March 26th, 2010
The World Bank approved a $350 million loan to support an initiative aimed at improving Mexico’s public transportation system, which includes expanding its service network with little impact on the environment. The Urban Transportation Transformation Project will be rolled out in several Mexican cities with the goal of “greening” Mexico’s transportation sector, currently responsible for the emission of almost a fifth (or 18%) of the greenhouse gases produced by Mexico, in turn one of the biggest emitters of CO2 in the region. The initiative’s objective is to reduce emissions by 2 million tons by 2017, as it increases the number of integrated mass transit corridors, therefore expanding public transportation and its role in urban mobility.
Afflicted by a growing rate of vehicle penetration, an urban structure unfavorable to public transportation as well as aging and energy-inefficient fleets, the transportation sector sits high on the government’s and the private sector’s agenda. It is estimated that the project will attract $2.3 billion in public and private investment, which amounts to 87% of its total cost. The project’s financing includes a classic $150 million World Bank loan and a $200 million concessional loan from the Clean Technology Fund (CTF). The CTF loan includes concessional conditions –very low financial costs– and is the first one approved in Latin America and the first one for the transportation sector worldwide. Its objective is to establish incentives to speed up the transition to a low carbon economy.
“The power of this program rests in the combination of local urban transportation agendas, the national poverty reduction agenda and the global climate change agenda,” said Gloria Grandolini, World Bank Director for Colombia and Mexico.“Moreover, helping middle income countries -such as Mexico- access concessional financing and also become partners in managing financial risks in view of volatile capital markets, is an important contribution by the Bank,” she added.
The loan is an integral part of the Bank’s support to Mexico’s efforts on climate change and broadens the transformations initiated by a $1.5 billion loan (approved by the WB in October 2009) to support public policies that boost the economy and reinforce the framework for long-term sustainable growth. Mexico created the Federal Mass Transit Support Program (PROTRAM, in Spanish) within the National Infrastructure Fund (FONADIN, in Spanish) to improve the efficiency of its urban transportation sector and put it on a low-carbon growth path. The World Bank-financed project seeks to complement PROTRAM’s efforts and emphasizes mass transit systems and measures such as integral planning, investments designed to increase public transportation use, investments in pedestrian and bicycle transportation and buses with low-emission technology. Growth rate of Mexico’s automotive fleet is approximately 10% annually, while private transportation represents 80 percent of the total fleet but is used by just 20% of the population. On top of that, most cities face institutional and regulatory weaknesses with regards to their policy frameworks and transportation planning, as well as limited maintenance and operational budgets – barriers that this project intends to eliminate.
The project consists of three parts:
- Strengthening institutional capacities through technical assistance and training for various cities in the country in order to develop or reinforce local urban transportation programs.
- Development of Integrated Transportation Systems to reduce CO2 emissions, by way of mass transit corridors and the implementation of technological solutions to reduce GHG emissions.
- Project administration, including the implementation of a technical monitoring system and the oversight of participating entities.
The organization responsible for implementing this loan is the National Public Works and Services Bank (Banco Nacional de Obras y Servicios Públicos, BANOBRAS), which, during the technical implementation phase, will act in coordination with the FONADIN, a trust fund managed by the PROTAM. The total cost of this project is $2.69 billion, of which $150 million will be financed by the WB; $200 million by the CTF (a WB-administered fund); $767.5 million by the FONADIN; $737.5 million by local governments; and $839 million by the private sector. The co-financing scheme between the WB and the CTF delivers very competitive financing costs, which facilitates project implementation. Additionally, the operation is considered to be financially innovative as it includes flexible terms and risk management options that will allow Mexico to cover interest rate, currency and repayment risks. This is an investment-specific loan, denominated in US dollars, with the option of converting it to Mexican pesos, to be disbursed over seven years, with a maturity period of 13 years starting after the disbursement date.
Clean Technology Fund
The Clean Technology Fund is a recently established financial mechanism with US$ 5.2 billion in multilateral funding, managed by the World Bank and other development banks. The governments of Australia, France, Germany, Japan, Spain, Sweden, the United Kingdom and the United States have contributed to this fund. It was created with the intention of granting low-interest funding to expand the use of low carbon-intensity technologies and reducing greenhouse gas emissions until a new global agreement on climate change is negotiated and implemented.