Document of The World Bank

Report No: 34048-MX

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CARBON FINANCE OPERATION

IN THE AMOUNT OF UP TO US$2.4 MILLION

TO

METROBUS

FOR THE

MEXICO CITY INSURGENTES BUS RAPID TRANSIT SYSTEM CARBON FINANCE PROJECT

Environmentally & Socially Sustainable Development Department Colombia and Mexico Country Management UnitLatin America and Caribbean Region

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

(Exchange Rate Effective )

Currency Unit = 1 US dollar (USD) = 10.875 Mexican Pesos (MXN)

FISCAL YEAR2006 -- 2020

ABBREVIATIONS AND ACRONYMSAQM Air Quality ManagementBAU Business As UsualBRT Bus Rapid Transit SystemCCO Climate Change OfficeCDCF Community Development Carbon FundCDM Clean Development MechanismCERs Certified Emission ReductionsCF Carbon FinanceCH4 MethaneCNG Compressed Natural Gas CISA Corredor Insurgentes Sociedad AnonimaCO Carbon MonoxideCO2 Carbon DioxideCOP Conference of the PartiesCPS Country Partnership StrategyDAS Development Assistance ServiceDNA Designated National AuthorityEA Environmental AssessmentEIA Environmental Impact AssessmentELACDF Estrategia Local de Accion Climatica para el DFEMP Environmental Management PlanEPA Environmental Protection AgencyERPA Emission Reduction Purchase Agreement FIMEVIC Fideocomiso de Mejoramiento de las Vias de ComunicacionGEF Global Environmental FacilityGHG Greenhouse GasGOM Government of MexicoGTF German Trust FundIBRD International Bank for Reconstruction and DevelopmentICR Implementation Completion ReportIDF Institutional Development FundIFC International Finance CorporationINAH Instituto Nacional de Antropologia e Historia INBAL Instituto Nacional de Bellas Artes y LiteraturaIPCC Intergovernmental Panel on Climate ChangeIRR Internal Rate of Revenue

LPG Liquified Petroleum GasMCMA Mexico City Metropolitan AreaMZVM Metropolitan Zone of the Valley of MexicoNMB New Baseline MethodologyNMM New Monitoring MethodologyNMT Non-motorized-transportNGO Non Governmental OrganizationNOX Oxides of NitrogenNPV Net Present ValueOECD Organisation for Economic Co-operation and DevelopmentPCN Project Concept NotePCF Prototype Carbon FundPICCA Programa Integral para el Control de la Contaminacion Atmosferica

(Integral program for the control of the atmospheric pollution)PIN Project Idea NotePDD Project Design Document PKT Variable; Passenger-km-traveledPM Particulate MatterPPP Private Public PartnershipPROAIRE Program of Air Quality improvement for the

Metropolitan Area of the Valley of MexicoQA/QC Quality Assurance/ Quality ControlRTP Red de Transporte de PasajerosSEDUVI Secretaria de Desarrollo Urbano y Vivienda SEMARNAT Secretaria de Medio Ambiente y Recursos NaturalesSETRAVI Secretaria de Transporte y de ViabilidadSMA Secretaria de Medio Ambiente del Distrito Federal SO2 Sulfur DioxideSSP Secretaria de Seguridad PublicaUNFCCC United Nations Framework on Climate Change ConventionVKT Variable; Vehicle-km-traveledVOC Volatile organic compounds

Vice President: Pamela CoxCountry Manager/Director: Isabel Guerrero

Sector Manager/Director: John Redwood Task Team Leader/Task Manager: Walter Vergara

MEXICOMEXICO CITY INSURGENTES BUS RAPID TRANSIT SYSTEM CARBON FINANCE

PROJECT

CONTENTS

A. Project Development Objective Page

1. Project development objective 2 2. Key performance indicators 2

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 3 2. Main sector issues and Government strategy 4 3. Sector issues to be addressed by the project and strategic choices 7

C. Project Description Summary

1. Project components 8 2. Key policy and institutional reforms supported by the project 9 3. Benefits and target population 10 4. Institutional and implementation arrangements 11

D. Project Rationale

1. Project alternatives considered and reasons for rejection 11 2. Major related projects financed by the Bank and/or other development agencies 12 3. Lessons learned and reflected in the project design 13 4. Indications of borrower and recipient commitment and ownership 13 5. Value added of Bank and Global support in this project 13

E. Summary Project Analysis

1. Economic 14 2. Financial 16 3. Technical 16 4. Institutional 17 5. Environmental 18 6. Social 19 7. Safeguard Policies 21

F. Sustainability and Risks

1. Sustainability 22 2. Critical risks 22 3. Possible controversial aspects 24

G. Main Conditions

1. Effectiveness Condition 24 2. Other 24

H. Readiness for Implementation 24

I. Compliance with Bank Policies 24

Annexes

Annex 1: Project Design Summary 26Annex 2: Detailed Project Description 28Annex 3: Estimated Project Costs 36Annex 4: Cost Benefit Analysis Summary, or Cost-Effectiveness Analysis Summary 37Annex 5: Financial Summary for Revenue-Earning Project Entities, or Financial Summary 38Annex 6: Procurement and Disbursement Arrangements 39Annex 7: Project Processing Schedule 41Annex 8: Documents in the Project File 42Annex 9: Statement of Loans and Credits 43Annex 10: Country at a Glance 46Annex 11: Generic Methodology for measurement of CO2 ER from Transport 48Annex 12: Environmental Impact Assessment 70Annex 13: Financial Analysis and Economic Analysis 72Annex 14: Local Climate Change Strategy of Mexico City 79Annex 15: Social Impact Assessment and Mitigation and Urban Recovery Program 82Annex 16: Monitoring methodology 93

MEXICOMexico City Insurgentes Bus Rapid Transit System Carbon Finance Project

Project Appraisal DocumentLatin America and Caribbean Region

LCSEN

Date: October 18, 2005 Team Leader: Walter VergaraSector Manager/Director: John RedwoodCountry Manager/Director: Isabel M. GuerreroProject ID: P082656

Sector(s): Roads and highways (100%)Theme(s): Climate change (P), Other environment and natural resources management (S)

Project Financing Data [ ] Loan [ ] Credit [ ] Grant [ ] Guarantee [X] Other: Carbon Finance

For Loans/Credits/Others:Amount (US$m): The project does not involve Bank financing. Gross carbon revenues are estimated at USD 2.4 Million and are shown on a yearly basis under the estimated disbursements. The government has financed all of the infrastructure, through a budgetary allocation from the City Assembly.Financing Plan (US$m): Source Local Foreign TotalBORROWER 47.00 0.00 47.00PROTOTYPE CARBON FUND 2.40 0.00 2.40Total: 49.40 0.00 49.40Borrower/Recipient: METROBUSResponsible agency: METROBUSAddress: Piso 4Colonia TabacaleraDelegacion Cuautemoc C.P. 06360Contact Person: Guillermo Calderon/Ernesto AlvaradoTel: +52 55 55215251/+52 55 55661444 Fax: Email: gcalderon@metrobus.df.gob.mx, ealvarado@dgpa.df.gob.mx

Estimated Disbursements ( Bank FY/US$m):FY 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019Annual 0.18 0.19 0.19 0.18 0.18 0.18 0.17 0.17 0.17 0.17 0.16 0.16 0.16 0.14

Cumulative 0.18 0.37 0.56 0.74 0.92 1.10 1.27 1.44 1.61 1.78 1.94 2.10 2.26 2.40

Project implementation period: 2006-2019Expected effectiveness date: 12/30/2005 Expected closing date: 06/30/2019

OPCS PAD Form: Rev. March, 2000

A. Project Development Objective

1. Project development objective: (see Annex 1)

The project will contribute to reductions in local airborne pollutants and greenhouse gas emissions generated by the transport sector in the Metropolitan Area of Mexico City (MCMA). This will be sought through the development of the first surface mass transport corridor in Mexico City (Insurgentes Avenue) and associated traffic management measures.

The project is also intended to develop and demonstrate the catalytic use of Clean Development Mechanism (CDM) to foster technology, regulatory and institutional changes in the public transport sector. It will also develop and implement tools required to measure and monitor greenhouse gas (GHG) emission reductions from the transport sector. While the operation of one single corridor does not result in large emission reductions, the project will help to develop the tools and procedures that may be applied, on a larger stage as a follow up to this operation. The availability of certified emission reductions is expected to accelerate this process. Thus, the project will demonstrate that a high-quality bus corridor approach is a viable alternative for promoting a modal shift. In this context, the project will provide a valuable blueprint for other corridors in the city and elsewhere which could bring about a much higher overall impact.

2. Key performance indicators: (see Annex 1)

2.1 Key Performance Indicators

Reduced emission of local and global pollutants from the transport system in Insurgentes Avenue as measured through the proposed monitoring protocol;Improved operation of the bus transport system in the corridor as measured by reduced average travel times on the Insurgentes Avenue;Improved bus system energy efficiency (in liters of diesel per passenger kilometer); Improved bus productivity: serving more passengers with lesser number of units and increased modal share for large buses; Successful registration of CDM methodology and further implementation of the corridor program.

2.2 Context within UNFCCC and the Kyoto protocol

The proposed project is being formulated under the guidelines of the CDM and is intended to generate GHG Emission Reduction Credits. Mexico ratified the UN Framework Convention on Climate Change (UNFCCC) on March 11, 1993, and presented the First National Communication

1

in 1997 at the Kyoto Conference of the Parties (COP) meeting. Mexico's congress ratified the Kyoto Protocol (April 2000) by unanimous consent. Transport sector in the City of Mexico is responsible for 42% of GHG emissions. Regionally, the transport sector is the largest source of GHG emissions. Yet, there are no approved methodologies or monitoring protocols for the transport sector at the CDM Board.

Climate Change Related Policies and Institutions in Mexico

Mexico has played an important role in the UNFCCC and the subsidiary meetings. It has also published its second national communication in which it identifies transport measures as key to reductions in GHG emissions and has set up a Designated National Authority (DNA) for approval of CDM projects. Mexico accounts for about 2% of global emissions and has shown substantial vulnerabilities to the impacts from Climate Change. The Second National Communication includes the updating of the National Greenhouse Gas Inventory for the period 1994-1998 as well as scenarios of future emissions, assessment of mitigation

- 2 -

policies, scientific and technical research; and, international cooperation. In this framework, the development of projects on local and global pollution in Mexico City links the goal of improving air quality and reducing emissions of GHGs. Mexico has also launched an effort to strengthen its institutional capacity through the development of a Climate Change Office (CCO). The CCO has been supported through an IDF (Institutional Development Fund) grant. The IDF also supported the identification of economic instruments for the internalization of climate change concerns in economic planning. At a local level, Mexico City is the first city to have issued a local climate change strategy (see B 2.2 for details).

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1)Document number: Date of latest CAS discussion:

The government of Mexico and the Bank have agreed to implement, in partnership, a new CPS (Country Partnership Strategy) to cover fiscal years 2005 through 2008. The CPS will realign the Bank's support to the government's priorities for the remainder of the current administration and will also cover the beginning of the next presidential term. This CPS proposes a selective program of the International Bank for Reconstruction and Development and the International Finance Corporation operations and a strategic program of analytical and learning services to be provided by the World Bank Group, all built upon four strategic pillars to support Mexico's efforts to: (a) reduce poverty and inequality; (b) increase competitiveness; (c) strengthen institutions; and (d) promote environmental sustainability.

The project is consistent with those strategies. The project will pilot the use of the CDM incentives to help make environmentally proactive choices in the modernization of the transport sector in Mexico. It will support a safer, cleaner, more efficient and modernized transport system, strengthening the institutions offering transport services and promoting sustainability by replacing old inefficient vehicles by modern bus technologies that would lead to a reduction of local and global pollutants. Improvements in public transport systems will benefit all transport operations in the corridor and in particular the low income strata of the population who are the predominant users of public transport. The proposed project represents an operation that simultaneously meets the CPS and UNFCCC objectives.

Linkage to GEF Project: Mexico - Introduction of climate change friendly measures in Transport

The GEF-funded project (Mexico: Introduction of climate change friendly measures in Transport), was approved by the GEF council and the Board on October 29, 2002, as part of the program of assistance from the Bank in support of the goals of the Third Air Quality Management Plan (AQM-III). The objective is to contribute to the development of policies and measures that assist in a long-term modal shift toward climate-friendly, more efficient and less polluting, less carbon intensive transport in the Mexico City Metropolitan Area (MCMA). The GEF project is focusing on the development of an enabling environment for the implementation of passenger transport corridors, including those policies and measures needed to make viable the long-term modal shift intended for the transport system. In this context the GEF project is a platform for policy dialogue on sustainable transport. The GEF project is instrumental in the development of the regulations, the institutional structure, the business and management aspects of the newly created transport corridor system for the City. Some of the broader policy, regulatory, institutional, business and management initiatives being supported by the GEF are presented in section C-2. The CF operation is helping to implement the corridor under the revised framework for Insurgentes Avenue.

From a climate change perspective, efforts to promote a modal shift are anticipated to result in reductions of greenhouse gas emissions per passenger-km. Carbon Finance (CF) support provided to the proposed

- 3 -

project however is not expected to compete neither with the GEF’s long-term operational program nor with their short-term response measures. Rather, the GEF resources establish the basis for the CF involvement by enabling the development of a regulatory framework for the intended modal shift. The CF contributes to strengthening the institutions that will manage the development of transport corridors as a preferred option for this modal shift.

1a. Global Operational strategy/Program objective addressed by the project:

The project is consistent and was prepared pursuant to guidance from the UNFCCC and the guidelines of the World Bank's Community Development Carbon Fund (CDCF). The global commons objective of the project is to contribute to the reduction of global GHG emissions from the passenger transport sector in the MCMA.

2. Main sector issues and Government strategy:

2.1 Sector issuesMexico City generates a massive demand for urban transport. The MCMA generates 28 million trips a day in an urban region that has developed as a low-density sprawl extended over 1,500 square kilometers. The number of trips and large trip length place an enormous pressure to the urban transport network and airshed. Also, transport demand is characterized by growing motorization with growth rates of around 10% (private cars account today for 75% of total motor vehicles in the MCMA while they mobilize just 20% of the daily passenger trips) per year. This growing motorization has led to demands for more roads, including elevated highways. In addition, the transport services are characterized by declining transit share and increasing subsidies. Public transport services are provided by a public mass transit rail network, a trolleybus system, and several bus companies, one of them publicly owned. Transport services provided by the various operational entities are neither physically, nor operationally or financially integrated, a fact that severely reduces their efficiency.

Lack of a sustainable business environment for public transport. The traditional business structure of bus services in the MCMA has led to highly inefficient operations, resulting in a costly, unsafe and environmentally unsustainable public transport system. The key issues are: (a) lack of an organizational model that would facilitate efficient public transport operation in the metropolitan area, (b) dispersed operations that hinder the effective control of bus services and contribute to traffic congestion, (c) inefficient use of vehicles, (d) deficiencies in bus inspection and maintenance, (e) lack of professional management among bus operators, (f) lack of coordination between transport operations in the State of Mexico and the City, (g) a fare system which penalizes transfers and thus discourages inter-modal movements, and (h) systematic decline in the number of metro passengers since 1989 despite a 35% network extension during that period. These barriers are significant and require of substantial efforts at the policy and regulatory levels.

Public transport system delivers poor quality of service, particularly to the poor. The outcome of Mexico’s transportation is characterized by substantial negative impacts and externalities, on its users:i) High travel cost and congestion: Time lost in traffic affects quality of life, and results in sizable negative impacts on the urban economy, lessening city's output, reducing the size of the effective labor markets, and imposing the need for higher inventories. Investments in new roads have not reduced congestion; on the contrary, some indicators show that it has stimulated traffic growth.ii) Accidents: Car accidents are the fifth cause of death in Mexico City. During 2004 there were around 1000 deaths in car accidents. In 60% of them, small buses were involved. iii) Urban degradation: a congested and polluted Mexico City is forcing its citizens to move to the outskirts, abandoning central areas and therefore aggravating the transport problem. Central areas decay

- 4 -

associated with high congestion are significantly reducing the quality of life in the City and could reduce the country competitiveness, as investors will not be willing to go or live in the City.

Air pollution in the MCMA is a serious health and environmental concern. There are 19 million inhabitants living in the MCMA, equivalent to 19% of the country’s entire population, who are exposed to high levels of ozone and particulate matter. The MCMA constitutes the largest area-source of airborne pollutants in the country and it is one of the largest in the Americas. Current projections indicate that population will continue to grow at an annual rate of 1.9% in the short term. Demand for transport and energy however, are expected to increase at even higher rates. This will result, unless controlled, in higher pollution loads to already burdened air and watersheds. Air pollution in the MCMA is mostly due to (a) a high concentration of ozone, produced by the reaction of volatile organic compounds (VOCs) and nitrogen oxides (NOx) in the presence of sunlight, (b) carbon monoxide (CO), nitrogen oxides, sulfur dioxide (SO2) and hydrocarbons emitted by vehicles fueled with gasoline and diesel, (c) sulfur dioxide emitted by industrial processes and commercial services using liquid industrial fuels, and (d) particulate matter (PM) in the form of particles smaller than 10 microns (PM10) emitted by several sources using diesel and other fuels as well as stationary and natural sources (wind erosion from the Lake Texcoco basin).

Health Costs of Air Pollution. A health impacts study ("Improving Air Quality in Metropolitan Mexico City. An Economic Valuation.", World Bank, February 2002) provides an economic valuation of benefits from reducing pollution in the MCMA. For purposes of the study, the main economic rationale for controlling emissions was the welfare gain from improvements in air quality. The health hazards associated with ozone and PM10 were reviewed because these substances are the most important in terms of violating pollution standards. The study concludes that the annual benefits of a 10 percent reduction in ozone and PM10 are $759 million. Obtaining air quality compliance (AQS1) offers benefits of approximately $2 billion per year. These results highlight the urgency of dealing with the air quality issue in the MCMA.

Contribution of the transport sector to air pollution. The number of vehicles in the area is high for the available infrastructure, resulting besides congestion, in large fuel consumption and high level of emissions. According to the recently released emission inventory and the AQM-III (2002-2010), the mobile sources account for a 52% of NOx emissions, 40% of HC emissions and about 36% of particulate emissions. The transport sector is also the largest source of methane (CH4) and volatile organic compounds in the metropolitan area.

Contribution of the transport sector to greenhouse gas emissions. While Mexico only accounts for about 2% of global greenhouse gas emissions, a large share of these are concentrated in the MCMA. Its transport sector is estimated to contribute 42% of all greenhouse gas emissions in the city. The energy and greenhouse gas inventories for the MCMA indicate a gradual increase in its energy intensity. Both the metro system and the bus have lost share of the total public transport market, having been displaced by smaller vehicles. The gradual shift away from large capacity vehicles is, in part, an unintended effect of the atomization of services in the transport sector and the relatively poor regulatory system. This is an unwelcome development, especially in such a congested and polluted region as the MCMA, and has generated inefficiencies from a transport and environment perspective by adding to congestion and reducing transport productivity. It has also resulted in higher emissions and exposure to criteria pollutants (and associated health impacts), and increased emissions of greenhouse gases.

2.2 Government StrategyGiven the strong links between transport, air pollution and urban development, the Mexican City Government is promoting the integration of the corresponding sector policies. The current administration

- 5 -

outlined its strategy in two documents: The Transport Plan 2002 – 2006 and the Third Air Quality Management Plan (2002 - 2010).

The Transport Plan 2002 – 2006: The long-term strategy of the Government, outlined in the Plan, includes several tenets to shift modal split from private cars towards public transport, such as: i) improve bus-based transit through the implementation of high-capacity bus corridors; ii) increase RTP efficiency through fleet renewal; iii) upgrade trolley service through increasing exclusive right of ways and allowing counter-flows when needed; iv) enhance metro service by introducing new rolling stock; and v) improve traffic management strategy through better traffic management. Without strong government action, growing motorization will generate more commuting trips by private cars, deepening congestion, as well as the environmental and urban negative impacts. Despite the fact that declining transit rider-ship has proved difficult to halt, recent experiences in Latin America have also proved that is possible, if not to increase rider-ship, at least to retain the current modal split. Achieving the latter would bring significant benefits to the population in Mexico City.

The Third Air Quality Management Plan (2002 - 2010). In 2002, the Mexican authorities completed the formulation of the AQM-III (2002-2010). The AQM-III provides the strategic framework to guide necessary immediate interventions, and to further define the goals and priorities, while identifying barriers and required reforms. The AQM-III (2002-2010) consists of a multi-sector, metropolitan, long-term effort to address air quality issues in the MCMA and constitutes the official strategy for air quality in the metropolitan area. The plan which has been jointly issued by the Governments of Mexico City, the Estado de Mexico, and the Federal Government summarizes prior work on air quality management and provides an updated description of the situation in the Valley in terms of air quality. The plan also summarizes information available on the impacts on health from air pollution (drawing from the reports prepared with Bank assistance).

The Bank has assisted the formulation of the AQM-III plan through: (a) support to the preparation of the 1998 emissions inventory, (b) quantification of the health impacts associated with poor air quality, (c) formulation of harmonization measures that could jointly address local air quality issues and emissions of greenhouse gases (climate change), (d) modeling of the air quality in the metropolitan area and modeling of the measures, and (e) economic assessment of alternative courses of action (alternative control scenarios). This effort was undertaken during 1999-2002 as part of sector work that would provide the basis for specific interventions that could be funded through the Bank as a continuation of the First Air Quality and Transport Project. The plan updates the emissions inventory and establishes goals for the 10 year duration of the program. These goals, provided in quantitative form, are: i) A substantial reduction in ozone concentrations and exposure (eliminating any concentrations above twice the allowable standard) and reducing average concentrations significantly; ii) Reduce the concentration of PM10 and 2.5; and iii) Reduce average concentrations of SO2 and CO. Examples for achievements of the Third Air Quality Management Plan so far include the installation of approximately 38,915 catalytic converters in 2004, the renovation of 70% of the RTP fleet (986 buses), the modernization of the taxi fleet (more than 24,520 units), the finalization of major parts of the cycle lanes (approximately 90 km), and the conversion to compressed natural gas of 1,618 public buses.

Local climate change strategy. At the local level, the SMA is responsible for the implementation of the Climate Change policy of the city in coordination with federal authorities. Mexico city is the first Latin American City to issue a local climate change action strategy. It comes as a commitment of the Mexico City Government to reduce the Greenhouse gas emissions, in synergy with the local policies for reduction of local criteria pollutants, in the context of the UNFCCC. This initiative concentrates various actions of the 2002-2006 Program of Environmental Protection for Mexico City implemented by the Secretaría del

- 6 -

Medio Ambiente (Secretariat of Environment), particularly for the 2002-2010 Program of Air Quality Improvement for the Metropolitan Area of the Valley of Mexico (PROAIRE) and for the Program of Ecological Restoration of Conservation Land in Mexico City.

3. Sector issues to be addressed by the project and strategic choices:

3.1 The project addresses the major sector issues in the following manner

Barriers to the development of a BRT program. The Bank has extensive experience on air quality and transport issues in Mexico City. However, despite repeated efforts, barriers to the modernization of the transport system in the city were never surmounted in the past. Now, with the unique complementarity of GEF and Carbon Finance resources and the global visibility that the Clean Development mechanism brings to the project, these tools have enabled the development of a BRT program in Mexico City. The association with the CDM and its framework of policies and tools helped convert a local issue into an innovative global-local opportunity within an international context of GHG reduction. The high international visibility contributed to the project receiving major attention from the highest levels of government already at the early stages of its development. Dialogue and institution building activities during preparation were essential to overcome the significant barriers to the establishment of Metrobus, the institution managing the Insurgentes corridor, and subsequently to develop capacity to manage the corridor (see section C-2 Key policy and institutional reform supported by the project and section E-2, the additionality argument under the Summary). Lack of a sustainable business environment for public transport will be addressed through the support of the transport corridor program, which pioneers the adoption of organizational measures and incentives to promote modal shift to large capacity, low polluting vehicles. The key element of the reform is the new regulatory framework under which the services will be provided. Insurgentes is the first of a network of 33 corridors, and its implementation, enabled by the strategic use of carbon finance resources complementing the institutional foundations set through the GEF involvement will have a demonstration effect to consolidate the reforms (see Section C-2 for a description of the reforms). This framework creates a market structure in which predatory competition is eliminated by regulating service provision. It will also eliminate the oversupply of buses and will generate operational savings that, along with a tariff structure reflecting actual cost, will create a sustainable business model for service provision. Moreover, the savings will allow operators, to invest in a technological upgrade, from small polluting buses driving unnecessary distances, to high-capacity low emission buses, driving significantly fewer kilometers.

The corridor will be a trunk-feeder corridor with segregated bus-lanes, operating under a new regulatory framework that creates a sustainable business models for private operators, enabling them to provide a high-quality of service. The trunk-feeder system reduces the number of bus-kilometers because small buses are only used to transport passengers to and from trunk stations and high-capacity buses transport passengers long distances among trunk stations, resulting in buses running with high occupancy levels, reducing operational cost and travel times. A potential downside of this type of systems, is that passengers might be induced to take two buses (the feeder and the trunk), forcing them to paying double fare, unless tariffs are flat and integrated. To address this issue, the proposed system for Mexico City will have a flat integrated tariff.

The Large contribution of the transport sector to the problem of air quality and greenhouse gas emissions will be addressed through the intended modal shift. Fewer buses, driving fewer kilometers along with fewer local and global pollutant emissions per kilometer, will result in lower congestion and travel costs, better environmental performance and better urban environment. The increasing transit share will

- 7 -

enhance these benefits by further reducing congestion and travel cost, emissions and urban degradation. Monitoring of impacts from the corridor requires of installed scientific and financial capacity, beyond what is normally required for transport projects. the monitoring of impacts and of performance indicators is key to further scale up of the BRT program in the MCMA.

Increased motorization and carbonization of the transport sector. The corridors will provide a gradual alternative to the building of additional highways and result in better use of public space. The carbonization of the transport sector will continue at least in the short term. However, the project will illustrate an alternative to increased motorization. In the long-term, the project may result in a system-wide adoption of transport corridors and thus a gradual decrease in the rate and eventual reduction of motorization

3.2 Strategic Choices

As indicated above, the key strategic choice was to elect to process the project as a Clean Development Mechanism project within the framework of the Kyoto protocol. The assistance and resources provided through the CDM, were critical to overcome persistent and long-standing barriers that in the past had prevented the modernization of the public transport system in the city and to assist in the visualization and design of a modern BRT system supported by policies of scrapping of old vehicles, reforming of institutions and adoption of modern business and organizational practices and regulations. The decision to support BRT development was measured against other alternatives:

Implementation of modal shift versus investing in additional throughways. The traditional solution has often been to expand the supply road lanes in linear response to growth in transport demand. However, this project assists the development of the concept of public transport corridors as a tool to improve the efficiency of existing infrastructure (modified to conform to the corridor concept) as opposed to the continuation of the current trends (with gradual gains in the share of low capacity vehicles). This choice is at the root of a vision of development for metropolitan area, that places emphasis on people instead of vehicles.

