Document of The World Bank Public Disclosure Authorized
Report No: 25371-HR FOR OFFICIAL USE ONLY
PROJECT APPRAISAL DOCUMENT
ON A Public Disclosure Authorized PROPOSED LOAN
IN THE AMOUNT OF US$156.5 MILLION
TO
REPUBLIC OF CROATIA
FOR THE
RIJEKA GATEWAY PROJECT Public Disclosure Authorized
May 9,2003
Infrastructure Sector Unit South Central Europe Country Unit Europe and Central Asia Region
document has a restricted distribution and may be used by recipients only in the performance of heir official duties. Its contents mav not otherwise be disclosed without World Bank authorization. I Public Disclosure Authorized CURRENCY EQUIVALENTS (Exchange Rate Effective May 9,2003) CurrencyUnit = HRK HRKl = US$0.12 US$ = HRK6.65
FISCAL YEAR January 1 -- December 31
ABBREVIATIONS AND ACRONYMS
CAS Country Assistance Strategy CES Croatian Employment Service CFAA Country Financial Accountability Assessment EA Environmental Assessment EBRD European Bank for Reconstruction and Development ED1 Electronic Data Interchange EMP Environmental Management Plan ERR Economic Rate ofReturn FRR Financial Rate ofReturn GDP Gross Domestic Product GPN General Procurement Notice HAC Hrvatske Autoceste (Croatian Motorways Company) HC Hrvatske Ceste (Croatian Roads Company) HZ Hrvatske Zeljeznice (Croatian Railways Company) ICR Implementation Completion Report LR Luka Rijeka d.d. (port operating company) MMATC Ministry of Maritime Affairs, Transport and Communications MOI Ministry of Interior MPWRC Ministry ofPublic Works, Reconstruction and Construction NEAR North East Adriatic Range NPV Net Present Value PHRD Japan Policy and Human Resources Development Fund PMS/BMS Pavement and Bridge Management System PPF Project Preparation Facility PPP Private-Public Partnership PR4 Port of Rijeka Authority RMG Rotterdam Maritime Group (Consultant) SOE State Owned Enterprise TTFSE Trade and Transport Facilitation in Southeast Europe VTMS Vessel Traffic Management System
Vice President: Johannes F. Linn, ECAVP Country Managermirector: Andrew N. Vorkink, ECCUOS Sector Managerhlirector: Eva MolnarIHossein Razavi, ECSIE Task Team Leader/Task Manager: Michel Audige, ECSIE FOR OFFICIAL USE ONLY CROATIA RIJEKA GATEWAY PROJECT
CONTENTS
A. Project Development Objective Page
1. Project development objective 3 2. Key performance indicators 3
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 9
C. Project Description Summary
1. Project components 9 2. Key policy and institutional reforms supported by the project 12 3. Benefits and target population 12 4. Institutional and implementation arrangements 12
D. Project Rationale
1. Project alternatives considered and reasons for rejection 14 2. Major related projects financed by the Bank andor other development agencies 14 3. Lessons learned and reflected in the project design 15 4. Indications ofborrower commitment and ownership 16 5. Value added ofBank support in this project 16
E. Summary Project Analysis
1. Economic 16 2. Financial 17 3. Technical 22 4. Institutional 22 5. Environmental 23 6. Social 25 7. Safeguard Policies 27
F. Sustainability and Risks
1. Sustainability 27 2. Critical risks 27
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. 3. Possible controversial aspects 28
G. Main Conditions
1. Effectiveness Condition 28 2. Other 28
H. Readiness for Implementation 30
I. Compliance with Bank Policies 30
Annexes
Annex 1: Project Design Summary 31 Annex 2: Detailed Project Description 34 Annex 3: Estimated Project Costs 39 Annex 4: Cost Benefit Analysis Summary, or Cost-Effectiveness Analysis Summary 40 Annex 5: Financial Summary for Revenue-Earning Project Entities, or Financial Summary 43 Annex 6: (A) Procurement Arrangements 62 (B) Financial Management and Disbursement Arrangements 69 Annex 7: Project Processing Schedule 73 Annex 8: Documents in the Project File 74 Annex 9: Statement of Loans and Credits 76 Annex 10: Country at a Glance 78 Annex 11: SWOT analysis for the port ofRijeka 80 Annex 12: Environmental Assessment Executive Summary 87 Annex 13: Land Acquisition and Resettlement Plan 96 Annex 14: Government Project Policy Letter (Draft) 102
MAP(S) No. IBRD 32355 ECSIE
Date: May 9,2003 Team Leader: Michel Audige Sector Manager: Eva Molnar Sector(s): Roads and highways (45%), Ports, waterways Country Director: Andrew N. Vorkink and shipping (45%), Central government administration Project ID: PO43 195 ( 10%) Lending Instrument: Specific Investment Loan (SIL) Theme(s): Export development and competitiveness (p), Infrastructure services for private sector development (P), Social risk reduction (S), Other public sector govemance (SI Project Financing Data [XI Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other: For Loans/Credits/Others: Amount (US$m): $156.5 - Borrower Rationale for Choice of Loan Terms Available on File: IYes Proposed Terms (IBRD): Variable-Spread Loan (VSL) Grace period (years): 5 Years to maturity: 15 Commitment fee: 0.75% Front end fee (FEF) on Bank loan: 1.00% Financing Plan (US$m): Source Local Foreign Total BORROWERS 45.20 I 64.40 I 109.60 IBRD 56.50 100.00 156.50
Total: 101.70 I 164.40 266.10 Borrower: PRA, HC, HAC Loan amounts including front-end fees (USSm): PRA (55. l),HC (84.1), and HAC (17.3) Responsible agency: PRA, HC, HAC Port of Rijeka Authority (PRA) Address: Riva 1 Street, Rijeka 51 000 Contact Person: Mr. Bojan Hlaca, Director General Tel: 385-51-212 974 Fax: 385-51-213 112 Email: [email protected] Other Agency(ies): Croatian Roads (HC) Address: Voncinina 3, Zagreb 10001 Contact Person: Mr. Vladimir Bizjak, President of the Management Board Tel: 385-1- 472-2580 Fax: 3 85- 1-472-258 1 Email: [email protected]
Croatian Motorways (HAC) Address: Voncinina 2, Zagreb 10001 Contact Person: Mr. Stanko Kovac, President of the Management Board Tel: 385-1-469-4400 Fax: 385-1-469-4500 Email: [email protected] Expected closing date: 09/30/2009
-2- A. Project Development Objective
1. Project development objective: (see Annex 1) The overall objective of the project is to increase Croatia's trade competitiveness by improving the international transport chain through the Rijeka Gateway for both freight and passengers traffic through modernizing the port and road network connections, and privatizing port operations. Specific objectives include: (i)increasing efficiency and improving financial, social and environmental conditions at Rijeka Port, rehabilitating infrastructure and replacing equipment; (ii)preparing to redevelop part of Rijeka Port for urban purposes; and (iii)improving international road connections linked to the Rijeka gateway, and the administration of the road sector.
2. Key performance indicators: (see Annex 1) Performance indicators have been designed and agreed with the Government during project preparation. Indicators will center on the speed of transformation and modernization of Rijeka Port, and of the road sector.
Key outcome/impact indicators for the project's objectives:
financing and operating transport sector infrastructure and services.
veloper is selected to redevelop Delta and port0
B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: 22633-HR Date of latest CAS discussion: 06/1999 The last Croatia country Assistance strategy was discussed by the Board on June 3, 1999 (R99-89[IFC/R99-75]). A CAS Progress Report was issued on August 22,2001 (Report No.
-3- 2263-HR).
The Project Development Objectives listed above derive from and support the following CAS objectives:
Strengthening market institutions and competitiveness. e Increasing private sector involvement in financing and operating transport sector infrastructure and services.
2. Main sector issues and Government strategy: Croatia has achieved a great deal in the transport sector since independence: war damage has been repaired, a body of law generally suitable to govern the transport sector of a sovereign State has been created, and a number of transport enterprises have been privatized. Sector issues were assessed by the Bank in Republic of Croatia - Policy Directions for Transport (Report No. 19447-hr, June 15, 1999), and as part of a comprehensive diagnosis of strategic development and sector policy issues and recommendations prepared for the new Government (A Policy Agenda for Reform and Growth, February 14,2000). The main sector issues and Government strategy are summarized below:
Economic Role of Riieka Port: Transport plays an important role in the international trade which has become more significant since independence and in reestablishing potentially profitable transit traffic. The Government has recognized the key role of Rijeka Port by declaring that Rijeka and Ploce are the two strategic ports (the latter primarily serves Bosnia and Herzegovina, BiH). Rijeka Port's physically protected position and natural depth of 25 meters makes it the only port in the North Eastem Adriatic Range (NEAR) capable of handling the largest vessels. However, between 1980 and 1997, the Port of Rijeka lost almost 70 percent of its total throughput in general and bulk cargo. While the total Northern Adriatic market (Rijeka, Koper, Trieste excluding liquid bulk traffic) increased from about 16 million tons in 1990 to 23 million tons in 2001, Rijeka's share of the market declined from 35% to 12%. Annex 11 provides a detailed SWOT analysis of the three competing ports, as well as the low and medium case scenario of Rotterdam Management Group's traffic forecast. The main reasons for the decline in traffic at Rijeka are the wars in Croatia and BiH which resulted in high insurance rates for using the port, the loss of traffic to/from the former Republic of Yugoslavia (FRY), restructuring of the economies of the region resulting in a decline ofbulk traffic, inefficient operations at Rijeka, and poor land connections.
Several considerations support the reestablishment of the port of Rijeka as the natural gateway for Croatia and Central Europe: (i)peace and political stability within the Balkans, reenforced by the signing of a memorandum of understanding on Trade Liberalization and Facilitation by eight heads of State under the Stability Pact in 2001; (ii)Rijeka's competitive advantage as the only deep water port in the northern Adriatic which gives it a significant cost advantage for bulk and other volume traffics; (iii) Rijeka's historical role as the primary gateway for Hungary, reenforced by Hungarian policy statements and investments in Rijeka; (iv) the resumption of traffic to/from FRY; (v) increasing involvement of the private sector in port operations, e.g., the container terminal recently concessioned to LR, which has a technical assistance agreement with an international private operator (Contship Italia); (vi) the improvement of in land connections, i.e. the construction of motorways financed by the EBRD, improvements in railway efficiency supported under the ongoing Railway Modernization and Restructuring Project (RMRP) and customs improvements supported by the Bank under the Trade and Transport Facilitation in Southeast Europe (TTSFE) Project, and (vii) rationalization of the Croatian port system by concentrating international traffic at Rijeka and Ploce. Finally, it is worth underlining that the Rijeka Gateway project will improve one of the main Trans-European corridor (Corridor Vb), which is critical for both Serbia-Montenegro and Bosnia-Herzegovina for which Rijeka constitutes the main
-4- natural access to the Adriatic.
Privatization of Port Operations: The Government has taken a number of steps to reform port operations, including adopting a new port law, creating a landlord port authority at Rijeka, and initiating port concessions with consultant assistance financed under a PHRD grant. As a first step, the Government granted Luka Rijeka (LR, port operating company) a global 12 year priority concession to operate the port in 2000. LR, directly through the priority concession or indirectly through joint ventures in the concession for the Container Terminal and in other potential projects, controls most Rijeka port operations. However, its financial capacities are quite limited, due to low levels of activity and overstaffing. In such a situation, this public monopoly cannot meet the demand for performance, quality and competitiveness according to standard international benchmarks, and has limited capacity or incentive to become more efficient. The Bank has agreed to the proposal made by the Ministry of Maritime Affairs, Transport and Communications (MMATC) to privatize LR during the priority concession. This would be achieved by putting up for sale a majority of the shares of the various Successor Companies ('daughter' companies) to be created in accordance with the priority concession Private investors would be selected -- through public competitive bidding -- according to their experience in port operations, technical and financial capacity and commitment to develop port activity in Rijeka. In order to implement this, the following questions have been examined further under studies financed under a PHRD (Japanese) grant and the Project Preparation Facility (PPF): (i)organization of operations, (ii)creation of profit and cost centers for each terminal operation and other activities, (iii)further transformation into daughter companies, (iv) privatization of the mother company and/or independent (sets of) subsidiaries, (v) human resource strategy, (vi) analysis ofthe status ofthe accumulated debt, and (vii) transfer of the various terminals and corresponding Successor Companies to private operators. The conditions under which the various terminals will be transferred to private concessionaires have also been examined. This includes the following: (i)review of general objectives and of contractual targets (traffic levels, performances, quality etc.), (ii)respective responsibilities and commitments ofthe Port of Rijeka Authority (PRA) and of the concessionaires regarding maintenance and development of infra- and superstructure, (iii)equipment, (iv) extension of the concessions to allow new investment plans, (v) revision of port tariffs, light dues, and (vi) periodic review ofperformance. Real ownership rights during the concession remain an obstacle to private financing, and following the Port Privatization Workshop held in March, 2002, MMATC is preparing appropriate amendments to the Maritime Domain and Seaports Act. The agreed time frame for the privatization of the port operations -- expressed in tons operated by the private sectorhotal port tonnage per year -- is as follows: from 0% in 2004 to 30% in 2005,50% in 2006, and 80% in 2008.
Redundant Port Staff;: The labor restructuring strategy will be to work out all the details of involuntary departure with the unions prior to announcing a well publicized voluntary program under a limited time offer (two months) with an incentive of 1,000 Kuna per year of service to a maximum of 25 years for eligible workers. Voluntary departure will be targeted to two groups, the large group of workers who are often absent due to illness, who are on the protected list and who therefore cannot be made redundant under labor legislation and to surplus white-collar workers. Workers considered vital to the continuing operation of LR, workers who are eligible to retire, and workers who are eligible for pre-retirement departure will not be eligible for departure with enhanced severance. The IBM business plan calculations for staffing levels in Successor Companies, together with the RMG estimates of approximately 70 remaining staff in a residual Luka Rijeka (mother company) suggest a surplus of staff in the range between 687 and 776 workers. LR Management has accepted a staff surplus in the range between 550 and 650. The LR Social Program will mitigate the negative impact of the severance program which will be implemented in two phases: (i)departure of 380 staff on a voluntary basis by the end of2004; and (ii) departure of about 400 staff during the period 2005-2006. Based on this level of severance the cost of
-5- labor restructuring measures will be in a range between US$ 5.9 and US$7.0 million in a low to medium cost scenario and between USD 6.8 and USD 8.0 million in a medium to high cost scenario. A severance payment package of US7.5 million is proposed under the project. The Croatian Employment Service (CES) has discussed with Luka Rijeka management arrangements to offer the services of the Mobility Center (MC) in Rijeka, which has to date been assisting HZ workers on a pilot basis. The Ministry of Labor in Croatia is the beneficiary of a EU program to assist the CES build on the pilot Mobility Center initiative, including funding of Euro 1.5 million for a labor redeployment fund. The LR restructuring project will build on the lessons learned from the HZ experience in terms of labor redeployment. The project will: i) include management training in negotiating skills, conflict resolution, and problem solving; ii) target workers protected from redundancy with special measures (severance and redeployment); iii) ensure that the Human Resource and Legal Department plays a key role in the restructuring process; iv) promote the Social Plan and related measures with a well publicized information program within LR and in the community to build local support; and v) include terms of reference for a tracer study in the Social Plan as an integral part ofthe project.
