Abel López
Urban Transport Specialist
World Bank Group
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View from the Top

World Class Ambitions for Transport

Thu, 09/01/2016 - 17:06

Q: From an economic and financial standpoint, what is the Mexican transport system missing to become world-class?

A: The federal government must work with states and municipalities to develop legal and institutional adjustments that would make private companies and financial institutions more comfortable investing, whether it is in new transport units or to lower the cost of financing. The authorities are responsible for creating an environment in which new entrants feel protected enough to take the risk.

Exclusivity is still a sensitive area, since private investors want to know that their investment will be protected from competition for a certain amount of time. Ideally, exclusivity and legislative protection must go hand-inhand with a tariff policy. Companies demand a guarantee that their costs will be covered in the case of fluctuations in fuel or maintenance costs, as well as certainty that the infrastructure will be ready when their units arrive on location. These elements, while intangible, must be included in a well-structured plan, alongside sanctions to ensure all users respect the new transportation system.

Q: How does the World Bank work with the government to minimize project risks and incentivize private investment?

A: Guarantees depend on the level of risk but private entities will always invest in risky projects if they provide higher returns. The management of projects that are both privately and publically funded can be complicated as it is unclear who should provide protectionist policies. These investments must be backed up, or the government should compensate the investor should the authorities fail to comply with their own stipulations. For BRT systems requiring private participation, the National Bank of Construction and Public Services (BANOBRAS) advocates for project finance plans to lower financing costs by better aligning incentives and by reallocating risks among stakeholders through the Urban Transport Transformation Program (UTTP). While these projects require substantial changes in regulations, they are essential to ensure that fares remain in line with average income, encouraging private entities to provide better credit conditions to investors.

Q: How is the World Bank participating in the introduction of NOM-044-related restrictions for trucks and buses?

A: The element holding back the sector is fuel availability in the country. Ultra-low sulfer diesel (ULSD) is easily attainable near the US border or in Mexico City, but not in the rest of the country. Natural gas could be an excellent alternative but transport companies are reluctant to invest in equipped units until the supply network is in place. This structural problem makes it difficult for us to financially incentivize the use of the latest technology and our hands are tied until regulations are altered. In terms of delays or changes to project completion schedules, our intervention can go no further than discussions with the government, unfortunately. However, the Bank and BANOBRAS have never turned down a well-structured project, especially if it includes the latest green technology available.

Q: How is World Bank helping the government reach environmental targets through emission reducing initiatives?

A: Besides the UTTP initiative, we have a Sustainable Transport and Air Quality grant of US$5.38 million offered by the Global Environment Fund. These resources support select municipalities such as Ciudad Juarez, Leon, Monterrey and Puebla to limit greenhouse emissions, contributing to the institutional coordination between federal and regional governments. Through the UTTP and its concessional loans, we want to incentivize the construction of cycle lanes, reduced speed zones, accessibility solutions and other projects that contribute to a sustainable goal.

We have also initiated work with the Ministry of Environment and Natural Resources on clean freight transportation. The Ministry launched a program called Clean Transport, which includes a measure known as the green zone that shows how a vehicle can be driven most economically. When drivers remain within the green zone, 15-20 percent of fuel costs can be reduced. By creating a culture of looking after transport units, we can extend the life-span of any vehicle, while also helping the environment.