated 2560 2550 2540 2525 2510 2500 2500 Actual 2562 2556 2550 2505 2484 2460 2433 Thermal Plant Availability (%) 2/ Estimated 75.0 75.5 76.0 76.0 76.0 76.0 76.0 Actual 77.9 78.9 78.5 83.8 85.5 86.0 87.3 Rate of retum (%) 3/ Estimated 1.90% 3.3% 5.0% 7.1% 7.5% 7.9°% 8.0% Actual 12.1% 13.4% 15.2% 5.7% 5.7°% 4.1% 1.2%/ Debt Service Coverage (times) 4/ Estimated 1.8 2.7 4.6 6.7 7.1 6.8 6.1 Actual 0.6 1.8 2.5 2.6 2.2 4.2 1.1 Self-Financing Ratio 5/ Estimated 48.1% 60.9"% 63.3% 69.70% 71.9% 69.5% 71.2% Actual NA NA NA 58.7% 69.5% 77.8% -51.6% Government Contributions 6/ Estimated 43.7% 11.7% 3.7% 3.5% 3.4% 3.4% 3.4% Actual NA NA NA 0.0% 0.0% 0.0% 86.8% Borrower and other Financing 6 Estimated 26.5% 34.3% 38.4% 33.1% 31.9°/ 34.3% 31.9% Actual NA NA NA 41.3% 30.5% 22.2% 64.8% Accounts Receivable (days of billing) Estimated 60 60 60 60 60 60 60 Actual 56 70 75 74 66 58 62 Market Indicators Peak Demnand (MW) Estimated 17,340 18,250 19,500 20,830 22,200 23,700 25,250 Actual NA 15,340 16,430 16,853 17,693 18,728 19,213 Energy Sales (TWh) Estimated (Sector) 89,283 95,023 101,046 109,046 116,322 123,162 131,563 Actual (Sector) 7/ 90,661 93,720 96,835 99,811 103,472 111,680 115,589 Actual (CFE) 8/ 96,430 99,669 105,419 107,875 111,850 121,582 126,349 Net Generation (TWh) Estimated (Sector) 102,744 109,385 116,209 124,192 132,319 141,115 150,463 Actual (Sector) 9/ 105,443 108,750 113,248 116,804 121,730 131,660 137,491 Actual (CFE) 10/ 108,360 111,703 118,492 121,582 126,232 137,117 143,651 Nurnber of Customers year endmdg('000) Estimated (Sector) 14,640 15,060 15,460 15,900 16,260 16,650 17,030 Actual (Sector) 15,470 16,285 17,239 17,975 18,690 19,4341 20,143 Actual (CFE) 11,631 12,254 12,899 13,548 14,166 14,797 15,375 1/ Pernanent employees in the areas of operation, maintenance and administration (excludes construction work force) 2/ CFE's thermal plant in operation, including only oil-fired steam, coal frred steam, geothefmal steam and combined cycle 3/ Net Income/Average net fixed assets in operation 4/ Gross cash generation/total requirenents 6/ As compared to Investment Program 7/ Includes sales to sector's final customers and exports S/ Includes sales to CFE's customers and bulk sales to LYFC 9/ Excludes power plants self-consumption 10/ Excludes power plants self-consumption 20 IMPLEMENTATION COMPLETION REPORT MEXICO HYDROELECTRIC DEVELOPMENT PROJECT (LOAN 3083-ME) Table 6A - Key Indicators for Project Operation Indicators Unit 1997 1998 1999 Performance _ I_T_T_I Customers/Operations Employee Custom/Empl Customers/Distribution Employee Custom/Emp _ Sales/Operations Employee kWh/Empl Installed Capacity per Generating Employe MW/Empi Efficiency _ Thermal Plant Availability __ Hydro Power Plant Availability % Averagy Heat Rate kcal/kWh _ Energy losses % of net gen. _ Technical _ Interruption time per customer Minutes/ Customer _ Number of claims per 1000 Customers Claims/1 000 Customers Installation to New Customers Period Days _ Financial _ Rate of Retumr % Debt Service Coverage Number _ Self-Financing Ratio % _ Accounts Receivable Days Aguamilpa Hydro Power Station Gross Generation GWh Net Generation GWh Plant Factor Factor Availability _ Zimapan Hydro Power Station _. Gross Generation GWh Net Generation GWh Plant Factor Factor Availability % 21 IMPLEMENTATION COMPLETION REPORT MEXICO HYDROELECTRIC DEVELOPMENT PROJECT (LOAN 3083-ME) Table 6B - Key Indicators for Project Operation Indicators Unit 1997 1998 1999 Qualitiy of Waterv' l l l_l_l Temperature | l l _l pH l l l _v_l Electric Conductivity Total Solids Solved Solids Depositable Solids* Floating Material* Oxigen Phosphates Nitrates DBO5 Grease and oil Fecal material Mercury* Lead* Economic Indicators of Displaced Popul tion Employment % Migration _ Familiar Income % Familiar Expenditures _ Farming, Commercial and Self- consumption production Ton/Year New Productive activities Number of New Jobs Buying-sale of farming land Ha. Social Organization of Displaced Population Women Participation % Sick Rate and Mortality Rate __% Displaced Population Adaptation to the New Village Building of New Homes Number Sale and Rent of Homes % Improvement and Maintenance of the Urban Facilities Yes/No CFE will monitor the quality of water in Taxido and Aguamilpa in 1997. The Comision Nacional del Agua will monitor quality of water in the reservoir and El Jileno Dam except (*). 22 IMPLEMENTATION COMPLETION REPORT MEXICO HYDROELECTRIC DEVELOPMENT PROJECT (LOAN 3083-ME) Table 7: Studies Included in Project Study |Purpose as defined at appraisal Status Impact of study 1. Energy Conservation Promotion of energy conservation and Savings of about 186 GWh per efficient use of energy in Mexico year and reduction of about 1 18,000 ton of C02 have been obtained by improving efficiency of electric appliances Completed 2. Co-Generation Study Analysis of co-generation posibilities in Co-generation has not Mexico and incentives required significantly increased due to CDE's low tariffs. When these tariffs reach their marginal costs co-generation is expected to Completed substantially increase. Reducing energy losses through operating practices and/or new investments Operating practices have 3. Operations Improvement improved but energy losses have Study of CFE's Electric Power not decreased due to the lack of System Completed investment in distribution. 4. CFE's Management Study Preparation of an organizational A system to monitor development program to improve performance based on an performance incentive program and on performance indicators have led to important performance Completed improvements. 5. Second Phase of a Tariff Definition of medium voltage tariffs and Study purchase of metering and data processing Medium voltage tariffs are equipment Completed based on marginal costs now. 23 IMPLEMENTATION COMPLETION REPORT MEXICO HYDROELECTRIC DEVELOPMENT PROJECT (LOAN 3083-ME) Table 8A: Project Costs Appraisal estimate US$M) ActuaUlatest estimate (US$M) Concept Local Foreign Total Local Foreign Total Costs Costs Costs Costs Costs Costs 1. Aguamilpa Hydro Power Station 399.7 266.6 666.3 689.6 160.7 850.3 2. Zimapan Hydro Power Station 187.0 124.7 311.7 576.4 253.3 829.7 3. CFE's Evironmental and Resettlement Programs 2.0 1.4 3.4 1.3 0.0 1.3 4. Studies Energy Conservation Study 1.7 1.1 2.8 2.7 0.1 2.8 Co-Generation Study 0.4 0.2 0.6 0.0 1.2 1.2 Power System Optimization Study 0.4 0.3 0.7 0.0 1.0 1.0 Management and Tariff Studies 0.5 0.3 0.8 0.0 1.6 1.6 Total Base Cost 591.7 394.6 986.3 1270.0 417.9 1687.9 Physical Contingencies 94.2 62.8 157.0 0.0 0.0 0.0 Subtotal 685.9 457.4 1,143.3 1270.0 417.9 1687.9 Price Contingencies 85.9 57.2 143.1 0.0 0.0 0.0 Total Cost 771.8 514.6 1,286.4 1270.0 417.9 1687.9 Interest During Construction 0.0 153.2 153.2 0.0 153.2 153.2 Total Financing Requirements 771.8 667.8 1,439.6 1,270.0 571.1 1841.1 24 IMPLEMENTATION COMPLETION REPORT MEXICO HYDROELECTRIC DEVELOPMENT PROJECT (LOAN 3083-ME) Table 8B: Project Financing Appraisal estimate (US$M) Actual/latest estimate (US$M) Local Foreign Total Local Foreign Total Costs Costs Costs Costs Costs Costs Financing Requirements Project Costs 772.0 514.8 1286.8 1270.0 418.0 1688.0 Interest during construction 0.0 153.2 153.2 0.0 153.2 153.2 Total 772.0 668.0 1440.0 1270.0 571.2 1841.2 Sources of financing IBRD Loan 3083-ME 82.0 378.0 460.0 403.7 56.3 460.0 IBRD Loan 3189-ME 0.0 0.0 0.0 74.0 51.4 125.4 Government and CFE 690.0 143.0 833.0 792.3 198.4 990.7 Other Loans 0.0 147.0 147.0 0.0 265.0 265.0 Total 772.0 668.0 1440.0 1270.0 571.1 1841.1 25 IMPLEMENTATION COMPLETION REPORT MEXICO HYDROELECTRIC DEVELOPMENT PROJECT (LOAN 3083-ME) Table 9 - Economic Comparison of Hydro vs. Thermal Plants (Costs In USS million, 1988 constant prices) Year Aguamilpa & Zlman Oil-Fired Steam & Gas Turbines Capital I O&M Costs Total Capital IEnvironment O&M Costs Fuel Total 1989 00 00 00 00 00 00 1990 1753 1753 400 00 0.0 00 40.0 1991 524.7 524 7 120 0 26 0 0 0 0 0 146.0 1992 447.6 447 6 220 0 30.0 0 0 0 0 250.0 1993 323.0 323.0 202 0 31 0 0 0 0 0 233.0 1994 1455 145.5 00 00 528 800 132.8 1995 555 55.5 00 00 528 800 132.8 1996 6.5 65 00 00 528 800 132.8 1997 85 65 00 00 52.8 800 132.8 1998 65 65 00 00 52.8 800 132.8 1999 6.5 6 5 0 0 0 0 52.8 80.0 132.8 2000 6 5 6.5 0.0 0 0 52 8 80.0 132.8 2001 6.5 6.5 00 00 528 80.0 1328 2002 6.5 6.5 00 00 528 80.0 132.8 2003 6.5 6.5 0 0 0 0 52 8 80.0 132 8 2004 6 5 6 5 0 0 0 0 52.8 80.0 132.8 2005 6 5 65 0 0 0 0 52.8 80.0 132.8 2006 65 65 00 00 528 80.0 132.8 2007 6 5 6.5 0 0 0 0 52 8 80 0 132.8 2008 6.5 6.5 00 00 528 80.0 1328 2009 6.5 6 5 0 0 0 0 52 8 80.0 132.8 2010 6.5 6.5 50.0 10 0 52 8 80 0 192.8 2011 6.5 65 1500 200 528 800 302.8 2012 6.5 65 1360 200 52.8 800 288.8 2013 65 6.5 0 0 0 0 52 8 80 0 132.8 2014 6.5 6 5 0.0 0.0 52 8 80 0 132.8 2015 6 5 6.5 0.0 0 0 52 8 80.0 132.8 2016 6.5 6.5 00 00 528 80.0 132.8 2017 6.5 65 00 00 528 800 132.8 2018 6.5 6.5 40 0 0 0 52.8 80.0 172.8 2019 6.5 6.5 700 160 52.8 800 218.8 2020 65 65 700 10.0 528 800 212.8 2021 6.5 6 5 66 0 11 0 52 8 80 0 209.8 2022 65 6.5 00 0.0 528 80.0 132.8 2023 6.5 6.5 0 0 0 0 52 8 80.0 132.8 2024 6.5 6 5 0 0 0 0 52 8 80 0 132.8 2025 6 5 6 5 0 0 0 0 52.8 80 0 132.8 2026 65 65 00 00 52.8 800 1328 2027 65 65 00 00 528 80.0 1328 2028 6 5 6 5 0.0 0 0 52.8 80 0 132 8 2029 6.5 6.5 50.0 100 528 80.0 1928 2030 6.5 6 5 150 0 20 0 52 8 80 0 302 8 2031 6.5 65 1360 200 52.8 80.0 288.8 2032 6.5 6 5 0 0 0 0 52.8 80 0 132.8 2033 6.5 65 00 00 52.8 800 132.8 2034 6.5 6 5 0 0 0 0 52.8 80 0 132 8 2035 6.5 6.5 0 0 0 0 52 8 80.0 132.8 2036 6.5 6.5 0 0 0 0 52 8 80.0 132.8 2037 6.5 6 5 0 0 0 0 528 80 0 132.6 2038 6.5 6 5 0 0 0 0 52.8 80.0 132.8 2039 6.5 85 00 00 52.8 80.0 132.8 Rate Present Value Hvdro Thermal i=10% 1188.8 13354 i=11% 1145.2 1202 1 i=12% 11041 1090 3 1=16% 961.1 782 7 i=18% 899.9 680 9 IMPLEMENTATION COMPLETION REPORT MEXICO HYDROELECTRIC DEVELOPMENT PROJECT (LOAN 3083-ME) Table 10: Status of Legal Covenants Agreement Section Cov. Present Original Description of Covenant Comments type Status Fulfillment Date Loan 3.01(a) 3 C Lend the proceeds of the Loan to CFE Loan 3.02 3 C Procure goods and services in accordance with Bank Guidelines. Loan 4.01(a) 1 Maintain, or cause to be maintained, a ______ ______ _____ ______ _______ Special Account Loan 4.01(b)(i) I C Keep separate records and audit the Special r I__________Account. Loan 4.01 (b)(ii) 1 C Fumish audit reports to the Bank not later ________ _______ ____ than six months after the end of each year Audit Reports have been free of qualifications Loan 4.01(b)(iii) I C Furnish to the Bank certified statements of the Special Account Loan 4.01(c)(i) 1 Maintain, or cause to be maintained, records and accounts reflecting expenditures made on the basis of statements of expenditures Loan 6.01(a) 12 CD 12/25/89 Signature of a Subsidiary Loan Agreement Loan 6.01(b) 7 CD 12/25/89 Progress satisfactory to the Bank on the environmental and resettlement programs Project 2.02(a) 2 C CFE to enter into and duly perform its CFE met the FRA's targets during the FRA's obligations under the Financial Rehabilitation validity period, 1989-1994. After that, CFE's Agreement, FRA financial performance deteriorated as a consecuence of the devaluation of the peso which occurred in 1994. IMPLEMENTATION COMPLETION REPORT MEXICO HYDROELECTRIC DEVELOPMENT PROJECT (LOAN 3083-ME) Table 10: Status of Legal Covenants Agreement Section Cov. Present Original Description of Covenant Comments type Status Fulfillment Date Project 2.02(c) 10 C CFE to enter into contractual arrangements with the Guarantor providing for the transfer to the Guarantor of the portion of the Loan ________ _____ _ rauired for Part C of the Project Project 2.06(a) 5 C Maintain, until completion of the Project, a Board's performance was excellent. Board qualified and experienced board of was composed by Messrs. Giovanni Lombardi consultants (Swiss), Don Deere (US), Jorge Hacelas (Colombian) and Oscar Vega Arguelles (Mexican). Project 2.06(b) 5 c Proposed to the Bank, not later than one year CFE provided the ICR mission a Report with before the completion of each dam included the Programs to monitor all its hydroelectric in the Project, appropriate arrangements for power stations in 1997, including the dams at their post-construction inspection and Aguamilpa and Zimapan. _________ __________ ________ operation Project 2.07 (a) 7 C CFE to implement Part B of the Project in Implementation of the Resettlement Plan for accordance with the Environmental and Aguamilpas was fully satisfactory, while the Resettlement Plan one for Zimapan was expensive, not fully effective and implemented with delay. Project 2.07(b) 7 C CFE to, from time to time, review the Environmental and Resettlement Plan to address environmental or resettlement matters Project 2.08(i) 5 C 9/30/89 CFE to present to the Bank terms of reference for the studies included in Part D Project 2.08(ii) 5 C 6/30/91 The studies were considered satisfactory by the Carry out the studies of Part D Bank IMPLEMENTATION COMPLETION REPORT MEXICO HYDROELECTRIC DEVELOPMENT PROJECT (LOAN 3083-ME) Table 10: Status of Legal Covenants Agreement Section Cov. Present Original Description of Covenant Comments type Status Fulfillment Date Project 2.08(iii) 5 C 12/31/91 CFE to exchange views with the Bank on the conclusions and recommendations of the studies and provide to the Bank a plan of .