Urban RedeveloDment at Riieka Port: The Port of Rijeka is an old industrial facility which stretches for several kilometers along the waterfront in the middle of the city, creating a bamer to the Adriatic. Rijeka is also constrained on the inland side by mountains. Port traffic passes through city streets, contributing to traffic congestion and increasing the cost ofurban transport. Urban planning is also more difficult because port property is maritime domain, i.e. administered by the central Government. Much of this prime potential waterfront area is currently occupied by dilapidated multi-storied warehouses which are not suitable anymore for modern port operations and have little historical interest, and PRA desires to locate some bulk operations to other locations, e.g. Bakar Bay. The Municipality and the Port are aware that other cities (e.g. Baltimore, New Orleans, Savannah, Bilbao) have redeveloped old port areas as attractive and profitable retail, office and public space on a public-private partnership (PPP) basis, and requested assistance under the project to help with a similar transformation.
The proposed project component consists of redeveloping about 17 hectares of land presently occupied by warehouses and parking lots, including constructing a ferry terminal building, and constructing a road connecting the port to the Rijeka Bypass. The waterfront area to be privately redeveloped is immediately adjacent to the central business district (CBD) and has a high commercial and residential potential. After redevelopment, the site will provide the only access to the sea from the downtown area and will constitute a unique recreation facility for city inhabitants and tourists. As a first step, the City of Rijeka, PRA and LR signed a cooperation agreement on March 15, 2002. A study financed under the PPF is determining (i)the type of agency that will need to be created to design, manage and implement the scheme, (ii)the best use of the area under current market conditions to achieve a self financing scheme, (iii)the preliminary costs and revenues of the scheme and (iv) the type of contracts and leases which would be the most practical and financially favorable to PRA and the Municipality to develop the site using private funds. The project will finance the clearing of the site, the construction of the ferry terminal, and the extension of the primary infrastructure on site and if necessary off site. The project will also finance a section of the Rijeka Bypass and port connector road (D404) to improve the flow of traffic within the city and to/from the port, with a large reduction ofthe air pollution and noise from large diesel trucks.
Motorwav Prowam: Croatia has about 593 km of high level tolled roads and motorways. The Government in power until 2000 initiated a program to construct an additional 1,530 km of motorways by the year 2013 at an estimated cost of US$6.5 billion. The Government desired to unify the country, improve international land connections, generate business for domestic contractors and catch up with Western Europe. However, construction of some of these motorways appeared premature since few roads carried more than 15,000 vehicles per day at that time. The chosen financing model usually
-6- consisted of agreeing with a foreign consortium to arrange financing in return for the construction contract (and sometimes an operating contract). Decisions were taken in a non-transparent way and there was little competition. Construction prices were typically around 40% higher than in Western Europe. In addition, the Government took out expensive short term loans to cover its equity contributions since funding was not provided in the budget. The Government also provided traffic or revenue guarantees to the concessionaires, increasing their contingent liabilities.
Based in part on the Bank's sector dialogue, the new Government elected in 2000 recognized that the motonvay program was not sustainable. The Bank financed an advisor who helped define a reduced program, taking into account that some contracts were already signed. Parliament then approved a 'Program for Construction and Maintenance of Public Roads for the Years 2001-2004: under which the Government plans to expand the network of high level tolled roads from 593 km to 1,330 km over a 10-15 year period. The initial 2001-2004 program was funded from a combination of tolls, extra-budgetary revenues from the fuel tax (HRK O.4Aiter in 2001, increased to HRK 0.6Aiter in 2002) and the budget. At the same time, Parliament approved a reorganization of the road sector whereby Croatian Motonvays (HAC) was created and placed under the responsibility of the Ministry of Public Works (MPW) and other main roads were made the responsibility of Croatian Roads (HC) under the Ministry of Maritime Affairs, Transport and Communication (MMATC). HC's 2001-2004 program was similarly defined and funded. Both organizations were permitted to borrow and required to service their own debts.
The new motonvay program is a significant improvement over the former one, although some issues remain. The construction of some committed motonvays still appears premature, the aggregate level of motonvay expenditure appears too high, motonvay construction is partly financed off budget, and the administrative separation of roads and motonvays under two Ministries makes road planning more difficult. The pace of actual motonvay construction will in all likelihood be limited by available financing, although HAC plans to complete the motonvay network by 2005. In order to continue the Bank's dialogue on motonvay construction, the project finances technical assistance to HAC to improve its organizational efficiency and obtain an IS0 9001 certification, i.e., a model for quality assurance in design, development, production, installation and servicing. The project finances the rehabilitation of the Krk Bridge (under the responsibility of HAC), and the construction of the western section of the Rijeka bypass and port connector road (both under the responsibility of HC).
Road Maintenance Finance: Road maintenance was under funded from the war until 2001 :
* includes motorways; also includes upgrade/modemization ofthe expressways to motonvay standard.
Funds were initially diverted to the war itself and then to the repair of war damage. The Highway Sector Project (Loan 3 869-HR) contributed to a more than two-fold increase in maintenance expenditures from 1995 to 1998, but expenditures fell again in 1999 and 2000 due to the diversion offunds to the motonvay program. The more disciplined Program approved by the new government, discussed above, provides on average US$140 million per annum for road maintenance financed from extra-budgetary revenues from fuel tax (HRK0.6/liter), extra-budgetary vehicle registration fees and the budget. The maintenance budget
-7- is almost in line with the Bank's previously recommended US$170 million p.a. needed to catch up with the backlog over six years. Therefore, Hrvatske Ceste will adhere to and implement the road management program, which envisages a gradual increase of the road maintenance standards, for both routine and periodic maintenance, from 62% in the year 2003 to 100% in the year 201 1. Government support to this strategy has been agreed in the Project Policy Letter, with a minimum level of road maintenance funding as shown in the table below:
Road maintenance budget in US$ 2003 2004 2005 2006 2007 2008 2009 million Routine and periodic maintenance 158 140 155 170 170 170 170 of main and local roads and motorways including bridges.
PMS/BMS Implementation ofthe pavement and bridge management systems (PMS/BMS) was initially supported under the Bank's Highway Sector Project. An inventory of the condition of the HC road network was completed in December 2002. Traffic levels, pavement roughness, rutting, pavement surface deterioration, skid resistance and status of the pavement structure were surveyed. The survey results are being used for prioritizing the road maintenance works on the national roads network. Croatian Telecom has been contracted to install an integrated PMS/BMS system for all HC Districts, which would then be expanded to the counties. To complement the system, small equipment (trafpc counters, weigh-in-motion scales, weather monitoring system), PMS/BMS software upgrade, and technical assistancehaining will be financed under the project. Software to improve HC's ability to administer the road network will also be included.
Road Safe@ Improvements: Road accident rates are high in Croatia (about 7 fatalities11 0,000 vehicles compared to 2 fatalities/l0,000 vehicles in Western Europe). This has an adverse impact on the Croatian economy and society, including international road transport. The Road Safety Study prepared under the Highway Sector Project recommended a number of actions that are currently being implemented under the Government's National Road Traffic Safety Program. The Ministry of Interior (Moo leads a working group consisting ofrepresentatives ofthe MoI, MMATC, Ministry of Health, Ministry of Education, HC, HAC, Automotive Club, Institute of Traffic Medicine and Psychology, and Croatian Insurance Bureau. The traffic police together with MMATC identified 147 so called 'black spots', or locations with high incidence of traffic accidents. These black spots can be eliminated through (i)traffic management improvements; (ii)design improvement, or through (iii)combined civil engineering-traffic measures. The government has already eliminated 28 of the black spots and another 20 will be included in the betterment program under the ongoing EIB project. The proposed loan would finance improvement of 30 out of the remaining 107 black spots. Also, through increased competitiveness ofthe port, a signifficant growth in transit traffic is expected. This increases safety hazards on the roads. The project will address this issue through improved link between the port and Rijeka bypass.
Railwav Restructuring: The Government is currently restructuring HZ with Bank assistance under the Railway Modernization and Restructuring Project (RMRP, Project P039361, 1999). The objective ofthe project is to modernize and restructure HZ in order to reduce its deficit and financial burden on the economy, and create a company adapted to a competitive transport market. The US183 million project, cofinanced by the EBRD and Government, finances severance payments for redundant staff, track renewal and maintenance, rehabilitation of traction and rolling stock, environmental protection, technical assistance and training. Agreed financial and staffing targets are spelled out in the Government's Letter ofDevelopment Policy (LDP) dated december 4, 1998. After a slow start in initiating actions to meet the LDP targets, project implementation improved following the change of Government in 2000 and the
-8- appointment of a reform-oriented Supervisory Board and key personnel at HZ. A Social Program approved by Parliament provided the legal basis for the retrenchment of surplus staff. Both Government policies and implementation of the project are now satisfactory. The ongoing railway reforms cover structural changes that are much deeper than what were originally foreseen under the project. These include enactment of a new railway law to provide for open access, intra-rail competition and privatization of core railway hnctions and new relationships between the Government and the railways; separation of infrastructure from operations through setting up of new companies; separation of freight and passenger businesses; handing over the responsibility for loss-making regional and local passenger trains to the local or regional authorities; privatization of subsidiary companies, and setting up of a regulatory framework.
3. Sector issues to be addressed by the project and strategic choices:
The project seeks to address the main port and road issues discussed above. On the institutional side, the project will (a) help prepare necessary changes in port laws and the priority concession, reduce LR staff with minimum social disruption, and prepare tenders for terminal concessions with a view to privatizing operations, increasing traffic, improving financial performance and thereby reducing Government contributions in the longer term, (b) prepare to redevelop part ofthe Rijeka waterfront on a public-private partnership (PPP) basis, (c) help strengthen HAC'Smanagement capacity with a view to improving the implementation of the motonvay program, and (d) help HC to improve its management capacity and axle-load policy and implement the PMS/BMS system. On the investment side, the project will (a) rehabilitate Rijeka port infrastructure and replace heavy cargo handling equipment, (b) provide for redevelopment of port/city interface; (c) improve port traffic management and safety, and protect environment; (d) complete the westem part of the Rijeka bypass, construct the port connector road D404, rehabilitate the Krk bridge, and eliminate 30 road safety 'black spots'.
The on-going feasibility study for the redevelopment of the podcity interface redevelopment will: (i) define the appropriate institutional arrangement to manage the project; (ii)test the financial feasibility of the project to provide an adequate financial return for the PRA and at the same time will meet the environmental requirements of the City of Rijeka; and (iii)prepare the most appropriate process for leasing and contracting between PRA and the private developers who will invest in land parcels within the scheme area. This may involve auction, competitive bidding or another competitive process.
During the preparation of the project, progress has been made in amending the Maritime Domain and Seaports Act and draft Law on Concessions. All the comments made by the Bank in November 2002 have been taken into account by the Government, including the possibility to grant the private sector a majority share in Luka Rijeka's successor companies. In order to address specific sector policy issues related to the project, the Government has prepared a draft project Policy Letter which has been agreed during negotiations and signed before Board presentation (See Annex 14).
C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): The project includes three components: (a) port restructuring and modernization; (b) podcity interface redevelopment; and (c) international road improvements.
A - Port Restructuring and Modernization lUS$75.1 million includinp contingencies; implemented by PRA)
-9- To allow smooth transfer of the operations related to the handling of woods and timber this component will include (i)infrastructure rehabilitation works at the western port area: demolition of outdated multi-storied warehouses that restrict open storage space and port performance, with the exception oftwo which will be rehabilitated for their historical value; (ii)superstructure works would be designed to facilitate terminal leaseskoncessions; (iii)rehabilitation of Becko (Vienna) berth and repaving and rehabilitation of utility networks; and (iv) restoration and protection along the Zagrebacko berth (includes construction of a berthing capacity of a minimum 250 m length to allow vessels of 15 m draft and more to service the port of Rijeka), and backlog rehabilitation works needed in various part of the port to complement the above works.
As a contribution to the knowledge economy and to help develop traffic and improve safety, a Vessel Traffic Management System (VTMS), i.e., a radar-based system coupled with a database to identify and monitor ship movements has been identified as an immediate need under the project. Environment protection eauiument has also been included under the project. LR operates old and outdated yard eauiument purchased by the former State Owned Enterprise (SOE) that need to be replaced. Also, most quay cranes that LR rents from PRA are old, slow and a low capacity (5 tons or less). New heavy mobile cranes will be procured by PRA under the project.
A privatization advisor will help implementing the LR business plan, covering: (i)organization of operations, (ii)creation of profit and cost centers for each terminal operations and other activities, (iii) further transformation into daughter companies, (iv) privatization of the mother company and / or independent (sets of) subsidiaries, (v) a human resource strategy, (vi) analysis of the status of the accumulated debt, and (vii) concession of terminals to private operators. The advisor would also consult issues connected with the priority concession: (i)review of general objectives and of contractual targets (traffic levels, performances, quality etc. as detailed in Annex 1 I),(ii) respective responsibilities and commitments of the port authority and of the concessionaires regarding maintenance and development of infra- and superstructure, (iii)equipment, (iv) extension of the concessions to allow new investment plans, (v) port tariffs, light dues, and (vi) periodic review of performance. The project will also finance management modernization consultants and consultants to prepare designs for civil works contracts, to assist in preparing a BOT contract for further expansion of Zagrebacko berth and for construction of D 403 connector road; and to supervise civil works under the project. Since PRA PIU is not very experienced in implementation of Bank-financed projects, additional training in accounting, financial management and procurement will be provided.
An Electronic Data Interchange (EDI) svstem connecting the port administration and port users will facilitate trade through improved efficiency and safety ofthe port operations. Based on LR 's Social Plan proposal, a severance urogram will be also financed under the project.
The project will also finance provision of a suitable financial management system, and training for its use. In addition, the borrower will hire an auditing firm to audit the project as well as the entities' financial statements.
B - Port/Citv Interface Redevelopment (US$43.2 million: implemented bv PRA and HC, respectively)
The modernization ofthe passenger terminal represents a promising activity for both the port and the city of Rijeka. This component aims at the development of a waterfront area open to business and commercial activities. The project will finance preparation works at the Delta and Port0 Baros areas, as well as the construction of a passenger terminal along the breakwater (this component will be implemented by PRA).
- 10- The 4 km long Draga-Braidica (D404) connector road will link the Bypass to the port of Rijeka reducing heavy truck traffic through the congested center ofthe city (this component will be implemented by HC).