BRT corridors versus expansion of metro. The existing subway system (the metro) fulfills a fundamental function in the urban mobility of the MCMA. Without its existence the transport system would collapse. The project therefore supports public transport with the concept of the expansion of the reach of the metro system through BRT corridors. This is being considered instead of the actual physical expansion of the metro as this choice costs about one tenth of the equivalent, associated with the physical expansion of the metro system.

C. Project Description Summary

1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown):

The project development objective is to contribute to reductions in local airborne pollutants and greenhouse gas emissions generated by the transport sector in the Metropolitan Area of Mexico City (MCMA). This will be sought through the development of a pilot surface mass transport corridor in Mexico City (Insurgentes Avenue) and associated traffic management measures. The project is also intended to develop and demonstrate the tools required to measure and monitor greenhouse gas (GHG) emission reductions from the transport sector.

Through the involvement of carbon finance, local funding has been leveraged, institutions, regulations and incentives have been created and confidence to private parties has been provided to enable:

- 8 -

a) Development of a mass transport corridor on Insurgentes Avenue, including the development of traffic management measures and of a professional management structure. The mass transport corridor of Insurgentes will be supported through the purchase of resulting GHG emission reductions. The corridor includes: a) Exclusive bus lanes; b) Elevated bus stations for high platform vehicles; c) Pedestrian facilities leading to the bus stations of the transport corridor; d) Concessions of the services on the corridor to a restructured company using large and low-polluting (articulated) buses; e) Promotion of low pollution passenger transport vehicles and scrapping programs for old vehicles on Insurgentes. The Insurgentes corridor has been designed along 19.3 km of the 34 km of Insurgentes Avenue to meet the demand of 251,000 daily passengers. The BRT system includes 34 stations distributed approximately 450 meters apart. Eighty diesel-fuelled articulated buses, including 10% as a reserve, for regulation and maintenance, replaced around 350 buses and microbuses. b) Monitoring and planning of transport corridors and linkage to bikeways. CDM revenues will be used to finance the monitoring of performance of the corridors, measuring impacts on local criteria pollutants and other performance indicators and providing resources for planning of future replication of the program. These activities assume great importance given the pilot nature of the development objectives of the project and the plans for further replication. Monitoring of GHG emission reductions will be covered under the Emission Reductions Purchase Agreement. Monitoring of local airborne pollutants and performance indicators will provide necessary information to optimize the system and plan its expansion. CDM revenues will also be used to build and maintain bicycle parking and storage facilities at terminal stations of the corridor.

Component

IndicativeCosts

(US$M)% of Total

Bankfinancing(US$M)

% ofBank

financing

PCFfinancing (US$M)

% ofPCF

financing

Development of mass transport corridor and associated infrastructure, as well as development of traffic management measures

47.00 95.1 0.00 0.0 0.00 0.0

Monitoring and planning of transport corridors and promotion of non-motorized transport. (*)

2.40 4.9 0.00 0.0 2.40 100.0

Total Project Costs 49.40 100.0 0.00 0.0 2.40 100.0Total Financing Required 49.40 100.0 0.00 0.0 2.40 100.0

(*) GHG revenues will be paid to Metrobus. Metrobus will use these revenues to support the Monitoring and Planning component.

2. Key policy and institutional reforms supported by the project:

As part of project preparation, and within the scope of the parallel GEF-funded operation, major decisions have been taken that improve the institutional and policy framework of public transport in the city. These include: a) Definition of a programmatic and institutional framework for the corridors including the integration of the metro and the bus transport; b) Bus regulations in the corridors; c) Definition of business and management structures for operating the bus corridors; d) Identification of measures to promote metro rider-ship; and e) Improvements in the environmental and social framework in the transport sector. The policy content of the project is summarized in the following matrix.

- 9 -

Policy, Institutional and Regulatory Framework reformfostered by the CDM operation

Policy Baseline Reform causedOverall transport plan No inclusion of transport

corridors or modal shift measures.

Transport corridors were made part of AQM plan and transport plan and acknowledged as a modal shift measure

Institutional No entity responsible for transport corridors

Creation of Metrobus for management, monitoring and planning of transport corridors

Bus operators along Insurgentes Corridor based on individual, disorganized, small scale operators

Creation of CISA, a commercial, financially sound company formed by small scale operators

Business environment Fare structure does not meet efficiency criteria and discourages inter-modal transfers.

Integrated fare has been developed . No subsidies are implied. Efficiency gains through the corridor program enabled the fare to be kept at current levels.

Poor application of regulations Metrobus will monitor and manage the corridor. SETRAVI has frozen licenses for new microbuses. Old vehicles replaced in Insurgentes will be scrapped.

Environmental and social impacts

Current structure of bus operations results in high local and global emissions

First transport corridor realizes modal shift (towards modern bus technologies and reduced congestion) thereby reducing global and local pollutants.

Bus operators on Insurgentes work under difficult working conditions.

Working conditions for bus operators improve considerably in time (working shift descends to 8 hours from the current 12-14 hours) and in safety.

3. Benefits and target population:

The corridor itself provides an intrinsic benefit in terms of several improvements to the users and to the population around the Insurgentes corridor. These are detailed in the next paragraph. In addition, the project will support a bicycle integration program that consists of facilities for bicycle riders to use the rapid bus transit system of Insurgentes. This will be done through the design and construction of bicycle parking and storage facilities and the adoption of traffic measures to increase safety for non motorized transport in the area of the corridor. The involvement of the Community Development Carbon Fund (CDCF), is justified in the context of these community benefits. The benefits include:

Reductions in local airborne emissions (VOCs, NOx and particulates) that would yield to health and leconomic benefits through improvements in air quality in the area of the corridors; Contribution to the Kyoto Protocol targets to lower greenhouse gases emissions;lReductions in congestion, improved traffic flow for all vehicles reducing emissions per veh-km, and limprovements in efficiency of the transport sector including transport service improvements;Efficiency in energy use and reduced travel times; Improved road safety at Insurgentes Avenue; lProvision of better accessibility to vulnerable public transport users and better working conditions for lbus drivers (reduced working hours, stable salaries, etc).The bike parking infrastructure will benefit the local population by offering alternative, non polluting l

- 10 -

access to the corridor. This in turn will promote non motorized transport, making it more viable, low cost and accessible.

Target population. The project would benefit the entire population of the MCMA by improving its welfare, through measurable gains in the environmental quality of its air-shed and the provision of a better transport system. The emissions reductions and improvement of air quality will result in health and economic improvements that will benefit especially the poorest and the most vulnerable population (children and elderly people). The project would also imply an important redistribution effect of the public investments: 80% of the total amount of trips in the MCMA is covered by public transport against 20 % by private cars. The tariff policy is expected to reduce household expenditures for transport in the longer term. The residents and businesses along the corridors will benefit from increased property value because of better accessibility and improved mobility options including a more attractive public transport system (improved image). The reduction of congestion will benefit all road users. The low income areas are expected to benefit from better access and facilitation of low cost alternatives which raises the level of self esteem and development potential. The increase in enforcement and control of bus route concessions will reduce unfair competition from informal operators, creating a healthier and safer operating environment.

4. Institutional and implementation arrangements:

Implementation Agency. The corridor will be managed by METROBUS an independent, professionally run, public agency organized for the purpose. METROBUS will be assisted by the Center for Sustainable Transport. The Project will be coordinated directly by the General Manager of Metrobus. Progress to Date in Project Preparation. This project originated from sector work in support of the formulation of the AQM-III. The GEF-funded project has supported the design of the institutional, and regulatory framework for sustainable use of the corridors. A German Trust Fund (GTF) grant has financed the identification of the corridors. The Mayor of the City endorsed (January 2003) the findings of the studies and authorized that further steps be undertaken for their implementation. In August 2004, the city confirmed the allocation of the budgetary resources for the development of a transport corridor on Insurgentes Avenue as well as a special arrangement for the scrapping of old buses. A PHRD grant financed the executive design of the corridors finalized in July 2004. The institutional and business structures were completed in January 2005. With the support of a Canadian Trust Fund the development of the methodology for the GHG emissions baseline has been financed. The construction of the Insurgentes corridor was initiated in January 2005, and is scheduled for physical completion by November 2005. The first emission reductions will be caused by the end of 2005. The project strategy was developed by inter-disciplinary groups coordinated through the implementation agency; these included Metro, Sistema de Transportes Eléctricos, Red de Transporte de Pasajeros, Secretaría de Transporte y Vialidad, Secretaría de Desarrollo Urbano y Vivienda y la Secretaría de Medio Ambiente. METROBUS is also assisted by the Center for Sustainable Transport (CST) in the project activity design and implementation. Both CST and the World Bank will transfer the important lessons learnt in these other cities including project structure, stakeholder involvement and regulatory reforms.

D. Project Rationale

1. Project alternatives considered and reasons for rejection:

The implementation of "light" corridors was considered as an option (corridors with minimal additional infrastructure). This option was rejected because of its potentially weak impact on improving traffic congestion as well as difficulties in enforcing the dedicated character of the exclusive bus lanes. This approach, where applied, has not resulted in significant improvements in modal shift nor on emission

- 11 -

reductions. The same can be said for the implementation of temporary corridors that open depending on a fixed timetable during the day.

Another alternative considered, was a programmatic approach for the development of an entire set of corridors, on a metropolitan scale. This was not pursued as the authorities considered being more important the catalytic effect of initiating the program in stages, and learning from the operation of Insurgentes, before embarking on an expansion of the program. This approach also would have required additional budgetary resources that were not available at the moment.

The option to expand the metro is considerably more expensive than the considered alternative and while it may provide more capacity, it is doubtful that under the current fiscal situation it can be implemented in a meaningful manner. The adoption of traffic measures is part of the solution; these measures are not seen as an exclusive alternative to the corridors and are also being made part of the corridor program.

2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned).

Sector Issue Project Latest Supervision

(PSR) Ratings(Bank-financed projects only)

Bank-financedImplementation

Progress (IP)Development

Objective (DO)

Rationalization of urban transport in Bogota

Colombia-Bogota Urban Transport (closed)

S S

Environmental policies and institutions Mexico: Programmatic Environment Structural Adjustment Loan (closed)

S S

Urban transport Peru Lima Transport Project (Active)

S S

Rural infrastructure, Transport, institutional strengthening

Mexico-Decentralized Infrastructure Reform and Development Loan (active)

S S

Urban transport and climate change Mexico: Introduction of Climate Change (active)

Strengthening institutional, technical, administrative and regulatory capacity and improving solid waste services

Mexico Solid Waste Management II (closed)

S S

Municipal infrastructure and capacity building

Mexico Water and Sanitation II (closed)

S S

Environmental Sustainable transport Sustainable Transport and Air Quality for Santiago (GEF) (active)

S S

Urban transport Venezuela Urban Transport (closed)

S S

Other development agenciesUnited Nations Development Program Demonstration Project of

- 12 -

UNDP-GEF Hydrogen Fuel Cell Buses IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory)

- 13 -

3. Lessons learned and reflected in the project design:

Lessons learned from the rejection of Transmilenio as a CDM project. The Transmilenio BRT system in Bogota is planning a CDM component to their initiative—project developers are currently seeking approval for the methodology. The first submission of the methodology to the Executive Board of the CDM had been rejected on the basis of: i) lack of convincing additionality argumentation; ii) lack of consideration of rebounds (that is, increased GHG emissions as a result of implementation of the project); iii) not considering the dynamic character of the baseline (that is, the gradual evolution of baseline conditions, in the absence of the project); iv) lack of documentation for the modal shift; v) insufficient monitoring procedures; vi) reliance on unproven or unrepresentative sampling procedures. The project is addressing all of these reasons for rejection. A separate document detailing the monitoring procedures and the methodology in use has been prepared as part of the documentation for registration of the project.

Air pollution is a long-term problem that requires a long-term response. The Mexican Government has recognized the need for a long term strategy to address the issues caused by air pollution (PICCA and PROAIRE) and accordingly has committed to the development of long range plans, the first of which covered a 5 year period in the City. To assist in this program, the World Bank needs to continue to have a long-term commitment that matches the time requirements needed to secure sizable and permanent improvements in air quality. A long-term vision and concomitant goals need to be set, to guide removal of barriers and promote short-term measures.

Wide participatory approach to air quality and transport management. A participatory approach, incorporating public opinion in the project, is required to establish legitimacy of the project. Widespread implementation of the proposed measures is also critical in order to achieve the desired results. To accomplish this, it is necessary to gain public confidence and support for the program activities. There is also a need to build consensus among all stakeholders over the identification of priority measures. The effectiveness in carrying out and monitoring the agreed priority measures needs to be determined in a participatory approach, with the input of all stakeholders.

The Bank’s involvement should continue to be used for its catalytic effect. The World Bank should continue to catalyze the involvement and the participation of development banks and agencies, the private sector, NGO’s and foundations and research and training centers. The Bank should work to mobilize technical and financial support from international environmental agencies and to organize study tours to cities with experience in modern transport strategies. The project will support a dissemination effort of the results and experiences obtained through the implementation of its components.

4. Indications of borrower and recipient commitment and ownership:

The City government has allocated the necessary funding in its annual budget to finance all the infrastructure for the Insurgentes corridor. Agreements have been reached with the operators (RTP and CISA) for use of the infrastructure and reorganization of small private bus owners into a single, operating company. The Metrobus has been created as an independent public agency. A no objection letter has been issued by the Designated National Authority.

5. Value added of Bank and Global support in this project:

The Bank involvement brings a global experience with air pollution and transport issues and its linkage with global concerns. The policy dialogue with the environmental authorities banks on extensive expertise at the Bank on the subject. The involvement of Carbon Finance and the formulation of this project as a

- 14 -

CDM activity caused the project to: i) improve the environmental performance of the transport sector, ii) promote the reduction of greenhouse gases and assist in the development of capacity in the carbon market; and, iii) partly reduce dependence on high-carbon fuel-generated energy. Bank involvement has made possible the sharing of its broad experience in air quality and transport and adapting it to Mexican conditions. CF involvement is critical to provide the resources required to make the corridors operational.

E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)

1. Economic (see Annex 4):Cost benefitCost effectivenessIncremental CostOther (specify)

NPV=US$125 million; ERR = 81 % (see Annex 4)

An economic analysis has been carried out by comparing, in economic terms, the with project scenario and the without project scenario. The analysis was carried out for 7 and for 14 years representing the carbon finance crediting periods. Discount rate is 12%. The analysis is based on the estimation of the cost for the infrastructure of the corridor, as well as for the buses and the equipment, and the associated maintenance cost. In addition the cost includes the scrapping cost of the replaced vehicles, the annual replacement cost of the current fleet without the project, the residual value of corridor and buses at the end of the crediting period. On the benefit side the analysis considers the time savings for the users of the new transport system and of the other vehicles, the environmental benefits (see annex 11), as well as the cost savings in operational and maintenance cost. A benefit cost flow analysis was conducted, with the following results:For 14 years: For 7 years: IRR = 72% IRR = 82%NPV= USD 149 (Million) NPV = USD 116 (Million)Cost Benefits Ratio: 6 Cost Benefit Ratio: 6.5

Additionality analysis. The provisions of the Kyoto Protocol require that “Reductions in emissions […] be additional to any that would occur in the absence of the certified project activity.” This constitutes the foundation of generating CERs through CDM projects. Environmental additionality is assessed against a baseline, which describes what would happen in a “business as usual” (BAU) scenario. The CDM Executive Board provides a detailed additionality tool to demonstrate and assess the additionality of a project. This additionality tool has been applied to the project to demonstrate that the Insurgentes BRT corridor project activity is not the baseline and is, therefore, additional (see Annex 11).

The assistance provided through the CDM, were critical to overcome persistent and long-standing barriers that in the past had prevented the modernization of the public transport system in the city and to assist in the visualization and design of a modern BRT system supported by policies of scrapping of old vehicles, reforming of institutions and adoption of modern business and organizational practices and regulations. The project is additional throughout the project cycle: from the concept to the operation stage. The institution building and analytical process and approaches associated with preparing the BRT project provided the leverage needed to overcome many barriers to successfully launch the project. The association with the CDM and its framework helped converting a local problem within an international context of GHG reduction. Dialogue and institution building activities during preparation were essential to overcome in particular the significant barriers to Metrobus' own establishment and subsequent developing capacity to manage the corridor. In summary, by elevating the project over an international sphere a more enabling framework was realized and the momentum was achieved to successfully overcome barriers. These main barriers are: Major reforms of the public sector transport in Mexico have traditionally faced many hurdles:

- 15 -

Financial feasibility is difficult due to low ability to pay for service upgrades by middle and low income groups; poor compliance with existing transport regulations; short term planning; capital intensive investments; and frequent costs overruns. Most of these barriers have now been removed by local authorities to reform of regulatory and institutional frameworks in the metropolitan area. Politicians and local officials have focused on a long-term view of environmental issues, as their city was severely affected by air pollution and identified as a major source of greenhouse gas emissions in the country.

The project faces other technological-institutional and financial barriers: (i) the innovative character of the corridor operation; (ii) difficulties in measuring GHG emissions; (iii) lack of resources for proper monitoring and planning. The reduction of GHG from transport for CERS is a relatively new field for which the verification and monitoring tools have yet to be developed. To deal with these barriers the SMA has engaged international consulting teams and established close collaboration with local universities. Implementation of the project would result in the reduction of CH4, N2O and CO2 emissions. Only when CDM revenues were considered, and earmarked to the necessary technical and institutional tasks to remove these barriers, did the project move forward. The project is thus essential for putting in operation the monitoring system and procedures developed; such capacity does not exist yet in Mexico. Measurement of GHG emissions, monitoring of performance of the corridors, measuring impacts on local criteria pollutants and other performance indicators and provision of resources for planning of future replication of the program, all of these as a consequence of the project, represent a net gain for the country. Successful piloting of these arrangements in this corridor could lead to replication of this project in some or all of the 33 corridors identified in the City.

Baseline Methodology and Monitoring. A new baseline methodology and monitoring protocol have been developed that take into account the diffuse character of the sources and the uncertainties associated with sampling measurement. The methodology also addresses the dynamic character of the baseline and the need for a tool that has wide applicability. A summary of the baseline methodology as well as the protocol for emission reductions measurement is attached (Annex 11).Emission Reductions:

1 2 3 4 5 6 7

2 0 0 6 4 3 , 7 6 1 0 1 7 6 4 3 , 5 8 5 3 5 , 6 7 1 1 7 8 , 3 5 5$

2 0 0 7 4 6 , 4 4 6 7 2 3 0 4 5 , 7 2 3 3 7 , 9 2 8 1 8 9 , 6 4 1$

2 0 0 8 4 6 , 4 4 6 1 , 5 7 4 0 4 4 , 8 7 2 3 7 , 0 8 7 1 8 5 , 4 3 6$

2 0 0 9 4 6 , 4 4 6 2 , 4 4 0 0 4 4 , 0 0 6 3 6 , 2 2 6 1 8 1 , 1 3 2$

2 0 1 0 4 6 , 4 4 6 2 , 9 1 3 0 4 3 , 5 3 3 3 5 , 7 5 8 1 7 8 , 7 8 9$

2 0 1 1 4 6 , 4 4 6 3 , 4 9 4 0 4 2 , 9 5 2 3 5 , 1 8 4 1 7 5 , 9 2 2$

2 0 1 2 4 6 , 4 4 6 4 , 0 4 9 0 4 2 , 3 9 7 3 4 , 6 3 6 1 7 3 , 1 8 0$

2 0 1 3 4 6 , 4 4 6 4 , 5 7 9 0 4 1 , 8 6 7 3 4 , 3 0 9 1 7 1 , 5 4 5$

2 0 1 4 4 6 , 4 4 6 5 , 0 8 6 0 4 1 , 3 6 0 3 4 , 0 2 7 1 7 0 , 1 3 5$

2 0 1 5 4 6 , 4 4 6 5 , 5 7 2 0 4 0 , 8 7 4 3 3 , 7 8 0 1 6 8 , 9 0 0$

2 0 1 6 4 6 , 4 4 6 6 , 0 3 7 0 4 0 , 4 0 9 3 2 , 6 6 7 1 6 3 , 3 3 7$

2 0 1 7 4 6 , 4 4 6 6 , 3 7 0 0 4 0 , 0 7 6 3 2 , 3 3 7 1 6 1 , 6 8 6$ 2 0 1 8 4 6 , 4 4 6 6 , 3 7 0 0 4 0 , 0 7 6 3 2 , 3 3 7 1 6 1 , 6 8 6$

2 0 1 9 4 6 , 4 4 6 6 , 3 7 0 0 4 0 , 0 7 6 3 2 , 3 3 7 1 6 1 , 6 8 6$

T O T A L 6 4 7 , 5 5 8 5 5 , 5 7 8 1 7 6 5 9 1 , 8 0 4 4 8 4 , 2 8 6 2 , 4 2 1 , 4 3 0$ A n n u a l

A v e r a g e 4 6 , 2 5 4 4 2 , 2 7 2 3 4 , 5 9 2 1 7 2 , 9 5 9$

T o t a l c a r b o n r e v e n u e s ( a t

U S $ 5 / t o f C O 2 e ) f o r

l o w e r 9 5 t h c o n f i d e n c e

i n t e r v a l - c o l u m n 6

L o w e r 9 5 t h C o n f i d e n c e

I n t e r v a l A n n u a l e s t i m a t i o n o f

e m i s s i o n r e d u c t i o n s

( k t o n C O 2 e )

C R E D I T I N G P E R I O D

Y e a r

E s t i m a t i o n o f p r o j e c t

a c t i v i t y e m i s s i o n

r e d u c t i o n s ( t o n n e s o f

C O 2 e )

E s t i m a t i o n o f b a s e l i n e

e m i s s i o n r e d u c t i o n s ( t o n n e s o f

C O 2 e )

2

I

E s t i m a t i o n o f l e a k a g e ( t o n n e s o f

C O 2 e )

T o t a l e m i s s i o n

r e d u c t i o n s ( k t o n C O 2 e )

2. Financial (see Annex 4 and Annex 5): NPV=US$ million; FRR = % (see Annex 4)

- 16 -

In order to improve bus-based services in Mexico Metropolitan region, the city government has designed a corridor with exclusive high capacity bus-lanes along the Insurgentes Avenue. The high-capacity transport corridor will be the result of a public-private partnership (PPP), in which the public sector will be responsible for the investment to deploy the required infrastructure (segregated lanes, stations, terminals, etc.) and part of the equipment (25% of the trunk bus fleet), while the private sector will be responsible for the investment of most of the trunk fleet (75% of the buses) and the ticket selling and validating system, and for the operation of the trunk and feeder services.

The design of this PPP - which to a large extent follows Bogota´s Transmilenio successful example - involves the definition of a regulatory and financial framework. The government initial expenditure is considered a sunk cost, while the fare is expected to cover the capital and operational costs incurred by the private actors in running the system, as well as the operational costs of the official agency that coordinates the transport system, Metrobus. The allocation of the fare revenue is distributed among the actors responsible for the service provision and Metrobus, according to a set of specific rules. The financial analysis has been performed for the new transport corridor as a whole, and for Metrobus agency. The main conclusions are: i) The new transport system generates a moderate operational surplus. This is due to the corridor’s high level of demand and elevated passenger turn around (renovation factor); ii) The tariff helps to defray a significant share of the capital cost (75%) and carries out a relevant social implementation cost (compensation to former corridor operators); iii) A share of the fare box allocated to Metrobus would be allocated to cover administration costs; however, additional resources required for monitoring and planning, would come from the expected CDM revenues.

The basis of these conclusions and the projected corridor cash flow are shown in Annex 13. The financial revenues are expected to compensate the financial expenditures, as the fare level has been designed to do so. Therefore, the financial indicators typical of infrastructure projects, like NPV or IRR, are not particularly relevant for this type of PPP. The Metrobus cash flow is presented in Table 2 in Annex 13. According to the nature of the PPP, a balance sheet for the entire system has no relevant financial implications, nor for Metrobus (an operating agency without significant assets). Fiscal Impact:

The City Government has allocated budgetary resources of the order of US$25 million to finance all of the infrastructure. RTP and CISA (the concessionaires at the corridor) have financed the purchase of all the buses with an estimated cost of US$ 20 million. Other costs have been absorbed by METROBUS and will be paid through fees obtained from the management of the corridor. Payment for emission reductions are a revenue to METROBUS and thus do not constitute a financial liability.

3. Technical:The project will be based on the successful experience of BRT systems in Bogota and Curitiba. The infrastructure was designed to meet the demand of 250,900 trips. The BRT system will be built using the center two lanes and will include 34 stations distributed approximately 450 meters apart along a 19.3-kilometre stretch of Insurgentes. Left turns onto Insurgentes in the BRT area will be prohibited and traffic lights will be placed on bus priority cycle. Eighty (80) diesel-fuelled articulated autobuses, including 10% as a reserve, for regulation and maintenance, will replace the current fleet of around 350 buses and microbuses. The average speed of the service is expected to be 23 km/hour with 2 minutes intervals between stops in the north, and less than 3 minutes in the south, during the morning rush hour. The average trip time from one extreme of the corridor to the other is expected to be 66 minutes and waiting time for a bus at a terminal is expected to be 6 minutes.

- 17 -

4. Institutional:Implementation Agency. METROBUS manages the system. The resulting Carbon Finance Resources will go to METROBUS to address monitoring and planning tasks that would otherwise be underfunded and probably not implemented adequately. METROBUS has been organized as a lean, professional agency, with sole dedication to the management and planning for the corridor program. The corridor system consists of five fundamental parts, following closely the experience with Transmilenio: (1) one entity in charge of the administration, planning and verification (Metrobus); (2) two corridor operating companies (RTP and CISA); (3) an adequate infrastructure for the bus transport; (4) a modern fare collection system; and (5) a private trust-fund for the administration of the revenues.