________ ___action for implementation Project 2.08(iv) 5 C Implement the plan of actions recommended The Studies' recommendations have been in studies of Part D implemented with the exception of some of the recommendations of the Tariff Study, which is being revised by CFE. co Project 2.09 5 C CFE to complete Final Engineering Design for the Zimapan power Plant Project 2.10 9 C Periodically CFE to provide, on a semiannual basis, Progress reports were satisfactorily submitted progr~ess rcports on project implementation by CFE Project 3.01 5 C CFE to carry on its operations in accordance with sound administrative, financial and public utilities practice Project 3.02 5 C CFE to operate and maintain its plant, CFE, assisted by EDF, developed a machinery, equipment and other property in performance monitoring system wich is accordance with sound engineering, financial working satisfactorily. and public utilities practices Project 3.03 2 C CFE to take out and maintain insurance with responsible insurers Project 4.01(a) 1 C CFE to maintain records and accounts in I_______ ________ _______ accordance with sound accounting practices IMPLEMENTATION COMPLETION REPORT MEXICO HYDROELECTRIC DEVELOPMENT PROJECT (LOAN 3083-ME) Table 10: Status of Legal Covenants Agreement Section Cov. Present Original Description of Covenant Comments type Status Fulfillment Date Project 4.01(b) 1 c Furnish to the Bank, no later than six months after the end of each year, audited financial statements Project 4.01(c) I c Maintain separate records and accounts on expenditures made on the basis of statement of expenditures and ensure that the audit reports contains a separate opinion on them Project 4.02(a) 2 CD CFE to update, each year, its Ten-Year This covenant was complied by CFE until Investment Plan 1994. In 1994, responsibility for the issuance of the Power Sector Ten-Year Investment Plan was transferred to the Ministry of Energy. Project 4.02(b) 2 C CFE to undertake only the projects included in the Ten-Year Investment Plan Project 4.03 2 NC CFE to maintain an average ratio of total Actual ratios were: 1.06 in 1990, 1.02 in 1991, operating revenues to total operating 0.96 in 1992, 0.96 in 1993 and 0.82 in 1994. expenses of not less than 0.95 during 1990 and of not less than 1.0 during 1991 and thereafter Guarantee 3.04(i) 10 C 9/30/89 Submit to the Bank, through SEMIP, terms of reference for the Studies included in Part C of the Project. Guarantee 3.04(u) 10 C 9/30/91 The studies were considered satisfactory by the Carry out the Studies included in Part C Bank Guarantee 3.04(ii) 10 C 12/31/91 Exchange views with the Bank on the conclusions and recommendations of the Studies included in Part C. IMPLEMENTATION COMPLETION REPORT MEXICO HYDROELECTRIC DEVELOPMENT PROJECT (LOAN 3083-ME) Table 10: Status of Legal Covenants Agreement Section Cov. Present Original Description of Covenant Comments type Status Fulfillment Date Guarantee 3.05(a) 10 C Perform all its obligations under the Financial Rehabilitation Agreement Guarantee 3.05(c) 10 C 9/30/89 Amend the Financial Rehabilitation Agreement to include terms and conditions satisfactory to the Bank Guarantee 3.06(i) 10 CD 9/30 each Review the progress of carrying out the Ten- The Government complied with this clause year Year Investment Plan with the Bank and CFE until 1993. In 1994, responsibility for the Power Sector Investment Plan was transferred to the Ministry of Mines who reviewed the o Plan without Bank participation. Guarantee 3.06(ii) 10 C Take all measures necessary to ensure compliance by CFE with its investment and other obligations. Guarantee 4.01(a) I C Maintain, or cause to be maintained, separate records and accounts to reflect the operations, rcsources and expenditures in respect of Part Guarantee 4.01(b) 1 C 6/30 each Furnish to the Bank a certified copy of the year audit report respect of Part C. Guarantee 4.01(c) 1 C Maintain separate records and accounts reflecting expenditures made on the basis of statement of expenditures, and ensure that such separate accounts are included in the annual audit. IMPLEMENTATION COMPLETION REPORT MEXICO HYDROELECTRIC DEVELOPMENT PROJECT (LOAN 3083-ME) Table 10: Status of Legal Covenants Agreement Section Cov. Present Original Description of Covenant Comments type StaLtus Fulfillment Date Covenant Types: 1 = Accounts/audit 7 = Involuntary resettlement 2 = Financial performance/revenue generation from 8 = Indigenous people beneficiaries 9 = Monitoring, review and reporting 3 = Flow and utilization of project funds 10 = Project implemenetation not covered by categories 1- 9 4 = Counterpart funding 11 = Sectoral or cross-sectoral budgetary or other resource allocation 5 = Management aspects of the project or executing 12 = Sectoral or cross-sectoral policy/regulatory/institutional action agency 13 = Other 6 = Environmental covenants Status C covenant complied with NC not complied with CD = complied with after delay CP = complied with partially 32 IMPLEMENTATION COMPLETION REPORT MEXICO HYDROELECTRIC DEVELOPMENT PROJECT (LOAN 3083-ME) Table 11: Bank Resources: Staff Inputs Planned Actual Stage of Project Cycle Weeks US$ (000) Weeks US$ (000) Preparation to Appraisal NA NA 58.0 105.2 Appraisal - Board NA NA 86.3 191.4 Supervision 1/ NA NA 134.1 348.4 Completion 6.0 21 6.0 37.5 TOTAL 284.4 682.5 n.a. not available 1/ Planned data for FY94 and FY95 only. Actual data from FY88 thru FY96. 33 Table 12: Bank Resources: Missions Stage of Project Month/year Number Days in Specialized staff Performance rating I/ Cy#e of field skills / persons represented Implemen Development Types of -tation impact problems 2/ status Identification 03/85 2 6 DC,E Preparation 10/86 2 11 E,F Preparation 03/87 2 25 E,F Preparation 05/187 2 8 S,A Pre-appraisal 05/87 4 10 E,Ec,S,A Pre-Appraisal 09/87 2 10 A,A Appraisal 11/87 5 21 E,F,F,Ec,A Post-Appraisal 03/88 1 7 E Pre-Negotiation 05/88 2 9 E,F Pre-Negotiation 02/89 2 12 E,F Pre-Negotiation 03/89 1 5 E Post-Ngotiation 04/89 3 3 A,S,S Post-Appraisal 11/89 4 5 E,F,A S Supervision 08/90 4 17 E,S,F,A 1 Supervision 02/91 4 12 E,F,A,S 1 1 1 Supervision 9/91 4 18 E,S,A,S 1 1 2 Supervision 03/92 5 E,S,A,E,F, 1 1 1 Supervision 10/92 3 8 E,A,A 1 1 1 Supervision 05/93 4 E,A,S,F 1 1 1 Supervision 11/93 5 16 E,A,F,AS, 1 1 1 Supervision 04 /94 1 4 E 1 1 1 Supervision 12/94 5 11 E,F,E,S,S,C HS HS HS Supervision 05/95 3 3 E,F,S S 5 1 Supervision 06/95 3 12 E,F,S S S 1 Supervision 12/95 2 3 E,S S S 1 SupeTvision 1/ 1 - Problem free or minor problems 2 - Moderate problems; S - Satisfactory; HS-Highly Satisfactory; 2/ L.O. - Loan Officer; L - Legal; P - Procurement Specialist; W - Water Supply Specialist; S - Seismic Specialist; A - Achitecture; ED - Education Specialist; U - Urban Planner; H - Housing Specialist; E - Engineer; F - Financial Specialist; TM - Task Manager. 34 APPENDIX A: TRANSLATION OF THE AIDE MEMOIRE OF THE IMPLEMENTATION COMPLETION MISSION 35 IMPLEMENTATION COMPLETION REPORT MISSION MEXICO HYDROELECTRIC DEVELOPMENT PROJECT (LOAN 3083-ME) AIDE-MEMOIRE February 10-14, 1997 1. INTRODUCTION 1. A World Bank Mission visited Mexico from February 10 through 14, 1997, to supervise the Hydroelectric Development Project. The mission comprised Maria Clara Mejia, Marcelo Osorio, and Luis Cosenza. 2. The purpose of the mission was to carry out an overall assessment of the project whose physical execution was completed at the end of 1995. The project was partally financed with resources from Loans 3189-ME and 3083-ME. The first of these loans was closed in 1995 and the corresponding Implementation Completion Report (ICR) was prepared in 1996. The second loan was closed at the end of 1996 and the ICR is under preparation. Ths project implementation completion mission will seek information to complete the ICR. Besides gathering information as to the current project status, the mission focused on identifyring the indicators to evaluate the eventual impact of the project. 3. The Mission acknowledges the cooperation and the hospitality received during its visit. The list of individuals met is attached as Annex I to this Aide-Memoire. The following paragraphs summarize the findings and recommendations of the Mission. According to standard procedures, the Bank will confirm the Mission's recommendations upon review of the dmft Report. II. PROJECT OBJECTIVES 4. The Project objectives were as follows: (a) to promote the efficient use of electricity through realistic price policies, conservation of energy, and improvement of sector operations; (b) to diversify generation sources; (c) to strengthen CFE's financial position through an increase in rates and the implementation of a Financial Rehabilitation Agreement; (d) to expand the coverage of the power system; and (e) to improve CFE's capability to handle environmental and social aspects of hydroelectric projects. 5. Some of the objectives, such as the diversification of generation sources, the expansion of the electric system and the improvement of CFE's capability to handle environmental and social aspects of hydroelectric projects were fully met. The other two objectives, the efficient use and conservation of energy and the financial strengthening of CFE were partially and temporarily achieved. III. AGUAMILPA AND ZIMAPAN HYDROELECTRIC PLANTS 6. The Mission and CFE analyzed different aspects of the Project, with special ernphasis on cost overruns, resettlement works, the status of the environmental and social situation of the two plants and the resettled population, and the management indicators currently in use in CFE. The Mission also 36 collected information to prepare the ex-post economic evaluation of the project. As part of its work, the Mission visited parts of the Zimapan works, including the town of Bella Vista del Rio. 7. The Aguamilpa hydroelectric plant construction costs totaled US$850.3 million, a figure close to the estimated value at the time of project appraisal (SAR), estimated at US$858.0 million. On the other hand, the cost of the Zimapan plant, US$829.2 million, was much higher than the initial estimated value of US$418.0 million. The cost overrun, approximately US$410 million, was due to the following main works: (a) change of the pressure tunnel lining to reinforced concrete; (b) construction of a second tunnel for the spillway; (c) changes in the orientation and design of the powerhouse; (d) construction of unplanned access roads; (e) higher than budgeted costs for the electromechanical equipment; and (f) works and resettlement costs above those budgeted. The main causes that explain the difference between the budgeted and the actual costs of this plant are: (a) optimistic expectations used as a basis for plant design, especially with respect to the pressure tunnel; (b) some items of extraordinary works without contractual unit prices. These prices had to be agreed upon during the construction process, when CFE's ability to react was limited; (c) greater contractor resources with respect to CFE to support the claims that normally arise during construction of this type of works; (d) initial underestimation of the value of electromechanical equipment; and (e) the action plan for resettlement (at the time of preparation of the project's budget in May 1989) lacked enough details which led to underestimate the cost of the resettlement program. 8. As to the construction-related aspects, it should be remembered that CFE traditionally built hydroelectric projects through force account, thus its experience in managing contracts of a similar size than those that resulted from the project and in negotiating claims, was relatively limited. Notwithstanding the above, the Mission considers that the main lessons derived from project execution are the following: (a) during construction of large works such as hydroelectric projects, a support team should be constituted comprising experts on legal issues, contract administration and assessment of claims, as well as on financial issues, so that they provide continuous assistance in administering the contracts and in providing professional and quick solutions to the claims presented by contractors. Additionally, consideration should be given to the introduction of incentives for the staff participating in the supervision of works, including the experts that will administer the contracts and negotiate the claims; (b) the bidding of works with a high degree of geological uncertainty should, as far as possible, include price quotations for all works items considered to be potentially needed, in order to avoid negotiation of unit prices after the works have begun; (c) quotation of prices for electromechanical equipment do not constitute sufficient information on which to make budget projections. It is necessary to supplement this information with other that may be derived from recently constructed projects; (d) the construction of hydroelectric projects is most difficult in situations in which invariable budgetary ceilings are used. The very nature of the works makes it impossible to accurately budget annual expenses, and when subjected to a rigid ceiling, there are contractor claims for delayed payments or other components are sacrificed, such as those related to social works, in order to comply with payments to the contractor; and (e) the construction of large size projects becomes even more problematic if there is a limit beyond which the contract may not be increased. In these cases, the solution of cost overruns which are typically present in these works becomes difficult and slow, resulting in cost overruns due to interest on overdue payments. A way should be identified to simplify the required processes to expand the value of contracts to avoid additional cost overruns due to delayed payments. 9. With respect to the periodic inspection of hydroelectric project dams, CFE confirmed that it is preparing an annual plan for this purpose and that as a result of this, it is preparing reports with the results of the inspections and studies. The plan corresponding to 1997 is attached as Annex 2 to this Aide-Memoire. 37 10. As to the envmental impact, the measurements camied out show that waste waters discharged by the facilities are not a problem and that there is no apparent sign of proliferation of algae or macrophytes that may constitute a public health risk. Likewise, the monitoring of the water quality in the Taxid6 creek carried out through July 1996, shows that the dam waters have not polluted the source. The Taxido spring is especially important as it constitutes the only drinking water source with adequate volume to supply the resettled population in Bella Vista del Rio as well as other borderline towns and settlements belonging to the community of Vista Hermosa. The results of the water quality monitoring of the Taxido spring are shown in Annex 3. CFE reported that it will re-initiate the monitoring program in March 1997, and that it will continue to do so up to February 1998. If pollution levels are found to be beyond the values established by the national standards, CFE will build a water treatment plant or take another measure agreed upon to solve the problem. With regard to the fishing potental of Aguamipa, which constitutes an important source of income for 14 Huichol communities, including the 2 communities resettled, CFE will review the reports prepared by the Fisheries Secretariat, Nayarit District, and will include the results in an annual report along with those of the water quality of the Taxido spring. A copy of this report will be sent to the Bank. 11. The resettlement and rehabilitation program for 115 families of the Huichol community (Colorado de la Mora and Playa Golondrina) and the mestizo community (Los Sabinos) displaced by the construction of the Aguamilpa Plant, has achieved the proposed objectives. The community lands were reinstated and taditional subsistence agricultural activities were reestablished, including fishing at the dan. Resettlement was based in the participatory action of the affected communities and respect for their culture. The three resettled communities have reached a satisfactory level of socioeconomic and self-management stability. New economic activities have sprung up, such as local tourism services, motorboat passenger transportation, and some cottage industries. Aguamilpa constitutes the first successful experience in resettling indigenous communities in projects financed by the Bank. 12. The outcome of resettling 140 families affected by the construction of the Zimapan Plant in the State of Hidalgo and resettled in Paso del Arenal, El Epazote and Aljibes, is also very satisfactory. Negotiations with the community took place without major obstacles. The productive land was restituted in enhanced conditions, as well as the towns and services. 