C - InternationalRoad Improvements (US$144.8 million: implemented bv HC and HAC)
The project will finance HC management caoacitv improvements, such as TA and training and suoervision services for civil works and equipment installation for both HC and HAC roadhridge works components. Implementation of the pavement and bridge management systems (PMSBMS) was initially supported under the Bank's Highway Sector Project. Small equipment. PMS/BMS software upgrade, and technical assistance/training will be financed under the project, including software to improve HC's ability to administer the road network. Preparation of an axle load study to develop a strategy for enforcement and eventual adoption of the EU standard; and prevention of excessive damage to the national roads network through pilot fixed scale installation will be also included under the project. The project will also provide technical assistance in obtaininn an IS0 9001 certificate for HAC (HAC will implement this sub-component).
The proposed eastern section ofthe Riieka BTJpass (Orehovica - Sv. Kuzam; 6.5 km; 4 lanes) is expected to relieve traffic in a highly congested city which is squeezed between the mountains and sea. Since the EIB-financed Zagreb-Rijeka motorway is expected to be completed by 2005, it would also provide a through link for tourist traffic traveling from Central Europe (and SloveniaAtaly) to the Dalmatian coast. Road accident rates are high in Croatia (about 7 fatalities/10,000 vehicles compared to 2 fatalities/10,000 vehicles in Western Europe). As a follow-up on the recommendations of the Road Safety Study prepared under the Highway Sector Project, the proposed loan will finance the improvement of 30 'black spots' in the road network where there is a high incidence of traffic accidents. Krk bridge provides the only road, electricity, water and oil (pipeline) connection from the mainland to the island of Krk where the Rijeka Airport and Omisalj Oil Terminal are located. The project will finance rehabilitation of the two sections of this bridge (will be implemented by HAC).
Proiect preparation facilitv reimbursement (US$1.5 million: implemented bv PRA)
Five preparatory studies for the port component have been financed under the PPF: (i)preparation of detailed engineering and project design; (ii)study on porthrban redevelopment; (iii)environmental assessment (for the entire project); (iv) business plan for LR and (v) preparation of social plan for LR. Training of the PRA PIU staff has been also financed under the PPF.
An indicative project cost estimate (incl. physical and price contingencies) based on a tentative US$156.5 million Bank loan is shown below.
Indicative Bank- Yo of Component costs % of financing Bank- (US$M) Total (US$M) financing A - Port Restructuring and Modernization 75.10 28.2 50.20 32.1 B - Portlcity Interface Redevelopment 43.20 16.2 24.60 15.7 C - International Road Improvements 1 144.80 I 54.4 I 78.70 50.3 D - Project Preparation Facility 1.50 0.6 1.50 1.o Total Project Costs 264.60 99.4 155.00 99.0 Front-end fee 1.50 0.6 1.50 1.o
- 11 - Total Financing Required I 266.10 1 100.0 I 156.50 I 100.0 1
2. Key policy and institutional reforms supported by the project: Key policy and institutional issues and reforms sought are described in section B.2. The principle of further privatizing port operations was agreed with MTCWM, PRA and LR staff in September 2001. Some first proposals were made by consultants RMG and have been developed further under PPF-financed studies expected to be carried out by June 2003. The Privatization Workshop held on March 2 1,2002 recognized that amendments to the Maritime Domain and Seaports Act and the Law on Concessions were required in order to permit long-term leases and urban redevelopment at Rijeka Port as recorded in the Agreed Minutes signed by PRA, LR and the Municipality of Rijeka. Satisfactory arrangements are a key to the success of the project, as defined during appraisal and confirmed at negotiations. There are no other known policy or institutional issues which would affect the viability of the project.
3. Benefits and target population: The project is expected to produce direct economic benefits and indirect economic, social and environmental benefits, all of which will be widely spread among the population.
Direct benefits include: 0 Increased traffic and revenues, and reduced operating costs at Rijeka Port 0 Reduced road vehicle operating costs and delays 0 Increased trade in transport services and other economic activity generated by increases in transit traffic 0 Reduced Govemment financial contributions to Rijeka Port in the longer term 0 Maintenance ofbridge link to Krk Island
Indirect benefits include: 0 Improved administration of Rijeka Port 0 Increased labor productivity with separation ofredundant port workers in a socially acceptable way and increased opportunity for reemployment 0 Improved functioning and environmental conditions (Le., traffic congestion and air and noise pollution) for the City of Rijeka 0 Achievement of the connection of the port ofRijeka with the Trans-European Motorways Network through corridor Vb 0 Improved management of the road sector, including sustainable road maintenance policy, and better implementation ofthe motorway program 0 Reduction of number ofaccidents and fatalities through elimination of black spots
4. Institutional and implementation arrangements:
Legal Structure of the Loan Agreements The Bank will enter into three loan agreements totalling USS156.5 million, with PRA (US$55.1 million), HC (US$84.1 million), and HAC (17.3 million) responsible for the implementation of their respective parts of the project. A subsidiary loan agreement of US$8.1 million has been concluded between PRA and LR for the financing of the redundancy component and technical assistance during the privatization process. The subsidiary loan agreement between PRA and LR is complemented with a Project Agreement between the Bank and LR. As agreed during the preparation of the project, the three loans are
-12- guaranteed by the Government. It was also agreed that HC will be responsible for the overall reporting of the project implementation with contributions from PRA and HAC. Project Management. Each executing agency - PRA, HC, and HAC will implement its respective component. HC, and to a lesser extent HAC, are staffed by trained professionals with adequate capacity to implement the project. PRA staff responsible for implementation ofthe port component has performed very well while implementing the PPF studies. The Port/urban interface redevelopment component will be implemented on the basis ofa memorandum ofunderstanding between PRA, LR and the Municipality of Rijeka. The project management capacity of PRA, HC and HAC is satisfactory. The three organizations will receive some training (in the use of the financial management system and in procurement) and consultant assistance (for preparation of designs, supervision of works, and drafting of technical specifications) under the PPF and during project implementation. Both HC and HAC have financial management systems acceptable to the Bank. Funding has been provided under the project to upgrade the financial management and management information systems of PRA, which will then be in a position to use the new system to produce reports acceptable to the Bank. Until1 the main system is up-graded, an interim XL-based system has been established (similar interim systems have been used in other Bank financed projects) at the PRA PIU, to keep account for the on-going PHRD grant and the PPF. All three entities will open Special Accounts in commercial banks acceptable to the Bank, to maintain Bank funds. Local suppliers eligible for Bank financing will be paid from the SA, upon converting the finds into kunas. Counterpart funds will be paid from the entities own bank accounts. For the severance payment component for LR, the number of people to be retrenched and the reporting formats to be included as part of the FMR were finalized and agreed during Negotiations and detailed in the PIP. Financial Reporting. The three entities will ensure the preparation and distribution of consolidated periodic progress reports to the Bank, for their relevant project components to reflect: (i)sources and uses of funds, by component and activity; (ii)project progress; and (iii)procurement activities. In this context, the three entities will prepare quarterly Financial Monitoring Reports (FMRs), which will be submitted to the Bank within 45 days after the end of each quarter. The FMR formats have been discussed and agreed with the entities during appraisal. The first FMRs will be submitted at the end of the first quarter following project effectiveness.
Audit Arrangements. The three entities will be responsible for ensuring that the Project financial statements, Special Accounts, and Statement of Expenditures (SOEs) are audited by independent auditors, acceptable to the Bank, in accordance with International Standards on Auditing (ISA). The audits will cover all funds related to the project, including counterpart funds, for all project components. The audited financial statements, the special accounts, and SOEs of the preceding fiscal year will be sent to the Bank within six months of the end of the calendar year. In addition to the audit of the project accounts, the financial statements of the three entities will be audited by an independent auditor acceptable to the Bank. These audit reports will be submitted to the Bank within six months of the end of the calendar year. The TOR for the audits have been be discussed and agreed with the entities during appraisal.
Disbursements. Disbursements arrangements for the three entities will be made based on traditional disbursement methods (i.e., direct payments and/or from the Special Account) with reimbursements made based on Statements of Expenditures (SOEs) and full documentation. To facilitate timely project implementation, the three entities will establish, maintain and operate special accounts under terms and conditions acceptable to the Bank. The option to move to a FMR based disbursements will be considered at a later date, when the individual entities and the Bank have agreed that such a move isjustifiable.
- 13- D. Project Rationale 1. Project alternatives considered and reasons for rejection: Without the project, it is very likely that the competitiveness of the port of Rijeka would continue to decline vis-a-vis its main competitors, Koper and Trieste, with limited involvement of the private sector in financing andfor operating port related services. A status quo situation would also lead to increasing unresolved social issues with a direct impact on the Government budget to finance LR labor reduction scheme negotiated under pressure. The Croatia’s economy would suffer from lost export and transit opportunities, whilst import costs and delays would increase. The city of Rijeka would not make any significant progress in attracting more tourists and the level of air and noise pollution, as well as passenger traffic would remain unchanged. For the road sector, the badly needed completion of the Rijeka by-pass to alleviate current city traffic congestion would be significantly delayed, highly valuable assets would continue to deteriorate, e.g., Krk bridge, and the needed modernization of the administration further delayed.
Three alternative project designs were considered and rejected.
First, it would be possible to prepare separate road and port projects. A combined podroad project is proposed because of (a) synergy gained by reforming Rijeka Port and constructing the Rijeka Bypass at the same time, (b) the direct involvement of the City of Rijeka as a key project stakeholder, and (c) moderate but decreasing institutional risks on the port side could be overcome by continuing with the preparation of an independently justified road project if the port component failed.
Second, it would also be possible to prepare the port component in the absence of a clear commitment from the Government to privatize port operations. This was rejected because project benefits would be significantly reduced.
Third, any involvement in motonvays could have been avoided for the reasons given in section B2 above. However, our continuing dialogue on motorway issues has resulted in gradual improvement in the program, which will be continued under the project (reference ‘Lessons Learned’ below).
2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). Latest Supervision Sector issue Project (PSR) Ratings 1Bank-financed projects only) Implementation Development Progress (IP) Objective (DO) Bank-financed Road betterment, management, safety, Highway Sector Project S S Rijeka Port (P008329; recently completed)
Post-war emergency assistance to Emergency Transport and Mine S S highways, railways, ports, and Clearing Project (P044457; demining sectors recently completed)
Restructuring ofthe Croatian Railways Railway Modernization and S S Restructuring Project (P039161; ongoing)
- 14- Customs and border crossing Trade and Transport S S improvements to facilitate trade and Facilitation in Southeast transport Europe Project (PO70088 Iongoing) Xher development agencies EBRD: I Completion ofRijeka-Zagreb Autecesta Rijeka-Zagreb motonvay (section ofPan-European Project (ongoing) Corridor V)
Road betterment and construction Highway Reconstruction Project (completed)
Completion ofRijeka bypass - section Sv. Kuzam-Krizisce Project Sv. Kuzam-Krizisce (under preparation)
Road Betterment Motonvay Corridor X
EIB:
Completion ofRijeka-Zagreb IRijeka-Zagreb Motonvay motonvay (section ofPan-European (ongoing) Corridor V)
Improvement of air traffic control Air Traffic Control (ongoing)
Maintenance and rehabilitation ofthe National Road Rehabilitation existing road network (ongoing)
Road Betterment IMotonvay Corridor X I
The above-mentioned EBRD and EIB-financed completion of the Rijeka-Zagreb motonvay (expected by 2005), the completion of the remaining section (Sv. Kuzam-Krizisce) of the Rijeka bypass, and the maintenance, rehabilitation and betterment of the existing road network are particularly complementary to the objectives of this project.
3. Lessons learned and reflected in the project design: There are several lessons learned from the Bank's past experience in implementing this type ofprojects:
(i)There are lessons which have been learned from reforming HZ under the RMRP (Section 2) which in many ways parallels the effort to reform Rijeka Port. First, the RMRP emphasized the importance of obtaining an early reform commitment from the Government. This was, in fact, not fully realized until two years after the project was approved when a new Government took office. A second related point is that reform-oriented managers, in particular middle managers, are necessary for success. Third, the new Government required that an adequate social program be put in place before involuntary staff separations began (the initial phase ofvoluntary staff separations was implemented without difficulty). Fourth, early involvement of labor unions and development of healthy partnership with labor unions in the process of
- 15- labor restructuring. Fifth, HZ's financial results are to a significant degree determined by Government decisions which are not under the control of the implementing agency (levels of investment, public service obligation payments, tariff policy).
(ii)The previous Government initiated a premature motorway construction program and reduced the road maintenance budget below the required level. Decisions were made at a high level in a non-transparent way, and implemented by the Ministry of Public Works (MPW) which was not directly involved in the ongoing Highway Sector Project. It is unlikely that the Bank could have influenced these decisions directly. The Bank instead intensified its dialogue by preparing a sector report and discussing a possible Bank guarantee for the construction of the Zagreb-Gorican Motonvay. This more patient approach bore fruit when the newly elected Parliament approved a more disciplined "Program for Construction and Maintenance of Public Roads for the years 2001-2004". Major sector issues of this type require continuous dialogue with the authorities over a long period of time, and in this case a change of Government. This dialogue will be continued under the present project.
(iii)Additional lessons from the recently completed Highway Sector Project and Emergency Transport and Mine Clearing Project include (i) the importance of simple project design, (ii) commercializatiodprivatization reduces costs, and (iii)significant institutional improvements can occur when working in a new field (mine clearing).
(iv) Another lesson from working in other countries in the region that EU accession is a powerful motivator for institutional reforms deemed necessary to compete in the EU, and for international transport improvements.
These lessons have been taken into account in the design of the project.
4. Indications of borrower commitment and ownership: The borrowers, -- as well as the Government -- have demonstrated their commitment and ownership of the project by (i)adoption of the new Maritime Domain and Seaports Act, and the creation of PRA and LR, (ii)agreeing in principal to privatize port operations; (iii)holding a Workshop on Port Privatization (iii)implementing (and financing) satisfactory preparation studies, (iv) signing a letter of intent to redevelop part of Rijeka Port for urban purposes, and (v) obtaining location and construction permits (including environmental assessments) for port and road investments.
5. Value added of Bank support in this project: The lessons that the Bank has learned working with Croatian Railways will be applied to similar reforms required in the port sector. The project offers an opportunity to continue the important sector dialogue on the motorway program. The Bank will also take advantage of its long established relationship workmg in the transport sector.