Fig. 2 Institutional Framework for the Operation of the Corridor

Publ ic organism • Regulat ion of system

• P r o g r a m m i n g, verif icat ion and correct ion of the opera t ion and infrastructure

Transpor t companies • Current concessionar ies • R T P

Infrastructure Exclus ive bus lanes

• Terminals and s ta t ions • Repai r , main tenance and

parking facil i t ies for art iculated

F are col lector • Provider and dis t r ibutor of

payment measures (e lec t ronic t ickets)

• Equipment for de tec t ing and control l ing access

• Recol lect ion and deposi t of revues to trust -fund

Trust -fund • Adminis t ra t ion, investment

and dis tr ibut ion of revenues

The public organism, METROBUS is a decentralized public entity, with independent legal status and independent management, inside the secretary of Transport. It will manage the corridor operation. It will also monitor its performance and assist in the replication of the experience. Metrobus will also supervise fare collection and prepayment system. Metrobus contracted a specialized company for providing, installing and maintaining the necessary payment collection system.

4.1 Executing agencies:

The project developer was the SMA. The project manager is METROBUS

4.2 Project management:

The project management will be carried out by Metrobus, a newly constituted public agency. Operation of the corridors will be in the hands of a private company (SITSA) and RTP. These companies have acquired the rolling stock through equity and private debt financing.

4.3 Procurement issues:

There are no procurement issues. There is no Bank financing of goods or services.

4.4 Financial management issues:

There are no financial management issues. CDM revenues will be paid against verified emission reductions. This will be a source of income for METROBUS. No financial intermediary and no financing procedures are required. Revenues will be disbursed directly to METROBUS against the validation reports to be prepared by an independent agency, yet to be selected, under competitive bidding. Verification will take place every three years, using the monitoring protocol described under the methodology. No specific account is required. The Carbon revenues will be directly deposited in Metrobus general accounts.

- 18 -

5. Environmental: Environmental Category: B (Partial Assessment)5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis.

A separate EIA was conducted for Insurgentes corridor and has been filed with INFOSHOP. METROBUS has made available the EIA in the City. In the EIA, the environmental impacts of the Project have been analyzed for each of the following phases of the project, and provisions were included in the project budget to finance the mitigation measures. The construction has been largely finalized and the operation has started as of June 19, 2005. The mitigation measures implemented included:

Preparation Phase: activities prior to construction, including evacuation, expropriation, protection of the area.

Construction phase: including activities to prepare the terrain, the removal of vegetation, earthwork, transport, final disposal, improvement of pavement, and activities to build the actual infrastructure, such as stations, pedestrian facilities, barriers for corridor and others.

Operation Phase: include the activities that result from the project, including impacts on traffic (change of routes, improved public transport, changes in individual transport) and the maintenance (operation of stations and depots, traffic management systems)

Most impacts were generated during the construction phase of the project. The infrastructure investments took place within the existing right-of-way of the Corridor and made use of existing road infrastructure. Investments focused on strengthening the pavement, bus corridor segregation, construction of stations and access facilities, improvement of sidewalks, and rearrangements of traffic signs and signals. The main impacts include increased levels of air, soil, water and noise pollution, solid waste, limitations on traffic circulation, interruptions in services, damage to existing green areas, energy and fuel use and others. Possible impacts during operation include air, noise, soil and water contamination from the terminals and parking/maintenance areas and increased accidents due to improper design. Possible impacts during operation include air, noise, soil and water contamination from the terminals and parking/maintenance areas. Environmental benefits predicted by the EIA include a rationalization of the 'collective' transport system, a decrease in travel time, and the reduction of air and noise pollution. Mitigation measures during operation of the corridor are included as well in the monitoring program of the ERPA.

Scrapping program. The permit for new vehicles (large capacity buses) to operate on the new corridor is provided against a corresponding scrapping certificate. This applies to ¾ of the vehicles being replaced on Insurgentes. The remainder will substitute for highly polluting vehicles outside the corridor. The verification and validation procedures with regard to the emission reductions will monitor the scrapping arrangements throughout project implementation. The scrapping of the replaced vehicles will not lead to an increase of bus traffic on other avenues given that the transport ministry of Mexico City (SETRAVI) has frozen the issuance of concessions for bus route operations city wide. The project will therefore result in a net reduction of vehicular traffic on the Insurgentes Avenue.

Impacts on cultural heritage. Although difficult to quantify, the EIA does not expect that the construction or operation of the corridor will have any negative impact on cultural heritage or historic buildings. The Monitoring and Mitigation Plan include measures to address unforeseen impacts.

5.2 What are the main features of the EMP and are they adequate?

A number of mitigation measures are proposed to prevent or minimize environmental impacts or compensate for impacts. During the design phase these included measures to: i) locate and design bus yards to reduce air pollution and noise impacts on surroundings; ii) minimize impacts on existing corridor, including sidewalks, vegetation and street furniture; iii) minimize impacts on traffic during construction and

- 19 -

operation; iv) reduce interruptions in services; v) improve safety along corridor, stations and stops

During the construction phase, mitigation measures included actions to: i) reduce increase emissions and noise due to construction activities; ii) minimize impacts on urban environment and surroundings of waste storage and disposal; iii) avoid impacts on groundwater; iv) minimize spatial needs; v) reduce impacts of machinery and equipment on existing road infrastructure; and vi) reduce interruptions in services. Other mitigation measures during construction phase included traffic regulation and landscaping and urban improvements along corridors and the design and construction of bus yards, terminals and stops. During the operation phase mitigation measures include measures to: i) reduce air and noise impacts of the bus operations along corridors; ii) protect groundwater in bus depots; iii) maintain the corridor and associated facilities; and iv) control and manage traffic along corridor

5.3 For Category A and B projects, timeline and status of EA:Date of receipt of final draft: September 17, 2004

O.P. 4.01 - Environmental AssessmentThe policy is triggered due to the potential environmental impacts of the project. Numerous environmental analyses were completed during project preparation to ensure proper handling of potential impacts, and to ensure that potential environmental benefits are capitalized upon. As described above, the EIA analyzed the environmental impacts of construction of the corridor. Operational guidelines for bus scrapping were developed to ensure proper environmental management of this component. The EMP is a combination of the recommendations from these studies. In addition to the required mitigation measures, many environmental activities are integrated into the project.5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms of consultation that were used and which groups were consulted?

Stakeholders including residents and businesses in surrounding areas as well as special interest groups have been consulted and included in a participatory approach to comment and provide other feedback on the design and operational characteristics of the project.

5.5 What mechanisms have been established to monitor and evaluate the impact of the project on the environment? Do the indicators reflect the objectives and results of the EMP?

Metrobus will monitor the environmental and social performance of the system through surveys and direct measurements. A monitoring protocol will be applied for the validation and verification of GHG emission reductions

6. Social:6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes.

The corridors system is expected to not only reduce pollution, but to also improve public transportation through an economic and socially and financially sustainable model. Under the project, the “Insurgentes Corridor” will be implemented along 19.3 of the 34 km of Insurgentes Avenue. A transfer station for commuters from poor and middle-income areas from state of Mexico will be located at the North of the corridor; at the Southern end the corridor will connect with the Mexico-Cuernavaca motorway. This corridor will improve transport conditions for the thousands of commuters that work in the commercial and service areas along Insurgentes. There will be 33 bus stations and three terminals to serve an estimated 236,000 trips per day; the total travel time between terminals will be approximately one hour, half the time it takes with the current system. The service will operate 24 hours a day in two shifts: (i) a day shift, from 5 am to 11 pm and (ii) a night shift, from 11 pm to 5 am, taking into account the persons who work the

- 20 -

night-shift at the many restaurants operating along the avenue.

A social assessment, comprising a survey and consultations with stakeholders, was carried out to assess the corridor from the perspective of public transportation users and other social groups active along the corridors, including neighborhood organizations, restaurant owners, and street vendors. This and other studies provided the basis to prepare an impact mitigation program to address identified impacts, or to find alternatives to substitute ongoing negative practices; namely: (i) displacement of workers from current operators (Ruta 2 private concessionaire and RTP public transport operator); (ii) street vendors at the southern and northern terminals; (iii) valet parking at around 50% of the nearly 200 restaurants operating along Insurgentes; and (iv) neighbors’ concerns in the San Angel area regarding possible degradation around stations. An agreement has been reached with INAH and INBAL to protect cultural sites and monuments located at Insurgentes according to their regulations. Moreover, an urban recovery program will be implemented to better integrate the stations to their urban environment, and to develop green areas to compensate for the trees that were cut for construction, and to improve urban conditions in selected areas along the corridor. Street vendors along the terminal stations have been relocated prior agreement and consultation, in commonly agreed designated areas. These arrangements have been satisfactory. See annex 15.

6.2 Participatory Approach: How are key stakeholders participating in the project?

The views of the main stakeholders were taken into account during project preparation: (i) the social assessment comprised a survey and interviews with stakeholders to take into account their views in the design of the corridors; (ii) a special team was in charge of negotiations with transport operators (Ruta 2) to promote the change in operation; Ruta 2 concessionaires visited “Transmilenio” in Bogota, to assess the advantages of such an operation; they received advice and support to integrate CISA, and to operate under the new operational rules and regulations; CISA is on the board of Metrobus which will be in charge of operating the corridor; (iii) negotiations with street-vendors helped to minimize impact by reorganizing their activities to avoid interference with the corridor operation; (iv) there were talks with restaurants and valet parking to seek alternatives; and (v) a specific program for La Palma in San Angel was developed to address neighbors’ concerns.

6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations?

Several NGOs have been providing advice and technical assistance during preparation including: (i) The Center for Sustainable Transport, an NGOs working in Mexico, that has also been very helpful in supervision; (ii) the Shell Foundation that helped to organize a risk assessment and brought international experts to advise on technical and social issues; and (iii) Colmex that prepared the social impact assessment. A study focusing on minibus operators, comprising a survey and consultation was carried out to identify their concerns and take them into account in project design.

6.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes?

The Environment Secretariat (SMA) in the Government of Mexico City will be responsible for overseeing the execution of impact mitigation measures and the urban and cultural recovery program; while Metrobus will be responsible for performance, quality of service and security of corridor operation. The chief of SMA has signed a letter to this effect.

6.5 How will the project monitor performance in terms of social development outcomes?

Most of the impact mitigation measures are already in place, or in progress to be completed by the end of this year including: (i) reorganization of street vendors; (ii) an agreement to redeploy RTP bus-drivers; (iii)

- 21 -

a training program for displaced Ruta 2 workers; (iii) relocation and protection of monuments. The urban and cultural recovery program will take a year to be completed and is expected to incorporate other activities during the project span. Regarding the benefits for public transportation users, Metrobus will produce an annual operation report for Bank review and has agreed to undertake remedial measures as necessary.

7. Safeguard Policies:7.1 Are any of the following safeguard policies triggered by the project?

Policy TriggeredEnvironmental Assessment (OP 4.01, BP 4.01, GP 4.01) Yes NoNatural Habitats (OP 4.04, BP 4.04, GP 4.04) Yes NoForestry (OP 4.36, GP 4.36) Yes NoPest Management (OP 4.09) Yes NoCultural Property (OPN 11.03) Yes NoIndigenous Peoples (OD 4.20) Yes NoInvoluntary Resettlement (OP/BP 4.12) Yes NoSafety of Dams (OP 4.37, BP 4.37) Yes NoProjects in International Waters (OP 7.50, BP 7.50, GP 7.50) Yes NoProjects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60)* Yes No

7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies.

Several alternatives were analyzed to minimize project impact and the Insurgentes Corridor was selected for the following reasons: (i) The design at the center of the avenue avoids causing resettlement or damage to properties issues; and (II) the Government of Mexico City and others publicly owns the land required for terminals. However, there are some impacts that are necessary to address (i) street-vendors and (iii) displaced workers from Ruta 2 and RTP; an (iii) valet parking operators. The impact mitigation program includes alternatives to address these issues (The social mitigation program is described in Annex 15):

Street-vendors: Relocation to nearby areas where they do not pose a risk to themselves or to the operation of the corridor. As this is a very sensitive issue, this action is taking place under close supervision by SMA. Displaced workers: (i) RTP workers belong to a powerful union and will be reinstated with all their rights in other routes; (ii) in the case of Ruta 2, operators that meet capacity criteria will be incorporated as regular workers in CISA, either as drivers or in other available positions; others will receive training to provide them with an opportunity to work for Metrobus or to seek a job elsewhere. Valet parking: in the case of valet-parking three alternatives were made available: (i) to build a “bay” to continue operating without interfering with regular traffic; (ii) to move the service to a side or rear street; and (iii) to provide service at the nearest parking place. Specific agreements have been reached with restaurant owners and valet- parking operators adhering to these alternatives. Reforestation: the urban and cultural recovery program comprises the development of green areas and reforestation to compensate for trees cut for corridor’s terminals. The reforestation program will consist of the planting of about 7,000 native species.Cultural Property: the design work for Insurgentes included a provision fro chance find of cultural property, even though there was no excavation work envisioned.

- 22 -

F. Sustainability and Risks

1. Sustainability:

The City government has committed as budgetary resources all the funding required for the construction of the infrastructure. The government has already established METROBUS, an independent public entity that will manage the operation of the corridor. The carbon finance resources will directly contribute to the sustainability of the corridors program by addressing monitoring and planning functions at METROBUS. The project is intended to demonstrate and develop the tools required to measure and monitor carbon emission reductions form the transport sector. While the operation of one single corridor, does not result in large emission reductions, the project will enable the application of the tools and procedures developed, on a larger scale, which is already envisaged, as a follow up to this operation. The availability of certified emission reductions is expected to accelerate this process.

1a. Replicability:

The project demonstrates that the bus corridor approach is a viable option to promote modal shift and pioneers a methodology to estimate and monitor emission reductions. If both the viability of the corridor concept and the transport carbon off set can be proven, the project will serve as a blueprint for other corridors in the city and elsewhere with a much higher impact. The developed generic baseline methodology has so far proven to be applicable to a specific project. The city envisages a corridor program of 33 corridors of which the preparation studies for the second corridor have already been developed and provide a possible candidate for the next application of the generic methodology.

2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1):

Risk Risk Rating Risk Mitigation MeasureFrom Outputs to ObjectivePublic acceptance of Metrobus M Consultation and public awareness activities

with participation of all key stakeholders. Pre-operation of the METROBUS has provided feedback to improve continuous operation

Lack of continuity in Metrobus Management

M Strong private sector participation expected to ensure the implementation of the operational aspects of the project.

Financial sustainability of Metrobus M A contingency fund is being established. Safe operation of the system M A safety brochure indicating the operational and

management characteristics of the system as well as the access and evacuation procedures will be issued prior to start up and will be maintained at key locations along the corridor

The City authorities responsible for regulating corridor operations have limited institutional capacity

H Assist the city authorities with technical assistance and training. METROBUS will be assisted through the involvement of the Center for Sustainable Transport and technical assistance activities under the GEF project.

Emission reductions do not materialize M A monitoring protocol for emission reductions has been developed along with a statistical analysis to ascertain soundness of the measurements. A new methodology has been

- 23 -

prepared.Bus scrapping does not take place or congestion does not abate due to poor enforcement of regulations

H A bus scrapping program was designed that includes certification of scrapping as a condition of entry of new buses into the system. Strong penalties are being enacted to deter violation of new traffic patterns, including exclusivity of dedicated bus lanes.

Mitigation of social impacts M A mitigation program has been established and will be closely monitored

Integration with non motorized transport fails

M Bicycle stations will be located close to existing bike paths.

The relatively low financial participation of the Bank in the project's total cost reduces Bank leverage.

M Careful supervision of project activities in coordination with the implementation of the GEF project will be undertaken.

From Components to Outputs

Overall Risk Rating SRisk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk)

H: The project is considered to have substantial risk, given the novelty and pioneering character of both the reforms sought and the tools proposed for the greenhouse gas reduction. Success of the project will bring in substantial rewards, to the city as it would then be in a position to replicate the experience and wider yet, to the global community as it demonstrates and applies these tools.

3. Possible Controversial Aspects:

A modal shift toward an efficient use of public space in favor of public transport will affect automobile transport along the route of the corridor. The project includes an outreach effort to indicate the social and environmental benefits of the modal shift.

G. Main Conditions

1. Effectiveness Condition

Conditions for Purchase of Emission Reductions:Issuance of a Letter of Approval form the Designated National Authority (SEMARNAT) to the CDM land notification by the Government of Mexico to the Secretariat of the UNFCCC, in a manner satisfactory to CF, of the Emission Reductions Purchase Agreement.Signed ERPA between METROBUS and CF, including covenants on insurance, monitoring, lverification, certification, compliance with safeguard policies, as well as payments for, and delivery of ERs.

2. Other

- 24 -

H. Readiness for Implementation

1. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation.

1. b) Not applicable.

2. The procurement documents for the first year's activities are complete and ready for the start of project implementation.

3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality.

4. The following items are lacking and are discussed under loan conditions (Section G):

I. Compliance with Bank Policies

1. This project complies with all applicable Bank policies.2. The following exceptions to Bank policies are recommended for approval. The project complies with

all other applicable Bank policies.

Walter Vergara John Redwood Isabel M. GuerreroTeam Leader Sector Manager/Director Country Manager/Director

- 25 -

Annex 1: Project Design Summary

MEXICO: Mexico City Insurgentes Bus Rapid Transit System Carbon Finance Project

This annex summarizes design parameters and provides a linkage to the proposed key performance indicators.

Project DesignThe project is based on the successful experience of BRT systems in Bogotá (Colombia) and Curitiba (Brazil). BRT gained prominence with its successful application in Curitiba beginning 1974. In the recently closed Bogotá Urban Transport Project (1996-2002), the World Bank was closely involved in the design and implementation of the successful Transmilenio bus system. Important aspects of this experience will be replicated in and adapted to the MCMA transport system. METROBUS is also assisted by the Center for Sustainable Transport (CST) in the project activity design and implementation. Both CST and the World Bank will transfer the important lessons learnt in these other cities including project structure, stakeholder involvement and regulatory reforms.

Fixed infrastructure will consist of 34 bus stations and three terminals serving an exclusive separated bus lane in the center of the avenue in each direction. Each station will have a modular design to ensure uniformity of the Corridor’s image with obstacle-free waiting areas and elevated level-access to articulated buses with a high platform. All stations will have access ramps for mobility-impaired passengers and selected stations will have bicycle parking and storage facilities to promote the use of NMT non-motorized transport.

Traffic flow improvement measures will be introduced including bus-priority traffic lights, elimination of left turns on Insurgentes, continuity given to right turns, relocation of valet parking and improved sign-posting.

The new buses will be high capacity, diesel fuelled, EPA’98 compliant, state-of-the-art low pollutant articulated units within the limitations placed by current fuel availability when ultra-low-sulfur fuel is made available, the buses may be fitted with Diesel Particle Traps.

The Development Assistance System (DAS) will provide monitoring and communications to allow centralized fleet control allowing coordinated scheduling of service. Satellite technology will allow METROBUS to pinpoint in real-time the location of each unit in the system compared to its planned itinerary. The two-way communications system will allow adjustments to be made and contingencies handled. The DAS will continually generate operating information to monitor the system and improve efficiency and quality of service. It will be complemented by on-route inspectors.

Pre-payment technology will be introduced using electronic replenishable fare-cards. Validation turnstiles at the entrance to each station will detect each electronic ticket and will deduct the corresponding fare. This will streamline the boarding process, allow drivers to concentrate on bus operation on the old buses, drivers collect fares which slows the boarding process considerably and will play a key role in optimizing operations. Fare-card payment machines will be installed at the stations.

The crediting period selected for the project is 7 years renewable twice for a maximum of 21 years, beginning 22/8/2005. It is proposed that the GhG reduction be verified and certified in the first period in years 1, 4 and 7 and subsequently on a three-yearly basis. The emissions totals of CO2 equivalent (CO2 eq) that will be reduced through this project in the first 7 year period will be of the order of 181,000 tons. The expected emissions reductions per year over this initial period are shown in the following table:

- 26 -

1 2 3 4 5 6 7

2006 43,761 0 176 43,585 35,671 178,355$

2007 46,446 723 0 45,723 37,928 189,641$

2008 46,446 1,574 0 44,872 37,087 185,436$

2009 46,446 2,440 0 44,006 36,226 181,132$

2010 46,446 2,913 0 43,533 35,758 178,789$

2011 46,446 3,494 0 42,952 35,184 175,922$

2012 46,446 4,049 0 42,397 34,636 173,180$

2013 46,446 4,579 0 41,867 34,309 171,545$

2014 46,446 5,086 0 41,360 34,027 170,135$

2015 46,446 5,572 0 40,874 33,780 168,900$

2016 46,446 6,037 0 40,409 32,667 163,337$ 2017 46,446 6,370 0 40,076 32,337 161,686$ 2018 46,446 6,370 0 40,076 32,337 161,686$

2019 46,446 6,370 0 40,076 32,337 161,686$

TOTAL 647,558 55,578 176 591,804 484,286 2,421,430$ Annual

Average 46,254 42,272 34,592 172,959$

Total carbon revenues (at

US$5 /t of CO2e) for lower 95th confidence

interval - column 6

Lower 95th Confidence

Interval Annual estimation of

emission reductions

(kton CO2e)

CREDITING PERIOD

Year

Estimation of project

activity emission

reductions (tonnes of

CO2e)

Estimation of baseline emission

reductions (tonnes of

CO2e)

2

I

Estimation of leakage (tonnes of

CO2e)

Total emission

reductions (kton CO2e)

The achievement of key performance indicators will be caused by the following activities:

1. The improvement in operating conditions for buses. Confined, segregated bus lanes together with bus-priority traffic signals will allow buses on the route to operate more efficiently and without interference from other traffic reducing journey time and congested-idle; both of which will result in lower fuel consumption and lower GhG and local emissions.

2. The improvement in bus technology and capacity. The use of 80 the Project activity will have 80 buses of which approximately 10% will be held in reserve for maintenance and contingencies modern high-capacity, 160 passenger diesel buses in place of approximately 350, old, small and mid-sized, gasoline, gas mainly Liquid Petroleum Gas (LPG) but some Compressed Natural Gas (CNG) vehicles are in operation and diesel powered units will also result in lower overall fuel consumption and lower GhG and local emissions.

3. The introduction of fare pre-payment technology. Fare prepayment will streamline the boarding process and reduce journey and bus-idle time thus reducing fuel consumption and GhG and local emissions.

4. The use of centralized bus fleet control. Will allow a coordinated scheduling of bus services that dynamically adjusts bus frequency with demand to result in fewer buses scheduled in off-peak hours currently all the buses operate continually all-day even though the passenger demand drops outside peak-hours.. This will reduce bus fuel consumption and GhG and local emissions.

5. Traffic improvements for the other vehicles on the route. Reduced journey time for other (non-bus) vehicles that use the route due to the elimination of multi-lane interference from buses competing for passengers together with the flow improvement schemes Traffic-flow improvement measures including

- 27 -

bus-priority traffic lights, elimination of left turns, continuity given to right turns, relocation of valet parking and improved sign-posting will reduce fuel consumption and GhG and local emissions.

6. The creation and demonstration of a sustainable business environment for public transport which pioneers the adoption of organizational measures and incentives to a regulatory framework under which the GhG emissions-efficient services can be provided.

7. The introduction and demonstration of a trunk-feeder concept that reduces the number of bus-kilometers because small buses are only used to transport passengers to and from trunk stations and high-capacity buses transport the passengers longer distances between the trunk stations.

8. The provision of a gradual alternative to the building of additional highways that will result in a better use of public space through the active promotion of increasing transit share which will enhance these benefits by further reducing congestion and travel cost, emissions and urban degradation.

- 28 -

Annex 2: Detailed Project Description

MEXICO: Mexico City Insurgentes Bus Rapid Transit System Carbon Finance Project

By Component:

Project Component 1 - US$ million The “Insurgentes Corridor” is being implemented along 19.3 of the 34 km of Insurgentes Avenue, starting in Indios Verdes in the north, and ending in Doctor Galvez Rectoria in the south. A transfer station for commuters from poor and middle-income areas from state of Mexico is being located at the North of the corridor; at the Southern end the corridor will connect with the Mexico-Cuernavaca motorway. This corridor will improve transport conditions for the thousands of commuters that work in the commercial and service areas along Insurgentes. There will be 34 bus stations and three terminals to serve an estimated 250,900 trips per day; the total travel time between terminals will be approximately one hour, half the time it takes with the current system. The service will operate 24 hours a day in two shifts. The following are the main technical elements of the Insurgentes Corridor to be implemented:

· Exclusive bus lane in the center of the avenue for exclusive use by public transportation.· Elevated stations for access to articulated buses with a high platform.· Level access to the system's stations and terminals· Obstacle-free waiting areas to enable fluid movement of passengers.· Turnstiles to control entrance to the station by means of a prepayment system. · Access ramps for persons with different types of handicaps.· Modular design of stations to ensure uniformity of the Corridor’s image.

Operation. In order to optimize the transportation service along the corridor, the operating fleet and the corridors's infrastructure must always be adjusted to trip demand. For this purpose, and based on the diagnosis of the current and projected situation, the operational design of the Insurgentes Corridor has been developed. It is based on the application of a coordinated, centralized control system, with a fixed itinerary, to allow transportation to be provided comprehensively throughout hours of service. The system’s current features will be modified, especially through the redefinition of existing routes with main and feeder routes; through the replacement of the current fleet of passenger vehicles with a smaller number of higher-capacity buses; and through the regulation of boarding and unboarding along the Corridor at exclusive points provided with the necessary infrastructure for this purpose (each of these points will have a station or terminal, as the case may be).

- Scheduling of service. For main and feeder routes, detailed service programs have been developed for different hours of the day, days of the week, peak and non-peak periods, contingency plans, etc.- Buses. The characteristics of the fleet that will operate along Insurgentes will ensure compliance with the operational, environmental, and safety objectives proposed for the Corridor. Likewise, there should be an adequate number of vehicles to properly meet current demand. In this context, it has been determined that operators will utilize 80 state-of-the-art, articulated buses, with diesel-fueled electronic motors, high capacity, and low pollutant emissions.- Development Assistance System. A specific, precise operating plan for the magnitude and sophistication of the Insurgentes Corridor will be highly complex and difficult to implement. Thus, strict control of each of the system’s units is needed to ensure that actual and planned operations are linked.

With the application of centralized fleet control technologies, this problem can be resolved, at least from a technical standpoint. In this regard, the technology selected is the Development Assistance System (DAS) which consists of two key parts: monitoring and communications. Monitoring, generally with satellite

- 29 -

technologies, will allow the Metrobus System to pinpoint with considerable precision the location of each unit in the system. This will allow it to compare the placement of vehicles with those it should have, in accordance with the plan. The communications system will make it possible to transmit information to articulated vehicles, indicating to drivers whether they are behind or ahead of schedule. In case of a contingency, the communications system will make it possible to inform each unit what it should do and to dispatch replacement units. The DAS will be complemented by on-site inspectors in the Metrobus System who will also be duly informed. DAS affects positively the efficiency of operation by providing valuable information to improve operating plans and better adjust them to demand, with the ability to respond quickly, on a daily basis, to possible changes. It also contributes to producing more reliable, regular service.