13. The situation of the 412 families displaced from Rancho Nuevo, Vista Hermosa and La Vega in the State of Quer&taro and resettled in Bella Vista del Rio is somewhat different. The negotiation process was quite conflictive. Cash indemnities as well as acceptance of the excessive demands made by the Resettlement Committee were the means negotiated and acceptable to the parties to reduce opposition to the project and to avoid delays in construction of the works, with the ensuing cost overruns and exacerbation of conflicts within the affected communities. Although towns and services were not only reestablished but also considerably improved, the restitution of productive irrigated land did not take place. At the end, the only irrigated lands generating profits and employment for landless community people were not replaced but compensated with cash payments. As a result, the community does not have productive agricultural lands and was left with only seim-arid lands, with agricultural restrictions that impede their productive and sustainable use. However, various efforts undertaken by CFE to promote new economic activities, such as providing camp facilities for future businesses, have allowed the installation of a private maquila company that generated 80 jobs for community women. Nevertheless, the community has lost its economic foundation based on agricultural activities for self- consumption and has become exclusively dependent on migration. This situation was already present before project construction. 38 14. The Mission considers that the main lessons learned with respect to social and environmental issues are the following: (a) it is advisable to strengthen and complete the regulatory framework as well as the coordination mechanisms defining the responsibilities and rights of the parties, the mechanisms for conflict resolution, and the responsibilities of the institutions involved in resettlements; (b) the social studies should be carried out in parallel with the technical, economic, and environmental studies from the initial pre-feasibility stages. Late resettlement plans once a decision has already been made on the project, generate conflicts and cost overruns; (c) information and timely consultation with the affected communities regarding productive restitution alternatives based on technical and socioeconomic feasibility studies is the best tool to avoid conflicts and generate trust and transparency; (d) the social analysis should consider gender differences and the divisions existing within the communities so as to promote consultation and decision mechanisms seeking the participation of all groups and avoid the adoption of decisions by a minority; (e) rather than the physical resettlement of populations, the social rehabilitation and economic re-establishment of the affected communities is what defines the success and sustainability of resettlement programs; (f) the tendency to invest more money and to accept unjustified claims to reduce conflicts and to ensure compliance of construction schedules, originates internal disputes within the communities and negatively affects the resettlement; (g) strict coordination and planning of main civil works and required works for the resettlement of displaced populations is needed to avoid negotiations under extreme pressure and costly solutions; and (h) the restitution of productive land in cash has not proven to be an adequate strategy for the economic rehabilitation of communities that have traditionally depended on the land for their subsistence. 15. An important project objective was the financial rehabilitation of CFE, thus a Financial Rehabilitation Agreement was executed between CFE and SHCP. The Agreement included 17 performance indicators, which are shown in Annex 4. An analysis of this Annex shows an improvement in the "price/cost ratio" indicator up to 1994, the termn of the Agreement. Unfortunately, since then CFE's financial situation has once again deteriorated, this time as a result of the substantial devaluation suffered by the Mexican Peso, which has not adequately been compensated by a rate adjustment. 16. The Mission maintains that the lesson derived from CFE's financial rehabilitation process consists in proving that the sustainable financial recovery of the sector is only possible if the rate issue is resolved. This, in turn, requires the adoption of an appropriate regulatory framework and leaving rate setting as the responsibility of an independent commission, i.e. separating the ownership of sector companies from the policy setting and the regulatory functions. 17. During the process of searching management indices to follow up on project benefits, the Mission was informed that as a result of the studies financed with loan proceeds, CFE has adopted a plan of incentives to benefit, among others, the staff of generation plants. The management indicators constituting the foundation of the system are agreed upon annually and they are very adequate for the future fol1ow up and analysis of the project and of the hydroelectric plants partially financed with loan resources. These indicators are attached as Annex 5 to this Aide Memoire. Since CFE, for its own reasons, will closely follow up these indicators, the Mission and CFE have agreed that these same indicators will be used to follow up the project. Additionally, the indicators to be used to follow up on the performance of the two hydroelectric plants, Aguamilpa and Zimapain, were selected. The above cited Annex presents the values of these indicators for 1995 and 1996, which shows the satisfactory operation and adequate maintenance to date. 18. Besides the technical indicators shown in Annex 5, it is also necessary to develop indicators applicable to social and environmental aspects. These indicators were also agreed upon and are included as Annex 6 to this Aide-Memoire. Even though CFE does not routinely follow up these indicators, it 39 was agreed that CFE will begin the process in order to collect and update the information annually. The CFE and the Mission agreed that the indicators mentioned in this and in the previous paragraphs, as well as in the annual plan for dam inspections, will be included in a report to be sent to the Bank during the course of the following month of March of the corresponding year. IV. ENVIRONMENTAL AND SOCIAL PROGRAMS 19. As a result of the Project, CFE has been able to strengthen these areas. Prior to project approval CFE did not have a high level unit responsible for planning and managing environmental and social issues, including resettlement. Community relations had been performed by the engineering departments in charge of the design and operation of each project. These activities were performed on an ad hoc basis, generally by staff with no experience in social and natural sciences. To implement the environmental and social aspects of the project, CFE created the Social Development Management Office and the Environmental Management Office with technical, multidisciplinary teams with clear cut responsibilities and authority that allowed to take on this task. Today, both Management Offices are staffed by 9 and 35 professionals, respectively, and their duties include the issuance of technical and administrative standards and procedures applicable to all CFE actions and projects. Annex 7 shows a listing of the environmental standards prepared by the Environmental Management Office and officially adopted by the entity, as well as the standards and procedures on social issues that have been developed by the Social Development Management Office which will be soon approved. The strengthening of the two Management Offices as well as intemalization of the of Zimapa.n and Aguamilpa experience through procedures, internal policies, and manuals is essential to simplify and make more efficient the processes related to environmental and social issues in future CFE projects. 20. The Bank will send to CFE (Social Development Management Office) examples of national and state resettlement policies from other countries as well as the methodology used in the Yacyreta Project in Argentina, to evaluate the resettlement carried out. V. EFFICIENT USE OF ELECTRIC POWER 21. As part of the project, a series of studies were carried out to: (a) study and issue standards to foster energy efficiency for industry and business; (b) study and identify methods to improve the efficiency of water pumping and air conditioning equipment, establishing demonstration centers; (c) study and establish regional centers to promote energy efficiency; and (d) study and identify training needs to undertake energy conservation programs. As to cogeneration, the project included the study of appropriate alternatives and incentives for cogeneration. Finally, the project included the purchase of laboratory equipment and staff training. This project component was carried out by the National Commission on Energy Savings, CONAE, under the Secretariat of Energy. 22. Of all the studies mentioned above, the work related to the preparation and issuance of standards has been the most successful. CONAE has issued 11 standards, 5 more standards are under preparation and 7 standards are at the draft stage. Of all current standards, CONAE estimates that those applicable to household refrigeration appliances have resulted in a reduction of 25% in electricity consumption. Considering that the Mexican market demands a million refrigerators annually, the energy savings are impressive (estimated by CONAE in 186 GWh annually, with an associated reduction of 117,900 tons of C02). Notwithstanding the above, other standards such as those related to water pumping, with a potential savings of three times that corresponding to refrigerators, have not been implemented (in spite of having been enacted) given the related political problems and the significant subsidy included in the electricity tariff. 40 23. With respect to cogeneration, the programs suffered by the strong devaluation occurring at the end of 1994, which in real terms reduced the value of electricity tariffs in half. Despite the adjustments made since then, rates have yet to recover their value, making cogeneration unattractive. In addition, there are still several issues to be resolved allowing the connection of cogenerators to the CFE network as well as connection fees and wheeling charges. 24. CONAE has established 15 generation centers to promote energy efficiency and conservation. Besides, staff was trained; however many of these staff are no longer working with the institution. As to purchase of laboratory equipment, CONAE's policy currently provides that this type of service be provided by the universities and other institutions. 25. CONAE intends to focus its efforts in advising businesses so that these may prepare feasibility studies to obtain financing from commercial banks. To this end, it is preparing a web page to be placed in the Internet which will allow it to provide advice to all those concerned. 26. The Mission considers that the preliminary lessons derived from the implementation of this component are the following: (a) it is not feasible to carry out energy conservation and efficiency programs when the rates do not reflect the cost of service or when subsidies are granted that distort the price levels; (b) the high personnel turnover suffered by CONAE has affected project execution and it has particularly resulted in the loss of institutional memory as to the lessons that may be derived from its execution. The lasting solution to this problem requires changing CONAE into an institution that enjoys more autonomy and independence; (c) the transfer of resources to CONAE through CFE caused several difficulties that had an impact on contracting and payment of consultants. This has prompted CFE to consider that the use of this procedure in the future is not desirable. VI. OTHER STUDIES 27. As part of the Project, studies related to the operation of the electric system, improvement of the administration and rate setting functions, were also included. As a consequence of these studies, the concept of business strategic units (UENs) was developed as quasi-companies responsible for their own management, which is being successfully applied in generation plants. The concept of annual negotiation of performance contracts based on management indicators and on incentives for those meeting the indicators agreed upon was also adopted. Once again, this seems to work successfully in generation and may be one of the most important and positive outcomes of the project. 