E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)
1.I Economic (see Annex 4): - Costbenefit NPV=US$91.1 million; ERR = (see Annex 4) - 27.6 YO - Cost effectiveness 0 Other (specify) A cost benefit analysis was carried out for the civil works and redundancy components of the project which comprise 91% of project costs. The estimates are based on studies by consultants RMG for the
- 16- passenger terminal, general cargo berth, dry bulk terminal, additional storage facilities and the multi-purpose terminal, and by the Civil Engineering Institute for the Rijeka Bypass, port connector road, and Krk bridge. The studies employed standard cost benefit methodologies. The estimate for the redundancy component was made using a spreadsheet analysis taking into account social costs and benefits. Remaining project components comprise port equipment which replaces essential items which are wom out and considered to be justified a priori, and consultant services, training and related minor equipment which are a prerequisite for achieving the institutional objectives of the project. No formal economic evaluation was carried out for these components. The estimates are summarized as follows:
Summary Economic Evaluation
Component NPV (US$ millions) ERR (Yo) ~ Western Port Area 10.4 13.6 Multimmose Terminal 3.0 13.8 Redundancy Program 5.8 20.1 Urban Redevelopment/Passenger 1.1 12.4 Terminal Rijeka Bypass 25 .O 15.3 Port Connector Road 10.8 13.2 Krk Bridge 35.0 47.0 Total Project 91.1 27.6
The sensitivity ofthe calculations was tested against (a) a shortfall in traffic resulting from, e.g. a failure to fully implement the institutional reforms in the port sector, and (b) a 20% cost overrun. Under these alternative scenarios, the estimated ERR for all project components remains greater than 10%. The project is therefore estimated to be economically justified.
2. Financial (see Annex 4 and Annex 5): NPV=US$42 million; FRR = 30 % (see Annex 4)
A. Past and Present Financial Performance
Port ofRiieka Authoritv (PRA)
Prior to reorganization in 1996, the financial situation of the Port of Rijeka deteriorated significantly. Losses incurred because of declining traffic and low profitability resulting from overstaffing, old equipment, and growing competition. Due to lack of working capital, Rijeka Port was compelled to take out short-term loans at high interest rates. The Croatian banking system did not permit the port to roll over its debt into long term loans, with the result that losses were covered by accumulating arrears to suppliers and the State.
As part of the port reform process, PRA was established in May 1996 with responsibility for the day-to-day management and development ofthe port. PRA was given the primary task of leasing out the port facilities and the terminals to private operators. Other operating activities for cargo handling were taken over by LR. Although LR was initially granted the monopoly through the priority concession, the Government foresaw a subsequent splitting of the operational activities among various private companies. Between 1998 and 2000, PRA also contracted out all other port services such as towage, cleaning, and bunkering.
-17- While PRA is no longer burdened with deficits resulting from the accumulated debt taken over by LR, the financial situation of PRA has remained weak. Acting as a government entity, PRA has to balance its books mainly by reducing infrastructure maintenance expenditures much below requirements. As a consequence, PRA is steadily being decapitalized and the ports capacity and technical efficiency are continuously eroding. The development of containerized transport imposed new needs for equipment. In January 2001, the Government guaranteed US$35 million in a loan from Korea EXIM (KEXIM) Bank for container and bulk equipment. While the terms of the loan are favorable, it would have been operationally preferable to let the concessionaires select and pay for part of this equipment. The debt service payments are being made in Korean won at a fixed exchange rate of 1,2 15 won per US dollar. Given that a subsidy is earmarked for servicing the KEXIM Bank loan, foreign exchange exposure arising from this debt is not impacting PRA directly at this time.
Port dues and concession fees are PRA’s primary source of revenue. A partial recovery of traffic since 2001 has not shown any positive impact yet on the operating revenue. The operating expenses also remained constant, except the level of maintenance fluctuating depending on the amount of subsidy. PRA does not depreciate the assets it manages, because they belong to the maritime domain. Instead, annual depreciation amount determines the level of capital subsidy to be provided by the Government for new investments. As long as the port authority remains a public entity, assets belonging to the maritime domain should be depreciated. During appraisal, the Bank has agreed with the Government and PRA on infrastructure cost recovery to cover depreciation to reduce the fiscal burden in the longer term.
Luka Riieka d.d. (LR)
LR was transformed into a joint stock company in January 1999, and the accumulated debt to the State and other creditors was converted into LR shares. The major shareholder is the Croatian Privatization Fund (CPF) with 52 percent of the shares with the objective of placing these shares in the public market in due course. The LR staff owns about 17 percent of the shares. The remaining 31 percent of shares is owned by the State pension and health fund and a number of private companies. As part of the reform measures, LR removed about 600 jobs through induced retirement in 1998, reducing its workforce from 2,200 to 1,600 workers. The funding for retrenchment cost was made available by the public subsidy as well as debt financing.
In September 2000, the Government granted LR, a global 12-year priority concession to operate the port, excluding the container and passenger terminals and the handling of general cargo at Rasa. Despite a sharp reduction in payroll and financial charges, the financial position of LR is still weak, because of overstaffing, outdated equipment, inefficient work rules, lack of quality control, and lack of incentives for improving efficiency. LR’s fixed cost is high, accounting for over 70 percent of total operating cost. As a result, LR’s capacity to cut its operating cost is limited, leading to a net deficit ofHRK 27 million in 2002. The liquidity situation of LR is also deteriorating due to high receivables. LR’s operating revenue is mostly from stevedoring activities. Other activities including transport, forwarding, maintenance and catering are executed by its daughter companies.
Croatian Roads (HC)
HC’s revenue comes mainly from a dedicated fuel tax. The fuel tax was introduced by the Government in January 2002 and is levied by the refineries at a rate of HRK 0.6 per liter. It is paid directly to HC, and as a result, HC’s financial situation has improved. HC is responsible for the administration of state roads totaling 6,932 km, excluding motorways. The maintenance and operation, reconstruction, and construction of state roads for 2001-2005 requires a funding of about HRK 7.5 billion. Within this amount, about HRK 6.1 billion will be financed by it’s own revenue. HC will borrow from foreign and
- 18- local banks to cover the remaining HRK 1.4 billion, or 23 percent of the estimated revenue. HC could obtain up to 25 percent of its resources by borrowing with state guarantee, but will be responsible for debt service. A part of HC’s revenue from fuel tax (HRK 0.1 per liter) is transferred to the County Road Authorities (CRAs) for administration of county and local roads (21,000 km). Vehicle registration fees, that are set by the Government and vary by vehicle size, are the main revenue of CRAs. CRAs can also borrow up to 25% oftheir revenues with an HC guarantee. The risk ofdefault on debt service payment is negligible because: (i)the CRAs’ funding sources are fixed; (ii)all lenders require debt service payment not to exceed 20% of CRAs’ revenue, and furthermore, some lenders will freeze the transfer of funds from HC in case ofdefault; and (iii)like other budget entities, CRAs will have to balance their books.
Croatian Motorwavs (HAC)
The financial position ofHAC improved in 2002 as a result ofthe following key changes: (i)the fuel levy was increased at the beginning ofthe year from HRK 0.4 per liter to HRK 0.6 per liter; (ii)revenue from the fuel tax is now paid directly to HAC; and (iii)HAC now receives all revenues from tolls. All motorways in Croatia are tolled with tolls varying by vehicle type and size.
The construction program for 2001-2005 requires completion of450 km of new motorways and 81 km of semi-motorways. HAC will complete 400 km of motorways and other concessionaires will complete the remaining network. HAC is also responsible for maintenance of the existing 455 km of motorways and 43 km of semi-motorways. The five-year road program requires a funding of about Euro 2.3 billion (HRK 18 billion). HAC will spend Euro 2 billion for new motorway construction, and Euro 150 million for existing motorways for rehabilitation and maintenance. Routine maintenance and operation will cost Euro 200 million. The revenue of HAC will cover only 50 percent of the funding needs in 2001-2005. HAC has therefore a large extemal financing requirement and will need to raise finance from a number of sources to implement its capital program.
B. Financial objectives and strategy
Under the project, the main financial objectives for the port are to: (i)improve the financial performance by increasing efficiency ofPRA, LR and the Successor Companies to recover the lost traffic; and thereby (ii)create a self-financing port system to reduce subsidies from the Government in the longer term. To achieve these objectives, the strategy will include: (i)privatization ofLR and its daughter companies; (ii) reduction of excess labor in LR; (iii)rehabilitation of infrastructure and replacement of equipment; (iv) design of adequate cost recovery to finance infrastructure expansion and depreciation; (v) measures to reduce costs and improve operating efficiency to keep prices low; (vi) implementation of the regulatory framework relating to economic regulation ofprivate port operators and safety, environmental issues and quality of services; and (vii) amendment of the current Maritime Domain and Seaports Acts to support the ongoing port reforms. The financial objective for HC and HAC is to improve their operational efficiency and reduce operating costs. The project will provide management consultants to HC to assist with better road management and performance based maintenance contracts, as well as technical design and supervision of civil works financed under the project. The project will also include technical assistance to HAC in obtaining an IS0 9001 certificate, which will assist HAC in improving its organizational efficiency and implementing an economic motorway program.
Given the significant level of borrowings and requirements for counterpart funds, in particular during project implementation, it is crucial that debt service coverage remains sufficient. Under the project, PRA and LR shall maintain a debt service coverage ratio of at least 1.0 in 2003-2005, gradually increasing to 1.3 in 2006 and thereafter. HC and HAC shall maintain a debt service coverage ratio of at least 1.1. With regard to PRA, it is crucial that the Government provide financial support at the level
- 19- agreed at appraisal. This was discussed during negotiations and confirmed in the Project Policy Letter. With regard to HC and HAC, the Government should adjust the fuel tax, tolls, and vehicle registration fees periodically to at least cover inflation.
C. Projected future financial situation
The Bank‘s financial projections have been prepared for PRA and LR combined with the Successor Companies. The projections are no more than best estimates; the actual performance will depend on the traffic increase, speed of the establishment of the Successor Companies for each of the cargo handling operations and relevant parts of the concession area and subsequent privatization of the Successor Companies. These projections have been made by the World Bank for internal purposes and reflect the opinions of Bank staff, not PRA and LR. These projections are based on the results of the LR Business Plan prepared with the assistance ofPPF-financed consultants (IBM Business Consulting Services).
Traffic and revenues for both PR4 and LWSuccessor Companies are expected to continue growing. Given the estimated traffic growth, and commitment ofPRA, LR and the Government to port reform and for gradual withdrawal of Luka Rijeka from the priority concession through new concession agreements to more commercially-based Successor Companies to be privatized in the medium term, and redevelopment of waterfront area as a commercial and recreational center, the financial situation of PRA and the port operators is expected to improve gradually. However, the proposed modernization of the port likely will lead to a short-term increase of State subsidies during project implementation, but they will steadily decrease thereafter. PRA needs the commitment of the Government to provide in the next six years (2004-2009) subsidies totaling at least about HRK 320 million. During this period, PRA has an additional funding requirement ofabout HRK 500 million to cover counterpart funds (HRK 200 million), debt service payments (HRK 200 million for the Bank and KEXIM loans), and infrastructure maintenance (HRK 60 - HRKlOO million).
To assess the overall financial impact of the project, cash flow analysis was performed for “with” and “without” project scenarios for the port operation including LR and its Successor Companies with an evaluation ofthe net present value and financial rate of retum. While the “with” project scenario assumes significant rehabilitation of infrastructure and replacement of equipment under the project and subsequent privatization of LR and the Successor Companies, “without” project scenario assumes that the terminals will remain technically unchanged and the privatization process will not take place.
The key assumptions are: (i)the planned modernization of kjeka port would facilitate labor restructuring and the increased private sector involvement; (ii)cargo demand increases by about 7 percent per annum (with project), versus 5 percent (without project) per annum, in 2003-2012; (iii)port fees remain at the current levels in real terms; (iv) current surplus labor amounts to about 800 people. Each terminal deploys skilled and experienced workers and a professional management in a state-of-the-art business environment; (v) fixed concession fee will increase from US$0.06 to US$l per m2, but the variable fee remains at the current rate, i.e. 1 percent of total revenue of the terminal. The consultant (IBM BCS) with the full support of the World bank team has recommended to change the pricing structure of its variable concession fees so that a flat charge of 1 percent of the total revenue of each terminal would be replaced with a declining block charge per ton handled. This will stimulate private operators to improve their cargo handling performance, and create an incentive for attracting new cargo.
The analysis indicates that the proposed investments and labor restructuring would reduce the operating cost of port operators from US$10 per ton to US$3 per ton and increase the annual revenue gradually by US$l million to US$7 million during 2003-2012, based on an assumption that the annual cargo traffic
- 20 - will increase from 3 million tons in 2003 to 5 million tons in 2012. As a result, the port component would generate positive cash flows of US$9 million in 2003 gradually increasing to US$20 million in 2012, instead of negative cash flows of US$9 million to US$2 million estimated under the “without” project scenario. This will result in an acceptable financial rate of return (30%) and NPV (US42 million) at a discount rate of 10 percent.
No financial rates of return were calculated for HC and HAC as neither of them are revenue-earning entities. Details of the above financial analysis for PRA and cashflow analysis for “with” and “without” project for port operation are shown in Annex 5.
Fiscal Impact: Port Component
The amount of State budget funds transferred to PRA and LR in recent years is as follows:
State Budget Support (in Millions of Kuna)
1999 2000 2001 2002 2003 actual actual actual actual budget Port of Rijeka Authority (PRA) Infrastructure rehabilitation 3.6 10.0 16.8 16.9 18.0 Debt service I/ 0.7 4.0 10.0 Current maintenance 0.6 7.7 0.5 Counterpart funds (including VAT) 2/ 0.0 0.0 3.3 Subtotal 3.6 10.0 18.1 28.6 31.8 Luka Rijeka (LR) Restructuring 21 .o 0.0 9.3 1.5 0.0
TOTAL 24.6 10.0 27.4 30.1 31.8 I/Including works required for installation of 2 Samsung cranes and other bulk equipment. 2/ Rijeka Gateway Project
Because of the port’s limited financial capacity, it is likely that the proposed modernization of the port will require a short-term increase of State subsidies followed by a gradual decrease thereafter. PRA needs the Government support of about HRK 320 million in the next six years (2004-2009) to cover counterpart funds, part of its debt service obligations, and infrastructure maintenance and rehabilitation. Over the longer run, the project is expected to have a positive fiscal impact from the increase in revenues resulting from increased traffic and higher concession fees from the Successor Companies of Luka hjeka. By the year 2010, the planned reform measures under the project will also enable PRA to cover depreciation fully, thus significantly reducing the port’s fiscal burden. By year 2020, PRA is expected to no longer rely on public subsidies.
Road Component
The counterpart funding would be provided by HC and HAC from their own resources earmarked directly from fuel tax and tolls. The road component is expected to have a favorable fiscal impact from
-21 - expanded economic activity arising from the project (refer to Section E. 1).
3. Technical: No major technical issues are expected. PRA has a good capacity in port engineering and operations, and the design of the various investments proposed under the project -- all located inside the protected port area -- are fully compliant with international standards. Geotechnical and soil investigations are available and the construction permit for Zagrebacko berth includes the use of a physical model to assess the impact of the waves regime on the new infrastructure. HC has long experience with the Bank, as it has successfully implemented two IBRD financed project during the past decade. Although HAC has been recently created, its technical staff are experienced, as most of them have been recruited from HC. There should therefore be no major technical issues other than to ensure that quality control is adequately administered.