- Prepayment

As part of the technological improvements proposed by the Insurgentes Corridor a prepayment technology will be implemented which provides electronic tickets including a certain number of prepaid trips. These tickets can be replenished. Validation equipment at the entrance of each station will detect each electronic ticket and will deduct the corresponding fare. The prepayment system will considerably streamline the boarding and unboarding of passengers on public transportation vehicles. Drivers will no longer have to handle fares which will allow them to concentrate primarily on ensuring that their units comply with an operating plan. In summary, the prepayment system will play a key role in optimizing operations.

· Measures ensuring un-interrupted flow on corridor. Another important condition for optimizing service in the Corridor is to avoid as much as possible its interruption by normal traffic on the road. In this particular case, to ensure smooth service, driving characteristics along Insurgentes and the Corridor’s area of influence will be modified. These changes will include the elimination of left turns and the installation of traffic signs and signals.

- Left Turns. Because of the location of the corridor in the center of the Insurgentes avenue, the currently allowed left turns along the avenue will be eliminated in order to improve speed conditions on the corridor. The fulfillment of the following criteria is attempted:

· Minimization of trip times/distances.· Continuity will be given to right turns, following their natural direction.· Road sections will be selected according to their capacity, ensuring their suitability for channeling the volumes of vehicles that will be detoured.· Vehicular traffic will preferably be channeled prior to the intersection.- Traffic Signs

Drivers of private vehicles will be guided by clear signs to allow them to anticipate the route they should take in order to make left turns. For this purpose, traffic signs were installed along Insurgentes and in the Corridor’s area of influence.

- Traffic Lights

The operation of the Corridor will require significant changes in the traffic light system to control vehicular traffic, provided that priority is given to public transportation.

- 30 -

Length: 19.3 Km.

Terminals: Indios Verdes and Dr. Galvez.

Stations:34 intermediate stations including the “Glorieta Insurgentes” terminal

Demand: Estimated daily demand 250,900 trips per day.

Maximum capacity:5,512 passengers per hour in the heaviest direction.

Routes:Route 1: Indios Verdes–Dr. Galvez

Route 2: Indios Verdes–Glorieta Insurgentes.

Equipment required:

80 diesel-fueled articulated buses, (including 10% as reserve, for regulation and maintenance) replacing the current fleet of around 350 buses and microbuses.

Bus capacity:160 passengers per bus.

Capacity:80% of system’s capacity during rush hour.

Speed of service:Average: 23.0 Km./hr.

Intervals of stops during AM rush

hour:

Every 2.00 min. in the north and less than 3 minutes in the south

Trip time:Trip time from one extreme of the corridor to the other: 1.1 hours.

Waiting time for buses at terminals 6 minutes.

Hours of service:Daytime service from 5:00 a 23:00 – Nighttime service from 23:00 a 5:00.

Location of the corridor:

- 31 -

With and without project structure of the street lanes

Design of Bus station from above (Estacion Sonora)

- 32 -

Design on street lanes arrangement (Planta Paradero El Relox Cotas)

Project Component Monitoring and planning of transport corridors - US$2.40 millionThe monitoring and planning program will be financed through carbon revenues. The program has three objectives: a) to monitor the environmental performance of the corridor, focusing on local criteria pollutants and lending support to the verification program for greenhouse reductions; b) to monitor other performance criteria along the corridor, including measures of congestion, accident rate, travel times; c) providing information and support for the planning of the following phases of the corridor program; and d) construction of infrastructure to facilitate access to bicycle riders.

For the first task: monitor the environmental performance of the corridor, focusing on local criteria pollutants and lending support to the verification program for greenhouse reductions, METROBUS in cooperation with SMA will establish sampling and monitoring stations along the corridor route. METROBUS and SMA will cooperate in the analysis and interpretation of the information.

For the second task, and using information and procedures developed under the field test for advanced bus technologies, the METROBUS in coordination with the operating companies will monitor travel times, occupancy, measures and congestion and accidents along the route and in the intersections. METROBUS will provide technical support to SMA for the planning of the EJE-8 and other corridors, based on the experience and the lessons learned from the operation of Insurgentes.

Finally, the project will provide funding from carbon revenues to facilitate access by bicycle riders through the provision of parking and storage facilities and linkages to existing bicycle paths.

Structure of METROBUS

The Transport Corridor System, Metrobus, consists of 5 basic elements: (1) one entity for the administration, verification and correction of the operation; (2) two transport companies; (3) an adequate infrastructure for the mass transport of passengers via articulated buses; (4) one modern and adequate fare recollection system; (5) In addition a trust fund will be set up for the administration, investment of the

- 33 -

revenues and as a payment source to make sure that the committed payments are processed.

The public organism, Metrobus, is a decentralized public entity, with independent legal status and independent management, inside the secretary of Transport. It will manage the corridor operation. It will also monitor its performance and assist in the replication of the experience. Metrobus will also supervise fare collection and prepayment system. Metrobus will contract a specialized company for providing, installing and maintaining the necessary payment collection system.

The legal status of Metrobus translates into the following:

· Management freedom to accomplish objectives· Financial autonomy for the management of the revenues and expenses · Capacity to sign contracts and agreements· Adequate legal attributions to regulate the corridor system

The objectives of Metrobus are to: · Guarantee the provision of the service in a continuous, programmed and safe way attending the demand and quality and operation standards· Program and control the service· Evaluate, validate and release payment requests to the operating companies · Determine and apply corrective actions in the operation including the application of sanctions· Guarantee the maintenance of the infrastructure of the system;· Guarantee and regulate the associated services such as fare collection, monitoring, cleanness and maintenance of the bus stations· Provide for the monitoring of the environmental and operational performance of the system· Plan for the expansion of the program.

- 34 -

Internal linkages

Releases in accordance with the rules the payment request Harmonizes revenues and expenses

METROBUS Verifies the performance of the company specialized in the fare collection and prepayment mechanism, including the production and the sale of payment facilities, production, set up and maintenance of equipment that reads, processes the information and deposits the fare revenue Indicates the tariff to be charged and the programming of the equipment

Supervises service Attends complaints and suggestions Manages communication

Management, planning, verification, correction, and sanctioning the operation Determines frequency and time schedule of service Harmonizes revenues and payments Hires private vigilance and cleanness in the installations of the system Watches environmental performance (emission reductions, waste management)

TRANSPORT COMPANIES

TRUST FUND

CORRIDOR USERS AND GENERAL PUBLIC

TRANSPORT COMPANIES

External linkages:

G O V E R N M E N T O F T H E F E D E R A L D I S T R I C T: • D e c r e e o f

c r e a t i o n • F i x e s t a r i f f s • A u t h o r i z e s

r e s o u r c e s f o r t h e i n i t i a t i o n o f t h e o p e r a t i o n

S E T R A V I : • G r a n t s c o n c e s s i o n s t o t r a n s p o r t c o m p a n i e s • S t u d i e s a n d r e c o m m e n d s t h e t a r i f f s o f t h e

s y s t e m • A p p r o v e s : 1 . C h a n g e o f u n i t s a n d f i x i n g o f s c h e d u l e s

a n d f r e q u e n c i e s 2 . R e g u l a t i n g , p r o g r a m m i n g , o r i e n t a t i n g ,

o r g a n i z i n g , c o n t r o l i n g a n d m o d i f y i n g o f s e r v i c e

3 . C o n c l u d i n g o f p u b l i c i t y c o n t r a c t s

S M A : • C o o r d i n a t e d t h e p r o j e c t

a n d i m p l e m e n t e d t h e s y s t e m

• A u t h o r i z e s e n v i r o n m e n t a l i m p a c t

• A p p r o v e s : 1 . A p p l i c a t i o n a n d

w a t c h i n g o f e n v i r o n m e n t a l d i s p o s i t i o n s

2 . P r o m o t i n g o f e n v i r o n m e n t a l l y f r i e n d l y e n e r g i e s , t e c h n o l o g i e s , a n d f u e l s

F I M E V I C : • B i d s f o r t h e

c o n s t r u c t i o n o f t h e c o r r i d o r , t e r m i n a l s , s t a t i o n s , w o r k s h o p s

S E D U V I: • A u t h o r i z e s l a n d

u s e a n d u r b a n im p a c t

S S P : • A s s i s t s i n t h e n e g o t i a t i o n s

p r o c e s s • W a t c h e s f u l f i l l m e n t o f n o r m s

o f t h e c o r r i d o r s o n t h e p u b l i c r o a d s

• A s s i s t s i n t h e p u b l i c s e c u r i t y s c h e m e s

M E T R O B U S

- 35 -

Annex 3: Estimated Project Costs

MEXICO: Mexico City Insurgentes Bus Rapid Transit System Carbon Finance Project

Not applicable, the World Bank is not financing the construction of the project.

Key features of the Project Indicative Costs in US$M

Bank Financing (US$M)

SCFFinancing(US$M)

MexicanGovernment

(US$M)

OTHERS(US$M)

A. Development of mass transport corridor and

associated infrastructure, as well as development of traffic

management measures

47.0 0.0 0.0 46.1 0.9

Activities under A includeA.1 Design and Studies 2.0 0.0 0.0 1.1 0.9A.2 Stations and other

infrastructure29.0 0.0 0.0 29.0 0.0

A.3 Paving 12.0 0.0 0.0 12.0 0.0A.4 Safety measures and

other ancillary installations3.1 0.0 0.0 3.1 0.0

A.5 Environmental Mitigation / Urban Renewal

Measures

0.9 0.0 0.0 0.9 0.0

B. Monitoring and planning of transport

corridors and promotion of non-motorized transport

2.40 0.0 2.40 0.0 0.0

Total Project Costs 49.40

- 36 -

Annex 4: Cost Benefit Analysis Summary

MEXICO: Mexico City Insurgentes Bus Rapid Transit System Carbon Finance ProjectNot applicable.

- 37 -

Annex 5: Financial Summary

MEXICO: Mexico City Insurgentes Bus Rapid Transit System Carbon Finance Project

Not applicable, the World Bank is not financing the contruction of the corridor.

- 38 -

Annex 6(A): Procurement Arrangements

MEXICO: Mexico City Insurgentes Bus Rapid Transit System Carbon Finance Project

ProcurementProcurement procedures do not apply as the World Bank is not financing goods or services.Procurement methods (Table A)

- 39 -

Annex 6(B): Financial Management and Disbursement ArrangementsMEXICO: Mexico City Insurgentes Bus Rapid Transit System Carbon Finance Project

Financial Management

1. Summary of the Financial Management Assessment

2. Audit Arrangements

3. Disbursement Arrangements

Allocation of other (specify) proceeds (Table C)

- 40 -

Annex 7: Project Processing Schedule

MEXICO: Mexico City Insurgentes Bus Rapid Transit System Carbon Finance Project

Project Schedule Planned ActualTime taken to prepare the project (months) 12 18 First Bank mission (identification) 01/16/2004 01/16/2004Appraisal mission departure 08/22/2005 08/15/2005Negotiations 08/29/2005 09/19/2005Planned Date of Effectiveness 12/15/2005

Prepared by:SMA and METROBUS

Preparation assistance:World BankSENES consultants

Bank staff who worked on the project included: Name Speciality

Walter Vergara Task Manager and Lead EngineerCarl Heinz Mumme EconomistNoreen Beg Deal ManagerSeraphine Haeussling EconomistAlfredo Gruenwaldt EngineerJohn Rogers Transport specialistJose Barbero Transport engineerChristopher Carr / Flavia Rosembuj Carbon finance lawyer

- 41 -

Annex 8: Documents in the Project File*

MEXICO: Mexico City Insurgentes Bus Rapid Transit System Carbon Finance Project

A. Project Implementation Plan

B. Bank Staff Assessments

Assessment of social impacts caused by the construction and operation of Insurgentes Corridor

C. Other

SENES. Generic Methodology for measurement of CO2 ER from Transport and application to Insurgentes CaseCOLMEX. Social Framework for the Corridor ProgramGETINSA. Diseno Ejecutivo del Corredor InsurgentesGETINSA. Environmental Impact Assessment of Insurgentes CorridorPDD: Project Design Document: Mexico, Insurgentes Avenue Bus Rapid Transit Pilot Project. Document version: 1.4; Document date: 31-Oct-05.NMB: CLEAN DEVELOPMENT MECHANISM PROPOSED NEW METHODOLOGY: BASELINE (CDM-NMB): Version 02 - in effect as of: 15 July 2005GhG emissions reductions in urban transportation projects that affect specific routes or bus corridors or fleets of buses including where fuel usage is changed. Document version number: 1.2; Document revision date: 31-Oct-05.NMM: CLEAN DEVELOPMENT MECHANISM - PROPOSED NEW METHODOLOGY: MONITORING (CDM-NMM): Version 01 - in effect as of: 1 July 2004. GhG emissions reductions in urban transportation projects that affect specific routes or bus corridors or fleets of buses including where fuel usage is changed.Document version number: 1.2; Document revision date: 31-Oct-05.Monitoring Plan: Mexico, Insurgentes Avenue Bus Rapid Transit Pilot Project; October 07, 2005. *Including electronic files

- 42 -

Annex 9: Statement of Loans and Credits

MEXICO: Mexico City Insurgentes Bus Rapid Transit System Carbon Finance Project23-Nov-2004

Original Amount in US$ Millions

Difference between expectedand actual

disbursementsa

Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig Frm Rev'dP085851

P074755

P088080

P070371

P080149

P087152

P035751

P035752

P070108

P074655

P059161

P065988

P077602

P066674

P066321

P060908

P063463

P064887

P065779

P060718

P066938

P007610

P044531

P049895

P007713

2005

2005

2005

2004

2004

2004

2004

2004

2003

2003

2003

2002

2002

2001

2001

2001

2001

2001

2001

2000

2000

1999

1998

1998

1996

MX Basic Education Dev Phase III

MX State Judicial Modernization Project

MX Housing & Urban Technical Assistance

MX Afford.Housing & Urb.Pov.Prog. SECAL

MX Decentralized Infrastructure Developm

MX (CRL1)Savings & Rurl Finance(BANSEFI)

MX Community Forestry II (PROCYMAF II)

MX Irrigation & Drainage Modernization

MX Savings & Credit Sector Strengthening

MX Rural Finance Develop Struct Adj Loan

GEF MX-Climate Measures in Transport

GEF MX Consolidat.Prot Areas (SINAP II)

MX Tax Admin Institutional Development

GEF MX-Indigenous&Community Biodiversity

MX: III BASIC HEALTH CARE PROJECT

GEF MX-MESO AMERICAN CORRIDOR

METHANE CAPTURE & USE AT A LANDFILL

MX DISASTER MANAGEMENT (ERL)

MX FEDERAL HIGHWAY MAINTENANCE PROJ.

GEF MX ALTERNATIVE ENERGY

MX GENDER (LIL)

MX FOVI RESTRUCTURING

MX KNOWLEDGE & INNOV.

MX HIGHER ED. FINANCING

MX WATER RESOURCES MANA

300.00

30.00

7.77

100.00

108.00

75.50

21.30

303.03

64.60

505.06

0.00

0.00

52.00

0.00

350.00

0.00

0.00

404.05

218.00

0.00

3.07

505.50

300.00

180.20

186.50

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

5.80

16.10

0.00

7.50

0.00

14.84

6.27

0.00

0.00

8.90

0.00

0.00

0.00

0.00

0.00

1.50

0.00

0.00

0.50

0.00

0.38

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

200.00

0.00

0.00

0.00

0.00

0.00

0.00

54.00

298.50

30.00

7.77

99.50

108.00

75.12

21.09

300.00

30.51

300.01

4.97

5.52

45.28

5.92

319.22

15.67

0.97

181.27

35.87

3.07

1.13

180.63

51.52

52.72

25.05

0.00

0.00

0.00

0.00

0.00

1.17

2.25

42.30

5.57

50.01

4.63

12.83

25.63

5.39

127.72

8.15

5.89

298.56

35.87

8.90

1.13

180.63

51.52

52.72

79.05

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

-7.11

0.00

5.31

0.00

0.00

0.00

0.24

0.00

-29.07

0.00

19.71

Total: 3,714.58 0.00 0.00 59.41 256.38 2,199.32 999.92 -10.92

- 43 -

MEXICOSTATEMENT OF IFC's

Held and Disbursed PortfolioMar - 2004

In Millions US Dollars

Committed Disbursed IFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic

19981995/99199819982001/04200320032002199920042001200019971998200119961996/001998/04198919971996/99199820042000200020002003199820031995/991996/99/00/01200320032000200220022000200420002000

AyviBBVA-BancomerBaring MexFndCIMA MexicoCIMA PueblaChiapas-PropalmaCompartamosCopamexCopamex CPGCoppelCorsaDTMEcomexEducacionFondo ChiapasForja MonterreyGFNorteGIBSAGIRSAGrupo CalidraGrupo FEMSAGrupo MinsaGrupo PosadasGrupo SanfandilaHipNalHospital ABCITRInnopackInteroyalLomas de RealMerida IIIMexmalMexplus PuertosNEMAKOccidental MexOcciholPOLOMEX S.A.Pan AmericanPuertas FinasQualitaRio BravoSSA MexicoSaltillo S.A.Servicios

5.0025.450.000.006.750.00

23.930.00

55.3930.006.50

37.004.505.960.006.50

50.0010.8232.1422.000.00

12.600.005.24

99.3319.719.000.000.00

52.0326.550.000.000.00

28.950.006.000.00

11.380.00

46.1245.0032.617.50

0.000.001.884.800.001.000.000.000.000.003.000.000.000.003.353.000.000.000.000.002.730.000.000.000.000.000.00

15.000.010.000.000.001.410.000.009.990.006.300.002.500.000.000.001.90

0.000.000.000.000.000.000.00

25.000.000.000.000.001.500.000.000.000.000.000.000.000.000.00

10.000.000.000.000.000.000.00

20.000.00

10.000.001.510.000.000.000.000.003.500.000.000.000.00

0.000.000.000.000.000.000.000.00

44.000.000.000.000.000.000.006.500.00

36.3842.860.000.00

17.970.001.900.006.792.330.000.00

105.1059.480.000.000.00

38.600.000.000.000.000.00

52.330.00

37.966.67

5.0025.450.000.003.250.005.610.00

51.9630.006.500.002.504.360.006.500.00

10.8232.1411.260.00

12.600.005.24

99.330.009.000.000.00

50.7426.550.000.000.00

28.950.006.000.00

11.380.00

46.1245.0032.617.50

0.000.001.884.800.001.000.000.000.000.003.000.000.000.000.113.000.000.000.000.002.730.000.000.000.000.000.00

15.000.010.000.000.001.410.000.009.990.006.300.002.500.000.000.001.90

0.000.000.000.000.000.000.00

25.000.000.000.000.001.500.000.000.000.000.000.000.000.000.00

10.000.000.000.000.000.000.00

20.000.00

10.000.001.510.000.000.000.000.003.500.000.000.000.00

0.000.000.000.000.000.000.000.00

44.000.000.000.000.000.000.006.500.00

36.3842.860.000.00

17.970.001.900.000.002.330.000.00

105.1059.480.000.000.00

38.600.000.000.000.000.00

52.330.00

37.966.67

Total Portfolio: 796.19 80.74 94.47 571.26 636.12 73.80 90.91 545.42

- 44 -

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic

20041998200320012000200120032003

Calidra IICima HermosilloCopamexEcomexEducacionGFNorte-CLMexmalPolomex

0.007.000.003.503.20

50.000.002.00

0.000.000.000.000.000.005.000.00

0.000.000.000.000.000.000.000.00

1.000.000.000.000.00

100.000.000.00

Total Pending Commitment: 65.70 5.00 0.00 101.00

- 45 -

Annex 10: Country at a Glance

MEXICO: Mexico City Insurgentes Bus Rapid Transit System Carbon Finance Project

Latin Upper-POVERTY and SOCIAL America middle-

Mexico & Carib. income2004Population, mid-year (millions) 103.8 541 576GNI per capita (Atlas method, US$) 6,790 3,600 4,770GNI (Atlas method, US$ billions) 704.9 1,948 2,748

Average annual growth, 1998-04

Population (%) 1.4 1.4 0.8Labor force (%) 2.5 0.9 -0.9

Most recent estimate (latest year available, 1998-04)

Poverty (% of population below national poverty line) 18 .. ..Urban population (% of total population) 76 77 72Life expectancy at birth (years) 74 71 69Infant mortality (per 1,000 live births) 23 28 24Child malnutrition (% of children under 5) 8 .. ..Access to an improved water source (% of population) 91 89 93Literacy (% of population age 15+) 90 89 91Gross primary enrollment (% of school-age population) 110 123 106 Male 111 126 108 Female 110 122 106

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1984 1994 2003 2004

GDP (US$ billions) 175.6 421.7 639.1 676.5Gross capital formation/GDP 19.9 21.9 20.6 21.3Exports of goods and services/GDP 17.4 16.8 27.8 30.1Gross domestic savings/GDP 27.7 17.1 19.0 19.9Gross national savings/GDP 22.7 14.9 19.3 20.8

Current account balance/GDP 2.4 -7.0 -1.3 -1.1Interest payments/GDP 6.4 2.1 1.8 1.6Total debt/GDP 54.0 32.9 22.0 20.8Total debt service/exports 45.1 25.7 17.6 15.0Present value of debt/GDP .. .. 24.6 ..Present value of debt/exports .. .. 80.7 ..

1984-94 1994-04 2003 2004 2004-08(average annual growth)GDP 2.7 3.3 1.4 4.4 3.0GDP per capita 0.8 1.8 -0.1 2.9 1.6Exports of goods and services 6.0 9.6 2.7 11.5 4.1

STRUCTURE of the ECONOMY1984 1994 2003 2004

(% of GDP)Agriculture 9.4 6.0 3.9 4.1Industry 34.9 26.8 25.8 26.4 Manufacturing 22.7 18.7 18.0 18.1Services 55.7 67.2 70.3 69.5

Household final consumption expenditure 63.1 71.4 68.6 68.5General gov't final consumption expenditure 9.2 11.5 12.4 11.7Imports of goods and services 9.6 21.6 29.5 31.9

1984-94 1994-04 2003 2004(average annual growth)Agriculture 0.8 1.9 3.5 4.0Industry 3.3 3.3 -0.2 3.8 Manufacturing 3.5 3.6 -1.3 3.8Services 2.7 3.3 1.9 4.6

Household final consumption expenditure 3.6 3.7 2.3 5.5General gov't final consumption expenditure 2.2 1.2 0.8 -1.2Gross capital formation 5.6 4.8 -4.2 1.5Imports of goods and services 14.8 10.6 0.7 10.2* The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete.

-5

0

5

10

15

99 00 01 02 03 04

GCF GDP

Growth of capital and GDP (%)

-10

0

10

20

30

99 00 01 02 03 04

Exports Imports

Growth of exports and imports (%)

Mexico

Upper-middle-income group

Development diamond*

Life expectancy

Access to improved water source

GNIpercapita

Grossprimary

enrollment

Mexico

Upper-middle-income group

Economic ratios*

Trade

Indebtedness

Capital formation

Domesticsavings

- 46 -

MexicoPRICES and GOVERNMENT FINANCE

1984 1994 2003 2004Domestic prices(% change)Consumer prices 65.4 7.0 4.5 4.7Implicit GDP deflator 59.1 8.5 8.5 6.1

Government finance(% of GDP, includes current grants)Current revenue 31.2 22.7 23.2 23.2Current budget balance -1.2 3.3 2.2 3.1Overall surplus/deficit -6.4 -0.3 -0.7 -0.3

TRADE1984 1994 2003 2004

(US$ millions)Total exports (fob) 29,100 60,882 164,923 189,159 Oil 16,601 7,445 18,654 23,706 Agriculture 1,461 2,678 4,664 5,421 Manufactures 10,499 50,402 141,087 159,093Total imports (cif) 15,916 79,346 170,546 197,247 Food .. .. .. .. Fuel and energy .. .. .. .. Capital goods 2,573 13,322 20,205 22,599

Export price index (2000=100) 114 90 105 117Import price index (2000=100) 77 93 103 108Terms of trade (2000=100) 148 97 102 108

BALANCE of PAYMENTS1984 1994 2003 2004

(US$ millions)Exports of goods and services 33,926 71,184 177,299 201,911Imports of goods and services 21,028 91,616 187,680 215,372Resource balance 12,898 -20,432 -10,380 -13,460

Net income -10,076 -13,012 -12,082 -10,938Net current transfers 1,361 3,782 13,858 17,044

Current account balance 4,183 -29,662 -8,604 -7,355

Financing items (net) -2,034 12,463 18,437 11,416Changes in net reserves -2,149 17,199 -9,833 -4,061

Memo:Reserves including gold (US$ millions) 7,355 6,300 59,027 64,204Conversion rate (DEC, local/US$) 0.2 3.4 10.8 11.3

EXTERNAL DEBT and RESOURCE FLOWS1984 1994 2003 2004

(US$ millions)Total debt outstanding and disbursed 94,830 138,545 140,391 140,778 IBRD 2,852 13,038 10,717 9,567 IDA 0 0 0 0

Total debt service 16,960 20,076 34,279 33,568 IBRD 485 1,989 1,972 2,499 IDA 0 0 0 0

Composition of net resource flows Official grants 27 47 .. .. Official creditors 832 -583 -372 -182 Private creditors 791 5,296 -418 1,578 Foreign direct investment (net inflows) 390 10,973 12,625 17,377 Portfolio equity (net inflows) 0 4,084 .. ..

World Bank program Commitments 576 2,380 888 621 Disbursements 682 942 1,258 767 Principal repayments 253 1,065 1,359 1,976 Net flows 430 -123 -101 -1,209 Interest payments 233 924 613 524 Net transfers 197 -1,046 -714 -1,733

Development Economics 9/8/05

0

5

10

15

20

99 00 01 02 03 04

GDP deflator CPI

Inflation (%)

0

50,000

100,000

150,000

200,000

250,000

98 99 00 01 02 03 04

Exports Imports

Export and import levels (US$ mill.)

-4

-3

-2

-1

098 99 00 01 02 03 04

Current account balance to GDP (%)

G: 9,900A: 9,567

D: 6,743

F: 112,001

E: 2,567

A - IBRDB - IDA C - IMF

D - Other multilateralE - BilateralF - PrivateG - Short-term

Composition of 2004 debt (US$ mill.)