28. As to rate setting aspects, rates deteriorated because of the peso devaluation that took place between 1993 and 1994. This devaluation has not yet been compensated by appropriate rate adjustments, so that the average rate has decreased in current U.S. Dollars from US$0.061 per kWh in 1993 to US$0.04 in 1996. Average rates in effect per type of consumption are as follows, in New Mexican Pesos: 41 Type of Consumption Rate Residential 0.376 Commercial 0.894 Services 0.636 Agricultural 0.193 Medium Size Company 0.435 Industrial 0.302 Power and Electricity 0.351 29. With respect to the study of marginal costs, the Mission was informed that the study served as the basis for the calculations that CFE currently prepares periodically. The results of the study may therefore be considered successful. The Mission requested CFE to provide the Bank, by February 28, a summary report on the marginal costs and average rates in effect by CFE by level of voltage. VII. Preparation of ICR 30. To be able to complete the draft ICR, the information listed in Annex 8 to this Aide Memoire must be submitted. It was agreed that CFE will send this information to the Bank at the latest on February 28. For its part, the Mission estimated that if this deadline is met, the draft ICR will be sent for review by the authorities on April 1, 1997. Mexico, D.F., February 14, 1997 (signed) For CFE - German Sandoval (signed) For the Mission - Luis Cosenza J. 42 APPENDIX B SUMMARY OF THE TRANSLATION OF THE BORROWER'S CONTRIBUTION 43 ELECTRIC POWER FOR THE PROGRESS OF MEXICO - CFE SUBDIRECCION DE CONSTRUCCION COORDINACION DE PROYECTOS HIDROELECTRICOS GERENCIA TECNICA HYDROELECTRIC DEVELOPMENT PROJECT LOAN 3083-ME FINAL REPORT October 1995 COMISION FEDERAL DE ELECTRICIDAD 44 HYDROELECTRIC DEVELOPMENT PROJECT LOAN 3083-ME FINAL REPORT TABLE OF CONTENTS 1. EXECUTIVE SUMMARY Project Objectives Implementation of Project Objectives Technical Aspects, Design, Procurement of Goods and Services, Costs, Construction and Operation of the Financed Projects NAFIN Performance During Project Implementation World Bank Performance Performance of other Entities 2. THE AGUAMILPA PROJECT Original Design and Changes Made During Construction Project Execution and Problems Encountered Project Costs Financing 3. THE ZIMAPAN PROJECT Original Design and Changes Made During Construction Project Execution and Problems Encountered Project Costs Financing 4. ENVIRONMENTAL PROGRAMS Aguamilpa Zimapan 5. RESETTLEMENT PROGRAMS 45 1. EXECUTIVE SUMMARY Project Objectives The objectives set for the Project were: * Promotion of the efficient use of electric power * Diversification of electric generation sources * Expansion of electric service coverage in the country * Improvement of CFE capabilities in the execution of environmental and resettlement programs * Implementation of the Financial Rehabilitation Agreement Implementation of Project Objectives Promotion of the Efficient Use of Electric Power. This objective is deemed to have been met. An assessment of the Electric System operational efficiency and identification of justifiable actions to enhance its efficiency were carried out by the consulting company Electricite de France (E.D.F). The study was initiated on November 27, 1990 and was concluded on February 7, 1992. The performance of the consulting firm was satisfactory and the requirements stated in the terms of reference of this study were met. Currently, the recommendations included in the study as to Generation, Load Dispatch, Fuels Handling, Design of Plants and Transmission are being implemented. In addition, the National Commission on Energy Savings (CONAE), reporting to the Secretariat of Energy, contracted the execution of a series of studies on energy savings and cogeneration to analyze the current situation and to define new criteria for a better use of energy. The performance of the contracted consulting companies was satisfactory and currently the recommendations derived from those studies are being implemented. Diversification of Power Generation Sources. This objective has been met. At the end of December 1988 there were 29.3 GW installed with a participation of 7,749 MW (32.3%) of hydroelectric plants. The objective for 1994 was to have 33.6 GW of which 8,839 MW (26.3%) would come from hydroelectric plants. With the additions and modifications to installed capacity during 1994, one of which corresponds to start-up operations of the Aguamilpa Hydroelectric Plant (3 x 320 MW), there is an installed capacity of 31,649 MW by the end of December of which 9,121 MW come from hydroelectric plants (equivalent to 28.82% of total capacity), surpassing the goal of the National Energy Modernization Program by 282 MW as to energy originating from hydroelectric plants. The 1994 increase of installed capacity with respect to 1993 was 8.37%, with 39.2% of this growth corresponding to the Aguamilpa Project and 60.8% to other electric generation sources. During 1995, it was programmed to add 2,077 MW of which 732 MW (representing 35.2% of total capacity by additions) correspond to hydroelectric projects. The Zimapan Hydroelectric Project (2 x 146 MW) represents 39.9% of the hydroelectric additions programmed for 1995. Expansion of Electric Service Coverage in the Country. This objective is deemed to have been met.With the additions and modifications to the installed capacity during 1994, one of which corresponding to the start-up operations of the Aguamilpa Hydroelectric Project, it was possible to expand electric service national coverage from 92.18% (in 1993) to 94.24% (in 1994), increasing coverage from 18.7 to 19.4 million users. 46 Improvement of CFE Capabilities to Execute Environmental and ResettlementPrograms. This objective is deemed to have been met. Through the creation of the Social Development and the Environmental Protection Management Offices, CFE's management capabilities in these areas have increased significantly. The implementation of criteria and guidelines to study, handle, and follow up environmental and social issues, from the planning stages to project completion, was also achieved. Implementation of the Financial Rehabilitation Agreement. It is considered that CFE satisfactorily met the objectives set in the Financial Rehabilitation Agreement, achieving 97.05% compliance during 1994, average compliance during the 1990-1994 period of 96.58%, and improving by 34.5% the behavior of the 17 indicators considered for the evaluation of the entity. The achievement of values higher than the goal on 12 of the indicators should be highlighted, and although five of them register non-compliance, only on three of these did indicators record deviations greater than 5%. The importance of the cost/price ratio should be noted, which was basically affected by factors external to CFE such as those corresponding to the impact of exchange rate variations and the fuel price policy. The fuel oil price presented important increases during 1994, and the average sale price of electric power remained practically constant. The following table summarizes the results obtained at the end of 1994. MANAGEMENT UNIT OF YEAR 1994 COMPLIANCE INDICATORS MEASUREMENT ACTUAL DEC. PERIOD GOAL % WEIGHTED % PRODUCTIVITY 99.02 43.57 Operational Staff Increase % 0.32% 0.00 100 9.97 Users/Operation Worker 262.09 260.09 100 10.00 Sales/Operation Worker GWh/wkr 1.585 1.458 100 6.00 Installed Capacity/Generation Worker MW/worker 1.82 1.95 93 5.60 Transmission Lines/ Transm. Lines Worker km/workers 47.62 47.36 100 6.00 Users/Distribution Worker 440.92 437.23 100 6.00 OPERATIONAL EFFICIENCY 99.74 22.94 Average Availability in Base % 85.98 81.49 100 8.00 Thefmoclectric Plants Average Availability in % 85.56 84.49 100 3.00 Hydroelectric Plants Thermal Efficiency in Base % 34.29 34.64 99 5.94 Thermoelectric Plants Energy Losses % 10.99 11.66 100 6.00 SERVICE QUALITY 100 15.00 Down Time/User Minutes 251 292 100 5.00 Complaints/1000 Users 18 22 100 5.00 Connection Time of New Users Days 3 5 100 5.00 ADMINISTRATIVE/ FINANCIAL 86.33 15.54 Administrative Service Expenses/Operational % 7.17 6.91 96 5.77 Products Inventory Coverage in Operational Stores Months 34.46 25.97 67 4.04 Price/cost ratio $/s 0.82 0.95 86 1.73 Staff growth in National offices % 0.04 0.00 100 4.00 TOTAL % 97.05 47 Technical Aspects, Design, Procurement of Goods and Services, Costs, Construction and Operation of the Financed Projects The whole design of the main civil works was done by CFE and the electromechanical work was contracted under the turnkey modality, considering the design, supply, tests and start-up of the equipment. In the specific case of the Zimapan curtain, experts were contracted to support the design. To contract the main civil works, an international bidding competition was carried out. The procurement of electromechanical equipment was also bided internationally, requesting full financing from suppliers. The supplementary civil works and the construction of resettlement towns were contracted with national companies, taking into account the need to have economic spillovers that would benefit the places where the projects were constructed. Contracting for the studies charged to CONAE and to CFE was made through a process of direct invitation to companies and institutions. For the advisory services on social and environmental issues, experts accepted by the World Bank were contracted. The same method was used to hire institutions to develop a "monitoring" program for the works performed in each area. Cost The summary of the cost of the Hydroelectric Development Project is as follows: CURRENT ITEMS MILLION DOLLARS COST BANK SHARE (1) PART A A. 1 Construction of the Aguamilpa Generation 850,3 330,3 Plant A.2 Construction of the Zimapan Generation 829,2 124,4 Plant A.3 Expert Consultant Services for Parts A. 1 0,5 0,0 and A.2 PART B Social and Environmental Program 1,3 0,0 PART C Energy Related Studies: 4,3 3,0 * Conservation * Cogeneration PART D Other Studies: 2,3 2,3 * Inprovement of electric system operations * Improvement of administration system * Rates TOTAL 1.687,9 460,0 (1) It does not include US$125.4 million remaining from Loan 3189-ME which were applied to the Zimapan civil works. All construction works were performed through contractor companies, with the exception of the initial diversion works of the Rio Santiago towards Aguamilpa. These works were executed by direct admninistration. Once the contract was awarded, the contractor continued with the works. 48 CFE was in charge of supervising the execution of works, relying on specialized contractors to supplement its coverage. The Aguamilpa Plant began to supply energy to the Electric System in July 1994 and the Zimapan Plant in September 1995. NAFIN Performance During Project Implementation Overall, it is considered that NAFJN's performance as financial agent was of great assistance in getting CFE to fully apply the loan granted. This is because of its negotiating ability with the Bank, as well as its willingness and care to resolve the contingencies presented in a timely fashion. During the initial stages of Project execution, some contingencies emerged when trying to handle some technical aspects with NAFIN that needed to be taken care of to have continuity in the flow of resources. However, once the degree of involvement in the matter was defined jointly with the World Bank, this situation was completely resolved. World Bank Performance Within the scope of its jurisdiction, the Bank's handling of the loan operation was always adequate. The Bank invariably showed great willingness to reach agreements to the satisfaction of all parties on the issues that eventually resulted in a conflict. Following are some suggestions, which in the opinion of the different CFE areas that interacted with the Bank, may be convenient to consider for future operations. Expand the authority of the Bank's Representative in Mexico City, especially with respect to processes requiring granting the Bank's "No Objection". This would allow a more expeditious administration and operation of loan resources. Seek to maintain the continuity of financial, technical, and anthropological experts accompanying the Project Officer during evaluation and supervision missions during project execution. This would allow a clearer interpretation of the issues that may arise, as well as on the proposals and recommendations to find solution altematives consistent both with the reality and with the practical possibility to implement them. Expand the coverage of Bank financing schemes so that future operations be financed under the "turnkey" concept, to ensure the comprehensive nature of the project. As a first order of business for future operations, it is deemed advisable that following the execution of the loan legal documents, a seminar be conducted with the participation of representatives of the Bank, the Treasury and Public Credit Secretariat, the appointed financial agent, and the executing agency. This would allow the exchange of viewpoints on the design of joint strategies that would allow better project administration, operation, and execution. This suggestion is made with a view to share, define, and determine the scope of jurisdiction and responsibility among the different stakeholders during project development. During loan execution, there were some complications related to Bank authorization to pay estimates for the civil works contracts. This was caused because when cost adjustments 49 by escalation were included, the authorized amount expressed in Pesos was rapidly reached even though the amount allotted expressed in U.S. dollars was not reached. This was due to the exchange rate situation and the inflation prevailing at that stage of the Project. It would be convenient that the figures approved by the Bank at the time of awarding a contract be expressed only in U.S. dollars and that the payment of estimates and cost adjustments be considered regardless of the corresponding exchange rate up to the depletion of the loan amount assigned to the Project. Performance of Other Entities With respect to CONAE, the administrative cost represented by the processing and operation of the resources assigned to that Institution was assumed. To achieve better transparency in the flow of resources, it would convenient that in the future funds for two different executing bodies not be involved in the same project. This issue became a problem with the changes made in its management staff during the previous Administration, which caused lack of continuity in the development of studies, as well as delays in the original contract execution timetables, which finally had an impact on the timely payment of contracted consultants. The experience generated by this type of projects, is not necessarily part of the wealth of experiences that should be institutionally maintained. Even though it is important to have other entities aside from the Commission playing a monitoring role so that they act as an alternative monitoring mechanism, it would be convenient not to lose the experiences achieved both by CFE and the Institutions that were present in the resettlement Program implemented by CFE, and to make them part of a wealth of information that may be used on future projects. On matters of Environmental Protection and derived from the experience acquired, it is convenient that from now on agreements be made committing to a greater extent the different Government levels and agencies so that they support, intervene and be accountable for the activities falling within the scope of their responsibility. Thus, CFE may turn its attention with greater efficiency on those aspects under its direct jurisdiction. From a technical-administrative viewpoint, valuable experiences were also obtained, some of which are being applied in new projects, such as: - The environmental regulatory unit should be involved starting with the development specifications to contract works and environmental impact statements. Besides, it should have predominant participation in the formation of the Environmental Protection Operational Units (EPOU) which in the field will act as a support to the General Construction Residency. It should also be involved in the development of specific environmental study contracts beginning with the selection of bidders to compete. The EPOU, whether carrying the project's environmental responsibility by direct administration or acting as supervisor of the project's construction company, should issue periodic technical-administrative reports. At the end of the construction phase, the EPOU should prepare a final report on the activities. 