4. Institutional: The organizational structure of the institutions in charge is fully operational (see section B2 above). 4.1 Executing agencies: Each executing agency - PRA, HC, and HAC will implement its respective component. HC and HAC are staffed by trained professionals with adequate capacity to implement the project. PRA staff responsible for implementation ofthe port component have performed very well while implementing the PPF studies, and will be trained further under the PPF. Since HC is an experienced borrower, it will coordinate progress reporting to the Bank. The podurban interface redevelopment component will be implemented on the basis of a memorandum ofunderstanding between PRA, LR and the Municipality of Rijeka. 4.2 Project management: Preparation and appraisal missions assessed that the project management capacity of PRA, HC and HAC is generally satisfactory. If necessary, the three organizations will receive some additional training (in the use of the financial management system and in procurement) and consultant assistance (for preparation of designs, supervision of works, and drafting of technical specifications) under the PPF and during early stages of the project implementation. 4.3 Procurement issues: HC and HAC are experienced with Bank procurement rules and procedures. PRA staff is being trained under the ongoing PPF implementation. 4.4 Financial management issues: CFAA for Croatia was carried out in 1999. The reforms carried out to date in the area of financial management put Croatia ahead of many other CEE countries. Croatia has, in fact, set up a modern legal and regulatory framework, compatible with the needs ofa market-driven economy, completely discarded the old accounting system and opted to introduce a comprehensive new framework based on international guidelines. In order to enhance public sector financial management and to achieve a higher level of accountability, the issues related to the integrity and universal coverage of the budget process need to be addressed in greater depth, together with the start of the Treasury, the modernization of accounting and reporting systems and the further development of the institutions in charge of budget compliance through internal and external audits. Bank rehabilitation is under way but additional efforts are needed to strengthen banking supervision and improve credit institutions risk-management. Financial markets and their regulatory institutions need further development; this would also make the privatization process more effective. Market competition and corporate governance are main areas to be reformed to achieve greater transparency and financial accountability for the private sector. The organization of the accounting and auditing profession should be defined by a self-regulating and standard-setting national
- 22 - body, ensuring the application of high standards of ethics and progressively taking on the fimctions currently performed by the government. From a financial management perspective, the project however, is considered having moderate risk due to the following reasons. The three Borrowers are independent entities with their own financial management and information systems, with adequate controls and procedures in place. Where there is a weakness, it has been mitigated by providing technical assistance through the project. Two ofthe entities (HC and PRA) have experience in implementing Bank financed projects or grants. Some staff with prior experience in Bank financed projects have moved from HC to HAC, and are able to help HAC.
A review of the Financial Management arrangements for the project was undertaken in March 2003 to determine whether the financial management arrangements within the three entities -- Hrvatske Ceste (HC), Hrvatske Auto Ceste (HAC) and Port of Rijeka Authority (PRA) -- are acceptable to the Bank. Both HC and HAC have financial management systems, capable of providing accurate and timely information regarding project resources and expenditures, including planning, procurement accounting and financial reporting. PRA’s financial management system needs to be upgraded in order to maintain proper accounts for the project. Funding has been provided under the project to review the existing system at PRA and upgrade the system for the PRA as a whole, which then will be capable of recording and reporting project related data as well as the normal operations of the PRA. In the interim, a XL-based software program (which has been used in projects in Serbia as an interim system and found acceptable to the Bank) has been established at the PIU in the PRA. The PIU is already preparing reports acceptable to the Bank on this system to keep accounts for the PPF. All three entities have prepared Project Implementation Plans that were reviewed and approved by the Bank. 5. Environmental: Environmental Category: A (Full 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. The modernization of the Rijeka Port including preparation for urban redevelopment would not lead to any dredging or major works in the water. The only activities which raise environmental concern are: (a) the demolition of old warehouses, which have used asbestos in the roofing and side wall material, and possibly also asbestos as an insulation material around pipes and inside ventilation ducts; (b) the use of PCB in a transformer within the Zagrebacko berth area; and (c) reclamation ofland along the Zagrebacko berth for creation of a -larger area for handling of cargo and bulky goods. PCB as well as PCB contaminated soil around the transformer will be separated and handled as hazardous waste and transported to a certain facility collecting and storing the PCB contaminated material for further management in accordance with the Croatian legislation. The debris from the demolition activity, after removing the asbestos material, asphalt, and oil contaminated soil, will be dumped in the harbor, within the area along the Zagrebacko berth to be reclaimed under the Project, if the analysis of the debris (see below) shows an acceptable level of potential contaminants. Analysis of soil was carried out around all the warehouses to be demolished, and the results show that only a limited amount of soil would be regarded as contaminated with oil and heavy metals, particularly chrome (Cr) and lead (Pb). The concentration of hydro carbons (oil) and heavy metals in the material to be used for land reclamation is the same level as that of material and soil used for agricultural purposes or below or on the same level as background values for soil and rocks. This amount regarded as contaminated will be separated from the soil and debris to be disposed of in the sea, and it will be handled as hazardous waste and be disposed of in accordance with Croatian regulations. The asbestos material will likewise be disposed of at a safe place in accordance with Croatian regulations. In order to make sure that no contaminated material would be included by accident in the material used for land reclamation, additional analysis will be carried out by the contractor; this activity is regulated in the Environmental Management Plan (EMP).
-23- Some of the warehouses within the area of Zagrebacko berth were originally given a temporary protection by the local branch of Ministry of Culture (MOC) on May 5, 2002. On November 25, 2002, MOC decided to lift the protection for four out of six old warehouses due to their poor condition. The remaining two warehouses will be protected for the future, and will be rehabilitated under the Project.
Environmental Assessments (EAs) for the Rijeka Bypass road (part of road D-8) and the port connector road (road D-404) were prepared in 1996 and are in conformity with Croatian legislation. These EIAs were reviewed once more, as part of the overall EA for the Project, and the consultants confirm that proposed mitigation measures are adequate to secure that the planned road constructions would not lead to any adverse impacts on water resources, and people’s standard of living, and that no additional mitigation measures are required. Along the roads separate and closed systems for collection of run-off water and eventual spillages due to accidents will be constructed. Collected water will be diverted to a treatment plant before its discharge to the sea. Reduction of increased noise levels, where found necessary, will be mitigated by construction ofbarriers and planting ofgreen screens.
It should be mentioned that both the Rijeka Bypass and the port connector road will result in considerable environmental benefits for Rijeka inhabitants. A large part of the current traffic through Rijeka will be diverted to the bypass/connector road, while heavy trucks to/from the container terminal to the Bypass road will to a large extent go underground in a tunnel, instead of through already congested streets in the Rijeka City center, which is currently the only route for heavy traffic to/from the port. These changes will result in a large reduction of the air pollution from exhaust gases from all diesel hven vehicles, and a reduced noise level. In addition it is also expected that the number of accidents and injures will be reduced. Land needed for the construction of the roads was acquired for the western part of the road D-8 (between Orehovica and Draga), while the land acquisition for the western part of road D-8 (between Draga and Sv. Kuzam) is ongoing in accordance with the stringent procedures described in the Croatian legislation, and expected to be finished before the end of June 2003. The Executive Summary of the project Environmental Assessment is attached as Annex 12 to the PAD. In addition, the implementation of the Project requires the resettlement of 10 families within the port area, where the road D-404 starts, and of two families at the Sv. Kuzam junction. The negotiations with the 10 families living in two buildings within the port area is ongoing, and the families will be provided similar or better apartments in Rijeka, and agreements to resettle the two families at the Sv. Kuzam junction have already been reached. Annex 13 to the PAD (Land Acquisition and Resettlement Plan) outlines in more detail all issues related to land acquisition and resettlement. The project will also include the elimination of 30 “black spots”, in order to improve road safety. This result will be achieved through managerial measures, such as improving visibility, imposing speed reductions, and setting up traffic lights for regulation of traffic in some intersections. These activities would not lead to any environmental issues or need for land acquisition. Finally, the project will include the rehabilitation of the Krk bridge. In this case there are no disturbances for the waterway, as all bridge foundations are located on land, and there are no bridge support in the water.
It should be mentioned that the current handling of grains and cereals in the port leads to emission of particulate matters when the products are transported to and unloaded from the existing silos. The Rijeka Port Authority has already procured air control equipment in order to eliminate the emission of particulate matters from the silos, and the Project will finance covered conveyer belts for transport of the grains between the ships and the silos. In addition, the Project will finance equipment for facilitating separation of different waste generated in the port and from ships arriving to Rijeka, as well as equipment for abating eventual accidental oil spillage in the harbor.
-24- 5.2 What are the main features of the EMP and are they adequate? Separate EMPs for each construction or rehabilitation activity under the project have been prepared and are part of the EA, except for the sub-components related to elimination of "black spots" all over Croatia in order to reduce traffic accidents, and the rehabilitation of concrete surfaces on pillars supporting the Krk bridge, as these activities would have no impact on the environment. 5.3 For Category A and B projects, timeline and status of EA: Date ofreceipt of final draft: December 15,2002
The final EA was approved by the Government on February 7,2003. 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? As mentioned above, the EIAs for the Road Components were prepared in the mid 90s, and at that time public consultations were not required by law. However, the public was actually invited to comment on the plans for the proposed road constructions related to the Road Components D-8 and D-404. In addition an extensive exhibition of the plan including the road components D-8 and D-404 took place during November 11, 1998 - January 3 1, 1999, when the public was able to review the plans, and all related documents, and also meet with team and authorities responsible for the plan.
Concerning the Port Component, a public consultation was held in December 2002.
The result of the overall environmental assessment was made public in its draft form in accordance with Croatian and Bank requirements, and a public hearing and workshop for the whole Project took place on January 15, 2003, to which all active NGOs in Rijeka as well as different authorities and agencies with an interest in the project were invited, and the EA, EA Summary, and the EMP were made available to the public for comments. The documents were then made available for further comments during an additional seven days. However, no comments were received from the NGOs either during the hearing or during the additional seven days. Minutes from the meeting as well as the lists of invitees and participants in the hearing are attached to the final EMP. 5.5 What mechanisms have been established to monitor and evaluate the impact ofthe project on the environment? Do the indicators reflect the objectives and results of the EMP? Ex-post evaluation surveys will be conducted during each supervision mission to confirm the appropriateness of the EMPs' recommendations, and propose, if necessary, modifications ofthe EMPs. 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. The main social issues related to the project concern the staff redundancy program for Luka Rijeka. When the systematization process is completed, lists of redundant workers will be prepared. Workers will be advised that they are on the surplus list and will be provided with a number of options. Options will include: i)normal retirement for workers reaching age 65, ii)pre-retirement benefits with purchase of years to retirement based on a combination of age and years of service for workers who meet the criteria iii) voluntary departure with enhanced severance; iv) and involuntary departure with severance per the collective agreement. In addition, workers will be offered Redeployment Assistance through the Mobility Center in Rijeka operated by the CES with EU support. The second social issue relevant to the project is the acquisition of land and resettlement often families which is addressed in detail in the Land acquisition and resettlement plan attached in Annex 13.
-25- 6.2 Participatory Approach: How are key stakeholders participating in the project? The labor restructuring strategy will be to work out all the details of involuntary departure with the unions prior to announcing a well publicized voluntary program under a limited time offer (two months) with an incentive of 1,000 Kuna per year of service to a maximum of 25 years for eligible workers. Voluntary departure will be targeted to two groups, the large group of workers who are often absent due to illness, who are on the protected list and who therefore cannot be made redundant under labor legislation and to surplus white-collar workers. Workers considered vital to the continuing operation of LR, workers who are eligible to retire, and workers who are eligible for pre-retirement departure will not be eligible for departure with enhanced severance.
Concerning environmental issues including land acquisition and resettlement, see above under sections 5.1 and 5.4 6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? LR management and port workers unions will consult on a permanent basis during the implementation of the redundancy program. The IBM business plan calculations for staffing levels in Successor Companies, and the RMG estimates of approximately 70 remaining staff in a residual Luka Rijeka suggest a surplus of staff in the range between 687 and 776 workers. LR Management has accepted a staff surplus in the range between 550 and 650. Based on this level of severance the cost of labor restructuring measures will be in a range between USD 5.9 and USD 7.0 million in a low to medium cost scenario and between USD 6.8 and USD 8.0 million in a medium to high cost scenario. A condition of Bank funding of severance will be monitoring and evaluation, including the set up of a register of beneficiaries with a cross-reference system established in the personnel and payroll departments to prevent rehiring, and a tracer study with an annual survey of workers who were beneficiaries of departure with severance. Necessary detailed arrangements are detailed in the approved Project Implementation Plan for PRA. 6.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes? The Croatian Employment Service (CES) has discussed with Luka Rijeka (LR) management arrangements to offer the services of the Mobility Center (MC) in Rijeka, which has to date been assisting HZ workers on a pilot basis. The Ministry of Labor in Croatia is the beneficiary of an EU program to assist the CES build on the pilot Mobility Center initiative, including funding of Euro 1.5 million for a labor redeployment fund. The LR restructuring project will build on a number of lessons learned from the HZ experience in terms of labor redeployment. The project will: i)include management training in negotiating skills, conflict resolution, and problem solving; ii)target workers protected from redundancy with special measures (severance and redeployment); iii) ensure that the Human Resource and Legal Department plays a key role in the restructuring process; iv) promote the Social Plan and related measures with a well publicized information program within LR and in the community to build local support; and v) include terms ofreference for a tracer study in the Social Plan as an integral part of the project. 6.5 How will the project monitor performance in terms of social development outcomes? In regard to redundant staff, see section 6.3 above, and concerning issues related to land acquisition and resettlement it will be monitored by the Rijeka City administration and followed up during each Bank supervision mission.
- 26 - Policy Triggered Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) 0 Yes - NO Natural Habitats (OP 4.04, BP 4.04, GP 4.04) - Yes 0 NO Forestry (OP 4.36, GP 4.36) li- Yes 0 NO Pest Management (OP 4.09) - Yes 0 NO Cultural Property (OPN 11.03) 0 Yes - NO Indigenous Peoples (OD 4.20) - Yes 0 NO Involuntary Resettlement (OP/BP 4.12) 0 Yes - NO Safety of Dams (OP 4.37, BP 4.37) - Yes 0 NO Projects in International Waters (OP 7.50, BP 7.50, GP 7.50) - Yes 0 NO
Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60)* 0 Yes I NO
7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. The above mentioned EA clearly documents that the Government has appropriate legislation and staff to address the applicable safeguard issues. Loan Agreement with HC includes specific provisions requiring the Borrower to carry out land acquisition and resettlement in accordance with the Bank's policies, and the Loan Agreements with all three borrowers have provisions to ensure environmental compliance.