- 47 -

Additional Annex 11: Generic Methodology for measurement of CO2 ER from Transport and application to Insurgentes Case

MEXICO: Mexico City Insurgentes Bus Rapid Transit System Carbon Finance Project

SECTION B. Application of a baseline methodology

B.1. Title and reference of the approved baseline methodology applied to the project activity: There is no methodology approved by the UNFCCC to evaluate this type of project. It is proposed to use a new baseline methodology entitled “GhG emissions reductions in urban transportation projects that affect specific routes or bus corridors or fleets of buses including where fuel usage is changed” with its corresponding monitoring methodology.

B.1.1. Justification of the choice of the methodology and why it is applicable to the project activity:The chosen methodology has been developed for rolling-stock and infrastructure projects that affect the operation of vehicles on relatively well-defined routes within an urban environment. It has been designed to apply to evaluating and verifying the impact of Bus Rapid Transit (BRT) corridors amongst others. The chosen methodology is applicable to projects that are not city-wide

1

in their application. It can be applied in metropolitan areas with good existing data and also in urban areas where information is less-readily available or currently non-existent. It is applicable to any geographic region. This project meets every condition stated in the proposed methodology; moreover, since the present project is a pilot for an already envisaged network of 33 corridors in the MCMA, the chosen methodology may also be applied to the following, more extensive stages of this network.

B.2. Description of how the methodology is applied in the context of the project activity:

This section contains:

B.2.1 Assumptions

B.2.2 Key Methodological Steps

B.2.3 Key information and data used to determine the baseline scenario

B.2.1 Assumptions

The basic assumptions of the baseline methodology for the Insurgentes BRT corridor in the context of project activity are:

Project impact on overall travel patterns

i) That the 19.3 km Insurgentes BRT corridor project is too small, within the overall MCMA context2

, to affect or modify the overall travel patterns or degree of motorization within the city. The methodology takes into account the modal split of trips but is not responsible for any new trip creation other than new trips directly on the project BRT corridor itself. ii) The number of baseline vehicles, apart from buses (cars, taxis, motorcycles and commercial) in future years will be calculated from measured flows prior to start-up modified by the overall increase in in-use vehicles within the urban metropolitan area. The difference between this figure and the measured with-project flows, discounting modal shift, will be a rebound effect.

- 48 -

Change in emissions from baseline buses over the project timeframe due to repair & replacement practices

iii) Public transport baseline fuel consumption per vehicle-km will depend on the business-as-usual (BAU) repair, replacement or conversion (RRC) assumptions that are used. The assumptions for the baseline vehicles of the Insurgentes BRT corridor project are:a. The investment foreseen without the project is the annual renovation of 10% of the fleet. For the Insurgentes BRT corridor project, the BAU public transport consists of 113 large diesel buses operated by RTP

3

and 243 privately owned units operating on Ruta 2. This implies the following:

i. RTP

Each year 11 buses will be replaced with units of a similar capacity using engine technology current in the year of introduction. Thus if the pre-project RTP buses have a fuel economy

4

of 1.530 km/l, at year one, 11 would be substituted with units having a fuel economy of, say, 1.927 km/l giving a new combined fleet fuel economy of [(102 x 1.530) + (11 x 1.927)] / 113 = 1.569 km/l. If the new buses introduced in the second year have the same fuel efficiency, the new (year 2) combined fleet fuel economy will be [(102 x 1.569) + (11 x 1.927)] / 113 = 1.604 km/l.

ii. Ruta 2

The Federal District’s transport plan 2002-20065

calls for the substitution of 2000 Microbuses for larger diesel buses at an exchange rate of 2 x 1 where the removed microbuses will be scrapped

6

. Whilst this program was terminated prior to the Insurgentes BRT corridor project and serious doubts exist on the number of Microbuses that really were scrapped, the BAU scenario assumes that in the absence of the project this substitution could have been continued for the remaining Microbuses in Ruta 2. For the larger buses, a renovation program at 1x 1 would have followed. Thus the baseline assumption for the substitution of Ruta 2 vehicles is as shown in table 3. As with RTP, the new buses introduced will use engine technology current in the year of introduction, thus a fuel economy improvement will be seen over the project timeframe for the baseline activity buses.

Table 3 – Impact of repair, replacement and conversion assumptions on the Ruta 2 baseline bus fleet assuming zero growth

Year Existing Buses(diesel)

Existing Microbuses

(gasoline, LPG & CNG)

New buses (diesel) Total

Year 0 project startup condition

156 87 0 243

Year 1 156 87 – 24 = 63 12 231Year 2 156 63 – 24 = 39 12 + 12 = 24 219Year 3 156 39 – 24 = 15 24 + 12 = 36 207Year 4 156 – 16 = 140 15 – 15 = 0 36 + 16 + 8 = 60 200Year 5 140 – 20 = 120 0 60 + 20 = 80 200Year 6 120 – 20 = 100 0 80 + 20 = 100 200Year 7 100 – 20 = 80 0 100 + 20 = 120 200

Memo:Fuel Efficiency 1.530 km/l Gasoline 1.950

Gas 1.141 km/l1.927 km/l

b. For the RTP and Ruta 2 buses that are not replaced, it is assumed that BAU maintenance practices

- 49 -

would have maintained their fuel consumption per bus-km over the project timeframe; neither letting the buses become less fuel-efficient nor improving consumption over time.

The vehicle fleet (other than buses) will modernize over the project timeframe

iv) The emissions characteristics of the in-use vehicle fleet will change between each validation point in time. Thus the validation protocol will be based on the in-use fleet data obtained from the obligatory emissions test records

7

at the date of validation; not on the 2004 fleet characteristics.v) The private-vehicle baseline fuel consumption per vehicle-km in future years will be calculated using the vehicle fleet and fuel efficiency characteristics at that (future) point in time (year “n”) based on the vehicle make, model and model-year mix from the obligatory emissions test data. The vehicle mix on the route will be assumed to be similar to the overall vehicle make, model and model-year mix within the urban area.

The project is not a motor for decentralization

vi) The corridor is not a motor for decentralization. The existence of the corridor will not substantially change the Origin-Destination profiles and whilst the passenger-km-traveled (PKT) demand will change over time it is not a function of the corridor operation.

Average traffic speeds for vehicles will not vary considerably

vii) The average traffic speeds with and without the project will not vary substantially. The measurable differences can be expressed in terms of congestion time which is the additional time that each journey takes (in minutes per kilometer). In congested traffic, this additional time is spent idling in queues, whilst in free-flow traffic it is seen as a reduction in average traffic speed.

Displaced baseline buses

viii) The authorities have committed to take the required actions to ensure that the displaced baseline buses do not continue to operate on these or competing-routes. They have also committed to prohibit the creation or growth of competing routes.

Modal shift

ix) The project activity includes the creation of a BRT corridor with improved bus service. For this reason, it can be assumed that there will not be any significant modal shift caused by the project activity, from the buses to other forms of transport.x) The existence of an improved transportation corridor could cause car owners to use corridor-buses but is not likely to cause bus-users to shift to a different mass transit route (such as the Metro). There will not be any measurable or significant modal shift from buses to cars that is caused by the project activity.xi) The GhG emissions from the Metro will not change due to any modal shift from Metro to buses. xii) Even though a survey may reveal a modal shift from taxis to buses, these taxis will continue to be in operation and thus will not reduce their GhG emissions.

Vehicle Occupancy levels

xiii) Public transport baseline vehicle occupancy levels will remain a constant. Thus changes in the number of annual passenger-km. will cause proportional changes in the number of baseline vehicles over the project timeframe to handle this change in demand.xiv) Private vehicle baseline occupancy levels in any future year will be the same as those measured in

- 50 -

the project activity case (for that same year) unless occupancy restrictions or incentives, due to the project have been applied on the route, in which case a different parallel route should be chosen as a surrogate. Such occupancy restrictions or incentives are not planned for the Insurgentes BRT corridor.

Distance from the route

xv) The baseline ignores the possibility of emissions changes from vehicles operating far from the Insurgentes BRT corridor because the large number of transport-related projects conducted in the MCMA over the project timeframe would not permit such changes, should they occur, to be associated exclusively with one, remote project.xvi) The baseline deals with possible emissions changes from vehicles on other routes close to, or intersecting, the Insurgentes BRT corridor by using logic of conservatism; the methodology reasonably demonstrates that any un-accounted-for increases in emissions are more than cancelled out by un-accounted-for emissions reductions.

Vehicle Population and use

xvii) The creation of the Insurgentes BRT corridor will not modify car purchase or usage patterns other than an expected modal shift from private vehicles to the new corridor-buses.

Bus rider-ship

xviii) Since reliable records for current bus rider-ship do not exist it will be assumed that the baseline rider-ship prior to project startup (year 0) will be the same as the rider-ship on the new buses 6-8 weeks after start of stable operation. This will be measured from ticketing records taking into account non-fare-paying passengers.

Growth in VKT over the project timeframe

xix) The future growth in private vehicle-km-traveled (VKT) which forms part of the dynamic baseline will be proportional to the growth in the VKT of the vehicles operating in the urban metropolitan area.

Rebound

xx) The total growth of VKT on the Insurgentes route will be measured and the difference between what is measured and what is determined from Assumption (xix) above will be assigned to rebound. We will not be able to separate-out within the rebound, what is due to induced journeys and what is due to vehicle trips that have shifted from other routes. xxi) If the traffic flow on the Insurgentes route is better in the project-activity than in the dynamic baseline it will attract vehicles from other avenues. If it is worse, some vehicles that used to use the route will change to other avenues, and this will continue until a new equilibrium condition is reached

8

. The project design assumes that traffic on the route will have shorter journey times than previously experienced.

The Insurgentes BRT corridor may cause a net shift of traffic from other routes if it offers a faster and more consistent journey time than that previously experienced. Thus for these vehicles the shift to the route represents a reduction in journey time, fuel consumption and GhG emissions. Also the fact that these vehicles are no longer operating on the alternative avenue will reduce traffic loading and in turn reduce the generation of GhG emissions from the vehicles that continue to use the alternative.

Or the Insurgentes BRT corridor may generate a net shift of traffic to other avenues if they offer a faster journey time than that experienced on the route. Thus for these vehicles the shift from the route represents a reduction in journey time, fuel consumption and GhG emissions and also will reduce traffic loading and the

- 51 -

generation of GhG emissions from the vehicles that continue to use the route.

In the first case, the increased emissions on Insurgentes due to extra traffic that previously used other routes will be handled as rebound. In the second case the reduced emissions on Insurgentes due to traffic that changed to other routes cannot be used in the calculations because it will be offset by a rebound effect on the other routes outside the project boundary. Thus in either case the rebound effects are offset and can be excluded. In the case of doubt, values that generate a lower baseline projection or a higher project activity value shall be used. Each variable shall be determined in such a way that CERs cannot be earned due to force majeure.

Vehicle Fleet mix

xxii) In the southern end of Insurgentes, that involves up-market neighborhoods, the vehicle fleet that actively uses the route may have a higher percentage of newer cars than in other areas. The converse is true for the northern end of Insurgentes that communicates with poorer areas. However, for this project it will be assumed that the vehicle mix on the whole route is the same as the average vehicle mix in the MCMA.xxiii) Similarly, it has been widely found that newer cars have higher annual usage than older cars. Due to the high cost of determining the actual VKT mix of vehicles using Insurgentes it will be assumed that the VKT mix by model year on Insurgentes is the same as the average VKT mix by model year in the MCMA.

Trickle-down effect

xxiv) Not all the removed buses from Insurgentes will be scrapped directly. The permit for new vehicles (large capacity buses) to operate on the new corridor is provided against a corresponding scrapping certificate. This applies to ¾ of the vehicles being replaced on Insurgentes. The reminder will substitute highly polluting vehicles outside the corridor. The verification and validation procedures with regard to the emission reductions will monitor the scrapping arrangements throughout the project implementation. The scrapping of the replaced vehicles will not lead to an increase in bus traffic on other avenues because the transport ministry of Mexico City (SETRAVI) has frozen the issuance of concessions for bus route operations city-wide. xxv) Scrappage certificates from other routes outside the project boundary will be accepted where buses that have been removed from Insurgentes have replaced other highly polluting vehicles. Providing the trickle-down process is adequately documented and a destruction, recycling or dismantling certificate is obtained for the ultimate vehicle removed, the leakage mechanisms in the methodology will be evoked to account for this movement.

Pedestrian Cross-traffic

xxvi) It is assumed that pedestrian cross traffic to and from the stations located on the central divider will not affect traffic flow of other vehicles on the route because traffic lights will be placed on the same cycle as that used for the bus priority cycle. The impact of this, however, will be directly measured by the methodology.

- 52 -

GhG emissions due to construction activities

xxvii) The funding for this project comes from the Annual Budget for the City of Mexico, 2005. If this project had not been selected, the City Government would have allocated these funds to a different project with the intention of alleviating some other social, economic or transport need within the City. The city’s current administration was unable to finish its much heralded signature project; the Periferico upper deck (Segundo piso) due to lack of funds. Had the Insurgentes BRT corridor project not gone ahead, its funding would almost certainly have been assigned to the Segundo piso. Since these funds would have been spent, in any case, on some construction project, the construction orientated emissions impact should be assigned to the BAU case as well as to the project-activity case. The GhG-emissions due to construction activities are thus project-neutral and should not be included in the CDM calculations.

B.2.2 Key Methodological Steps

The New Methodology Baseline (NMB) defines seven key methodological steps that have to be followed in determining the baseline scenario for the Insurgentes BRT corridor project. These are:B.2.2.1) Characterize the project.B.2.2.2) Determine the baseline scenario B.2.2.3) Demonstrate additionality.B.2.2.4) Define a field measurement and data collection programB.2.2.5) Calculate the ex-ante value of the emissions reductionsB.2.2.6) Optimize to achieve the best net financial benefit (emissions reductions less measurement costs)B.2.2.7) Establish responsibilities and QA/QC procedures

These will be discussed in the following sections.

B.2.2.1 Characterize the project and all emissions reductions and probable leakages9

The identification of this project is described in A.4.1.4 and the technology used in A.4.3. It is apparent that the project consists of only one main route on which a BRT corridor is to be constructed; currently without any feeder routes but with intersecting streets

10

. The BRT transportation project strategic design documents are an important source for the data required to characterize this CDM project although some pre-measurements were required to estimate vehicle fuel economy, etc. Within this methodological framework, each of the possible components and leakages indicated in tables 4 & 5 are analyzed.

- 53 -

Table 4 – Possible Components

Component Activity Vehicles affected1 Vehicles on each main route

within the project boundary (Main routes can substantially

modify traffic behavior on intersecting streets)

Buses (fuel consumption measured directly)

2 All vehicles except buses (fuel consumption change determined from

difference in travel time)3 Vehicles on feeder routes

within the project boundary (Feeder routes do not

substantially modify traffic behavior on other streets)

Buses (fuel consumption measured as above)

4 All vehicles except buses(fuel consumption measured as above)

5 Modal shift to buses from private cars and other forms

of transport

Reduction in use of private cars

6 Increased bus service to cover extra demand

7 Elimination of left turns on main routes

All vehicles have to travel extra distance to go “round-the-block” to

the right to make left turn8 Elimination of crossing points

on main routesAll vehicles travel extra distance to

use a different crossing point9 Increased delay in crossing the

main routeAll vehicles have increased travel time due to crossing the routes

10 Traffic delays due to construction activity

All vehicles on the routes have increased travel time due to

additional congestion11 Emissions due to construction

activity plus upstream construction material

emissions

- 54 -

Table 5 – Possible Sources of Leakage

Leakage Activity Vehicles affected1 Smelting removed vehicles Buses2 Transferring buses from a

different service or routeBuses

3 Displaced buses are not scrapped

Buses

4 Buses have to dead-head to reach route

Buses

5 Competing buses on alternative routes

Buses

6 Modal shift from buses to other modes

Buses, cars, taxis

7 Shift from transport outside the project boundary to the buses

Buses, cars, taxis

8 Additional delay to cross the route affects several blocks

All vehicles crossing the route

9 Vehicles change to alternative routes outside the project

boundary

All vehicles on the route except buses

10 Feeder route improvements adversely affect crossing

traffic

All vehicles crossing the feeder route

11 Vehicles that used routes outside the project boundary

transfer to the main route

All vehicles on the route except buses

12 Project activity fuel-use or fuel-handling enhances pilfering

or evaporative emissions

Vehicles under the control of the project participants

All the data shown in this section consists of ex-ante values for the initial characterization of the project. The data was obtained from the Insurgentes BRT corridor transportation project strategic design documents reinforced with pre-measurements as necessary. Section E of this document details the most recent ex-ante values; which can be seen in many cases to be different to these initial estimates. The calculations in all of the following components and leakages

10

will determine ex-ante initial values of the difference in annual fuel consumption (in liters) between the baseline and project activities. This difference (in liters of fuel consumed by fuel type) is converted to tons of CO2 equivalent GhG emissions following IPCC factors and rules by using equation 38 (section E.5.1.1 and NMB section I.4.) and parameters expressed in table 23 (section D.2.4.1).

Component 1 – Operating condition improvements and/or the substitution of the number and technology of buses that operate on Insurgentes

The project activity involves the creation of a 19.3 km BRT corridor on Insurgentes. Project design documents call for the introduction of 80 high capacity buses on a confined exclusive bus-lane in substitution of approximately 350 diesel, gasoline, LPG and CNG buses.

- 55 -

Table 6 – buses to be introduced

Concept / Fuel Diesel

No of Active buses 70

Expected fuel economy 1.53

Km / day 240

Days per year 365

Table 7 – buses to be removed

Concept / Fuel Gasoline LPG Diesel

No of Active buses 50 30 270

Expected fuel economy 1.95 1.15 1.5

Km / day 130 130 140

Days per year 365 365 365

The expected CO2eqiv reduction per year from Component 1 is approx 13

: 18,000 tons/yr

Component 2 –vehicles on the route other than buses

The project is expected to ease the flow of other vehicles that operate on Insurgentes because of operating condition improvements. An improvement in travel time of approx 20 seconds per km is expected.

Table 8 – vehicles other than buses on Insurgentes

Concept

Route length 19.3 km

Vehicles/day on the route 60,000

Saving in travel time 20 sec/km

Principal vehicle type car

Principal fuel gasoline

Idle fuel consumption 3.2 l/hr

Days per year 365

The expected CO2eqiv reduction per year from Component 2 is approx: 15,000 tons/yr

Component 3 - Operating condition improvements and/or the substitution of the number and technology of buses that operate on feeder routes.

No feeder routes are currently included in the project

The expected CO2eqiv reduction per year from Component 3 is approx: 0 tons/yr

- 56 -

Component 4 - Improving the operating conditions for other vehicles operating on the feeder routes

No feeder routes are currently included in the project

The expected CO2eqiv reduction per year from Component 4 is approx: 0 tons/yr

Component 5 - Modal shift from cars on the route to buses

Since the project is expected to deliver a much-improved bus service, it is expected that some people that previously used cars will change to the new buses. An initial estimate of 1% of cars will be affected according to the project design documents.

Table 9 – modal shift from cars to buses

Concept

Route length 19.3 km

Vehicles/day on the route 60,000

Modal shift % 1%

Average passengers/car 1.5

Principal fuel gasoline

average fuel consumption 7 km/l

Days per year 365

The expected CO2eqiv reduction per year from Component 5 is approx: 1,300 tons/yr

Component 6 - Extra buses required due to Modal shift

Since the modal shift from cars will place an extra burden on the bus system it is necessary to see if more buses could be required to cover this extra demand.

Table 10 – extra demand on the buses

Concept

Average passenger trip length 4 km

Additional passengers 900

Additional passenger-km 3600

Total passengers 250,900

Total passenger-km 1’000,000

% increase in passenger-km 0.36%

Days per year 365

No of buses in service 72

Extra buses required 0.26 = 0 the number is rounded down to the nearest integer. Buses are added to service in discreet numbers;

fractional increases in occupancy are allowed (0.26

extra buses equates to less than one additional person per bus)

- 57 -

The expected CO2eqiv increase per year from Component 6 is approx: 0 tons/yr

Component 7 - Elimination of left turns on the corridor

Insurgentes has a total of 19 crossings with large avenues and 47 with small/medium streets. Of these, 13 have left turns from Insurgentes that were permitted in the baseline but will be eliminated with the project activity. If we assume that each large crossing equates to 10 small crossings and that 40% of the traffic will turn left

14 , the no-left-turn rule can be expected to affect 13/(19+4.7)*40% = 22% of vehicles.

Table 11 – Effect of no left turns

Concept

Vehicles/day on the route 60,000

Percent affected 22%

Additional distance 400 mt

Days per year 365

Principal fuel gasoline

average fuel consumption 7 km/l

The expected CO2eqiv increase per year from Component 7 is approx: 600 tons/yr

Component 8 - Longer distance required for vehicles to cross the corridor due to the elimination of crossing points

The elimination of crossing points is not planned for the Insurgentes project.

The expected CO2eqiv increase per year from Component 8 is approx: 0 tons/yr

Component 9 - Longer time required for vehicles to cross the route or BRT corridor due to traffic signal timing altered giving priority to buses

The Insurgentes BRT corridor project includes traffic flow improvements for the corridor (including bus-priority traffic lights) that are expected to increase the time per vehicle to cross the corridor in approximately 30 seconds.

Table 12 – Traffic crossing the route

Concept

Vehicles/day crossing the route 25,000

Additional time to cross 30 sec

Days per year 365

Principal fuel gasoline

Idle fuel consumption 3.2 l/hr

The expected CO2eqiv increase per year from Component 9 is approx: 540 tons/yr

- 58 -

Component 10 - Traffic delays during construction

The project is expected to cause delays during the construction period for all the vehicles that operate on Insurgentes. This will affect the first-year results only. Since the construction process should not cause traffic delays on the entire corridor all the time, it has been estimated that approximately 7.5 km will be affected over a period of 105 days causing a delay of approx. 25 sec/km.

Table 13 – traffic delay due to construction

Concept

Route length 7.5 km

Vehicles/day on the route 60,000

Additional travel time 25 sec/km

Principal vehicle type car

Principal fuel gasoline

Idle fuel consumption 3.2 l/hr

Days of construction 105

The expected CO2eqiv increase (first year) from Component 10 is approx: 2,300 tons

Component 11 - GhG emissions due to construction activities

The funding for this project comes from the Annual Budget for the City of Mexico, 2005. If this project had not been selected, the City Government would have allocated these funds to some different project with the intention of alleviating some other social, economic or transport need within the City. The city’s current administration was unable to finish its much heralded signature project; the Periferico upper deck (Segundo piso) due to lack of funds. Had the Insurgentes BRT corridor project not gone ahead, its funding would almost certainly have been assigned to the Segundo piso. Since these funds would have been spent, in any case, on some construction project, the construction-orientated emissions impact should be assigned to the BAU case as well as to the project-activity case. The project construction activities are thus GhG-emissions neutral. The NMB shows the GhG emissions due to construction activities and upstream manufacture of construction materials to be calculated from the project cost. If this were to be taken into account it would have affected the first year results only.

Table 14 – emissions due to construction activities

Concept

Project Cost (million USD) 13

Life Cycle Factor 2756.76

The expected CO2eqiv increase (first year) from Component 11 is approx: 35,800 tons

This should not be considered in the emissions reduction calculation

- 59 -

Leakages

The only leakage that was expected to affect the Insurgentes project is18

:

Leakage 1 - Smelting removed vehicles

The buses removed from Insurgentes will be scrapped. This will affect the first year results only.

Table 15 – Smelting of removed vehicles

Concept

No of Buses 350

Weight per bus 1.5 ton

liters of diesel per ton 65.1053627

The expected CO2eqiv increase (first year) from Leakage 1 is approx: 176 tons

Total Characterization

First Year emissions reduction 30,645 tons

All other years 33,136 tons

This is an initial ex-ante value that does not take measurement uncertainties into account.Section E of this document details the most recent ex-ante values, which can be seen in many cases to be different from these initial estimates.

B.2.2.2 Determine the baseline scenario

1) Identification of the relevant decision makers on potential alternative projects

The possible decision makers on potential alternative projects are:• The Mexico City Government• The RTP “Red de Transporte de Pasajeros” operated by the government bus line• Ruta 2 concessionaires• Any combination of the above three.

It would be impossible for any other party to be involved in potential alternative projects without the agreement of these current stakeholders.

2) Identification of relevant possible alternatives for the decision makers

Several alternative options to the project activity have been analyzed:a. The implementation of "light" corridors was considered as an option (corridors with minimal additional infrastructure). b. Another alternative considered, was a programmatic approach for the development of an entire set of corridors, at a metropolitan scale. c. The option to expand the metro was also considered.

- 60 -

Other alternative courses of action, structured around a BAU model that does not require the structural policy and regulatory reforms were also analyzed. These are:

d. The adoption of traffic measures.e. An enhanced BAU scenario whereby 10% of the bus fleet is renewed yearly, eliminating the Microbuses in Ruta 2 and getting their current operators to replace them (at a substitution rate of 2 x 1) for larger, more efficient diesel powered buses.

3) Check if the possible alternatives are in compliance with the existing regulations

All the options are in compliance with local regulations.4) Check that the possible alternatives to the project-activity are:· economically or financially more attractive than the current project without the revenue from the sale of certified emission reductions (CERs); and/or· not subject to the same barriers to implementation as the current project.

a. The implementation of "light" corridors was rejected because of its potentially weak impact on improving traffic congestion as well as difficulties in enforcing the dedicated character of the exclusive bus lanes. This approach, where applied, has not resulted in significant improvements in modal shift nor on emission reductions. The same can be said for the implementation of temporary corridors that open depending on a fixed timetable during the day. This would be subject to the same barriers to implementation as the project.b. The programmatic approach for the development of an entire set of corridors, at a metropolitan scale was not pursued as the authorities considered important the catalytic effect of initiating the program in stages, and learning from the operation of Insurgentes, before embarking on an expansion of the program. This approach also would have required additional budgetary resources that were not available at the moment. c. The option to expand the metro is considerably more expensive than the considered alternative and while it may provide more capacity, it is doubtful that under the current fiscal situation it can be implemented in a meaningful manner.d. The adoption of traffic measures are part of the solution but such measures are not seen as an exclusive alternative to the corridors in that they do not offer a substantially better or more sustainable mass transit model. They are being made part of the corridor program.e. An enhanced BAU scenario whereby 10% of the bus fleet is renewed yearly, eliminating the Microbuses in Ruta 2 and getting their current operators to replace them (at a substitution rate of 2 x 1) for larger, more efficient diesel powered buses.

5) Selection of the most plausible baseline scenario

The most plausible baseline scenario is the enhanced BAU scenario whereby 10% of the bus fleet is renewed yearly, eliminating the Microbuses in Ruta 2 and getting their current operators to replace them (at a substitution rate of 2 x 1) for larger, more efficient diesel powered buses.