50 During the final construction phase, there should be a clear transmission of environmental duties to those responsible for the operation of any hydroelectric project, as the latter must monitor the compliance with the environmental regulations for that phase. Besides, it is quite likely that during the operational stage some studies initiated during the construction phase of the project must be continued. The environmental regulatory unit should prepare a series of environmental procedures mandatory to all CFE areas involved in the design, construction and operation of hydroelectric projects. Likewise, it should prepare others regulating the technical relationships between CFE and the Contractors in order to ensure that the Contractors comply with CFE policies on environmental matters. 2. THE AGUAMILPA PROJECT Original Design and Changes Made During Construction In accordance with the original design, it was provided that the body of the curtain would be constructed essentially with pay gravel. However, the need to build it sooner and to have available a greater volume of excavation materials, made it convenient to use basically rock-tangling instead of pay gravel thus modifying the size of the materials placed and the curtain dimensions. The original project provided that the substation and the transformers be installed in a cave. For safety reasons, the design was modified and the installation remained in an extemal platform. With a view to ensure that no landslides occur, given the poor stability found on the slope where the spillage was built, the characteristics and sizes of the latter were modified so that in case of operation, the discharge would take place at an elevation lower than that originally foreseen. Given the requirements established by the National Water Commission and as a supplementary measure to alleviate the environmental impact caused by the suspension of the river flow, it was necessary to include a water discharge for irrigation to be used during the filling of the dam. This device was not included in the original design. At the request of local authorities and given the convenience of transporting more easily the electromechanical equipment received, a road easement was built allowing the freight to reach the works without going through the City of Tepic. This infrastructure was not considered in the original design. Project Execution and Problems Encountered At the beginning of 1991, an extraordinary inflow took place with a higher expense than the maximum recorded in the hydrological studies. This inflow caused damages and landslides in the derivation tunnels and in the access roads, besides causing flooding of the chamber where the curtain was under construction. Rehabilitation of the damages caused an increase in the amount of work to be performed without the possibility of modifying the timetable for the completion of the works. To satisfy the expected electric power demand, it was decided to speed up the project construction program, thus completion was advanced one year with respect to the schedule established in the 51 studies developed jointly with the World Bank. This meant that the Contractor reduced the execution term originally agreed upon by six months. Project costs COSTS IN MILLION (Current Prices) ITEM SAR ESTIMATE (1) ACTUAL _____________________________________ _N_ X US$ N$ US$ Engineering, administration and supervision of 229.5 99.9 311.5 121.3 construction Civil works 844.0 367.4 1,678.0 485.2 Resettlement and the environment 22.3 9.7 43.3 17.9 Electromechanical equipment 370.0 161.1 670.6 204.2 Transmission lines 64.8 28.2 55.6 21.7 Physical contingencies (emergencies) 222.8 97.0 Price contingencies (escalation) 217.5 94.7 TOTAL (2) 1,970.9 858.0 2,759.0 850.3 (1) SAR: Staff Appraisal Report, May 1989. (2) Direct costs are reported based on accounting expenses, including financial charges associated to partial short-term loans managed by the contractor of the main civil works. TIhe items where actual costs show the largest differences from that estimated in the SAR are the civil works and the electromechanical equipment. Even though the difference between the actual cost and the estimate of civil works derives from a great array of concepts, most of these are linked to the shortening of the construction program, which at the time was subjected to a cost/benefit analysis which indicated the convenience of having the energy produced by the project in advance. The items representing the main increase are described below. Infrastructure. The difference in costs was mainly due to the increase in the amount of open air excavation derived from the construction of the additional roads required to reach different areas of the works simultaneously, based on the needs of the construction program. The bridge over Rio Santiago had a higher cost than expected. Derivation. The main increase derives from the Contractor receiving the derivation tunnel with less progress than that foreseen by CFE to be done by direct administration and that it was necessary to modify the excavation procedure to speed up the construction of the two derivation tunnels. Likewise, the Contractor was requested to rehabilitate the derivation as a result of the damages caused by the extraordinary inflow that occurred in January 199 1. Curtain. The items representing the difference in costs correspond essentially to additional activities not foreseen in the contract, such as the installation of the rock conveyor band to accelerate construction, instrumentation and finishing, among others. Additional injection treatments were also required, given the geological conditions of the rock in the curtain area, to form the waterproofed screen and guarantee that the dam would not spillover. Power house and spillway. The items having a main influence on the increase of the estimated amount are represented by the excavation required to construct the subterranean road allowing to reach several work fronts at the same time, by the open air excavation 52 derived from the convenience of constructing the transformer area outside instead of in a cave, as originally planned, and to the convenience of modifying the spillover design extending it to allow the discharge at a lower level than that considered initially. One of the aspects having a significant impact on the cost variation of civil works is constituted by the increase in labor costs. In accordance with the Bidding Documents, unit prices where labor was to be involved were to be calculated considering as minimum reference the tables of salaries for unionized workers. In practice, as the works progressed, it was apparent that the salaries offered did not attract the required labor, as the labor market pushed towards increased costs. To give continuity to the works it was necessary to offer higher salaries, with the subsequent impact on unit prices. To adjust to these new needs, a study was contracted that finally led to the implementation of an "ADJUSTMENT FACTOR FOR REAL WAGES" (FASAR) through which higher salaries were offered based on longer working hours and increased productivity. This factor was accepted by CFE and applied to work estimates in a similar manner to the escalation factors, throwing the adjustment by reason of the increase on labor costs. As to the electromechanical work contract, the totally of the scope foreseen was covered and a series of amending agreements were executed to cover issues not included originally, which cause the difference between the real cost of this item and its estimated cost. In summary, these issues are: * Accelerated manufacturing of equipment associated to the reduced construction program - Increase in supplies due to change of project in the transformers' area * Increase in supplies due to inclusion of irrigation intake valves Increase in miscellaneous supplies - Inclusion of import taxes that originally were paid at the CFE consolidated level It should be noted that given the high financial cost, it was decided that the domestic component (essentially constituted by the setup) be paid at a variable price with own resources. Financing Million of current U.S. Dollars ITEM FINANCING ACTUAL Own IBRD Other l ________________________________________ COST Resources Loans Engineering, administration and supervision of construction 121.3 121.3 0.0 0.0 Civil works 485.2 154.9 330.3 0.0 Resettlement and the environment 17.9 17.9 0.0 0.0 Electromechanical equipment 204.2 50.1 0.0 154.1 Transmission Lines 21.7 21.7 0.0 0.0 TOTAL 850.3 365.9 330.3 154.1 3. THE ZIMAPAN PROJECT Original Design and Changes Made During Construction In the original design of this project, the concrete curtain was to be supported in the Canlon del Infiernillo slopes through pulvines communicating through a system of inspection and drainage galleys. The conditions found in the field forced doing without the pulvines and to construct a cave on the right shore to mount the upper part of the curtain. The design called for a spillway with a 53 single tunnel, but the extraordinary inflow that occurred in 1991 made it necessary to include an auxiliary tunnel for safety reasons. It was necessary to "tum around" the power house from its original orientation due to geological circumstances. This was done to avoid potential stability problems derived from a fault found in the excavation area. The original project envisioned that the substation and the transformers be installed in a cave. However, for safety reasons, the design was modified and the installation was left on an external platform. Project Execution and Problems Encountered As in the case of Aguamilpa, the Zimapan Project was subject to a series of contingencies derived from the extraordinary inflow which occurred in January 1991. This event forced to raise over the upstream cofferdam and caused damages on part of the roads for construction, independently from its impact on the continuity of the construction program. On the other hand, the Company contracted for the main civil works reported delays in the progress at the beginning of the works. A review of the conditions in which the works were organized, indicated the need to create additional camps to allow workers to stay close to their field of activity and avoid continuous transfers to camps located far from the site. As an additional measure, partial progress commitments were created which were met progressively until the required progress goals were achieved. Due to public expenses controls established at the national level, there was a delay in the manufacturing of electromechanical equipment given the impossibility to pay advances to the contractor because of the need to meet the financial ceilings established. Project costs COST IN MILLION (Current Prices) ITEM SAR ESTIMATE (1) ACTUAL N$ US$ NS US$ Engineering, administration and supervision of 84.8 36.9 342.5 94.4 construction Civil works 460.7 200.6 1,467.6 416.1 Resettlement and the environment 30.1 13.1 561.4 172.2 Electromechaniical equipment 96.5 42.0 516.0 135.6 Transmission lines 43.9 19.1 32.8 10.9 Physical contingencies (emergencies) 137.8 60.0 Price contingencies (escalation) 106.4 46.3 TOTAL (2) 960.2 418.0 2,920.3 829.2 (1) SAR: Staff Appraisal Report, May 1989. (2) Direct costs are reported based on accounting data. The main differences between the real and the estimated cost in the SAR are found in the expenses of the construction residency, in civil works, in the electromechanical work, and in the human resettlements program. With respect to the residency expenses, the initial estimate, based on previous experiences, consisted in considering these expenses as a percentage of the direct estimated cost of the project. 