F. Sustainability and Risks 1. Sustainability The project will seek sustainability through:
0 increased efficiency in port operation by greater involvement ofthe private sector; 0 improved port financial performance leading to reduced Government contribution in the longer term 0 improved management ofmotorways and national roads; and 0 secured funding mechanisms for road maintenance
Risk Risk Rating Risk Mitigation Measure From Outputs to Objective The Government may not implement S A reform 'action plan' has been defined as part agreed reforms in the port sector of Luka Rijeka Business plan, discussed during preparation, and confirmed at negotiations through a Project Policy Letter.
Private sector does not respond to M The project will provide TA to both the Port competitive tenders for concessioning of Authority and Luka Rijeka to carehlly design port operations and services the various transactions, to make them attractive to the private sector.
-27- Government may undertake new H Sector dialogue will continue through provision uneconomic motonvay projects of TA and financing Motonvay rehabilitation. Government unlikely to afford new projects
The City ofRijeka, the Port Authority M The Government will provide assurances that and Luka Rijeka do not respect their the MOU signed in March 15,200 1 will be commitment to cooperate for a successful respected by all parties. The project will assist development ofthe Cityport interface. in the design ofthe transaction which should benefit all parties. From Components to Outputs Counterpart funds may not be available. S Counterpart funds will be included in PRA, HAC, and HC annual budgets, and an initial payment by each will be required as a condition of disbursement. Adequate procurement and financial M The PPF and the project will help strengthen management staff for implementing the PRA, LR, and HAC. project may not be available at the PRA land HAC. Overall Risk Rating S
3. Possible Controversial Aspects: None.
G. Main Loan Conditions 1. Effectiveness Condition 1. PRA, HC, and HAC will open a project Account with an initial deposit in local currency ofat least US$50,000 equivalent. 2. PRA and LR have signed a Subsidiary Loan Agreement for LR's severance program and technical assistance for its Business Plan. 3. Each Loan Agreement contains a cross-effectiveness condition with respect to the other two Loan Agreements.
2. Other [classify according to covenant types used in the Legal Agreements.] Loan conditions:
The following condition has been reflected in the Guarantee Agreements:
The Government will ensure that an increasing percentage ofport traffic -- expressed in tons operated by the private sector/total port tonnage per year -- will be handled by the private sector, from 0% in 2004 to 30% in 2005,50% in 2006, and 80% in 2008.
The following conditions have been reflected in each ofthe loan agreements:
-PRA: (a) the disbursement related to the construction of the Zagrebacko berth, estimated at US$27.3 million including contingencies, is subordinated to the submission to Parliament of the required
-28- legislative changes so as to permit (i)PRA to offer 25 year leases or concessions to private terminal operators on its own authority; and (ii)PRA and the City of Rijeka to redevelop maritime domain at the Rijeka port for non-maritime purposes; (b) all necessary measures will be taken to improve productivity of port operations and to increase port throughput. (c) maintenance of an operating ratio without subsidies satisfactory to the IBRD (2003: 230%, 2004: 220%, 2005: 200%, 2006: 190%, 2007: l8O%, 2008: 160%, 2009: 150%); (d) maintenance of a debt service coverage ratio satisfactory to the IBRD (2003-2005: 1.0, 2006 and thereafter: 1.3); and (e) in cooperation with the Municipality of Rijeka, and through a public competitive bidding process, award and initiate negotiations ofa contract to redevelop part of the maritime domain of kjeka Port for urban purposes by December 3 1,2006.
(a) adhere to and implement the road management program, with gradual increase of the road maintenance standards, for both routine and periodic maintenance, from 62% in the year 2003 to 100% in the year 201 1. Government support to this strategy has been confirmed at negotiations and reflected in the Project Policy Letter (PPL), with a minimum level of road maintenance funding as follows: US$158 million in 2003; US$140 million in 2004; US$155 million in 2005; US$170 million in 2006; US$170 million in 2007; US$170 million in 2008; US$170 million in 2009; and (b) maintenance of a debt service coverage ratio of 1.1, (c) shall take all measures necessary to ensure that acquisition of land required for road construction under Parts B.3 and C.3, and all persons displaced as a result of the project shall be dealt with in accordance with the Land Acquisition and Resettlement Action Plan (Annex 13).
-HAC: (a) obtain an IS0 9001 certification by December 31,2006; and (b) maintenance of a debt service coverage ratio of 1.1,
In addition, all three entities will take appropriate measures to ensure: (i)project continuous monitoring and reporting, as well as mid-term reviews; (ii)the maintenance of their respective Project Implementation Unit (PIU) during project implementation; and (iii) full compliance with the Environmental Management Plan.
The followinrr conditions have been reflected in the subsidiarv loan and Proiect agreement:
-LR: (a) annual preparation and implementation ofa multi-year business plan satisfactory to the IBRD; (b) implementation of the Social Program completed by December 31, 2006; including the severance program in two phases, i.e., departure of 380 staff on a voluntary basis by the end of 2004, and about 400 staff during the period 2005-2006; (c) progress with productivity improvement plan as detailed in Annex 11, satisfactory to the IBRD; and (d) maintenance of a debt service coverage ratio satisfactory to the IBRD (2003-2005: 1.0, 2006 and thereafter: 1.3).
Financial Covenants:
1. HC, HAC and PRA will ensure that the project accounts, SOEs and SAs will be audited each year, commencing with the accounts for the year ended December 3 1,2003.
- 29 - H. Readiness for Implementation 1. a) The engineering design documents for the first year's activities are complete and ready for the start ofproject 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. 17 3. The Project Implementation Plan has been appraised and found to be realistic and ofsatisfactory 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.
by Q q.M he1 Audige Andrew N. Vorkink Team Leader Country Director
- 30 - Annex 1: Project Design Summary CROATIA RIJEKA GATEWAY PROJECT Key Performance Data Collection Strategy Hierarchy of Objectives Indicators Critical Assumptions iector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission) krengthening market insti- Reduce Government 4nnual Government budgets; Economic stability and utions. financinghbsidies for Rijeka World Bank CAS' updates. financial adjustment sustained. Port in the longer term. ncrease trade contribution to Exports increase by an 3overnment statistics and Improved inland transport ?DP through improved trade average 5% per year between world economic indicators. system and on going efforts to ompetitiveness 2003 to 2008. improve trade and transport facilitation sustained. ncreasing private sector Percentage ofprivate sector Project progress reports and Government committed to nvolvement in financing and participation in Rijeka port Mission Aide-memoires. introducing private sector lperating transport sector operations increases from 0% participation in the transport nfrastructure and services. in 2004 to 30% in 2005,50% sector. in 2006, and 80% in 2008 (expressed in tons operated by the private sectoritotal port tonnage). 'roject Development Outcome I Impact Project reports: (from Objective to Goal) Ibjective: Indicators: mprove the effectiveness of Port operation performances Quarterly progress reports and Croatian authorities committec he transport chain through the are improving along the supervision mission to continue the on going Lijeka Gateway for both benchmark detailed in annex aide-memoires. Port statistics reforms in the transport sector. reight and passenger traffic 1 1. Total Rijeka port traffic data. 'y modernizing the port and increases by an average 7% a oad network connections, and year from 2004 to 2009, and riatizingport operations. passenger traffic increases by an average 5% per annum (90,000 pax in 2002).
Truck transit time through the Data from truckers ;he Government promotes city ofRijeka is reduced from associations and transport further border crossing an average 1 hour in 2004 to facilitation surveys. improvements; investments in less than 20 minutes in 2006. TEM comdors 5b and 10 continue.
-31 - Key Performance Data Collection Strategy Hierarchy of Objectives Indicators Critical Assumptions Output from each Output Indicators: Project reports: (from Outputs to Objective) Component: The Port ofRijeka Authority Law on Concessions, 2uarterly progress reports and Croatian authorities committed acts as a landlord and the Maritime Domain and supervision mission to continue ongoing reforms in majority ofport services are Seaports Act modified as aide-memoires. the port sector. Private sector provided by private operators required. Luka Rijeka (LR) is responds to competitive on a competitive basis in restructured in socially tenders. modernized port acceptable way. infrastructure. Financial performance ofPRA Audited annual financial Private sector responds and LR lead to a progressive reports. favorably to bidding processes reduction ofGovernment for port services related subsidies. concessions.
Port. City environment is A developer is selected as a Quarterly progress reports and Port Authority committed to enhanced, through privately result of an international supervision missions improving the overall quality financed urban development. competitve process. Port's aide-memoires. Special ofthe port and port/city Security for goods and people security indicators comply sociaknvironmental surveys. interface environment. is in compliance with with IMO and European European standards. Union standards.
International connections IS09001 certification granted Quarterly progress reports and Project counterpart funds between the port and the road for motonvays services. supervision reports. available on time, and network are improved. The Implementation of PMSBMS Interviews with truckers procurement is carried out in quality of the senices of the system extended associations. accordance with World Bank road sector Administration guidelines. Croatian (HAC) is IS0 certified. authorities committed to rationalize implementation of motonvay program.
- 32 - Key Performance Data Collection Strategy Hierarchy of Objectives Indicators Critical Assumptions roject Components I Inputs: (budget for each 'roject reports: rom Components to ub-components: component) kitputs) - Port Restructuring and LiS$75.1 million, including )uarterly project progress and Ibjectives are reasonable, and lodemization US50.2 million from the upervision reports an be reached within the [BRD me- and budget-frame of the roject
- Port/city Interface US$43.2 million, including ame %me Ledevelopment USS24.6 million from the [BRD - Intemational Road US$144.8 million, including ame ame mprovements US$78.7 million from the IBRD - Project Preparation Facility USS1.5 million :onsultant reports
?ont-end fee US$1.5 million
The above costs include physical (6%) and price (8%) contingencies ofUS$14.8 million and US$19.3 million respectively.
- 33 - Annex 2: Detailed Project Description CROATIA RIJEKA GATEWAY PROJECT
Tentative cost estimate for each sub-component is shown below. The Borrower acronym is shown in brackets.
By Component:
Project Component 1 - US$75.10 million A - Port Restructuring and Modernization WS$50.2 million to be financed by the Bank) Rehabilitation of port infrastructure and suverstructure (US$lO.8 million: US$6.8 million Bank financed): Rehabilitation works are needed in the western part of the port to allow a smooth transfer of the operations related to the handling ofwoods and timber. These include the demolition ofoutdated and unused warehouses -- with the exception of warehouses #I2 and #I7 which will be rehabilitated for their cultural value --, repaving along the western part of the port for the storage of general cargo, rehabilitation of utility networks (water, electricity and telephone), rehabilitation of the fencing of the area, and the improvement ofthe port connection with the road and railways networks. [PRA]
Demolition of existing and reconstruction of new warehouses in Zagrebacko and Prasko berth areas fUS$13.1 million: US$6.5 million Bank financed): Eight old warehouses and some small non-functioning facilities will be demolished, and new light modular multi-functional warehouses will be constructed under the project. [PRA] Rehabilitation of Becko berth (US$1.5 million: US$0,8 million Bank financedl: Rehabilitation of Becko berth has been identified as a first priority investment, and since all required permits and detailed designs are available, the works are expected to start as early as 2004. Tender documents will be prepared by the consultants recently selected under the PPF-financed study. [PRA] Construction of multi-vurDose terminal at Zagrebacko berth (US$27.3 million: US$13.7 million Bank financed): The project will assist in the restoration and protection along the Zagrebacko shore by reclaiming the land with suitable material resulting from the demolition of old warehouses, including the construction of a berthing facility of 250 m length which will allow vessels of 15 meter draft to service the port of Rijeka. Detailed design and tender documents will be prepared by the consultants recently selected under the PPF-financed study. [PRA] Provision of traffic safetv eauivment (US$2.3 million: US$2.3 million Bank financed): Consultant RMG has identified investments contributing to traffic development and safety. The first to be implemented is the Vessel Trafic Management System (VTMS), i.e., a radar-based system coupled with a database and identifying and monitoring ship movements. [PRA]
Provision of antiuollution eauivment (US$1.6 million: US$l.6 million Bank-financed): A specific equipment to contain dust from the grain silos will be provided under the project. [PRA]
Provision of Heavv Carp0 Handling eauiument OYS6.1 million: US$6.1 million Bank financed): LR still operates old and outdated yard equipment that clearly needs to be replaced to improve port operations, at least during the interim period before privatization. Most rail mounted quay cranes rented from PRA are very old, slow and have a very low capacity. Ports worldwide are replacing this outdated equipment with modem mobile cranes that can shift quickly from one berth to another, allowing fast handling ofunit loads up to 40 tons. [PRA]
Management Modernization (US$2.1 million: US$2.1 million Bank financed): Since PRA does not
- 34 - possess necessary technical knowledge of VTMS, hiring consultants under the loan to provide assistance in drafting of the technical specifications and tender documents will be needed. A privatization advisor would help implement a business plan for LR covering: (i)organization of operations, (ii)creation of profit and cost centers for each terminal operation and other activities, (iii)establishment of daughter companies, (iv) privatization of subsidiaries, (v) human resource strategy, and (vi) analysis of the status of the accumulated debt. The advisor would also address issues connected with the priority concession: (i)review of general objectives an&of contractual targets (traffic levels, performances, quality etc.), (ii) respective responsibilities and commitments of the port authority and of the concessionaires regarding maintenance and development of infra- and superstructure, (iii)equipment, (iv) extension of the concessions to allow new investment plans, (v) port tariffs, lighthouse dues, and (vi) periodic review of performance. The project would also finance consultants to (i) prepare designs for civil works contracts, (ii) assist in preparing a BOT contract for further expansion of Zagrebacko berth and for construction of 0403 connector road; and (iii) works supervision consultants. PRA is not very experienced in implementation of Bank-financed projects, training in accounting, financial management and procurement will be required. Potential need for assistance of individual consultants is also foreseen. [PW
Information technoloat modernization - Electronic Data Interchanze (EDI) svstem (US$l.9 million: US$1.9 million Bank financed): An ED1 system will provide for safer, quicker connections between the port community and the port administration. [PRA]
Severance payment (US$7.5 million: US$7.5 million Bank financed): Based on LR’s Social Plan proposal, a severance program would be financed under the project. [PRA/LR]