6) Determine if the overall methodology is applicable to the selected baseline scenario

The overall methodology is applicable to the selected baseline scenario.

- 61 -

B.2.2.3 Demonstrate additionality

Section B.3 demonstrates how the additionality tool is used for the Insurgentes BRT corridor project.In the case of this project the additionality analysis showed the most attractive alternative option to the project activity was to continue the present style of operation and invest in a yearly replacement of 10% of the bus fleet. This would phase-out over a number of years the remaining 87, gasoline and gas fuelled Microbuses to replace them with larger diesel fuelled buses at a substitution rate of 2 x 1. The removed microbuses would be taken out of service. Although there is not an exchange mechanism in force at this time, this has been done in the past; and has resulted in the current Insurgentes Ruta-2 bus fleet containing 175 larger diesel units. The 44 diesel buses that the baseline introduces in substitution of 28 gasoline, 57 LPG and 7 CNG Microbuses will be included in the baseline bus fleet using the current diesel technology at the time of introduction. The larger diesel fuelled buses would be replaced at a substitution rate of 1 x 1. The details of this renovation process are shown in B.2.1 (iii - a). Any changes in the baseline due to the demonstration of additionality have to be fed back into step 1 (Characterization of the project).

B.2.2.4 Define a Field Measurement and Data collection program15

The limited scale of this project (less than 40,000 tons per year of CO2eqiv) dictates that the measurement costs are kept to a minimum and thus manual on-route surveys are proposed for use wherever the data requirements cannot be met from fleet or official records. This Field Measurement and Data collection program must be defined in accordance with the Monitoring Methodology contained in the NMM titled “GhG emissions reductions in urban transportation projects that affect specific routes or bus corridors or fleets of buses including where fuel usage is changed”. It must comply with the recommendations made in the IPCC Good Practice Guidance and Uncertainty Management in National Greenhouse Gas Inventories: see http://www.ipcc-nggip.iges.or.jp/public/gp/english/. Annex 5.2 shows the 23 distinct data collection activities have been defined for the Insurgentes BRT corridor project together with the forecast sampling fixed and variable costs, ex-ante measurement standard deviation, the variables generated and where these are used in the baseline (NMB) and monitoring (NMM) methodologies.

B.2.2.5 Calculate an ex-ante value of emissions reductions (Carbon emissions reduction = (Baseline emissions – Project Activity emissions) – Leakage – Expanded Measurement Uncertainty)

Using the ex-ante measurement Standard Deviations in Annex 5.2 (step 3 of this procedure) which are based on the chosen monitoring plan together with the initial estimates of emissions changes from the characterization of the project (step 1 of this procedure), the expected carbon savings are calculated by developing the ex-ante value of the expanded uncertainty associated with each emissions reduction component and leakage taking into account each vehicle

16

and fuel type17

. Table 16 shows the initial ex-ante value of the emissions reductions, whose details are to be found in Annex 5.3. It is important to note that these numbers will change in section E due to (i) a more detailed ex-ante value being used the results in tables 17 & 18 are based on the data used in the initial characterization in B.2.2.1 and; (ii) the results of the optimization process. Section E shows the detailed calculation method for each component and leakage and the ex-ante values after optimization.

- 62 -

Table 16 – Total emissions reductions

MEAN CO2

equiv tons/year

Expanded Uncertainty (lower 95%

bound)

LOWER 95th CONFIDENCE

LEVEL

Total components & Leakages per year 33,136 3,117 30,018

Total components & Leakages for the first year 30,645 3,092 27,553

B.2.2.6 Optimize to achieve the best net financial benefit

The optimization process (as shown in the NMB sections F.1 and I.3.2) looks to maximize the value of the carbon emissions reductions (at market value) that can be generated, after subtraction of the measurement and verification costs. All components and leakages are optimized individually, using a grid search method, where possible combinations of measurement/verification effort are evaluated for the associated measurement uncertainty, the monetary value of the emissions reduction or leakage at the lower 95% confidence level and the monetary cost of conducting the verification. The optimization process looks to detect the minimum possible value of the sum of the cost of the uncertainties uncertainties expressed as tons of CO2equiv per year at the market value in $USD/ton plus the measurement cost on a per-annum basis. The annual cost of measurements depends on the number of years in the crediting period and the number of verifications and measurements to be conducted over this timeframe (which in this case consists of a crediting period of 7 years with 3 verifications at years 1, 4 & 7). The cost of baseline measurements performed only once (at project startup) is proportionally distributed across the project timeframe (one seventh of its cost assigned per year), and the cost of each project activity verification is proportioned on a per-annum basis (one seventh of the total cost of 3 verifications assigned per year). Any start-up emissions increases or leakages are assigned to the first year only. The optimized number of measurements depends principally on their Standard Deviation and the cost of measurement. The initial numbers used in the characterization of the project are refined at this time to generate the final ex-ante value of emissions reductions as shown in Section E. The optimization process is carried out in the planning phase (using ex-ante data) and at each verification period; using ex-post data from the previous period to define that period’s measurement plan. Using the numbers and the measurement standard deviations and measurement costs shown in Annex 5.2 as referred in B.2.2.4 above, the optimized measurement plan is developed. Table 17 shows, as an example, the ex-ante standard deviations and measurement costs for the component 1 baseline buses, however this process is followed for all components and leakages.

- 63 -

Table 17 – Component 1 baseline buses

Baseline Fuel consumption measurement

sample size for buses

Type of Bus Diesel buses

Gasoline buses

LPG buses

CNG buses

Standard Deviation of Measurements 0.45 0.53 0.53 0.53

Measurement Costs

($USD)

Fixed Cost ($USD) 510 510 510 510 Variable Cost ($USD per

bus) 96 96 96 96

The optimization process requires this calculation to be performed for every component and leakage to determine the optimum sample size for each variable. Where measurement costs are high, accepting a high level of uncertainty can produce optimal results due to the reduction in these measurement costs.

B.2.2.7 Establish responsibilities and QA/QC procedures

METROBUS has the responsibility for carrying out the monitoring methodology and continually revising the inventory of uncertainties to make adjustments to the monitoring program as necessary. METROBUS is responsible for establishing, monitoring and conducting all the QA/QC procedures. Its organic responsibility is detailed in section D.4 and the QA/QC activities it should include are specified in D.3.

B.2.3 Key information and data used to determine the baseline scenario

The Key information and data sources used to determine the baseline scenario can be found in Annex 3. Ex-ante values of the data are to be found in section E and in B.2.2.

B.3. Description of how the anthropogenic emissions of GHG by sources are reduced below those that would have occurred in the absence of the registered CDM project activity:

The chosen baseline methodology uses direct source measurement over the project timeframe to create a dynamic baseline that automatically accounts for changes in the natural growth of passenger-trips per year on Insurgentes due to an expanding urban population; and the renovation, growth and change in technology and fuel efficiency of the active vehicle fleet over the project timeframe

19 . The dynamic baseline

incorporates the most attractive alternative option to the project activity identified in this section. This involves re-activating a program to substitute Microbuses with larger diesel buses

20 which would phase out

over a number of years the remaining 87 gasoline and gas21

fuelled Microbuses and replaces them with larger diesel fuelled buses at a substitution rate of 2 x 1. The removed microbuses would be scrapped.

The 44 diesel buses that this program introduces to the baseline fleet in substitution of 28 gasoline, 57 LPG and 7 CNG Microbuses will use diesel technology current at the time of introduction.

An investment program would be maintained to replace 10% of the remaining bus fleet (both public and privately owned) per year.

The project activity is as described in A.2 and table 1.

To demonstrate that the Insurgentes BRT corridor project activity is not the baseline and is, therefore,

- 64 -

additional, the methodology requires that the UNFCCC/CCNUCC approved tool for the demonstration and assessment of additionality be used. It is to be found at: http://cdm.unfccc.int/methodologies /PAmethodologies/AdditionalityTools/Additionality_tool.pdf. This tool provides for a step-wise approach to demonstrate and assess additionality. The steps include: • Identification of alternatives to the project activity; • Investment analysis to determine that the proposed project activity is not the most economically or financially attractive; or• Barriers analysis; • Common practice analysis; and • Impact of registration of the proposed project activity as a CDM project activity.

Step 0. Preliminary screening based on the starting date of the project activity

The Marrakech Accords and decision 18/CP.9 provide guidance on the eligibility of a proposed CDM project activity which started before registration. This CDM project has an expected effectiveness date of: 22/8/2005 which is before the registration date of 30/12/2005. The project is being formulated under the guidelines of the Clean Development Mechanism (CDM) and is intended to generate Carbon Emission Reduction. From a climate change perspective, efforts to promote a modal shift are anticipated to result in reductions of greenhouse gas emissions per passenger-km. Carbon Finance (CF) support provided to the proposed project however is not expected to compete neither with the GEF’s long-term operational program nor with their short-term response measures. Rather, the GEF resources complement CF intervention by enabling the development of a regulatory framework for the introduction of a modal shift. The CF contributes to the development of transport corridors as a preferred option for this modal shift. The project is consistent with, and was prepared pursuant to guidance from the United Nations Framework Convention on Climate Change (UNFCCC) and the guidelines of the World Bank's Carbon Funds (CF). The global common objective of the project is to contribute to the reduction of global carbon emissions from the passenger transport sector in the Mexico City Metropolitan Area to be achieved through a modal shift towards low polluting, space efficient transport corridors with exclusive bus-ways and traffic management measures. The project was initially submitted to the Carbon Finance Unit of the World Bank for consideration of carbon emissions reductions at the earliest stages of consideration by the City Government. The Project Idea Note (first document to request inclusion in the portfolio of CF at the World Bank) was issued by the City and received by the Bank on July 2003 (see copy in Annex 5.4, reference 1). The PIN requested a potential purchase of carbon emission reductions. A PCN (later renamed CFD, carbon finance document) was submitted by the City on November 2004 and later updated (see copy in Annex 5.4, references 6 and 7). The CFD again requested carbon reductions purchases from CF and requested assistance in the removal of barriers that were obstacles to the implementation of the project. As a response, CF at the World Bank allocated resources, including trust fund resources to assist in the identification and removal of barriers. In coordination with the GEF resources were allocated to address institutional issues, business model development and identification in regulatory gaps. The terms of reference for the feasibility assessment included the quantification of global environmental benefits. These terms of reference were dated September 2003. In parallel, the City addressed a formal written letter to the World Bank director for Mexico (dated March 2004), (see copy in Annex 5.4, reference 8) where it requested assistance for ensuring the purchase of carbon emission reductions, indicating: "the sale of carbon emission reduction is essential for ensuring project viability". A quality enhance review was undertaken at the World Bank on March 2005,where a green light was provided to the project concept focused on the generation of emission reductions, which were then valued at US$2.0 million during the first 14 years of operation.

- 65 -

Step 1. Identification of alternatives to the project activity consistent with current laws and regulations

Sub-step 1a. Define alternatives to the project activity:

The alternatives to the project activity are:a. The business-as-usual scenario in which mass transit services are proportioned by dispersed, inefficient and predatory operations, due to the barriers against change.b. The most plausible baseline scenario selected in the determination of the baseline scenario in B.2.2.2 which consists of an enhanced BAU scenario whereby 10% of the bus fleet is renewed yearly, eliminating the Microbuses in Ruta 2 and getting their current operators to replace them (at a substitution rate of 2 x 1) for larger, more efficient diesel powered buses.c. The project activity without the CDM component.

Sub-step 1b. Enforcement of applicable laws and regulations:

All of the above options comply with all the applicable legal and regulatory requirements22

.

Proceed to Step 2 (Investment analysis) or Step 3 (Barrier analysis).

Step 3. Barrier analysis

Sub-step 3a. Identify barriers that would prevent the implementation of type of the proposed project activity:

The CDM activity was involved in the removal of barriers to the implementation of the project. Barriers present at the start of the activity included:

a) lack of an institutional framework.

The CDM activity using resources provided by CF at the Bank, reviewed options for an institutional structure that could manage a corridor transport system and created an independent institution (METROBUS), to be partially funded by emission reductions revenues that would operate and manage the corridor. The institution is an independently managed public entity with own management and accounts. The creation of METROBUS was critical for the viability and sustainability of the project.

b) lack of a business model.

The baseline business model for the transport sector in the City consisted of independently owned and operated small transport companies or individuals, managing a few vehicles without standards for performance, safety nor health and fringe benefits for the drivers. This multitude of operators created a chaotic operational condition on Insurgentes Avenues. As part of the CDM activity, a business model was developed for the grouping of the small operators under a single company with business statutes, performance indicators, modern financial and safety standards and clear operational rules. The company is now a concessionaire of the public space created under the transport corridor project. Concession contracts were drafted and agreed with the newly formed company. The operation of the corridor as a business under strict performance standards enables the delivery of emission reductions.

c) lack of a regulatory framework.

In the absence of the project, public space was not regulated, nor confinement for public transport was

- 66 -

allowed for. There were no rules on the use of the bus lanes and no disincentives for the use of bus lanes by other modes of transport. Under the CMD activity, the transport regulations were modified and new transport rules were issued that created the figure of lanes of exclusive use by public transport. The efficient allocation of public space permitted the improvement in mobility that is central to the design of the project.

d) lack of incentives for scrapping of old buses.

With carbon finance assistance a dialogue was carried out to ensure that strict scrapping rules would be in effect by the time the project initiated activities. Scrapping of old rolling equipment was a requirement to the creation of the carbon asset. Furthermore, part of the future revenues from carbon emission reductions will be used to partially finance scrapping of old vehicles. These barriers were solved with the support of the CDM activity. The city communicated to the Bank in September 2004, that the project would not be implemented were not for the CDM involvement's assistance in addressing these barriers (see copy in Annex 5.4, reference 8). Annex 5.4 contains documented references prepared by the project developer, contractors and project partners (World Bank) in the context of the proposed project activity that clearly demonstrate:i. The existence of these barriersii. That the barriers were resolved with the support of the CDM activityiii. That the project would not be implemented were not for the CDM involvement's assistance in addressing these barriers

These identified barriers would have prevented the implementation of the project activity without the CDM component.

Sub-step 3 b. Show that the identified barriers would not prevent the implementation of at least one of the alternatives (except the proposed project activity):

The barriers discussed above would not have prevented, under the existing institutional and regulatory framework a continuation of the BAU scenario (option “a” in sub-step 1a) or option “b” ” in sub-step 1a that consists of the phasing out over a number of years of the remaining 87 gasoline- and gas- most are LPG fuelled although a small percentage use CNG - fuelled Microbuses and replacing them with larger more-fuel-efficient diesel fuelled buses at a substitution rate of 2 x 1. The removed microbuses would be removed from service. Although there is not an exchange mechanism in force at this time, this has been done in the past; resulting in the current Insurgentes Ruta-2 bus fleet containing 175 larger diesel units; however the removed units were not scrapped. The 44 diesel buses that the baseline introduces in substitution of the 28 gasoline, 57 LPG and 7 CNG Microbuses will be introduced into the baseline bus fleet using the diesel technology current at the time of introduction. The most attractive of these two options is option “b” ” from sub-step 1a.

- 67 -

Step 4. Common practice analysis

Sub-step 4a. Analyze other activities similar to the proposed project activity:

No other activities similar to the proposed project activity have been implemented previously or are currently underway in Mexico City. The use of sectoral policies for improving the quality of public transportation services is not new however; several cities in Latin America are improving their public transport services through the use of BRT corridors. The leaders in this field are Curitiba (Brazil) and Bogotá (Colombia) that have focused their attention on improved bus service management, large-capacity buses, segregated exclusive lanes, and bus and station design that allows rapid boarding. Santiago (Chile) and Mexico have based their designs mainly around the Columbian Transmilenio experience which involved a comprehensive overhaul of the city’s public transport system that started in 2000. Transmilenio has introduced 65 km of segregated bus-way - including the Calle 92 to Calle 8 sur trunk route opened on July 1 2005 - with an additional 330 km planned by 2016. The system currently has 78 stations and 628 buses. The consumer-oriented nature of BRT has contributed to an apparent reduction in private car and taxi use, and significant increases in public transit passenger trips. By May 2005 Transmilenio has transported over 926 million passenger-trips substantially cutting travel-times, traffic accidents and pollution. Similar to TranSantiago and Mexico, Transmilenio is planning to add a CDM project to their initiative—project developers are currently seeking approval for the methodology. The above-mentioned barriers faced in the implementation of the Insurgentes BRT corridor project were not experienced in the same restrictive degree in these other cities (and countries).

Sub-step 4b. Discuss any similar options that are occurring:

It is imperative that BRT systems are properly designed not only from a physical perspective but also from an institutional and legal perspective in order to ensure they are financially sustainable. Any BRT corridor with transit demand over 8,000 passengers per peak hour per direction can be made financially self-sufficient

23 , but that is no guarantee that it will be. Simply building exclusive bus lanes will by no

means guarantee financial sustainability. In Curitiba, for example, the system and tariffs are structured so that each concessionaire gets a 12 percent return on investment

24 assuming they comply with the terms of

their contract but at the cost of very high fares (US$0.70) which would be socially impossible to implement in Mexico. TransJakarta at this point is financed largely by government subsidies. Quito’s electric trolley bus line has yet to achieve full financial sustainability. Bogota’s TransMilenio achieved full financial sustainability not only by constructing exclusive bus lanes, but by re-routing regional transit systems to create a quasi-monopoly out of the trunk line operators, then contracting this monopoly concession out to multiple bidders through competitive tender. It is institutionally and legally complex to ensure that the private sector invests in the rolling stock and continues to invest in the maintenance of the rolling stock. In the MCMA the bus tariff could not be fixed at a level measurably higher than that which the passengers had been previously paying, nor could regional transit systems be rerouted to increase income or subsidized operation be allowed; thus carbon funding became essential to permit the structured operation that is a keystone to breaking down the barriers; which involves additional planning and monitoring costs that can only work with carbon funding.

- 68 -

Step 5. Impact of CDM registration

The City government has committed as budgetary resources all the funding required for the construction of the infrastructure. The government has already established Metrobus, an independent public entity that will manage the operation of the corridor. The carbon finance resources will directly contribute to the sustainability of the corridors program by addressing monitoring and planning functions at Metrobus. The project is intended to demonstrate and develop the tools required to measure and monitor carbon emission reductions from the transport sector. While the operation of one single corridor does not result in large emission reductions, the project will eventually enable the application of the tools and procedures developed, on a larger scale, which is already envisaged, as a follow up to this operation. The availability of certified emission reductions is expected to accelerate this process. The CDM component of this project has been politically sufficiently strong and desirable for politicians and local authorities to build the consensus and levels of interest that could allow these above mentioned barriers to be torn-down. Without this the project could not have succeeded.

B.4. Description of how the definition of the project boundary related to the baseline methodology selected is applied to the project activity:

The project boundary defined in the chosen methodology encompasses all anthropogenic emissions by sources of greenhouse gases under the control of the project participants that are significant and reasonably attributable to the project activity. It achieves this by dividing any multi-route project into a collection of individual routes, including each of these within the project boundary.

In the case of the Insurgentes BRT corridor the project consists of only one 19.3 km route as defined in A.4.1.4. On this route, the methodology monitors all project activity; direct, and dependant changes in vehicle fuel consumption that can be identified and measured with statistical validity. The methodology includes within the project boundary and measures changes in fuel consumption from:A. Vehicles on the 19.3 km Insurgentes BRT corridor route: buses [1] the numbers in [ ] refer to the elements in Figure 3 that apply to the Insurgentes project. Elements [3], [4] and [7] are not included in this project. and other vehicles [2].B. Vehicles on feeder routes: buses and other vehicles. – These are not included in this project’s current implementation.

Whilst the project participants have looked at the possibility of including feeder routes at the southern end of the Insurgentes BRT corridor, no feeder routes have yet been defined. When these plans are implemented the feeder routes may be included within the project activity.

C. Modal shift [5] to buses from private cars and other forms of transport.D. Vehicles that are affected by the elimination of:• left turns [6];- 13 left turns have been eliminated by the project activity; • crossing points;- no crossing points have been eliminated in the project design• vehicles that suffer increased delay in crossing the main route or BRT corridor [8].E. The methodology adds to the above, within the project boundary, other temporal identifiable GhG emissions changes:• delays during project defined construction activities and • GhG emissions due to construction activities and upstream manufacture of material for construction; - Should not be considered in this project.

The funding for this project comes from the Annual Budget for the City of Mexico, 2005. If this project had not been selected, the City Government would have allocated these funds to some different construction project within the City. Since these funds would have been spent, in any

- 69 -

case, on construction, the GhG emissions impact should be assigned to the BAU case as well as to the project-activity case making the project construction-neutral.

Figure 3

B.5. Details of baseline information, including the date of completion of the baseline study and the name of person (s)/entity (ies) determining the baseline:Annex 3 contains the key elements used to determine the baseline for the project activity including elements such as variables, parameters and data sources. The person(s)/entity (ies) responsible for determining the baseline and constantly updating it throughout the project timeframe is METROBUS, who is a project participant listed in Annex 1.The date of completion of the initial baseline analysis is 30/10/2005; however the baseline data (and analyses) will be dynamically updated at each verification period throughout the projects timeframe.

1 the chosen methodology cannot easily manage projects that cause extensive changes in land use and degree of motorization over an entire metropolitan area.2 which has an extension of 1500 sq. km.3 “Red de Transporte de Pasajeros” operated by the government 4 the fuel economies used in the calculation will be determined in ex-post fleet measurements. The numbers presented are ex-ante estimations.5 published in the official gazette on Nov. 1, 20026 Oficial Gazette publication, section 4.4.3 Sustitución de microbuses por autobuses.7 the obligatory vehicle emissions test in the MCMA is conducted every 6 months on all except the newest vehicles for which a two year waiver is given after their initial test. 8 the methodology assumes that the project is too small to create new trips for cars, even though it may create new trips on the faster public transport service9 This is performed to visualize the scope of the project, identify which avenues and streets have vehicle flows that will be impacted by the project activity and to generate a first estimation of the magnitudes and an idea of the variability involved. Data sources include the transportation project design documents, pre-measurements, expert opinion and experiences in similar projects. Since the dynamic baseline will be constructed around the most attractive alternative option identified in the additionality analysis (B.2.2.2 and B.2.2.3), this may involve changes to the historic business-as-usual scenario at the beginning of the project or systematically over the project timeframe. The methodology uses a route-based approach to sub-divide any multi-route project into multiple

- 70 -

individual routes. It identifies the extension of each route and how traffic on this and other streets may be affected by project activity and identifies all significant sources that can be reasonably attributed to the project activity. The possible Components and Leakages in tables 4 & 5 are evaluated.10 see figure 3 for the project boundary11 except component 11 and leakages 1 & 1212 including a reserve for maintenance etc 13 calculated from the difference in fuel consumption using UNFCCC factors and procedures14 this assumes that 20% of traffic flows continue to the end of the route and the rest is equally distributed between left and right turns.15 To obtain the required data both for defining and updating the baseline and for measuring the project activity. Determine the field measurement and data collection activities required and estimate the fixed and variable cost components of each activity. Estimate the measurement uncertainties associated with each parameter according to the selected activity. These can be obtained from a preliminary set of measurements, and/or from literature. Define the assumptions and measurements that will be required before project start-up and those that will be required to continually update the baseline and measure project activity over the project’s timeframe16 Vehicle types include: Cars, Taxis, Pickups and Light Duty Commercial, Heavy Duty Commercial, Microbuses and Buses since each of these categories can be readily identified when conducting a traffic count.17 Fuel types include diesel, gasoline, LPG and CNG. Where a vehicle’s fuel type cannot be readily identified in a field survey, regional fuel-type distribution for each vehicle type is to be used.18 at the time of the initial characterization, it was expected that all the buses on Insurgentes would be scrapped. Later it became apparent that 25% of the buses would “trickle-down” through other routes outside the project boundary. Also, in the initial characterization, the need to dead-head the buses was not considered. In section E the mechanisms in Leakages 3 & 4 have been evoked to include these effects.19 see the NMB sections F, G, and I.1 for a discussion on how the methodology creates the dynamic baseline, measures the project activity and evaluates the reduction20 Microbus substitution and scrappage program published in the official gazette on Nov. 1, 200221 most are LPG fuelled although a small percentage use CNG22 even if these laws and regulations have objectives other than GHG reductions, e.g. to mitigate local air pollution Where poor compliance with existing transport regulations currently exists, it can be shown that this state of affairs had been accepted for many years making it ipso facto part of the BAU structure 23 see “Reducing Greenhouse Gas Emissions with Bus Rapid Transit”: a GEF Medium-sized Project Brief 14 July 200424 The Opportunities for Sustainable Urban Transportation in Medium-Sized Cities in Latin American and the Caribbean, Deborah Bleviss, November 2004,

The complete Baseline Methodology can be found in the project files.

- 71 -

Additional Annex 12: Environmental Impact AssessmentMEXICO: Mexico City Insurgentes Bus Rapid Transit System Carbon Finance Project

Environmental Impact Assessment of the Corridor

Environmental Impacts

The environmental impacts of the Project have been analyzed for each of the following phases of the project:

Preparation Phase: activities prior to construction, including evacuation, expropriation, protection, and lpreparation of the area

Construction phase: including activities to prepare the terrain, the removal of vegetation, earthwork, ltransport, final disposal, improvement of pavement, and activities to build the actual infrastructure, such as stations, pedestrian facilities, barriers for corridor, etc.

Operation Phase: include the activities that result from the project, including impacts on traffic (change of lroutes, improved public transport, changes in individual transport) and the maintenance (operation of stations and depots, traffic management systems)

Most environmental impacts which were identified in the EIA are generated during the construction phase of the project. The infrastructure investments will take place within the existing right-of-way of the Corridor and will make use of existing road infrastructure. Investments will focus on strengthening the pavement, bus corridor segregation, construction of stations and provide access facilities, improvement of sidewalks, and rearrangements of traffic signs and signals. The main impacts include increased levels of air, soil, water and noise pollution, solid waste, limitations on traffic circulation, interruptions in services, damage to existing green areas, energy and fuel use and others.

Possible impacts during operation include air, noise, soil and water contamination from the terminals and parking/maintenance areas and increased accidents due to improper design. Possible impacts during operation include air, noise, soil and water contamination from the terminals and parking/maintenance areas. Environmental benefits predicted by the EIA include a rationalization of the 'collective' transport system, a decrease in travel time, and the reduction of air and noise pollution. The expected emission reductions compared to the baseline (no action) are provided in Annex 11.

