Combustibles Ecologicos Mexicanos, S.A. de C.V.

completed

The project involves the start-up and development of the first CNG engine conversion and dispensing business in Mexico City. Ecomex is the only supplier of CNG for vehicle use in the v lley of Mexico. The company currently runs two CNG dispensing stations and a workshop offering services for the conversion of vehicles from gasoline to CNG. At the end of year 2000, Ecomex sales amounted to US$2.9 million.Ecomex has, to date, converted more than 600 microbuses, and its long-term strategy is to average 2,400 conversions per year by expanding and further developing its target market to include taxis, buses, and official vehicles. In line with this strategy, the company has embarked on a US$ 27.8 million project to (i) construct and operate 5 CNG dispensing stations in the metropolitan area of Mexico City (two of them are already in operation); (ii) operate one conversion workshop (already in operation); and (iii) provide working capital to finance the conversion of microbuses (the initial target market).The project concept relates to the use of CNG as an alternative fuel for vehicles in the highly polluted Mexico City, therefore generating important environmental benefits. Mexican authorities have been showing support to the use of CNG by (i) acquiring 480 garbage collection trucks that use CNG, and acquiring and converting 750 police patrol cars and other official vehicles to CNG; (ii) granting a waiver to converted vehicles from the "hoy no circula" restriction that forces vehicles to stay off the road one working day a week; (iii) extending by three years the useful life of converted microbuses; and (iv) conceding fiscal incentives for conversions.IFC RoleLong-term financing. Access to long-term financing has been a difficult challenge for Ecomex. The project''s size and need for long maturities preclude it from obtaining the required financing from local sources. The fact that the alternative fuel industry (in particular CNG) is still incipient in Mexico further hampers Ecomex’s ability to raise long-term financing. Adequate long-term tenors are of critical importance given the working capital needs related to conversions. This will help the company migrate from its current development stage to a commercially viable one.Ecologically responsible enterprise. The use of CNG as an alternative fuel to gasoline/diesel is in line with the Mexican authorities'' program for a better air quality in Mexico City. IFC''s involvement could have an important demonstration effect.Replication. The proposed investment in Ecomex will have a strong demonstration impact. Ecomex''s success should attract other companies and lenders to the market. It can also provide a model for other countries in the LAC region to promote switching to a more environment friendly fuel. Development ImpactThe project will provide a strong positive developmental impact by helping to reduce air pollution levels in Mexico City. CNG is a lead-free fuel and emits far less pollutants than gasoline or diesel-powered vehicles. In the particular case of microbuses, given their poor engine conditions, which contribute heavily to air pollution in the city, the environmental benefits of CNG are even greater.The gaseous and particulate emissions of gasoline vehicles affect the quality of the environment, particularly the health of humans on a global and local basis (especially near the surface of the earth where they are generated). CNG vehicles represent a clean alternative, which lead to significant emission reductions. The metropolitan area of Mexico City is one of the world''s largest urban areas and one of the most notorious for its high and increasing levels of air pollution. It is estimated that intensive use vehicles produce at least 35% of the vehicle-derived air pollution in Mexico City. Ecomex conversion to CNG includes the use of a catalytic converter, which is required to comply with stringent emission standards.