54 As the actual cost is higher than the estimated cost, the residency expenses are increased proportionally, which is justifiable by the need to open more supervision fronts during an extended period of time, in accordance with the requirements of the large extension of the works. As to the civil works, there are many items to which cost differences may be attributed, but one of the main reasons derives from a very optimistic initial estimate of the amount of works, derived that based on previous studies, more favorable geological conditions were expected than those actually found. Following is a description of the items representing the main differences. * Infrastructure. The construction of the Zimapan-Boquilla road was not planned and its construction was decided to support the infrastructure development in the State. As to the road to the engine house, the geological and surface situation found, forced making cuts in slopes higher than those estimated to provide greater stability to banks. Likewise, it was also necessary to increase the application of concrete and reinforcing steel to obtain the required stability. It became more convenient to pave the road than finishing it with only asphalt concrete given the duration of the applied materials. * Conduction tunnel. As the expected rock quality was not found and because of the convenience of reducing the hydraulic load losses, it was decided to line the tunnel with hydraulic concrete instead of launched concrete with the subsequent cost increases. It was necessary to apply great quantities of massive concrete and reinforcing steel in different areas alongside the tunnel, required on geological grounds. Likewise, it was necessary to resolve the problem created by a large cave found alongside the tunnel's path. * Curtain. The need to construct a greater number of encasement and injection tunnels forced to increase the excavations. On the other hand, it was necessary to stabilize a wide area on the gorge where the curtain was constructed, modifying the anchorage and drilling, with the subsequent cost increase. * Power house. Due to geological reasons, it was necessary to turn around the cave to construct the power house, thus it was necessary to increase the length of the tunnels and galleries, with the subsequent increase in excavations. It was necessary to fill a large number of bores on the cave because of the geological problems encountered. * Spillway. There was a strong increase in the excavations because of the convenience to construct an auxiliary tunnel for the excess works and because of the need to construct an access tunnel to the spillway which was not required in the original design. This also had an impact on the increase on the volume of reinforced concrete to be set. One of the aspects that had a significant impact on the cost increase of civil works was constituted, as was the case in the Aguamilpa Project, by the increase in labor costs. As to the electromechanical works contract, the initial estimate was low, even though it was based on documented supplier's quotations and on similar equipment costs to those that were to be installed. It should be noted that the amount of the successful bid in the electromechanical works competitive bidding was more than double the original estimate. Among the factors that further increased the costs are: * Adjustment due to financial charges on amendments to equipment delivery programs * Increases on miscellaneous supplies 55 Incorporation of import taxes that were originally paid at CFE's consolidated level As to the resettlement program, its actual cost was much higher than initially estimated, which was also lower. That is, the combination of the high actual cost with the low initial valuation exacerbate the difference. The problems encountered during negotiations with the affected people, especially with the population of the State of Queretaro, plus the local pressures to resolve the problems in the short run, gave way to the creation of unfavorable negotiation conditions. This required a systematic push to waver to the pressures (frequently excessive) of the population. More than 60% of the Resettlement Program costs corresponded to construction of towns and the new village of Bellavista del Rio in the State of Queretaro, implied almost 47% of the total Program costs. Financing MILLION OF CURRENT DOLLARS ITEM FINANCING ACTUAL Own IBRD Other COST Resources Loans Engineering, administration and supervision of construction 94.4 94.4 0.0 0.0 Civil works 416.1 166.3 124.4 125.4 Resettlement and the environment 172.2 172.2 0.0 0.0 Electromechanical equipment 135.6 23.2 0.0 112.4 Transmission Lines 10.9 10.9 0.0 0.0 TOTAL 829.2 467.0 124.4 237.8 (1) Included as "other loans" are an additional IBRD financing in the amount of US$125.4 million resulting from an undisbursed balance of Loan 3189-ME. 4. ENVIRONMENTAL PROGRAMS As part of the conditions for loan effectiveness, it was agreed with the World Bank that CFE should prepare a Resettlement and Enviromnental Impact Plan (PRIA) for each project. It was also agreed that teams should be integrated in the field to be specifically in charge of implementing such plan. These groups were formally constituted during the final phase of negotiations with the Bank, at the beginning of the works before construction. From a practical viewpoint, it may be stated that the initiation of project construction and the issuance of the General Law of Ecological Balance and Environmental Protection (LGEEPA, January 1988) coincided. This forced CFE to renew efforts on environmental matters to meet the new regulations in all new projects and to regulate all those under construction, such as Aguamilpa and Zimapan. As a condition for the construction of the projects to be approved by the authorities responsible for environmental protection, there was an initial commitment (derived from the regulations) to develop the Environmental Impact Statement (EIS) for each project. This, in turn, originated a new commitment with the World Bank. On the other hand, and also associated to the commitments established with the World Bank, the services of experts and institutions were contracted to execute an advisory and monitoring programn in accordance with the provisions of the PRIA. As recommended by the World Bank, in July 1990 a High Level Technical Committee (CTAN) was created for the Aguamilpa and Zimapan Projects, with the participation of the Technical 56 Managers (i.e., Design) and Hydroelectric Project Construction, the Manager of Civil Engineering, who at that time was in charge of an Environmental Protection Assistant Management Office, and external advisors. Especially since 1992, this Committee was decisive in the development of the environmental protection strategies to be followed. In 1992, CFE decided to create the Environmental Protection Management Office (GPA) as a central regulatory area and to support the operational areas already in existence. The recently created Environmental Protection Management Office was incorporated to CTAN and the Civil Engineering Office was dissolved. Through an agreement with CTAN, in February 1993 GPA took charge of closely supervising the activities of the local field groups. Thus, the environmental actions were redirected towards longer range objectives, although maintaining those related to meeting legislation requirements and the agreements made with the authorities. Besides, and following World Bank recommendations, five workshops were carried out to exchange experiences among local environmental protection groups from the Aguamilpa and Zimapan Projects. The Environmental Protection Management Office, in coordination with the international group E7, in September 1994 organized in Mexico City the International Environmental Protection Seminar on Hydroelectric Projects. During 1994, a series of seminars took place on environmental legislation directed to operational superintendents of CFE electric generation plants. Aguamilpa The newly created environmental protection operational group, known as the Ecology and Environmental Unit (UEMA provided technical support on environmental matters. At the beginning, the group was formed with technicians that were not experienced in multidisciplinary applications (which are typical of environmental problems). That is, initially there was no adequate planning or programming of environmental protection actions to be implemented in the works. But the lack of experience indicated was not privy to CFE and to the researchers contracted, but neither were there enough capabilities on the side of the technicians of the regulatory agency (at that time, SEDUE). The UEMA focused on the development of the Environmental Impact Statement on the basis of the scarce information then available. During the period 1991-1994, five environmental diagnosis studies were carried out in the field, five environmental forecast studies, three environmental impact studies, six fauna studies, three flora studies and the ecological organization study in the project catchment area. The latter was carried out within the cooperation agreement executed between CFE and the former SEDUE. As mitigation and compensation measures, the rescue of wild animal life was carried out, a low intake was set up to guarantee a continuous flow downstream of the curtain during the filling of the dam, a wastewater treatment system was built for the camp sewage and 226 hectares in the office, workshops, storage and access roads were reforested with local species reproduced in a plant nursery constructed for this purpose. As a result of the events listed above, it should be highlighted that the environmental protection activities in Aguamilpa had to be developed during the progress of works, always in a rush. 57 Despite this, important progress was achieved, among which the following technical achievements should be noted: - The inventory of the regional fauna and flora was carried out, represented by 535 fauna species and 882 flora species. - Knowledge was acquired of the national distribution of 57 flora species not previously reported in the Project area. - The Aguamilpa plant nursery was created, where 710,000 plants of local species were produced to reforest the above mentioned 226 hectares of different project areas. - During the filling of the dam, 6,263 fauna species were rescued, some of them with some conservation status. The rescue program was deemed a success because there was no background information or experience on the capture and handling of the different species rescued. Support was provided to different research centers and higher education institutions through its contracting to carry out specific studies. A contribution was made to enriching the main scientific collections of flora and fauna of several research institutions. - The ecological organization study carried out will eventually allow federal, state and local authorities to agree on action plans to regulate human activities in the area where the Aguamilpa Project is located, thus achieving in an indirect manner better control of the river basins in the project area. The execution of the CFE-SEDUE agreement to regulate the project on environmental matters promoted better relations between both institutions. Zimapan The environmental protection operational group, known as Zimapan Ecology and Environmental Impact Area (AEIAZ), provided technical support on environmental matters and carried out the Resettlement and Environmental Impact Plan. AEIAZ's lack of experience was to be alleviated with support from university research groups. The lack of practical experience of the latter was apparent, thus AEIAZ activities continued to be systemic (data gathering) and not of a planning nature, although preparation of the project's MIA was included. The AEIAZ, in compliance with its PRIA and as previously mentioned, focused on the development of the intermediate Environmental Impact Statement on the basis of the scarce information then available and carrying out some of the general studies related to the characteristics of the project area. In October 1989, CFE delivered the MIA for review and analysis to the environmental authority (at the time, SEDUE) and in July 1990, the agency issued a favorable decision to construct the project, subject to compliance with 46 conditions. 58 Ten environmental diagnosis studies, five fauna studies (animal life inventory), three environmental forecast studies, three environmental impact assessment studies and the ecological organization study were carried out in the project area. Also, the monitoring program on hydrobiontics, fish, amphibious and vegetation of riparic environment were initiated. As mitigation and compensation measures, the rescue of flora and fauna was carried out in the dam area. Two hundred and thirty hectares were reforested at access roads, workshops, storages and the monitoring program was initiated in accordance with the conditions set up in the MIA decision. As parallel activities, and following World Bank recommendations, five workshops were carried out to exchange experiences among local environmental protection groups of the Zimapan and Aguamilpa Projects As a result of the events listed above, it is clear that the environmental protection activities in Zimapan also had to be developed during the progress of works, always in a rush. Despite that, important progress was achieved, among which are the following technical achievements: - Ample inventories of the scarcely explored regional fauna and flora were carried out (179 fauna species and 679 flora species). - A new species of flora was collected and described. - The flora rescue activities allowed to deepen the knowledge of cactaceous (8,250 individuals rescued belonging to 45 species). - The study in depth of the site vegetation allowed the application of practical and successful measures to protect banks and reforest impacted areas which had never been experienced before. - Based on the biological studies carried out, a dam monitoring program during hydroelectric plant operations has been proposed. - Several specific studies related to environmental problems of the project were contracted, promoting scientific research and the development of several academic and/or research institutions. - Fauna species were successfully rescued during the filling of the dam, totaling 3,901 individuals belonging to 74 species. - The ecological organization study carried out will eventually allow federal, state and local authorities to agree on action plans to regulate human activities in the area where the Zimapan project is located, achieving in an indirect manner better control of the San Juan and Tula river basins. 5. RESETTLEMENT PROGRAMS As already mentioned, within the conditions for loan effectiveness, it was agreed with the World Bank that CFE should prepare a Resettlement and Environmental Impact Plan (PRIA) for each project. It was also agreed that teams should be integrated in the field to be specifically in charge 59 of implementing such plan. These groups were formally constituted during the final phase of negotiations with the Bank, at the beginning of the works prior to construction. On the other hand, and also associated to the commitments established with the World Bank, services with experts and institutions were contracted to execute an advisory and monitoring program in accordance with the provisions of the PRIA. At the recommendation of the World Bank, a High Level Technical Committee was created for the Aguamilpa and Zimapan Projects, with the participation of the Social Development Manager, the Advisor contracted to support the Program and the Instituto Nacional Indigenista (the National Indigenous Institute), in its capacity as executing body of the monitoring program. As an innovation in handling Resettlements, CFE, through the Social Development Management Office, incorporated social contents on a priority basis to the Aguamilpa and Zimapan Projects, to eliminate what social scientists call "involuntary or forced displacement" and make it a voluntary and participatory resettlement. This meant a change in institutional attitudes to face the social issues derived from construction of infrastructure works as well as the combination of technological advances and progress with social welfare. Within the frame of this institutional change, mechanisms to building consensus such as open and continuous dialogue with people of the affected towns, their authorities and the different levels or agencies involved, should be highlighted. This implied field trips in which the involved parties participated and allowed the search for effective solutions. The liaison between the Local Social Development Units and the Manager's Office itself, allowed to have a greater level of knowledge on the concerns of the populations and, at the same time, to provide the appropriate mechanisms to resolve the problems that were encountered. Also, because indigenous communities were affected both in Zimapan and in Aguamilpa, the Social Development Management Office formulated procedures to mitigate the impact caused through integration activities, promoting community participation to obtain a greater adaptation to a new social and productive environment. 