Audit and financial manazement system (lJS$0.8 million: US$0.8 million Bank financed): , The loan will finance a multi-year (up to 3 years, subject to satisfactory performance) contract for auditing services. In addition, a financial management hardware and soflare and training for its utilization will also be financed by the loan and provided to PRA and LR at the early stages of project implementation. PRAI
Project Component 2 - US$43.20 million B - PortKitv Interface RedeveloDment (US$24.6 million Bank-financed)
Preparation works at the Delta and Porto Baros areas (US$1.8 million: US$0.9 million Bank financed): The transfer ofport operations from the Delta and Porto Baros area to the westem part ofthe port for the modernization of the passenger terminal represent a promising activity for the city of Rijeka. The total cost of the preparation works for the area to be redeveloped includes transfer of all cargo to the western part ofthe port and removal of wood storage warehouses, fencing, and all quay cranes (including those on the breakwater). [PRA]
Construction of a new passenger terminal (US$4.0 million: US$2.0 million Bank financed): This component aims at the development ofthe waterfront area open to business and commercial activities. If the PPF study confirms the viability of a public/private partnership (PPP) approach, additional technical assistance will be provided under the project to help select a private investor under a competitive process, including the possible creation of a podcity special purpose agency entrusted with the management of this innovative project. The project will finance the construction of a passenger terminal along the breakwater. [PRA]
Construction of Draga-Braidica connecting road 0-404 (US$3 7.4 million: US$21.7 million Bank financed): The 4 km long road would link the Bypass to the port of Rijeka reducing heavy truck traffic
-35- through the congested center ofthe city. Designs, environmental studies, location permits and some land acquisition are already completed. HC, which would implement this component, prepared a feasibility study on new traffic and origin-destination data, considering separately the construction of the three sections to 2- or 4- lane standard. The results are satisfactory. The cost also includes the acquisition and installation oftraffic equipment. [HC]
Project Component 3 - US$144.80 million International Road Improvements (US%78.7million to be financed bv the Bank)
HC management cauacitv improvement (software, TA, suuervision consultants and training: US$5.4 million: US$5.4 million Bank financed): HC intends to improve its administration of the Road Districts, and establish road design standards for local roads. The project would provide management consultants, TA, software (GIS extension; Oracle supplement license; weather and traffic systems software) and training to HC to carry out these tasks and improve its operational efficiency. In addition, consulting services for specific technical design and supervision of civil works and equipment installation will be financed.[HC]
Pavement and bridge management svstems (PMS/BMS: US$2.4 million: US$2.4 million Bank jinanced): Its implementation was initially supported under the Bank's Highway Sector Project. An inventory of the condition of the HC road network was completed in December 2002. Traffic levels, pavement roughness, rutting, pavement surface deterioration, skid resistance and status of the pavement structure were surveyed. Croatian Telecom has been contracted to install an integrated PMS/BMS system for all HC districts, which would then be expanded to the counties. To complement the system, small . equipment (traffic counters, weigh-in-motion - WIM scales, weather monitoring system), PMS/BMS software upgrade, and technical assistance/training would be also financed under the project. Software to improve HC's ability to administer the road network would also be included. [HC]
Vehicle overloading monitoring svstem WS2.7 million: US2.7million Bank financed): Overloading of heavy trucks causes excessive damage to the national roads network. HC identified two main transit corridors where the problems occur, and proposes to implement pilot fixed scale stations to be financed under the proposed project. In addition, HC needs to develop a strategy for transition from the existing axle load policy (lOt/axle) to the European Union standard (1 1.5t/axle). The project would finance an axle load study and installation of equipment (fixed scales) to develop a strategy for enforcement and eventual adoption ofthe EU standard. [HC]
HAC cauacitv imurovement and training of the HAC PIU staff (US$O.6 million: US$O.6 million Bank financed): Technical assistance for obtaining an IS0 9001 certificate, which will assist HAC in the next stage of improving its organizational efficiency and implementing an economic motonvay program will be provided under the project. Supervision consultants will be hired for Krk bridge rehabilitation works. In addition, HAC PIU staff will receive training, as needed, in financial management, accounting and procurement. [HAC]
Construction of Riieka bypass section Orehovica - Draga - Sv. Kuzam (6.5 km: 4 lanes; US$95 million: US47.5 million Bank financed): The proposed section would complete the westem part of the Kjeka bypass, relieving traffic in a highly congested city which is squeezed between the mountains and sea and providing a through link for tourist traffic traveling from Italy/Slovenia/Central Europe to the Dalmatian coast. It would also improve the linkage between the port terminals and the existing Skrljevo and Kukuljanovo industrial and free zones, where the current traffic passes through the narrow streets of a small town of Draga. Designs, environmental studies, location permits and some land acquisition are
- 36 - already completed. HC, which would implement this component, prepared a feasibility study based on new traffic and origin-destination data, and considering separately the construction of the three sections to 2- or 4- lane standard, which is satisfactory. The cost also includes acquisition and installation of traffic equipment. [HC]
Elimination of 30 black svots (US$7.1 million: US$3.6 million Bank financedL: HC, in coordination with the traffic police have identified 147 so called 'black spots', or locations with high incidence of traffic accidents. These black spots can be eliminated through (i)traffic management improvements; (ii) design improvement, or through (iii)combined civil engineering-traffic measures. The government has already eliminated 28 of the black spots and another 20 will be eliminated through the betterment program included in the ongoing EIB project. The proposed loan would finance improvement of 30 out ofthe remaining 107 black spots. [HC]
Krk Bridee rehabilitation (US$31.5 million: US$16.5 million Bank financed): This bridge, once the longest arch bridge in the world, provides the only road, electricity, water and oil (pipeline) connection from the mainland to the island of Krk where the Rijeka Airport and Omigalj Oil Terminal are located. Strong winds, salt, and lack of maintenance have caused severe deterioration of the structure. HAC, which administers this toll facility, prepared a feasibility study for the rehabilitation ofthe first section of this bridge which is satisfactory; additional studies are under preparation. [HAC]
Project Component 4 - US$1.50 million Reimbursement of the Project preparation facility (PPF). Five preparatory studies for the port component have been financed under the PPF: (i)detailed engineering and project design is being prepared by Nippon Koei, Japan; (ii)study on porthrban redevelopment is being prepared by a consortium of international firms FVRiInroslHPCl KPMG/Rijekaprojekt/RGS; (iii)Urbing, Croatia has prepared an environmental assessment summary for the entire project; (iv) business plan for LR is being prepared by IBWCSS and RMG; and (v) social plan for LR is being prepared by an individual consultant, Ms. Jolanta Hess. [PRA]
CROATIA - Proposed Rijeka Gateway Project Tentative cost estimate (US$ million, net of taxes and front-end fees)
Repayment of PPF - Preparatory studies for port 1.50 1.50 1.50 component Rehabilitation ofport infrastructure and superstructure 3.50 3.50 7.00 7.90 Demolition and construction of warehouses in Zagrebacko and 5.80 5.80 11.60 13.10 Prague berth area
Reconstruction ofZagrebacko-West berth 12.25 12.25 24.50 27.30 Heavy mobile equipment for Luka d.d. 5.60 5.60 6.10 Vessel Traffic Management Information System (VTMS) 2.00 2.00 2.20 Antipollution equipment 1.50 1.50 1.60 Cons. services for VTMS technical specifications & tender 0.10 0.10 0.10
Electronic Data Interchange (EDI) System I 1.901 1.901 1.90
- 37 - B. Port/City Interface Redevelopment I
GRAND TOTAL I 155.00l 27.801 66.84 lS.Oa 264.601 264.60
- 38 - Annex 3: Estimated Project Costs CROATIA: RIJEKA GATEWAY PROJECT
A - Port Restructuring and Modernization B - Port/City Interface Redevelopment C - International Road Improvements D - Project Preparation Facility (PPF) Total Baseline Cost Physical Contingencies
Local Foreign Total Project Cost By Category US $million US $million US $million Civil works 89.00 130.20 2 19.20 Goods and equipments 2.60 20.20 22.80 Services 2.10 11.50 13.60 Redundancy payment 7.50 0.00 7.50 PPF Reimbursment 0.00 1.50 1.50 Total Project Costs’ 101.20 163.40 264.60 Front-end fee 0.00 0.00 Total Financing Reauired 101.20 163.40 264.60
I Identifiable taxes and duties are 0 (US%m)and the total project cost, net of taxes, is 266.1 (USSm). Therefore, the project cost sharing ratio is 58.81% of total project cost net of taxes.
- 39 - Annex 4: Cost Benefit Analysis Summary CROATIA RIJEKA GATEWAY PROJECT
[For projects with benefits that are measured in monetary terms]
Present Value of Flows Fiscal Impact k"-tIic Financial Analysis' An a Iys is Taxes Subsidies Benefits: costs:
Net Benefits: US39 1.1 million
IRR: 27.6%
' Ifthe difference between the present value offinancial and economic flows is large and cannot be explained by taxes and subsidies, a brief explanation of the difference is warranted, e.g. "The value of financial benefits is less than that of economic benefits because ofcontrols on electricity tariffs."
Summary of Benefits and Costs: The economic evaluation has been carried out for the civil works and redundancy components of the project comprising 9 1% of project costs. Remaining project comonents comprise port equipment which replaces essential items which are worn out and considered to be justified a priori, and consultant services, training and related minor equipment which are a prerequisite for achieving the institutional objectives of the project. No formal economic evaluation was carried out for these components. The analyses are summarized below, while supporting consultant studies are retained in the project files.
Main Assumptions:
Rehabilitation of Infrastructure in the Western Port Area: The main assumptions are: - Investments take place in 2004-2007. - Value added per ton oftimber is US$6. - Efficiency gain of2%. - General cargo traffic grows an average 8.6% p.a. from 2000 to 2010. - Throughput capacity of general cargo terminal increases from 1,230,000 to 2,240,000 tons p.a. in 2008.
On this basis, the investments are estimated to have a net present value (NPV) of US10.4 million (10% discount rate) and an economic rate ofreturn (ERR) of 13.6%.
Multipurpose Terminal at Zagreb Berth, Demolition and Rehabilitation Works: The benefits of this component derive primarily from (a) upgrading the system of handling timber products which are presently processed and stored extensively in the port, and (b) transfering timber operations from the Sisak terminal (Delta area) to Zagrebacko Quay which will free up 17.5 hectares for urban purposes. The
-40- main assumptions are: - The capacity of the present timber terminal is 150,000 tons p.a. - Investments take place in 2004-2006. - Value added per ton of timber is US$lO. - New system of storing and handling wood produces an efficiency improvement of 30%. - Timber traffic grows an average 8.6% p.a. from 2000 to 2010. - Throughput capacity of Zagreb Berth area increases from 400,000 to 560,000 tons p.a. in 2008. - Rental value of Delta area will increase by US$9l/hectare/annum when used for urban purposes.
On this basis, the investment is estimated to have an NPV of US$3.0 million and an ERR of 13.8%.
Redundancy Program: The main assumptions are: - 780 LR staff are retrenched at a cost of US$7.5 million for redundancy payments and training. - Separated staff are not being employed productively prior to retrenchment. - 30% ofretrenched staff are reemployed after waiting one year on average. - Reemployed staff earn an average 75% of their former salary.
On this basis the investment is estimated to have an NPV of USS 5.8 million and an ERR of20.1%
Urban Redevelopment/Passenger Terminal: The passenger terminal is an integral part of the urban redevelopment scheme, but was conservatively evaluated in terms of its expected financial return. The main assumptions are: - Investments take place in two phases during 2004-2006 and the terminal is fully operational in 2007. - Annual operating costs are 2% of investment costs. - Tariffs are US$0.34 per domestic passenger, US$1.82 per international passenger, and US$5.45 per passenger car unit. - An additional 50,000 passengers will use the facility in 2005 and 2007, and this traffic will grow 10% p.a. thereafter. - 50% ofpassenger traffic is international. - An additional 15,000 passenger car units will use the terminal in 2005, and this traffic will increase 10% p.a. thereafter.
On this basis, the investment is estimated to have an NPV of US$1.1 million and an ERR of 12.4%.
Rijeka Bypass and Connector Roads: This road component was evaluated in accordance with the 'Guidelines for the Preparation ofFeasibility Studies' which was prepared by HC with assistance from the World Bank. HC used the OPCOST model which is a variation of HDM3 adopted to local conditions. The main inputs and assumptions are: - Construction take place during 2003-2006 - Origin-destination surveys at eight locations during peak and off-peak seasons in 2001, plus manual/automatic and historical traffic counts. - Traffic model based on 34 traffic zones and 277 links. - Passenger car traffic grows 2-4% p.a., buses 1.3-2.0% p.a., and trucks 2.0-3.0% p.a, during 2001-2031. - Passenger time valued at the average wage rate for worlung time (US3.7l/hour); and one-third ofthis amount (US$1.24/hour) for non-working time. - Fatal traffic accidents valued conservatively at US$l,720/accident. - Indirect traffic benefits on the D-404 port connector road estimated as 15% of direct benefits
-41 - comprising (a) traffic benefits on the city street network which was not modeled, and (b) reductions in urban noise and air pollution following removal ofheavy truck traffic.
On this basis, the Orehovica - Sv. Kuzam (4 lanes) and Sv. Kuzam - Bakar roads are estimated to have an NPV of US$25.0 million and an ERR of 15.3%. If the Orehovica - Sv. Kuzam section were constructed to 2 lane standard, it would have an NPV of USS32.0 million and an ERR of 18.3 %. The D-404 connector road (Draga - Luka) is estimated to have an NPV ofUS$10.8 million and an ERR of 13.2%.
Krk Bridge: The rehabilitation of the Krk Bridge was also evaluated by the OPCOST model following the 'Guidelines for the Preparation ofFeasibility Studies'. The main inputs and assumptions are: - The 22 year old bridge has corroded due to salt intrusion resulting from failure to adequately protect the concrete reenforcements during construction, high winds, and inadequate maintenance during the war. - Salt intrusion cannot be prevented by routine maintenance. - The bridge will become permanently unusable or collapse around 20 10-2020 and will be closed to traffic in 2005 if the bridge is not rehabilitated. . - Krk Island including the Omisalj Oil Terminal, would be served by ferry beginning in 2006. - The bridge carried 7,239 vehicles per day in 2001 compared to 3,400 vehicles per day in 1986. - Rehabilitation will be carried out in stages during 2003-2006.
On this basis, the investment is estimated to have an NPV ofUS$35.0 million and an ERR of47.0%.
Sensitivity analysis / Switching values of critical items: The greatest project risk is that the GovernmentPFWLR would fail to carry out the institutional reform of the port sector resulting in a lower than expected growth of traffic. A low traffic forcast was developed for the port components ofthe project, detailed in the project file, whereas for the road components ofthe project it was assumed that project benefits would be 20% less than forecast. The second project risk is that costs would be higher than estimated The effect ofthese outcomes on the estimated ERRs for each project component is as follows:
Sensitivity Analysis of Project ERRs (YO) Component Best Estimate Low Traffic Forecast costs +20% Western Port Area 13.6 9.6 10.2 Multipurpose Terminal 13.8 11.6 12.3 Redundancy Program 20.1 20.1 17.9 Urban Redevelopment 12.4 11.0 9.8 Rijeka Bypass 15.3 13.3 12.8 Port Connector Road 13.2 10.0 10.8 lKrk Bridge I 47.0 I 41.6 I 42.5 1
Under these altrernative scenarios, the estimated ERR for all project components is 9.8% or greater, and the project ERR is estimated to be sufficiently insensitive to these project risks.