The most important impacts are:

Impacts on cultural heritageAlthough difficult to quantify, the EIA does not expect that the construction or operation of the corridor will have any negative impact on cultural heritage or historic buildings. The Monitoring and Mitigation Plan include measures to address unforeseen impacts.

Safeguard Policies Triggered and Handling Thereof

O.P. 4.01 - Environmental AssessmentThe policy is triggered due to the potential environmental impacts of the project. Numerous environmental analyses were completed during project preparation to ensure proper handling of potential impacts, and to

- 72 -

ensure that potential environmental benefits are capitalized upon. As described above, the EIA analyzed the environmental impacts of construction of the corridor. Operational guidelines for bus scrapping were developed to ensure proper environmental management of this component. The EMP is a combination of the recommendations from these studies. In addition to the required mitigation measures, many environmental activities are integrated into the project.

Public Consultation and Disclosure

The EIA was consulted with various local stakeholders and during focal group meetings.

Mitigation Plan

A number of mitigation measures are proposed to prevent or minimize environmental impacts or compensate for impacts. During the design phase these include measures to:

To locate and design bus yards to reduce air pollution and noise impacts on surroundings.lMinimize impacts on existing corridor, including sidewalks, vegetations and street furniture.lMinimize impacts on traffic during construction and operationlReduce interruptions in serviceslImprove safety along corridor, stations and stopsl

During the construction phase, mitigation measures include actions to:Reduce increase emissions and noise due to construction activitieslMinimize impacts on urban environment and surroundings of waste storage and disposallAvoid impacts on groundwaterlMinimize spatial needslReduce impacts of machinery and equipment on existing road infrastructurelReduce interruptions in servicesl

Other mitigation measures during construction phase but beyond the works include traffic regulation and landscaping and urban improvements along corridors and the design and construction of bus yards, terminals and stops.

During the operation phase mitigation measures include measures to:Reduce air and noise impacts of the bus operations along corridorslProtect groundwater in bus depotslMaintain the corridor and associated facilitieslControl and manage traffic along corridor l

Monitoring PlanThe EIA proposed a monitoring plan that includes emission testing of ‘old’ buses prior to implementation of the corridor as well as regular monitoring of new buses and noise measurements along the corridor, including stops and terminals. The EIA also calls for monitoring of construction sites and ensure there are left behind clean.

- 73 -

Additional Annex 13: Financial Analysis and Economic AnalysisMEXICO: Mexico City Insurgentes Bus Rapid Transit System Carbon Finance Project

Financial AnalysisIn order to improve bus-based services in Mexico Metropolitan region, the city government has designed a corridor with exclusive bus-lane on the Insurgentes Avenue. The high-capacity transport corridor will be the result of a public-private partnership (PPP), in which the public sector will be responsible for the investment to deploy the required infrastructure (segregated lanes, stations, terminals, etc.) and part of the equipment (25% of the trunk bus fleet), while the private sector will be responsible for the investment of most of the trunk fleet (75% of the buses) and the ticket selling and validating system, and for the operation of the trunk and feeder services.

The design of this PPP - which to a large extent follows Bogota´s Transmilenio successful example - involves the definition of a regulatory and financial frame. The government initial expenditure is considered a sunk cost, while the fare is expected to cover the capital and operational costs incurred by the private actors in running the system, as well as the operational costs of the official agency that coordinates the transport system, Metrobus. The allocation of the fare revenue is distributed among the actors responsible for the service provision and Metrobus, according to a set of specific rules.

The financial analysis has been performed for the new transport corridor as a whole, and for Metrobus agency. The main conclusions are:

· The new transport system generates a moderate operational surplus. This is due to the corridor’s high level of demand and elevated passenger turn around (renovation factor). · The tariff helps to defray a significant share of the capital cost (75%) and carries out a relevant social implementation cost (compensation to former corridor operators). · A share of the fare box allocated to Metrobus would be allocated to cover administration costs; however, additional resources required for monitoring and planning, would come from the expected carbon revenues.

The basis of these conclusions is presented below. The projected corridor cash flow is shown in Table 1. The financial revenues are expected to compensate the financial expenditures, as the fare level has been designed to do so. Therefore, the financial indicators typical of infrastructure projects, like NPV or IRR, are not particularly relevant for this type of PPP. The Metrobus cash flow is presented in Table 2. According to the nature of the PPP, a balance sheet for the entire system has no relevant financial implications, nor for Metrobus (an operating agency without significant assets).

Project expected activity level and revenues: The Metrobus corridor revenues will depend primarily on fares. A flat integrated fare of 3.5 pesos (US$0.31) has been established; however some passengers (students and the elderly) will pay a preferred lower tariff. Daily demand is estimated in about 250.900 passengers for a typical week day, and about half that figure for weekends and holidays. The annual expansion factor adopted was 310.5 days given the 109 non-business days in Mexico City. With these assumptions estimated annual revenues are about US$21.8 million dollars. Expected demand is represented by current users of the Insurgentes corridors and therefore no mayor demand risks are expected as demand is already capture. For the same reason there is not ramp up period considered nor any natural demand growth. Likewise, annual kilometers run and the annual operational cost are not expected to change over the lifespan of the project. Annual revenues from emissions reductions of approximately US$170.000 are expected.

- 74 -

Project capital and operational expenditures: a significant part of the initial capital expenditure is made by the government, considered – from the project financial perspective – as a sunk cost (physical infrastructure and 20 out of the 80 buses for the system). This cost is estimated in US$ 27.1 Million. The private trunk operators are expected to invest in 60 high capacity buses (US$ 14.8 Million), and the revenue manager in the ticket selling and validating integrated system (US$4.4 million). The table below shows a distribution of the expected investments.

Investments By the government as sunk cost Infrastructure (corridors, bus stops) 22,227,162 Bus fleet (25% owned by public company RTP) 4,908,371 Sub total 27,135,532 58.5% Investment by private sector Bus fleet (75%) 14,830,292 Ticketing system 4,409,869 Sub total 19,240,160 41.5% Total 46,375,693 100.0%

The design of the PPP assumes that the fare should be defined as to cover the private expenditures (including a reasonable return on capital) and the government control tasks, excluding the government initial sunk costs. The rewarding criteria are the following: Trunk operators will be rewarded based on the predefined tariff per kilometer, times the number of kilometers run every month. It is estimated that the cost per kilometer paid to the operators will be around US$2.04. According with a preliminary service schedule, it has been estimated that total annual kilometers will be 6.116.000, representing on average 281 kilometers per bus-day or 7 daily round trips on the corridor per each bus. Total annual payment to trunk operators is estimated in US$12.7 million dollars or 58.6 percent of total revenues.

Feeder Services. The total cost of feeder services is estimated in the order of 3.9% of the fare box.

Ticketing selling and revenue collection will be rewarded as a percentage of the passenger fare. It is estimated that this percentage will be around 7.8 percent of the fare. Therefore, payments to the fare collector from the fare box will annually account for US$0.856 million dollars. Moreover, this collector will have the rights to commercially exploit of the publicity spaces of the system (in buses and stations)

System coordination and regulation will be the responsibility of Metrobus. In line with other experiences, Metrobus will receive 5.7 percent of the total revenues equivalent to US$1.2 million dollars. A detailed explanation of Metrobus finances is presented in Table 2.

Contingency Fund: Given the normal uncertainties associated to the implementation of a system carrying out a new model, the Municipal government has considered it of strategic importance to establish a contingency fund to cover any misalignment between the system revenues and the system expenses. Unfortunately, during the initial years until capital costs are defrayed, no significant surplus is

- 75 -

accumulated. Starting in year 5, US$4.1 million per year start to be accumulated in the contingency fund.

Table 1. Project Cash Flow (Fare box distribution)

Exchange rate 11.2475

1 2 3 4 5 6 7 8 9 10Revenues

Daily passangers (business day) 250,900 250,900 250,900 250,900 250,900 250,900 250,900 250,900 250,900 250,900Passangers year (310.5 days) 77,855,400 77,855,400 77,855,400 77,855,400 77,855,400 77,855,400 77,855,400 77,855,400 77,855,400 77,855,400Tarrif 0.31 0.31 0.31 0.31 0.31 0.31 0.31 0.31 0.31 0.31System gross revenues year 24,227,064 24,227,064 24,227,064 24,227,064 24,227,064 24,227,064 24,227,064 24,227,064 24,227,064 24,227,064Special fares cost 1,787,110 1,787,110 1,787,110 1,787,110 1,787,110 1,787,110 1,787,110 1,787,110 1,787,110 1,787,110

Net revenues 22,439,953 22,439,953 22,439,953 22,439,953 22,439,953 22,439,953 22,439,953 22,439,953 22,439,953 22,439,953

Cost

System regulator 1,248,291 1,248,291 1,248,291 1,248,291 1,248,291 1,248,291 1,248,291 1,248,291 1,248,291 1,248,291Fare collector 1,874,457 1,874,457 1,874,457 1,874,457 1,874,457 1,874,457 1,874,457 1,874,457 1,874,457 1,874,457Feeder 856,795 856,795 856,795 856,795 856,795 856,795 856,795 856,795 856,795 856,795Other 1,023,872 1,023,872 1,023,872 1,023,872 1,023,872 1,023,872 1,023,872 1,023,872 1,023,872 1,023,872

Trunk cost per Km 2.04 2.04 2.04 2.04 2.04 2.04 2.04 2.04 2.04 2.04 Total kilometers 6,116,000 6,116,000 6,116,000 6,116,000 6,116,000 6,116,000 6,116,000 6,116,000 6,116,000 6,116,000

Trunk payment 13,267,873 13,267,873 13,267,873 13,267,873 13,267,873 13,267,873 13,267,873 13,267,873 13,267,873 13,267,873

Fleet amortization (56%) 2,016,845 2,016,845 2,016,845 2,016,845 0 0 0 0 0 0Fleet interest (14.5%) 1,956,112 1,956,112 1,956,112 1,956,112 0 0 0 0 0 0Fleet insurance 193,974 193,974 193,974 193,974 0 0 0 0 0 0

Total cost 22,438,219 22,438,219 22,438,219 22,438,219 18,271,288 18,271,288 18,271,288 18,271,288 18,271,288 18,271,288

Balance 1,734 1,735 1,735 1,735 4,168,666 4,168,666 4,168,666 4,168,666 4,168,666 4,168,666

Contingency fund 1,734 1,734 1,734 1,734 4,168,666 4,168,666 4,168,666 4,168,666 4,168,666 4,168,666Reserve fund 0 0 0 0 0 0 0 0 0 0

Sensibility analysis. In order to establish the financial risk associated with changes in the demand or in the fare, a sensibility analysis was developed. Four additional scenarios were developed with reductions of 5% and 10% in the demand or in the fare. The table below presents the results of the balance at the end of the first and fifth year for each of the scenarios. The main conclusion is that in any case the project will yield positive financial results after the fourth year, when capital expenditures are paid. As for the first four years, all the scenarios yield a negative result, except for the 5% reduction in demand, given that reduction in the number of travel kilometers more than offset the lost in revenue. However the negative result is mild in two of the three negative-result scenarios. In these cases the Municipality would have to find a bridge financing to be cover with future surpluses.

YEAR 1 YEAR 5 YEAR 1 YEAR 5 YEAR 1 YEAR 5 YEAR 1 YEAR 5 YEAR 1 YEAR 5Balance US dollars 1,734 4,168,666 63,295 4,230,227 (636,416) 3,530,516 (964,125) 3,202,806 (1,929,986) 2,236,946

5% 10%Tarifa

Base 5% 10%Demanda

Metrobus financing. Metrobus, the system’s coordinating and regulatory agency, is in charge of planning, operating and monitoring the new transport corridor. In order to perform this task it will have a total staff of 61 people, including technical and administrative staff. Metrobus will also be in charge of maintaining the bus stops and terminals. Total annual cost of this agency is estimated in the order of US$2.058 million dollars. According with the fare box distribution schedule, total revenues are estimated in the order of

- 76 -

US$2.058

Table 2. Metrobus Revenues and expenses.

MetrobusAnnual revenues 5.7 percent of system revenues 1,248,291 Bus stops maintainance 810,491

Total 2,058,783

Annual cost

Personell cost 1,248,291 Bus stops maintainance 810,491

Total cost 2,058,783

Balance 0

Carbon fund 170,000

Economic Analysis1. Introduction An economic analysis has been carried out by comparing, in economic terms the with project scenario with the without project scenario. The analysis has been carried out for 7 and for 14 years representing the carbon finance crediting periods. It considers a discount rate of 12%. The results will be presented as NPV, IRR and as Cost Benefit Ratio.

2. Background

Project scenarioThe project considers a situation in which a corridor of a length of 19.3 km is implemented on the Insurgentes avenue between the terminals Indios Verdes in the north and Dr. Galvez in the south. The demand on the corridor amounts to 250,900 passengers. The service will be supplied on an exclusive bus lane – physically separated from the other lanes - by 80 articulated buses, thereby replacing the 356 buses currently running on this stretch of Insurgentes. There will be 34 elevated bus stations in the center of the exclusive bus lanes. The buses will be operated by 75% private and 25% public operators. The expected speed on the exclusive bus lanes is 21.2 km per hour with 2 minutes intervals between stops in the north and less than 3 minutes in the south. Each bus has the capacity to transport 160 passengers. There will be a daily service between 5 and 11 pm and a night service between 11 pm and 5 am.

Without project scenarioThe without the project scenario considers the actual situation on the Insurgentes Avenue, on the same stretch as the project. The 250,900 passengers depending on public transportation on Insurgentes are currently traveling with 356 micro- and other buses. Their average speed amounts to 17.4 km per hour due to congestion and inefficient provision of service. The investment foreseen without the project is the annual renovation of 10% of the fleet.

- 77 -

3. Economic analysis

The economic analysis is based on the estimation of the cost for the infrastructure of the corridor, as well as for the buses and the equipment, and the associated maintenance cost. In addition the cost consider the scrapping cost of the replaced vehicles, the annual replacement cost of the current fleet without the project, the residual value of corridor and buses at the end of the crediting period. On the benefit side the analysis considers the time savings for the users of the new transport system and of the other vehicles, the reduction of the accident rate, the environmental benefits, as well as the cost savings in operational and maintenance cost.

4. Project cost

Investment cost corridor. The cost for the investment in the infrastructure of the corridor was provided a.by the executing agency (Secretary of Environment of Mexico City). These cost include the investment in the infrastructure, the residual value of the corridor at the end of the evaluation period, the maintenance cost of the corridor over the implementation period. Articulated bus cost. The capital cost for the new vehicles was provided by the executing agency. In b.addition the current vehicle replacement is taken into account on a yearly basis as the base case for buses. The residual value of the new buses is accounted for in the analysis at the end of the analysis period. Scrapping cost. The current bus fleet is going to be scrapped incurring an additional cost to the project. c.

5. Project BenefitsThe implementation of the Insurgentes Corridor has the following benefits:

a. Time savings for the vehicles, taxis and other vehicles. b. Time savings for the users of the new transport system on the corridor. c. Operating and maintenance cost savings.d. Environmental benefits: reduction of global and local pollutants.

6. Quantification of Benefits.

a. Time Savings. The estimation of the time savings is based on the with project travel time from vehicles on Insurgentes in minutes per kilometer, the baseline (current) travel time on Insurgentes (min/km), and the daily kilometers traveled by these vehicles on the corridor. The quantification of the time savings for the passengers per vehicle, estimated a conservative number of passengers (1.5 passengers per vehicle), and the minimum salary per day. The time savings for the passengers currently using the buses and who will use the corridor buses, take into account the total demand, the changes in demand according to weekdays and weekends, and the different distances traveled by the bus passengers on Insurgentes (7% travel more than 12 km, 41% travel between 5 and 12 km and 52% less than 5 km). The time savings are adjusted for the time debits due to the implementation of the corridor (including the delays because of construction).

b. Operation and Maintenance Cost Savings. The current operation and maintenance cost have been provided by the current public bus operator and have been prorated for the private bus operator. The

- 78 -

operation and maintenance cost for the new transport system were provided by the executing agency (Ministry of Environment of Mexico City).

c. Environmental benefits.Reduction of global pollutants. The global pollutants CO2, CH4 and N2O were taken into account in the estimation of the emission reduction due to the implementation of the corridor. The project considers various credits and debits in that regard. The quantifiable credits include the burning of less fuel by replacing old inefficient technology with modern efficient technology, and by improving the traffic flow of vehicles along the corridor. Finally less fuel will be burnt because of an expected modal shift from vehicles to the articulated buses. These credits are partly offset by burning more fuel by delaying an improved corridor’s cross flow vehicular traffic, and by lengthening the travel time and distance for vehicles that used to turn left across the corridor and are not longer allowed. The estimates were supported by field measurements. (See Annex 13 for detailed description of methodology).

Reduction of local pollutants. The local pollutant PM10 is taken into account that is expected to be reduced through the implementation of the corridor.

7. Results of the assessments.

The results of the project’s economic assessment over a target period of 7 and 14 years are presented in the following table:

Net Project Benefits (14 years; in Million USD)

YearNet cost corridor

and busesNet time savings

OM savings

Environmental

benefits Total net benefits

1 (43.65) (1.85) - (0.06) (45.57)

2 2.15 17.70 12.63 0.87 33.35

3 2.15 17.70 12.63 0.87 33.35

4 2.15 17.70 12.63 0.87 33.35

5 2.15 17.70 12.63 0.87 33.35

6 2.15 17.70 12.63 0.87 33.35

7 2.15 17.70 12.63 0.87 33.35

8 2.15 17.70 12.63 0.87 33.35

9 2.15 17.70 12.63 0.87 33.35

10 2.15 17.70 12.63 0.87 33.35

11 (14.64) 17.70 12.63 0.87 16.57

12 2.15 17.70 12.63 0.87 33.35

13 2.15 17.70 12.63 0.87 33.35 14 20.22 17.70 12.63 0.87 51.42

Total (14.40) 228.27 164.19 11.26 389.32

From the above a simple benefit cost flow analysis was conducted, with the following results:

- 79 -

For 14 years: For 7 years:

IRR = 72% IRR = 82%NPV= USD 149 (Million) NPV = USD 116 (Million)Cost Benfits Ratio: 6 Cost Benefit Ratio: 6.5

56%

41%

3%

Time savings

Maintenance andOperating Cost savings

Envinronmentalbenefits

- 80 -

Additional Annex 14: Local Climate Change Strategy of Mexico City MEXICO: Mexico City Insurgentes Bus Rapid Transit System Carbon Finance Project

The Local Climate Action Strategy of Mexico City comes as a response of a commitment policy of Mexico City Government to reduce the Greenhouse gas emissions, and as synergy with the local policies for the decrease of contaminant emissions in Mexico City, as well as profit from the opportunities derived from the framework of Kyoto’s Protocol, from the Clean Development Mechanism and from other instruments that are being developed throughout the world, within the context of the United Nations Framework Convention on Climate Change.

This initiative concentrates various actions of the 2002-2006 Program of Environmental Protection for Mexico City implemented by the Secretaría del Medio Ambiente (Secretariat of Environment), particularly for the 2002-2010 Program of Air Quality Improvement for the Metropolitan Area of the Valley of Mexico (PROAIRE) and for the Program of Ecological Restoration of Conservation Land in Mexico City, although it also contemplates actions of its own.

Based on the inventory of Greenhouse gas emissions for Mexico City and on the bottom line of emissions, the various actions included in the Strategy are compatible with the environmental regulation policies for industry, the improvement of the air quality and the sustainable management of natural resources and biodiversity, among others; it establishes at the same time a fundamental framework for the development of projects susceptible of being incorporated into the Clean Development Mechanism.

The Local Climate Action Strategy of Mexico City has been developed under the principles of the United Nations Framework Convention on Climate Change and subject to the guidelines established by the Intergovernmental Group of Experts on Climate Change.

It has been estimated that as a novel action in the country, in which for the first time a local government assumes the commitment and responsibility for climate change, initiatives and projects are launched that will benefit the people living in Mexico City and in the rest of the world as well.

Actions proper to the ELACDF include measures to save electricity, that although not representative of local emission reductions because of the conditions of electric power supply in the MZVM, they indeed decrease the GHG emissions on a national scale. It is considered that the ELACDF referred to herein do represents a novel action in the country because for the first time a local government assumes the commitment and the global responsibility of implementing initiatives and projects that will benefit the people living not only in Mexico City but in the rest of the world. It has been also acknowledged that because this is a strategy developed by a local government, the involvement of the various sectors will actually play a leading role in the results to be expected in the future. It will be therefore necessary that in addition to the government, the social players assume a role of joint responsibility and set common objectives and strategies.

Objectives and Lines of Work The main objective of the ELACDF strategy is the establishment of an institutional framework that promotes the mitigation of the Greenhouse emissions in Mexico City through the implementation of actions to save and to use efficiently the natural resources; for the regulation and efficient use of equipment; to substitute those fuels with the largest consumption and to promote the use of alternate fuels; to apply new technologies; and to develop actions in the forestry sector for capturing carbon emissions.

- 81 -

Specifically, the lines of work and the particular objectives of the strategy can be listed as follows:

1. Establishment of an inventory of GHG emissions for Mexico City, based on the methodology suggested by the IPCC, and suitable on a local scale

2. Definition of a base line of GHG emissions associated to the consumption of energy and to the capture of carbon

3. Identification of measures and actions proposed by PROAIRE 2002-2010 that contributes to the reduction of GHG emissions and to the quantification of their effects

4. Identification and evaluation of vulnerability factors of Mexico City to climate change

5. Analysis of the trends in GHG emissions and of scenarios for Mexico City

6. Analysis of the adaptability of Mexico City to the effects of the climatic change and identification of adaptation measures

7. Identification of measures to mitigate the GHG emissions

8. Definition of strategies, measures and actions to reduce GHG emissions in Mexico City

9. Proposal for the establishment of a government agency of Mexico City that stimulates projects as part of the Clean Development Mechanism

Since it was developed from the perspective of the bases and commitments of the United Nations Framework Convention on Climate Change and of Kyoto’s Protocol, and taking into account the integrated approach of climate change (Figure 2.1), the ELACDF strategy tackles the following topics: inventory of emissions of Mexico City; vulnerability; trends and scenarios; adaptability; mitigation of emissions; and strategies and measures for emission reduction. Figure 2.1 The Climate Change cause – effect cycle (IPCC, 2001, Synthesis Report)

- 82 -

Mention should be made that although the Local Climate Action Strategy of Mexico City that is presented herein is focused on this particular metropolis as a well defined political and administrative entity, it is acknowledged as a fact that it fails to constitute an isolated urban feature of the MZVM and that the environmental, social and economic processes developed in it are expressed within a regional context, beyond specific territorial boundaries. Because of this, in various parts of the document reference will be made to the Metropolitan Zone as a whole and to the neighboring urban counties of the Estado de México.

- 83 -

Additional Annex 15: Social Impact Assessment and Mitigation and Urban Recovery Program

MEXICO: Mexico City Insurgentes Bus Rapid Transit System Carbon Finance Project

Background

The Metropolitan Area of Mexico City (MCMA), one of the largest cities in the world, is afflicted by severe pollution that causes health and economic damages. Authorities have been working on actions to improve the air quality for several years, however, in spite of progress achieved, pollution continues to be one of MCMA’s most serious problems and further efforts are required. The third Air Quality Management Plan identifies the transport sector as a priority area to achieve results in reducing air pollution. There have been no major improvements in transportation in Mexico City in the last two decades; and traffic jams, long commutes, congested roads, low quality services, unreliability, and pollution daily degrade the quality life of MCMA’s inhabitants. To address this problem the Government of Mexico City, under the guidelines of the third Plan, has planned to develop a corridor transport system to both reduce pollution and improve the quality of public transport.

The project will contribute to this effort through the promotion of low contaminating modes of transportation along strategic corridors. These corridors would complement the existing metro infrastructure, which is critical to the urban mobility, without incurring the costs of an actual physical expansion, making it financially more feasible. This strategy will generate a range of benefits, including: · Improved air quality through a reduction in emissions generated by the transport sector;

· Establishment of transport policies that incorporate pollution reduction indexes and environmental goals;

· Improved public transport in terms of shorter travel times , more modern energy-saving and comfortable vehicles, security, and long term reduced costs;

· Financially sound transportation system involving private sector operators.

Social Impact Assessment (Complete Social Assessment in project’s files)

A social assessment was carried out to identify possible social impacts, to ensure compliance with the World Bank’s social safeguards, to propose mitigation measures and other actions that can contribute to the project’s objectives, and to enhance the outcomes. Technical studies and stakeholder consultation also provided useful information to better address social issues.

Several technical alternatives were analyzed prior to the decision to construct the corridor at the center of the avenue and use public land for terminals, which will minimize social and environmental impacts. Under this plan, there will be no resettlement, although minor displacement of some street vendors will be necessary. In addition, the restructuring of public transportation might affect some of the drivers of the former concessionaire. In all cases where impacts were identified, mitigation measures have been agreed to with stakeholders. Additionally, several actions will be taken to ameliorate the urban landscape and cultural atmosphere along the corridor. The Government of Mexico City is committed to the mitigation and urban development program summarized below, which is currently under implementation.

- 84 -

A summary of identified social issues, impact mitigation measures, and the urban recovery program is presented in this summary. Full reports are available in the project’s files.

1. Insurgentes Corridor

Insurgentes, a 34 km long avenue which runs north – south through Mexico City, comprises one of the most important commercial and service areas in the city, which daily attracts thousand of persons working in the area and is one of the symbols of the city. During the last three decades, there have not been relevant infrastructure improvements and a transportation policy that favored small vehicles (microbuses), combined with a lack of enforcement of traffic laws and irregular occupation of public space, have contributed to road congestion and urban degradation.

Insurgentes was selected as the pilot to test the proposed corridors system; it will be implemented along 19.1 km, from Indios Verdes in the north to Doctor Galvez Rectoria in the south. At Indios Verdes the northern terminal will be build to operate as a transfer station for commuters from poor and middle-income areas in the State of Mexico while the southern end will connect with the Mexico-Cuernavaca motorway. This corridor will improve transportation conditions for the thousands of commuters that work in the commercial and service areas along Insurgentes. There will be 33 bus stations and three terminals to serve an estimated 236,000 trips per day; the total travel time between terminals will be approximately one hour; half the time it takes with the current system. The service will operate 24 hours a day in two shifts: (i) a day shift, from 5 am to 11 pm and (ii) a night shift, from 11 pm to 5 am, taking into account those who work the night-shift at the many restaurants operating along the avenue. Expected benefits from the corridor are the following:

· Shorter trips and reduced delays;· Safer, cleaner, and more comfortable public transportation;· Improved traffic flow resulting from the prohibition of left turns, and better traffic lights; · Reduced traffic due to the increased service quality that will attract passengers from other transportation modes;· Reduction in contaminating emissions; and· Better urban environment.