1. SUMARIO EJECUTIVO. 1.1 Descripci6n del Proyecto de Desarrollo Hidroelectrico. (Pr6stamo 3083-ME). El Proyecto de Desarrollo Hidroelectrico incluy6 las cuatro partes siguientes: PARTE A Plantas de generaci6n hidroelectrica A.1 Construcci6n de la planta de generaci6n Aguamilpa A.2 Construcci6n de la planta de generaci6n Zimapan A.3 Servicios de consultores especializados para las Partes A. I y A.2 PARTE B Programa social y ambiental PARTE C Estudios relativos a la energia: * Conservaci6n y Co-generaci6n PARTE D Otros estudios: * Mejoramiento de la operaci6n del sistema electrico, Mejoramienito del sistema de administraci6n y Tarifas 1.2 Objetivos del Proyecto. 1.2.1 Promover el uso eficiente de la energia electrica. Se llev6 a cabo un Estudio de Eficiencia Operativa del Sector E1ectrico; ejecutado por la CompaCiia Coiisultora Electricite de Franice (E.D.F.) y actualmente se estan aplicando las recomendacionies derivadas del estudio en niateria de Generaci6n, Despacho de Carga, Manejo de Combustibles, Concepcion de Centrales y Transmisi6n. Asimismo, la Comisi6n Nacional para Aliorro de Energia (CONAE), dependiente de la actual Secretaria de Energia, contrat6 la ejecucion de una serie de estudios sobre ahorro de energia y co-generaci6n. En la actualidad se estAn aplicando las recomendaciones derivadas de dichos estudios. 1.2.2 Diversificar fuentes de generaci6n electrica. El cumplimiento de este objetivo, se expresa en la siguiente tabla CONCEPTO REAL A PROG. REAL A PROGRAMA DIC 1988 DIC 1994 DIC 1994 1995 POTENCIA INSTALADA 23.9 33.6 31.6 33.7 (GW) PARTICIPACION HIDROELECTRICA 32.3 26.3 28.8 29.2 (%) 1.2.3 Ampliar la cobertura de servicio electrico en el pais. Con las adiciones y modificaciones a la capacidad instalada durante 1994, una de las cuales corresponde a la entrada en operaci6n del proyecto hidroelectrico Aguamilpa, fue posible ampliar la cobertura de servicio electrico en el pais de un 92.18% (en 1993) a un 94.24% (en 1994) pasando de 18.7 a 19.4 millones de usuarios. RES-FINAL / PRESTAMO 3083-ME PA GINA I DE 10 6/1 1/96 1.2.4 Mejorar la capacidad de CFE en la ejecuci6n de programas ambientales y de reasentamientos. Con la creaci6n de las Gerencias de Desarrollo Social y de Protecci6n Ambiental, se ha incrementado de manera notable la capacidad de gesti6n de CFE en estas especialidades, habi6ndose logrado ademas la implantaci6n de criterios y guias para el estudio, manejo y seguimiento de los aspectos sociales y ambientales, desde las etapas de planeaci6n hasta la conclusi6n de los proyectos. 1.2.5 Implementar el Convenio de Rehabilitaci6n Financiera. Se considera que CFE cumplio satisfactoriamente con los objetivos establecidos en el Convenio de Rehabilitaci6n Financiera, lograndose en el afno de 1994 un cumplimiento de 97.05% en los indicadores de desempefno considerados y un cumplimiento promedio de 96.58% en el periodo 1990-1994, mejorandose en 34.5% el comportamiento de los 17 indicadores. Destaca el logro de valores superiores a la meta en 12 de los indicadores y aunque cinco de ellos registran incumplimientos, solamente en tres de estos se tieneni desviaciones mayores al 5%. Sobresale por su importancia la relaci6n precio/costo, que result6 afectada fundamentalmente por factores externos a la CFE, como fueron los correspondientes al impacto de las fluctuaciones cambiarias y a la politica de precios de los energeticos, ya que el del combust6leo present6 crecimientos importantes durante el anjo de 1994 y el precio medio de venta de la energia electrica permaneci6 practicamente constante. 1.3 Aspectos tecnicos, disefno, adquisiciones de bienes y servicios, costos, construcci6n, operaci6n y mantenimiento de los proyectos financiados. Aspectos tecnicos.- Para ambos proyectos hidroelectricos, conforme a lo previsto, se construyeron: Infraestructura temporal y permanente, Obras para desvio del rio, Conducciones de agua, Cortina, Casa de mraquinas, Vertedor, Equipainiento electromecanico, Subestaci6n electrica y lineas de transmisi6n asociadas y nuevos poblados para reacomodo, realizandose ademas los trabajos necesarios para reasentamientos huinanos e impacto ainbiental. Se consider6 que la central de Aguamilpa contara con una potencia total instalada de 960 MW para una generaci6n media anual de 2,131 GWh y que la central de Zimapan tuviera una potencia instalada de 280 MW con una generaci6n media anual de 1,291 GWh. Zimapan qued6 finalmente con una potencia instalada de 292 MW. Disefio.- La totalidad del diserio de las obras civiles principales fue realizado por CFE y se previ6 contratar la obra electronecfinica bajo la modalidad "Llave en mano", considerando el diserio, suministro, pruebas y puesta en servicio de los equipos. En el caso particular de la cortina de Zimapain, se contrataron especialistas como apoyo para el disefio. Adquisiciones de bienes y servicios.- Para la contrataci6n de las obras civiles principales, conforme a lo pactado con el Banco, se realiz6 una licitaci6n internacional. La adquisici6n de los equipos electromecanicos se licit6 tambien internacionalmente, solicitando su financiamiento total por parte de los proveedores. Las obras civiles complementarias y la construcci6n de los poblados de reacomodo se contrataron con empresas nacionales, considerando la necesidad de tener derramas econ6micas que beneficiaran a las localidades donde se construyeron los proyectos. RES-FINAL I PRESTAMO 3083-ME PA GIIVA 2 DE 10 6/11/96 Para la contrataci6n de asesores especializados en construcci6n de obras civiles y para, tambien conforme a lo pactado, se realiz6 una selecci6n de entre los posibles candidatos con reconocimiento del Banco Mundial. Respecto a los estudios a cargo de la CONAE y de CFE y para la asesoria destinada a los aspectos sociales y ambientales, la contrataci6n se realiz6 mediante un proceso de invitaci6n directa a empresas e instituciones, previa aceptaci6n del Banco. Costo y financiamiento.- El resumen del costo y financiamiento del Proyecto de Desarrollo Hidroelectrico es el siguiente: C O N C E P T OS MILLONES DE DOLARES CORRIENTES ESTIMADO REAL APORTACION SAR (1) DEL BANCO (2) PARTE A A.1 Construcci6n de la planta de generaci6n 858.0 850.3 330.3 Aguamiilpa A.2 Construcci6n de la planta de generaci6n Zimapan 418.0 829.2 124.4 A.3 Servicios de consultores especializados para las 0.0 0.5 0.0 Partes A. I y A.2 PARTE B Programa social y ambiental 4.4 1.3 0.0 PARTE C Estudios relativos a la energia: 4.2 4.3 3.0 * Conservaci6n y Co-generaci6n PARTE D Otros estudios: 2.2 2.3 2.3 * Mejoramniento de la operaci6n del sistemna electrico, Mejoramiento del sistema de admninistraci6n y Tarifas T O T A L 1,286.8 1,687.9 1 460.0 (1) Incluye un financiamiento por 266.5 para la obra electromecalnica de los proyectos. (2) No incluye 125.4 millones de dMlares remanentes del Prestaino 3189-ME que se aplicaroni a las obras civiles de Ziimapan. Construcci6n.- Todos los trabajos de construcci6n se realizaron a traves de las em presas contratistas, salvo las obras iniciales de desvio del Rio Santiago para Aguamilpa, que se ejecutaron por administraci6n directa. Una vez que se adjudic6 el contrato, la contratista continu6 con los trabajos. CFE se encarg6 de la supervisi6n de la ejecuci6n de las obras, apoyandose en contratistas especializados para complementar su cobertura. Operacion.- Desde antes de iniciar el montaje electromecanico se cont6 en ambos proyectos con la presencia de personal tecnico de la Subdirecci6n de Generaci6n, que es el area encargada de recibir las obras terminadas y de operarlas. La central de Aguamilpa comenz6 a aportar su energia al Sistema Electrico en el mes de julio de 1994 y la central de Zimnapan inici6 en el mes de septiembre de 1995. Conforme a lo esperado, las centrales lhan operado de manera satisfactoria y los eventuales problemas en el funcionamiento de los equipos lhan sido resueltos conforme a las garantias ofrecidas por los proveedores. La producci6n, de acuerdo a lo previsto, se sujeta a los requeriinientos de la demanda. No se dispone aun de estadisticas que reflejen el efecto benefico de la energia suministrada por las Centrales Aguamilpa y Zimapan. RES-FINAL / PRESrAMO 3083-ME PAGINA 3 DE 10 6/11/96 Se tiene implantada la organizaci6n necesaria para garantizar la operaci6n ininterrumpida de las instalaciones, para procurar el mantenimiento requerido y para asegurar el suministro oportuno de los insumos que exige la operaci6n de las centrales, incluyendo la capacitaci6n y desarrollo de los recursos humanos. La estructura orgainica que se ha establecido en cada una de las centrales es la siguiente: SUPERINTENDENCIA | EN ERAL ADMJNISTRAC l>N UPERINYEMDENCIA IENKRAl- Do #PROCUCC845N GENE RALALE ~RSUMIUISTYOB IRhAT Mantenimiento.- De acuerdo a los criterios y normas establecidos por la Subdireccion de Generaci6n, se tiene previsto aplicar un sistema de revisiones peri6dicas a cada una de las estructuras que constituyen la central, independienteineite de lo establecido en cuanto a las revisiones posteriores a eventos sismicos. Las revisiones sistematicas dan la pauta para el mantenimiento preventivo de la parte civil. Los manuales de operacion y servicio para el equipo electromecanico y la instrumentaci6n proporcionan los indicativos para su mantenimiento preventivo y correctivo. Los indices de control de gestion considerados para la operaci6n de las centrales son los siguientes: Disponibilidad (D). HP - ( HFSF + HFSMP + HEFSD + HFSFG + HFSCA) D = - - ------- - --------- - -- - ----- -------- x 100 HP Donde: HP = Horas del periodo HFSF = Horas fuera de servicio por falla HFSMP = Horas fuera de servicio por mantenimiento programado HEFSD = Horas equivalentes fuera de servicio por decremento en producci6n HFSFG = Horas fuera de servicio por falta de agua HFSCA = Horas fuera de servicio por causas ajenas al proceso Indisponibilidad por mantenimiento (INDMP). HFSMP INDMP -------- x 100 HP RES-FINAL i PRESTAMO 3083-ME PA GINA 4 DE 10 6/11/96 1.4 Opini6n sobre el desempefio de NAFIN en la implementaci6n del Proyecto. Se considera que la participaci6n de NAFIN como agente financiero fue de grani ayuda para lograr que CFE pudiera ejercer en su totalidad el credito otorgado, dada su capacidad negociadora ante el Banco y su disposici6n y atenci6n para resolver oportunamente los imprevistos que se presentaron. 1.5 Opini6n sobre el desempeno del Banco Mundial. Dentro del ambito de su competencia, el manejo que dio el Banco a la operaci6n del credito fue siempre el adecuado, mostrando invariablemente una gran disposici6n para tomar acuerdos satisfactorios para todas las partes en los aspecto que eventualmente presentaban algun conflicto. A titulo de sugerencias, a continuaci6n se presentan algunos aspectos que en opini6n de las diferentes areas de CFE que interactuaron con el Banco, seria conveniente considerar para futuras operaciones. * Ampliar las facultades del Representante del Banco en la Ciudad de Mexico, especialmente en lo referente a tramites que requieren del otorgamiento de la "No Objeci6n"; lo anterior permitiria una administraci6n y operaci6n mas expedita de los recursos objeto del prestamo. * Procurar que los especialistas que acomparian al oficial de proyecto en las misiones de evaluaci6n y de supervisi6n tengan permanencia durante la ejecuci6n del proyecto, para una mayor claridad en la interpretaci6n de la problematica que se presente, asi como de las propuestas y recomendaciones para encontrar altermativas de soluci6n acordes tanto con la realidad como con la posibilidad practica de implantarlas. * Ampliar la cobertura de los esquemas de financiamniento del Banco para que futuras operaciones sean finuaniciadas bajo el concepto de "Ilave en mano", a fin de asegurar la integralidad del proyecto. * Duranite la operaci6n del credito surgieron algunas complicaciones para que el Banco autorizara el pago de las estimaciones para los contratos de obras civiles, dado que al incluirse los ajustes de costos por escalaciones se alcanz6 rapidamente el mionto autorizado expresado en pesos, no obstante de que no se habia agotado la cantidad asignada expresada en dMlares. Esto se present6 debido a la situaci6n cambiaria y a la inflaci6n que prevalecian en esa etapa del Proyecto. Seria convenienite que las cifras que el Banco apruebe al adjudicarse un contrato, se expresen solamente en dMlares y que sea considerado indistinitamente el pago de estimacionies y ajustes de costos (al tipo de cambio que corresponda) lhasta agotar el monto asignado del credito. 1.6 Opini6n sobre el desempefio de otras entidades directa o indirectamente involucradas. Se considera conveniente que en el futuro no se imvolucren en un mismo proyecto fondos para dos ejecutores diferentes a fin de evitar la falta de continuidad en el desarrollo de los estudios, asi como retrasos en los plazos de ejecuci6n de los contratos, lo que en uiltima instancia tiene efecto en el pago oportuno a los consultores contratados. En materia de Protecci6n Ambiental y derivado de la experiencia adquirida, es conveniente que en lo sucesivo se tomeii acuerdos que comprometain en mayor medida a los diferentes niveles y dependencias de gobierno a fin de que apoyen, intervengan y se hagan responsables de las actividades que caen dentro de su ambito de competencia, con lo que se podra efectuar una transmisi6n clara de obligaciones ambientales liacia los diferentes responsables durante la fase final de la construccion. RES-FINAL / PRESTAMO 3083-ME PA GINA S DE 10 6/11/96 2. Proyecto Aguamilpa. 2.1 Disefio original y cambios introducidos durante la construcci6n. 