The design of the corridor took into account several alternatives in order to reduce impacts on: (i) congestion during construction; (ii) resettlement and other economic impacts; (iii) environmental; and (iv) functional, such as creating problems in nearby roads. As a result, it was determined that construction of the corridor along the center of the road was the best possible solution, although some impacts are expected.

2. Main social impacts

Because of the length of Insurgentes, many diverse neighborhoods are involved, comprising a variety of stakeholders are involved. However, as identified by the social assessment, the most important impacts from a social perspective are on the following:

(a) Residents along the corridor, comprising some of the most traditional areas in the city, such as San Angel;(b) Transport operators; (c) Street vendors;(d) Trade and services;

- 85 -

(e) Monuments and cultural sites.

Residents: three main residential areas with distinctive features have been identified: (i) the middle-upper income residential areas from San Angel to Viaducto, of whom, the majority use private cars; (ii) from Viaducto to San Cosme, with a predominance of middle to poor residential areas; and (iii) from San Cosme to Indios Verdes, with a high density of low income population, mostly public transport users. Only the residents of San Angel have publicly expressed their concerns about the corridor contributing to increased congestion and urban degradation. However, it is the current operation with irregular minibus terminals that attract the street-vendors, which are the main source of the identified problems. These terminals will be eliminated under the new operating system, which will help to ameliorate the situation.

Transport operators: there are currently two transport operators: (a) the public service Red de Transportes de Pasajeros, RTP; and (b) Ruta Dos, a private concessionaire operating different services from San Angel to Indios Verdes.

(a) RTP: provides three routes of service along Insurgentes: (i) Route 34, Reclusorio Sur-Norte de Chilpancingo; (ii) Route 15, Insurgentes Sur and (iii) Route 23, Indios Verdes Villa Olímpica. It has a fleet of 110 vehicles and 220 drivers integrated within the RTP Union, whose employment rights are therefore protected.

(b) Ruta Dos: is a private concession group, which operates under the following modalities: (i) owners of concession, license plates, and vehicles, which are operated by a third party; (ii) owners of concession, license plates, who also operate the vehicles; (iii) owners of concession, license plates, and vehicles, which are leased to a third party; and (iv) drivers working for any of the three ownership modalities. The three groups which own concession have integrated a new firm; CISA Corredor Insurgentes S.A., CISA, created on October, 8, 2004 to operate under a single concession, which will continue to operate under the new system. Ruta Dos has 262 concessions, 362 vehicles and 500 operators, including support workers. Ruta Dos drivers do not work under any contract; in most cases (63%) their working relation is based on family ties; they do not earn a regular income, nor do they have social security; they usually work 12 hours a day under stressful conditions without overtime pay, thus contributing to an insecure transportation system. Overall, labor conditions of drivers will improve in the new system. However, some in the small group of drivers without vehicles who do not qualify to work in the new system might lose their jobs.

(c) Metrobus: was created in January 2005 to be in charge of public transportation incorporating RTP and CISA under a new operation scheme to be paid by every kilometer of service. 80 full-capacity low emission buses (20 Scania and 60 Volvo) will replace the current fleet, of which CISA will operate 75% and RTP the remaining 25%. Metrobus will organize, execute and monitor the operation, in accordance with quality performance indicators; it will be also responsible for the maintenance of vehicles and infrastructure. The tariff and financial scheme will allow financial self-sufficiency.

(d) Workers: The 45 drivers needed to operate RTP’s 20 vehicles will be selected from among the 100 drivers that currently operate “autobuses articulados.” Selection criteria comprises: experience in operating such vehicles, IQ level, and service attitude. In the case of CISA, there will be 177 positions available: 10 professionals, 125 drivers, 12 mechanics and 36 supervisors.

Street Vendors and workers Source: Secretaria de Gobierno, Gobierno de la Ciudad de México: Nearly 2000 organized street vendors (in fixed or movable stalls) and 800 independent street vendors operate along Insurgentes. In addition, there are around 3,500 “street workers,” such as shoe cleaners, vendors, artisans of various types, etc., 70% of which are integrated in some kind of organization. The project will not affect

- 86 -

this situation except in the three sites mentioned below, where terminals will be built:

i. Terminal North, Indios Verdes, with 630 vendors and workers;ii. La Palma in San Angel, with 375 vendors, of which 90% hold permits.

The Government of Mexico City has a special group dealing with this issue and negotiating agreements in each case. There will be reorganization of the groups to ensure their safety but not resettlement in any case.

Trade and services: There are approximately 2000 establishments of different kinds along Insurgentes, 82% of which are concentrated in the southern side between Copilco and Reforma, with approximately 20,000 employees. A survey carried out in 2003 by the Centro de Transporte Sustentable indicates that 95.3% of the business owners along Insurgentes are in favor of the reorganization of public transportation and 67% are in agreement with the project’s proposal and the need to invest more in project transportation. Most of these establishments would only be negatively affected on a temporary basis during construction. There is, however, an issue with restaurants that attract a lot of vehicles and slow traffic, particularly those using valet parking.

Monuments and cultural sites: Only the Indios Verdes Monument is going to be relocated according to a plan agreed to with INAH. In addition there have been agreements to protect the view of monuments such as the Mural at Insurgentes Theater and Polyforum Siqueiros. Moreover, in response to residents’ demands, there is a project for the urban and cultural recovery of the site “La Palma” at San Angel, although is not affected by the project.

3. Consultation and public information

The size and variety of stakeholders along the 20 km of the proposed Insurgentes Corridor make it difficult to organize and carry out consultation; in addition, the deterioration the city has been facing in the last decade has created skepticism among its inhabitants. The current political environment exacerbates mistrust and difficult negotiations. However, several efforts have been made to communicate and negotiate with the main stakeholders:

General: Social assessment and technical studies comprised consultations with the main stakeholders in the corridor comprising (i) residents, (ii) private sector representatives, (iii) street-vendors and workers, and (iv) authorities (Delegaciones). The Center for Sustainable Transport (Centro de Transporte Sustentable) carried out a survey with private sector representatives from various trades in Insurgentes; International organizations, such as Shell Foundation have also contributed their views on the project design. The SMA has established a public phone line to respond to public concerns about the corridor.

Negotiations with key groups: Three working groups were established to negotiate with those that might be affected by the project: (i) transport operators; (ii) street vendors at terminal sites; and (iii) restaurant owners and valet-parking firms. Transport Operators: Consultations with Ruta Dos took more than a year in three phases: (i) an informative phase to discuss the project and other similar experiences in Latin America, including a visit to Transmilenio in Bogota, Colombia.; (ii) training by Nafin on entrepreneurship, private firms, regulations and concession modalities, etc.; and (iii) negotiations to agree on a business plan, bus purchases, income distribution, operation contracts and the new payment scheme. Street vendors: because of the sensitive nature, SMA has directly lead consultations with street vendors. A

- 87 -

special team has been negotiating the reorganization and relocation of street vendors step-by-step and agreements have been reached to reorganize their activities so as to not interfere with the operation of the terminals security for them or the passengers.

Trade and services: A special Metrobus team has been in charge of negotiations with restaurant owners to agree on alternatives to minimize the impact of valet-parking services on the effective operation of the corridors.

Neighbors: For some time there had not been a formal communication strategy with neighborhood groups which created some tension, particularly among the residents of San Angel. However, at the World Bank’s recommendation, a special team has been appointed to present the project and address neighbors’ concerns.

Monuments: Although only the Indios Verdes monument has to be moved, INAH and INBAL have reviewed the design of the corridor, and have identified issues and agreed with SMA on measures to protect the integrity and visual access of monuments and cultural sites.

Public awareness: The project includes a public campaign to inform and educate the public about air quality efforts and promote behavioral changes among commuters, private drivers and the general public to contribute to project’s success.

Public Relations: Metrobus will have a public relations office to keep the public informed about the corridor, and respond to users’ complaints.

Mitigation and Urban and Cultural Recovery Program This an English summary of the program prepared by SMA

The Mitigation and Urban and Cultural Recovery Program is intended to address impacts arising from the project through specific actions agreed to with the affected population and to include additional measures that will contribute to the project’s goals and enhance the quality in order to maintain Insurgentes as an emblematic symbol of Mexico City.

1. Mitigation Measures

a. Street vendors and workers: there has not been resettlement of street vendors and workers, instead, an agreement was reached to reorganize their activities within agreed sites to not interfere with terminal operations, and to ensure their and commuters security; this agreement includes mainly three sites: (i) Indios Verdes Terminal; (ii) Chilpancingo Glorieta; and (iii) the site known as La Palma.

b. RTP Operators: RTP drivers will be relocated to other areas with service deficits, maintaining their employment and all their rights.

c. Ruta Dos Operators: An agreement was reached with CISA to prioritize selection of current Ruta Dos drivers who meet the requirements to fill positions in the new operation. The 210 drivers that do not meet the requirements have the opportunity to transfer to other routes and/or receive training to increase their employment opportunities outside the system.

d. Restaurants: Restaurants owners agreed to reorganize valet parking services through four measures: (i) to build side-bays wherever possible; (ii) to move the service to a nearby area; (iii) to provide

- 88 -

free parking at the nearest parking place; and (iv) to train employees to comply with these operational measures.

e. Monuments Protection: There is an agreement with INAH, to protect monuments and cultural sites along the corridor. Only the Indios Verdes Monument has been relocated following INAH guidelines and a new park will be build to improve the surrounding area.

f. Reforestation: The urban recovery program includes reforestation actions; to compensate for the 1,700 trees that were cut to build terminals and stations. 7,500 new trees are being planted.

g. Guidance to users: SMA in coordination with SETRAVI and Voluntary Promotors organized an orientation program on the new Metrobus facilities for commuters to help their familiarization with the new operation.

h. Safety facilities: Traffic lights and signals have been placed in 54 intersections to facilitate access to Metrobus terminals to protect users.

i. Service Monitoring and Evaluation: User surveys are being implemented to monitor quality of the service and to continue improving its operation.

2. Urban and cultural recovery program a. Urban landscape: The project has financed a landscape study for the corridor to adapt the terminal designs to the urban environment, and to improve the urban landscape along the corridor. The Mexico City Architects College designed other facilities for the corridor to maintain the visual integrity of Insurgentes.

b. La Palma Recovery: A proposal to address urban degradation and contribute to the cultural recovery of the area “La Palma” at San Angel has been prepared and will be executed in coordination with the Delegation authorities.

c. Complementary Actions: Other actions to improve the urban environment and create a positive synergy with ongoing programs in areas of the corridor include: street lighting, traffic-lights and signals around Insurgentes and Chilpancingo, and roundabouts. Permanent security arrangements have also been established around these areas.

d. Security and Urban Conservation: Metrobus, in coordination with SETRAVI and Public Security Secretariat, have prepared and will enforce transit regulations to ensure the safety and ease of use of Metrobus facilities within and around terminals;

3. Institutional Arrangements

SMA, representing the Government of Mexico City will be responsible for overseeing the execution of this Mitigation and Urban Recovery Program in coordination with Metrobus.

- 89 -

4. Budget

All activities in this program, excepting scraping which will continue until 2006, will be completed by the end of 2005. Additional urban recovery activities will be implemented during project life using carbon resources previous agreement with the World Bank. The budget for the Impact Mitigation and Urban and Cultural Recovery Program is around US$ 23.25 million as shown in next table.

Program Budget

Actions Cost in pesos

Street vendors reorganization North Terminal (East) North Terminal (West)

14’872,540 5,000,000

Ruta Dos displaced workers Training

630,000

Valet parking Facilities

1’440,000

Monuments protection Indios Verdes 13,000,000 General 10,285,449

Corridor reforestation Central and side areas 3’000,000 Study 2’000,000 Stations platforms 67’227,771

Urban landscape

Stations 107’128,189 Scrapping Old vehicles destruction 8’000,000 Total 232’583,449

- 90 -

Additional Annex 16: Monitoring methodologyMEXICO: Mexico City Insurgentes Bus Rapid Transit System Carbon Finance Project

1. The Monitoring Protocol

1.1 Purpose of the MP

In the context of the Clean Development Mechanism (CDM) of the Kyoto Protocol, monitoring describes the systematic surveillance of a project's performance by measuring and recording performance-related indicators relevant to the project or activity, the assessment of achieved emission reductions (ER) and the project's continued conformance with all relevant project criteria.

This Monitoring Protocol (MP) defines a standard against which the Insurgentes Avenue Bus Rapid Transit Project performance in terms of its greenhouse gas (GHG) reductions and conformance with all relevant Clean Development Mechanism (sustainable development) criteria will be monitored and verified. As such the MP will be an integral part of the contractual agreement between the Spanish Carbon Fund (SCF) and METROBUS.

The MP follows both New Monitoring Baseline (NMB) and New Monitoring Methodology (NMM) “GHG emissions in urban transportation projects that affect specific routes or bus corridors or fleets of buses including where fuel usage is changed”. This methodology has been developed for rolling-stock and infrastructure projects that affect the operation of vehicles on relatively well-defined routes within an urban environment. It can be applied in metropolitan areas with good existing data and also in urban areas where information is less-readily available or currently non-existent. It can make extensive use of data-gathering technology where it exists (such as automatic license plate readers) or in its absence obtain all the data required for the methodology through the cost effective application of human-based field measurement campaigns. It is applicable to any geographic region.

1.2 Use of the MP by the Project Operator

The MP identifies the key project performance indicators and sets out the procedures for tracking, monitoring, calculating and verifying the impacts of the project, in particular with respect to the project's ERs.

This MP must be used by the project operator when planning and implementing the project and during the project’s operation. Adherences to the instructions in the MP is necessary for the project operators to successfully measure and track the project impacts and prepare for the periodic audit and verification process that will have to be undertaken to confirm the achieved ERs. The MP is thus the basis for the production and delivery of ERs to the SCF or other buyers and for any related revenue stream that the operator expects to receive.

The MP assists the operator in establishing a credible, transparent, and adequate data measurement, collection, recording and management system to successfully develop and maintain the proper information required for an audit of the collected information and for the verification and certification of the achieved ERs and other project outcomes. Specifically, the MP provides the requirements and instructions for:

· Establishing and maintaining the appropriate monitoring system including spreadsheets for the

- 91 -

calculation of ERs;· Checking whether the project meets planned social benefits;· Implementing the necessary measurement and management operations;· Preparing for the requirements of independent, third party verification and audits.

The MP ensures environmental integrity and accuracy of crediting ERs by only allowing actual ERs to be accounted for after they have been achieved. The MP must therefore be used throughout the life of the project. It must be

· Adopted as key input into the detailed planning of the project; and· Included into the operational manuals of the project.

The MP can be updated and adjusted to meet operational requirements, provided such modifications are approved by the Verifier during the process of initial or periodic verification. In particular, any shifts in the applicable baseline that are identified by following this MP may lead to such amendments, which may be mandated by the Verifier.

1.3 Structure of the MP

The MP document contains the following parts:

- Section 2 explains concepts and principle assumptions applied in monitoring the GHG performance of the project and in calculating ERs. The section also discusses data sources and assumptions and lays out why the MP is expected to compute ERs in a conservative manner.

- Section 3 contains instructions regarding operational and monitoring obligations the operator is expected to assume.

- Section 4 outlines the functioning of the Project Workbook and illustrates the steps needed to calculate the GHG emission reductions.

- Section 5 explains the management and operation system that needs to be put in place to ensure a consistent, high quality monitoring work.

- Section 6, finally, describes the SCF’s verification regime and details the auditing and verification procedures for the project

2. Concepts and principal assumptions

The MP builds on the New Baseline Methodology and the New Monitoring Methodology “GHG emissions in urban transportation projects that affect specific routes or bus corridors or fleets of buses including where fuel usage is changed”.

2.1 Emission Reductions from the Insurgentes Avenue Bus Rapid Transit Project

The Insurgentes Bus Rapid Transit Pilot Project has been designed by the Mexico City government to improve bus-based services in Mexico City’s Metropolitan Area (MCMA). Insurgentes is an important route for the MCMA completely crossing the city from North to South. The route begins on the northern side of the Mexico-Pachuca Freeway, close to the “Anillo Periferico” and at the border between the State of Mexico and the Federal District. It is an important access route to the Federal District from poor and middle-income areas in the State of Mexico.

- 92 -

The “Insurgentes BRT Bus Rapid Transit Corridor” will be implemented along 19.3 of the 34 km of Insurgentes Avenue, starting in Indios Verdes in the north, and ending in Doctor Galvez, Rectoria in the south. This corridor will improve transport conditions for commuters accessing the commercial and service areas along Insurgentes. This project will also help to reduce local airborne pollutants and to demonstrate and develop the tools required to measure and monitor carbon emission reductions from the transport sector. Further, the project will demonstrate that a high-quality bus corridor approach with associated traffic management measures is a viable alternative for promoting modal shift providing a blueprint for other corridors in the city and elsewhere which would bring about a much higher overall impact. The total estimated emission reductions to be achieved by the project are 181,000 Tons of CO2 over seven years (first crediting period).

2.2 Geographic and System Boundaries for the MP

The Monitoring Plan will have the same geographic and system boundaries as referred in NMB “GHG emissions in urban transportation projects that affect specific routes or bus corridors or fleets of buses including where fuel usage is changed”. The project boundary shall encompass all anthropogenic emissions by sources of greenhouse gases under the control of the project participants that are significant and reasonably attributable to the project-activity. It achieves this by dividing any multi-route project into a collection of individual routes, including each of these within the project boundary.

In the case of the Insurgentes BRT corridor the project consists of only one 19.3 km route. On this route, the methodology monitors all project activity; direct, and dependant changes in vehicle fuel consumption that can be identified and measured with statistical validity. The methodology includes within the project boundary and measures changes in fuel consumption from:A. Vehicles on the 19.3 km Insurgentes BRT corridor route: buses [1] the numbers in [ ] refer to the elements in Figure 1 that apply to the Insurgentes project. Elements [3], [4] and [7] are not included in this project. and other vehicles [2].B. Vehicles on feeder routes: buses and other vehicles. – These are not included in this project’s current implementation.

Whilst the project participants have looked at the possibility of including feeder routes at the southern end of the Insurgentes BRT corridor, no feeder routes have yet been defined. When these plans are implemented the feeder routes may be included within the project activity.

C. Modal shift [5] to buses from private cars and other forms of transport.D. Vehicles that are affected by:· the elimination of left turns [6];- 13 left turns have been eliminated by the project activity; · the elimination of crossing points;- no crossing points have been eliminated in the project design· increased delay in crossing the main route or BRT corridor [8].E. The methodology adds to the above, within the project boundary, other temporal identifiable GhG emissions changes:· delays during project defined construction activities; and · GhG emissions due to construction activities and upstream manufacture of material for construction; - Should not be considered in this project.

The funding for this project comes from the Annual Budget for the City of Mexico, 2005. If this project had not been selected, the City Government would have allocated these funds to some different construction project within the City. Since these funds would have been spent, in any case, on construction, the GhG emissions impact should be assigned to the BAU case as well as to

- 93 -

the project-activity case making the project construction-neutral.

Fig. 1 Project Boundary Schematics

2.3 Time Boundary and Baseline Review Protocol

The Baseline Study has opted for a 7-year renewable baseline (for a maximum total crediting period of 21 years) for which the project is likely to generate ERs in compliance with the CDM.

2.4 Calculating Emission Reductions

The reduction in anthropogenic emissions of greenhouse gas (GHG) by sources due to the proposed CDM project activity will be caused by:

· The improvement in operating conditions for buses· The improvement in bus technology and capacity· The introduction of fare pre-payment technology· The use of centralized bus fleet control· Traffic improvements for the other vehicles on the route· The creation and demonstration of a sustainable business environment for public transport· The introduction and demonstration of a trunk-feeder concept · The provision of a gradual alternative to the building of additional highways

The outline of the method to calculate the emissions reductions follows New Monitoring Baseline (NMB) “GHG emissions in urban transportation projects that affect specific routes or bus corridors or fleets of buses including where fuel usage is changed”. The steps needed to perform the emissions reduction calculation are summarized as follows,

- 94 -

STEP1. Define data collection activities required to continually update the baseline and project activity based on the ex-ante determination in the baseline methodology “GHG emissions in urban transportation projects that affect specific routes or bus corridors or fleets of buses including where fuel usage is changed”

STEP2. Optimize data collection activities (prior to each monitoring period) by determining the best balance between baseline and verification monitoring effort and its resultant measurement uncertainties following procedure described in NMM “GHG emissions in urban transportation projects that affect specific routes or bus corridors or fleets of buses including where fuel usage is changed”

STEP3. Collect monitored data and GHG parameters defined in the above optimized collection activities defined at each verification period.

STEP4. Receive, register and validate data using tables B.2.1, B.2.3 and B.4.1 defined in NMM “GHG emissions in urban transportation projects that affect specific routes or bus corridors or fleets of buses including where fuel usage is changed”

STEP5. Analyze data in accordance with the methodologies specified in sections F.2 – F.7, G, H and I of the NMB “GHG emissions in urban transportation projects that affect specific routes or bus corridors or fleets of buses including where fuel usage is changed ”documenting the calculation of measurement uncertainties

STEP6.Update measurement uncertainty and sampling cost calculations as used in the following formulae:

STEP7. [Emissions Reductions – (Emissions Increases + Leakages + Measurement Uncertainties) –Verification Cost]

STEP8. Verify if the value of the emissions reductions could be improved by increased measurement activity with the help of the ex-post measurement uncertainty and cost figures; if so return to step 2.

STEP9. Archive data with the help of the tables B.2.1, B.2.3 and B.4.1 presented in NMM “GHG emissions in urban transportation projects that affect specific routes or bus corridors or fleets of buses including where fuel usage is changed”

STEP10. Total CERs generated by the project for the period is calculated as

ER= BE-PE-L

Archive data using designed Workbooks attached to this PDD.

Where BE refers to the Baseline Emissions, PE refers to the Project Emissions and L refers to leakages as has been defined in NMB and NMM “GHG emissions in urban transportation projects that affect specific routes or bus corridors or fleets of buses including where fuel usage is changed”.

All these steps can be summarized in the following figure,

- 95 -

Fig. 2 Monitoring Methodology steps

3. Operational and Monitoring Obligations

The operator of the Insurgentes Bus Rapid Transit Project will have certain operational and data collection obligations to fulfill, in order to maximize the greenhouse gas emissions reductions and to ensure that sufficient information is available to calculate ERs in a transparent manner and to allow for a successful verification of these ERs.

3.1 Operational Obligations

The project participants have designated METROBUS as the institution responsible for making the monitoring measurements and calculations over the project timeframe and as such, METROBUS is the agency that is responsible for carrying out all of the activities mentioned in section 2.4.of this Monitoring Plan (MP). The operational obligations of METROBUS are to ensure that all reasonable steps are taken to assure the performance of the Insurgentes Project and to maximize the net financial return due to the GHG emissions reduction. During all these activities, the project participants must also ensure, in compliance with section B.7 of the NMM NMM titled “GHG emissions in urban transportation projects that affect specific routes or bus corridors or fleets of buses including where fuel usage is changed” and section D.3 of the PDD PDD titled “Mexico, Insurgentes Avenue Bus Rapid Transit Pilot Project”. that METROBUS carries out adequate QA/QC procedures to guarantee the validity of the data and results and the integrity of its storage. QA/QC audits should be conducted on a periodic basis that may not be longer than the validation period.

3.2 Data Requirements and Project Database

All the data required to perform the emissions reductions calculations is obtained from measurements in the field. This data is stored in a database and is analyzed before proceeding to use it. METROBUS is responsible for the database that is used to store and validate all the required input data for use in the workbook described in the next section. The database will have sufficient capacity to archive all monitored

- 96 -

parameters as described in tables B.2.1, B.2.3 and B.4.1 of the NMM3 plus the results of all intermediate and final calculations for a minimum of 2 years after the end of the crediting period or receipt of last payment, whichever occurs last.

Whilst much of the required data will be obtained by METROBUS from a field measurement campaign prior to each verification period, some data requires tracking fleet and other records over the crediting period. METROBUS is responsible for ensuring that this data is adequately incorporated into the database in a timely manner.

4. The Insurgentes Bus Rapid Transit Project Workbooks

4.1 General description

This Project Workbooks explain and illustrate the steps required by METROBUS to enable the GHG emissions reductions to be calculated at each verification period.

In a state of the art workbook designed in Excel, the Insurgentes Bus Rapid Transit Project operator will be able to have a direct control of the variables needed to perform the emissions reductions calculations. This workbook (Insurgentes_Analysis_v1.2.xls) used in conjunction with NMM “GHG emissions in urban transportation projects that affect specific routes or bus corridors or fleets of buses including where fuel usage is changed” contains a total of 38 sheets that have been ordered in a sequential way so that the operation of it is as easy as possible for the person handling all the data.

The first sheet presents a general description of the Workbook and shows not only the emissions reductions for every component but also, in one window, the total emissions reductions of the project per year. After this summary, there are a total of 15 sheets, covering the ER contribution from every component. Each sheet allows for the calculation of ex-ante and ex-post results with separate treatment of each fuel type. The sheets also calculate the expanded combined measurement uncertainty of each Component and for the total ER.

Sheets are included to calculate the project contribution to CAC reduction, where the change due to the project’s implementation in HCT, CO, NOx and PM10 are estimated in tons per year.

The workbook additionally contains 8 sheets that are used to determine the contribution of each possible leakage together with its associated measurement uncertainty.

The workbook presents the results from the use of the equations presented in the NMB “GHG emissions in urban transportation projects that affect specific routes or bus corridors or fleets of buses including where fuel usage is changed” for every component.

The workbook contains as well the routines for data optimization as discussed in the following section.

4.2 General algorithm for optimization

A larger measurement effort in the field campaigns can reduce the associated measurement uncertainties giving a higher ER at the lower 95% certainty bound but at the expense of an increased measurement cost.

- 97 -

The workbook contains 9 sheets that are linked to a Visual Basic routine that automates the optimization of this relationship for each of the Components. In these routines, different measurement efforts - on a variable by variable basis - are used to calculate the resultant changes in the expanded combined measurement uncertainties. Since each measurement effort has a fixed and a variable cost component and since the changes in the expanded combined measurement uncertainties result in a variation in the value of the ERs, the routines are designed to determine the best level of effort that maximizes the (ER – measurement cost) relationship.

Fig 3 Optimization Routine Steps

Each sheet is structured in such a way that this process can be also conducted manually, which albeit slower, ensures transparency of the process.

The complete Monitoring Protocol can be found in the Project Files.

- 98 -

- 99 -