'Conforme al disenio original, se preveia que el cuerpo de la cortina fuese construido esencialmente con aluvi6n. Por necesidades de programaci6n y disponibilidad de materiales se construy6 fundamentalmente de enrocamiiienlto en vez del aluvi6n, modificandose con esto el volumen de materiales colocados y las dimenisioines de la cortina. El proyecto original previ6 que la subestacion y transformadores se instalaran en una caverna. Por razones de seguridad se modific6 el disefno quedando la instalaci6n en una plataforma exterior. Con la finalidad de asegurar que no se tuvieran derrumbes, dada la poca estabilidad que se encontr6 en la ladera donde se construy6 el vertedor, se modificaron las caracteristicas y dimnensiones de este para que en el caso de operarlo, la descarga se hiciera a una elevaci6n mas baja que la originalmente prevista. Por requerimientos establecidos por la Comisi6n Nacional del Agua y como una medida complementaria para mitigar el impacto ambiental ocasionado por la suspensi6n del flujo del rio, fue necesario incluir una descarga de agua para riego para ser utilizada durante el Ilenado del embalse. Este dispositivo no estaba previsto en el disenio original. A solicitud de las autoridades locales y por la conveniencia de transportar con mayor facilidad el equipo electromecainico que se recibia, se construy6 un libramiento carretero que permiti6 la llegada de los transportes a la obra sin pasar por la Ciudad de Tepic. Esta obra de infraestructura no estaba considerada originalimlenlte. 2.2 Ejecuci6n del proyecto y problemas encontrados. Al illiciO de 1991 se present6 una avenida extraordinaria con un gasto mayor que el maiximo registrado en los estudios hidrol6gicos, la cual caus6 danios y derrlimbes en los tuneles de desvio y en la vialidad para construcci6n, ademas de provocar la inundaci6n del recinto en que se estaba construyenldo la cortina. La rehabilitaci6n de los danios provoc6 un incremento en la cantidad de obra a realizar sin posibilidad de modificar el plazo de terminaci6n de los trabajos. Para satisfacer la demanda esperada de energia electrica, se decidi6 acelerar el programa de construcci6n del proyecto, por lo que la terminaci6n se adelant6 un a-no con respecto a lo previsto en los estudios desarrollados conjuntamente con el Banco Mundial. Esto represent6 que la contratista redujera en seis meses el plazo de ejecuci6ii pactado originalmente. 2.3 Origen de las principales diferencias en costo. Aunque la diferencia entre el costo real y el estimado de las obras civiles deriva de una infinidad de conceptos, la mayor parte de ellos estan vinculados con el acortamiento del programa de construcci6n, que en su momento se sujet6 a un analisis beneficio/costo resultando conivenienite en cuanto a la ventaja de contar con antelaci6n con la energia producida por el proyecto. Uno de los aspectos que tuvo una incidencia significativa en la variaci6n del costo de las obras civiles lo constituye el aumento en el precio de la mano de obra. Tocante al contrato de obra electromecanica, se cubri6 la totalidad de lo previsto y se realizaron una serie de Conveniios modificatorios para considerar aspectos no incluidos originalmente, los cuales son la causa de la diferencia entre el costo real de este concepto y su costo estimado. RES-FINAL / PRESTAMO 3083-ME PA GINA 6 DE 10 6/11/96 Cabe senialar que por el alto costo financiero, se decidi6 que la componente nacional (constituida esencialmenite por el montaje) se pagara a precio variable con recursos propios. 3. Proyecto Zimapan. 3.1 Disefio original y cambios introducidos durante la construcci6n. En el diseino original de este proyecto, se previ6 que la cortina de concreto quedara apoyada en las laderas del Cafi6n del Infiernillo mediante pulvinos y comunicada con un sistema de galerias de inspeccion y drenaje. Las condiciones encontradas en campo obligaron a prescindir de los pulvinos y a construir una caverna en la inargen derecha para el empotramiento de la cortina en su parte superior. Se previ6 en el diserio un vertedor con un solo tunel, pero la avenida extraordinaria que se presento en 1991 bizo conveniente incluir un tunel auxiliar por razones de seguridad para el control de avenidas. Por razones geologicas fue necesario "girar" la casa de maquinas respecto a su orientaci6n original, a fin de evitar los posibles problemas de estabilidad derivados de una falla encontrada en la zona de excavacion. El proyecto original previo que la subestaci6n y transformadores se instalaran en una caverna, sin embargo, por razones de seguridad se modifico el disefio quedando la instalacion en una plataforma exterior. 3.2 Ejecuci6n del proyecto y problemas encontrados. Al igual que en el caso de Aguamilpa, el proyecto Zimapin se vio sujeto a una serie de contingencias derivadas de la avenida extraordinaria que se presento en enero de 1991. El evento oblig6 a sobreelevar la ataguia de aguas arriba y ocasion6 daFios en parte de la vialidad para construcci6n, independiente de su efecto en la continuidad del programa de construcci6n. Por otro lado, la empresa contratada para las obras civiles principales reportaba atrasos en su avance al inicio de los trahajos. La revisi6n de las condiciones en que estaba organizado el trabajo indico que era necesario crear campamentos adicionales que permitieran la estancia de los trabajadores en la zona cercana a su frente de activi,.anes, para evitar el traslado continuo a campamentos mas alejados. Derivado de los controles del gasto publico establecidos a nivel nacional, se present6 un retraso en la fabricaci6n del equipo electromecanico debido a la imposibilidad de pagar anticipos a la contratista por la necesidad de cumplir con los techos financieros marcados. 3.3 Origen de las principales diferencias en costo. En lo que se refiere a los gastos de residencia, la estimaci6n inicial, basada en experiencias previas, consisti6 en considerar estos gastos como un porcentaje del costo directo estimado del proyecto. Al ser el costo real superior al estimado, los gastos de residencia se incrementan proporcionalmente, lo cual es justificable por la necesidad de abrir mas frentes de supervisi6n durante mas tiempo, conforne a lo que demandaba la gran dispersi6n de la obra. En cuanto a las obras civiles, existen una infinidad de conceptos a los que se puede atribuir la diferencia en costos, pero una de las razones principales resulta de una muy optimista estimaci6n inicial del importe de las obras, derivada de que en funci6n de los estudios previos, se esperaban condiciones geol6gicas mas favorables de las que se enconitraroni en la realidad. RES-FINAL / PRESTAMO 3083-ME PAGINA 7DE10 6/11/96 Uno de los aspectos que tuvo una incidencia significativa en el incremento del costo de las obras civiles lo constituye, al igual que en el caso del proyecto Aguamilpa, el aumento en el precio de la mano de obra.. En cuanto al contrato de obra electromecanica se considera tambien que el estimado inicial fue escaso, aunque estaba documentalmente basado en cotizaciones de proveedores y en costos de equipos similares a los que se pensaba instalar. Es notorio el hecho que el monto de la oferta ganadora en la licitaci6n de la obra electromecanica, fue mas del doble de lo que se estimaba originalmente. Tocante al programa de reasentamientos, su costo real fue muy superior al estimado inicialmente, el cual tambien result6 escaso. Es decir, la combinaci6n del elevado costo real con la baja valuaci6n inicial, acentuan la diferencia. Los problemas que se presentaron durante las negociaciones con los afectados, principalmente con la poblaci6n del Estado de Queretaro, y las presiones locales para resolver en corto plazo los problemas, dieron pie a no contar con condiciones favorables para la negociaci6n, por lo que se requiri6 ceder sistematicamnente a las peticiones (frecuentemente excesivas) de la poblaci6n. Mhs del 60% del costo del Programa de reasentamientos, correspondi6 a la construcci6n de poblados y el nuevo poblado de Bellavista del Rio, en el estado de Queretaro, implic6 casi el 47% del costo total del Programa. 4. Programas ambientales. Como una parte de las condiciones para efectividad del Prestamo, se acord6 con el Banco Mundial que CFE debia elaborar un Plan de Reasentamientos e Impacto Ambiental (PRIA) para cada proyecto y que debian integrarse en campo grupos especificamnente encargados de ejecutar dicho plan, mismos que quedaron fornialmente integrados durante la etapa final de las negociaciones con el Banco, al inicio de los trabajos previos a la construcci6n. Desde el punto de vista tecnico-administrativo se obtuvieron experiencias valiosas, algunas de las cuales se estan aplicaiido en nuevos proyectos , tales como la intervenci6n del hrea normativa ambiental desde la formulaci6n de las especificaciones para contratar obras y elaboraci6n de manifestaciones de impacto ambiental y ia elaboraci6n de informes tecnico-administrativos peri6dicos y tambien la elaboraci6n de un inforine final de actividades. Por recomendaci6n de El Banco Mundial, en julio de 1990 se cre6 el Comite Tecnico de Alto Nivel (CTAN) para los proyectos Aguamilpa y ZimapAn. Especialmente a partir de 1992, este cornite fue decisivo en el desarrollo de las estrategias de proteccion ambiental a seguir. Ademnas, y en atenci6n a las recomendaciones de El Banco Mundial, se realizaron cinico talleres de intercamnbio de experiencias entre los grupos locales de protecci6n ambiental de los proyectos Aguamilpa y ZimapAni y una serie de semiinarios sobre legislaci6n ambiental dirigidos a los superintendenfes de operaci6n de las centrales de generaci6n elctrica de CFE. En el periodo 1991 - 1994 se realizaron para Aguamilpa cinco estudios de diagn6stico ambiental en campo, cinlco de pron6stico ambiental, tres de evaluaci6n de impactos ambientales, seis de fauna, tres de flora y el estudio de ordenamiento ecol6gico del hrea de influencia del proyecto. Comno medidas de initigaci6n y compensaci6n se realiz6 el rescate de fauna silvestre, se instal6 una toma baja para garantizar un flujo permanente aguas abajo de la cortina durante el llenado del embalse, se construy6 un sistema de tratamiento para aguas residuales del campamento y se reforestaron 226 ha de areas de oficinas, talleres, almacenes, campamentos y caminos de acceso, con especies reproducidas en un vivero construido ex profeso en donde se produjeron 710,000 plantas de especies locales. RES-FINAL / PRESTAMO 3083-ME PA GINA 8 DE 10 6/11/96 Se realiz6 el estudio de ordenamiento ecol6gico que eventualmente permitira a las autoridades federales, estatales y municipales acordar planes de acci6n para regular las actividades humanas en la zona donde se ubica el P.H. Aguamilpa En octubre de 1989 CFE entreg6 a la autoridad ambiental (SEDUE en ese entonces) la Manifestaci6n de Impacto Ambiental del P.H. Zimapan para su revisi6n y analisis y en julio de 1990 dicha dependencia emiti6 su dictainen favorable a la construcci6n del proyecto, sujeto al cumplimiento de 46 condicionianites. Se realizaron para el P.H. Zimapan diez estudios de diagn6stico ambiental, cinco estudios de fauna (inventario faunistico), tres de pron6stico ambiental, tres de evaluaci6n de impactos ambientales y el estudio de ordenamiento ecol6gico de la zona del proyecto. Como medidas de mitigaci6n y compensaci6n se realiz6 el rescate de flora y fauna silvestres en el area del embalse y se revegetaron 230 ha en zonas de caminos de acceso, talleres, almacenes y campamentos, juunto con lo relativo a las condicionantes impuestas al proyecto por la autoridad ambiental. 4.1 Indicadores ambientales. Una vez transferida la responsabilidad al area de operaci6n de las centrales, se realizara lo siguiente: 4.1.1 Central Hidroelectrica Zimapan. * Monitoreo de la calidad del agua del manantial Taxid6 para prevenir su contamiiaci6n. * Seguiimniento de la evoluci6n de la calidad del agua del embalse. * Monitoreo de la calidad de las aguas residuales descargadas por las instalaciones de la central. 4.1.2 Central Hidroelectrica Aguamilpa. * Seguimiento de la evoluci6n de la calidad del agua del embalse. 4.1.3 M-arco institucional. La Gerencia de Protecci6n Ambiental continuarA realizando los siguiente: - Un promedio anual de 25 inspecciones ambientales a las instalaciones de CFE, orientadas a verificar Oi cumplimiento de la normatividad aplicable. a Un proinedio anual de ocho eventos internos de capacitaci6n para difusi6n del marco juridico a que se deben sujetar las instalaciones en materia ambiental. * Desarrollo de un promedio anual de ocho documentos de normatividad interna para la protecci6n ambiental (procedimientos, guias y criterios tecnicos). 5. Programas de reasentamientos. Por recomendaci6n del Banco Mundial y al igual que para el programa ambiental, se cre6 el Comite de Alto Nivel para los proyectos Aguamilpa y Zimapan. Como una innovaci6n en el tratamiento de los Reasentamientos, la CFE a traves de la Gerencia de Desarrollo Social incorpor6 de manera prioritaria contenidos sociales a los proyectos de Aguamilpa y Zimapan, a fin de eliminar lo que los cientificos sociales denominan "desplazamiento involuntario o compulsivo" y transformarlo en un reacomodo voluntario y participativo. RES-FINAL / PRESTAMO 3083-ME PAGINA 9 DE 10 6/11/96 El enlace entre las Unidades Locales de Desarrollo Social y de la propia Gerencia, posibilit6 contar coII un mayor conocimiento acerca de las inquietudes de las poblaciones y, al mismo tiempo, proporcionar los mecanismos id6neos para la soluci6n de los problemas que se fueron presentando. Asimismo, dado que tanto en Zimapan como en Aguamilpa se afect6 a comunidades indigenas, la Gerencia de Desarrollo Social plante6 procedimientos orientados a mitigar el impacto causado a traves de actividades de integraci6n, proinoviendo la participacion comuunitaria para obtener una mayor adaptaci6n al nuevo cntorino social y productivo. 5.1 Indicadores sociales 5.1.1 Central hidroelectrica Zimapan. * Nuevos poblados * Restituci6n productiva * Proyectos productivos 5.1.2 Central hidroelectrica Aguamilpa. * Nuevos poblados * Restituci6n productiva * Proyectos productivos La Gerencia de Desarrollo Social implementara los procedimientos y guias necesarios para que las actividades de monitoreo especificas para los proyectos Aguamilpa y Zimapan sean realizadas por personal de las centrales. RES-FINAL I PRESTAMO 3083-ME PAGIINA 1ODE 10 6/11/96 60 APPENDIX C OPERATIONAL PLAN TO MONITOR CFE'S FUTURE OPERATIONS SUBDIRECCION TECNICA GERENCIA DE INGENIERIA EXPERIMENTAL t ?~~~;, Y CONTROL 841.02-2687/96 PROGRAMAS PARA ATENDER EN 1997 PRINCIPALES CENTRALES GENERADORAS EN LAS REGIONES DE GENERACION HIDROELECTRICA GRIJALVA, BALSAS SANTIAGO, IXTAPANTONGO, YAQUI-MAYO Y PkPALOAPAN Subgerencia de Comportamiento de Estructuras Departarnento de Ingenieria Electrornecdnica Departamento de Procesamiento A Anrlisis COMISION FEDERAL D°E ELECTRICIDAD '.. IMAGING Report No R 6836 Type: ICR