-42- Annex 5: Financial Summary CROATIA RIJEKA GATEWAY PROJECT I. Financial Performance of Rijeka Port
Port ofRiieka Authority (PRA)
Prior to reorganization in 1996, the financial situation of the Port of Rijeka deteriorated significantly. Losses incurred because of declining traffic and low profitability resulting from overstaffing, old equipment, and growing competition with the neighboring north Adriatic ports ofKoper and Trieste. Due to lack ofworking capital, Rijeka Port was compelled to take out short-term loans at high interest rates of about 30 percent to cover its cash needs. The Croatian banking system did not permit the port to roll over its debt into long term loans, with the result that losses were covered by accumulating arrears to suppliers and the State in terms oftaxes and social contributions.
As part of the 10-year plan for the development of Croatian ports, PRA was established in May 1996 with responsibility for the day-to-day management and development of the port. PRA was given the primary task of leasing out the port facilities and the terminals to private operators, who will be responsible for receiving and moving the goods in the port area. Other operating activities for cargo handling were taken over by LR at the same time. Although LR was initially granted the monopoly, the Government foresaw subsequent split up of the operational activities among the various private companies specializing in a given geographic area or in a given cargo. Between 1998 and 2000, to improve port efficiency and performance, PRA contracted out nine port services including towage, cleaning, fueling, quantity and quality control, and garbage removal previously executed by itself.
PRA is a non-profit legal entity incorporated under the Seaports Law of 1995 and reports to the Ministry of Maritime Affairs, Transport and Communications (MMATC). It is governed by an Adrmnistrative Board and an Executive Director who reports to the Board. The Board consists of eight members, five of which are directly appointed by the Government and the other three are elected, both for a period of four years. The members include: four representatives of the Croatian Government; one representative each from Rijeka County and City of Rijeka; one representative of the harbormaster's office; and one representative of all companies running business in accordance with the Seaports Law. PRA is currently staffed with 40 people and has five departments (market research and development, finances and control, engineering and maintenance, commercial operations, and legal and general administrative services).
In September 2000, PRA entered into a global 12-year priority concession with LR to operate the port. The concession agreement includes the following financial terms: (i)a fixed annual fee of US$60,381 based on an annual fee of $0.06 per m2 for the total concession area of 1,006,342 m2; (ii)a fixed annual fee of US$607,729 for the use of common areas of 54,825 m2 based on a unit charge of $11.09 per m2. In the first two years, LR will carry out the upkeep of the common facilities and shall therefore be obliged to pay only a part of the fees for the use of the common facilities, amounting to about US$lOO,OOO each in 2001 and 2002; (iii)a variable fee amounting to one percent of LRs revenues from port activity, beginning in September 2002; and (iv) maintenance of infrastructure and superstructure in the concession area, plus maintenance of LRs own equipment. Subsequently in September 2002, PRA approved the request of LR for a one-year delay for paying the full amount of fixed and variable fees beyond the originally agreed two-year grace period.
Between November 2001 and February 2002, PRA also signed a 10-year concession agreement with foreign private operators for four terminals (container, timber, cars, and soybean). In addition to a fixed
-43- fee ofUS$0.6 per m2 and a variable fee of 1 percent ofthe total revenue, the concessionaire for container terminal will also pay an additional $200,000 for the use of two new Samsung cranes. However, this is far below the annual payment to service the Samsung loan, amounting to US$1 million each in 2003-2007 and US$3-US$2 million each in 2008-2025. Contship (Italy), a regional leader in the operation of containerized cargo, is now providing technical assistance to LR to ensure proper standard performance at the container terminal before committing itself to enter into a joint venture with LR. While there are some delays in starting the operation of the timber and soybean terminals by the private operators, the concession agreement for car terminal has been cancelled due to difficulty in obtaining permits needed to operate the terminal.
The financial situation of PRA since its creation has been marginal. With the accumulated debt taken over by LR, PRA is no longer burdened with the substantial current account deficit facing the Port of Ihjeka prior to the reorganization. However, cargo traffic still remains low, despite a partial recovery of traffic in 2001. PRA, acting as a Government entity, has to balance its books mainly by reducing investments and maintenance expenses much below requirements. As a consequence, PRA is steadily being decapitalized and the ports capacity and technical efficiency are continuously eroding. Over 70 percent ofPRA's assets have now been depreciated.
Serious decapitalization of PRA as well as the development of containerized transport imposed new needs for equipment. In January 2001, as part of an ambitious 1O-year development plan for Rijeka, the Government guaranteed US$35 million in a loan from Korea EXIM (KEXIM) Bank for container and bulk equipment. The terms of the loan are favorable, with a repayment period of 25 years including 7 years of grace and a 3.5 percent interest rate. Given that the Government is providing a subsidy for servicing the KEXIM Bank loan, foreign exchange exposure arising from this debt is not impacting PRA directly at this time. While asset renewals are much needed, it would have been operationally preferable to let the concessionaire(s) select and pay for part ofthis equipment. Given the limited resources of PRA and tight public funds, this investment has limited PRA's ability to make other investments in the future, including borrowing from the Bank. Therefore, the project has been prepared with affordability as one of the key criteria, and based on key actions to improve the port's financial position.
The operating revenues of PRA, mainly from port dues and concession fees, are just enough to cover the operating expenses, but not depreciation expense which is almost equal in amount to the sum of all other operating expenses. The operating expenses have remained more or less constant, except the level of infrastructure maintenance fluctuating based on the allocation of the Government budget subsidy. In 2002, PRA generated operating revenues of HRK 17 million and with the help ofpublic subsidy, covered the operating expenses ofHRK 19 million.
The annual depreciation amount in 2002 was HRK 17 million, or 3 percent ofnet fixed assets. Nearly all of the infrastructure and superstructure assets the PRA manages remained in the books of LR until 2000, when the Administrative Board of PRA decided to transfer them to the port authority's books. Nevertheless, PRA does not depreciate these assets because they belong to the maritime domain. Instead, annual depreciation cost determines the level of capital subsidy to be provided by the Government for new investments. As long as the port authority remains a public entity, assets belonging to the maritime domain should be depreciated. The appraisal mission has agreed with the Government and PRA on infrastructure cost recovery to cover depreciation expenses in order to reduce the fiscal burden in the longer term. Subsidizing the port user charges is viewed as part of the Government strategy to recover the lost traffic and reestablish the Rijeka Port as the natural gateway for Croatia and Central Europe. The Government has been also subsidizing the Croatian ship operators to cover their operating losses. This has provided an incentive for the ship operators to run the feeder services regularly regardless of the actual volume of cargo to be carried. A number of ship operators went bankrupt in the
-44- recent past due to a 70 percent decline ofcargo volume between 1980 and 1997.
At the end of2002, PRA's equity amounted to HRK 621 million, consisting of the value of fixed assets. Nearly all ofPRA's liabilities totaling HRK 261 million were related to the long-term borrowing for the purchase of container and bulk equipment from Samsung. Likewise, nearly all of its assets are fixed, totaling HRK 877 million, with current assets amounting to only HRK 5 million.
Luka Riieka (LR)
As part ofthe port reform process which the Government initiated in the mid-l990s, LR was transformed into a joint stock company in January 1999, and the accumulated debt to the State and other creditors was converted into LR shares. The major shareholder is the Croatian Privatization Fund (CPF) with 52 percent of the shares. The LR staff owns about 17 percent of the shares. LRs initial share capital was HRK 294 million, divided into 2,938,230 shares of the nominal value of HRK 100 each. Such share capital was the aggregate of: (i)the value of Luka's obligations towards its creditors, whose claims were converted into shares (HRK 162 million in total); and (ii)the assessed value of the company (HRK 132 million). Ofthe former group (i),the majority of shares totaling 56 percent was transferred to CPF and the remaining 46 percent, to the State pension and health fund (30%) as well as a number of private companies (16%). Of the latter group (ii),49 percent of the shares was sold to Luka's then present and former employees on a privileged condition of purchase with some discounts. The remaining 51 percent of shares was transferred to CPF with the objective of placing these shares in the public market in due course. Total share capital now amounts to HRK 301 million with no major changes in ownership. As a result of debt restructuring, annual finance charges were reduced by nearly 80 percent from HRK 17 million in 1998 to HRK 4 million in 2002.
The Board of LR consists of 5 members including a representative from MMATC (chairman), a representative from the Maritime College of Rijeka (deputy chairman), a representative from the Chamber of Commerce of Rijeka, a former employee of LR, and a member. LR has four departments: commercial; operations; financial and general affairs; and human resources. The operations department is responsible for the operation of five terminals, i.e. (i)cargo terminal for general cargo, timber, bulk and liquid cargo; (ii)bulk terminal Bakar, (iii)livestock terminal Rasa; (iv) frigo (fruit) terminal; and (v) grain terminal. The container terminal, passenger terminal and the area of Stalije are excluded from the priority concession. It is also responsible for a pool of dock workers, operational and technical workers, and mooring and unmooring workers. LR has three daughter operating companies (active and profit making) and five non-core daughter companies (provisional and loss-making) which have been created with the intention to privatize in the future.
LR employed 6,000 people in 1985, and has reduced its staff in stages to about 1,420 people at present including 330 in the five loss-making daughter companies. In 1998, LR removed about 580 jobs through induced retirement. LR laid off certain long-term employees who were almost eligible for full pensions. LR then paid to the State the difference between the actual amount of contributions made by these employees and the contributions required for being eligible for full pensions. Severance payments were financed partially by a long-term loan, which will be repaid fully by end 2003. The Government also subsidized LR for part of the labor restructuring costs with a total subsidy of HRK 32 million. This resulted in a reduction ofannual payroll cost by HRK 20 million (US$3 million). The annual labor cost still exceeds over HRK 100 million (US$14 million), accounting for nearly 60 percent of the operating revenue and 50 percent of the operating expenses. The project would include financing redundancy payments and social program for surplus labor for US$7.5 million discussed above.
LR's revenue is mostly from stevedoring activities. Other activities including transport, forwarding,
-45- maintenance and catering are executed by its daughter companies. Like PRA, LR's financial capacities have been limited. Despite a sharp reduction in payroll and financial charges, LR's fixed cost is still high accounting for over 70 percent of its operating cost because of overstaffing and various charges associated with the priority concession agreement. As a result, LR's capacity to cut its operating cost is limited, which led to a net deficit of HRK 27 million in 2002. The liquidity situation of LR is also deteriorating due to high receivables. The trade receivables due outstanding at end 2002 were HRK 35 million, most of which were due from domestic clients. The average number of days' sales that remain uncollected is over 90 days. As a consequence, short-term liabilities to trade suppliers remain high, totaling HRK 38 million at end 2002. LR has relied mostly on short-term loans to meet its working capital needs.
At the end of 2002, LR's equity capital and reserves amounted to HRK 140 million (USS18 million), with liabilities mostly related to short-term borrowing ofabout HRK 90 million (USSl2 million). Its long-term liabilities ofHRK 30 million (USS3 million) consists mostly of a loan for the purchase ofa mobile crane in 2001 and the outstanding balance of the 1998 loan for severance payments. About 75 percent of its assets were the fixed, totaling HRK 200 million (USS25 million), with current assets of HRK 60 million (USS8 million) due to high receivables.
Proiected future financial situation ofport operation
The financial forecasts have been prepared for PRA and port operators based on the following key assumptions:
Cargo traffic will increase from 2.7 million tons in 2002 to 8.4 million tons in 2022. The annual average growth amounts to: 6.5% each in 2003-2012; and 4.5% each in 2013-2022. These projections are based on the improved competitiveness of PRA, LR and the Successor Companies with substantial investments and productivity improvements.
Port tariffs will remain at the current level: general cargo, containers, and timber (USSl.00 per ton); bulk cargo (USSO.40 per ton), livestock (USS1.20 per ton); vehicles (USS1.20 per ton). Total revenue from port dues are expected to increase from HRK 12 million (USS2 million) in 2002 to HRK 40 million (USS6 million) in 2022.
The concession fees now consist of (i)a fixed fee of USS0.06 per m2 for the concession area; (ii)a fixed fee of US$1.43 per m2 for the use of new investments; (iii)a variable fee of 1% ofthe total revenues of the concessionaire; and (iv) a fixed fee of US$11.09 per m2 for the use of common infrastructure. Under the new concession agreements, the concession fees are estimated to increase to: (i)US$l.OO per m2 for fixed fee for the concession area; (ii)USS4.00 per m2 for a fixed fee for the use of new investments; (iii)a variable fee of 2% of the total revenues of the concessionaire. The fixed fee for the use of common infrastructure will remain the same.
The withdrawal of Luka Rijeka from the priority concession to the Successor Companies is based on the following schedule. This will provide PRA with an additional revenue in the range of USS0.9 million-USS2 million each year in 2006-2022. Under the existing concession agreements, the annual concession fees will range between USSl-1 million in 2006 and USS1.5 million in 2022. Under the new concession agreements, annual concession fees will range between US$2 million and US$3.5 million in the same period.
- 46 - 2005 2006 2007 2008 2009 Terminal Rijeka 0% 50% 50% 50% 60% Terminal Bakar 100% 100% 100% 100% 100% Terminal Rasa 0% 50% 100% 100% 100% Terminal Susak 0% 50% 50% 100% 100%
PRA needs the commitment of the Govemment to provide in the next five years (2004-2009) subsidies totaling about HRK 320 million (US$46 million) to cover counterpart funds, debt payments, and infrastructure maintenance. The need for subsidies will decline by 12% to HRK 280 million during the following six years (2010-2015), and by 70% for the next six years (2016-2021). PRA will no longer depend on the public subsidy by 2020.
Total operating expenses (without depreciation) will increase from HRK 22 million (US$3 million) in 2004 to HRK 33 million (US$5 million) in 2022, by 3% in real terms each year between this period. Number of PRA employees will remain at the current level of 40 and an annual salary will increase by 2% in real terms. Labor cost accounts for about 35% of the operating expenses (without depreciation). The ratio of maintenance as a percentage of net fixed assets was low with 0.7% in 2000 and 0.3% in 2001. The plan ratio will increase to 1% from 2003.
Total depreciation expenses will increase from HRK 24 million in 2004 to HRK 42 million in 2022. Most of the existing assets are fully depreciated. Annual depreciation amount as a percentage ofnet fixed assets averaged about 2.6% in 2000-2002. The rates for new investments will be 2% for infrastructure and 6.7% for equipment. PRA is expected to cover its depreciation expenses fully by 2020. The ratio of total operating expenses (including depreciation) to total operating revenues (excluding subsidies) should decline from 240% in 2002 to 90% in 2022. The ratio of total working expenses (excluding depreciation) to total operating revenues (excluding subsidies) should also decline from 140% in 2002 to 40% in 2022.
The capital expenditures will consist only of the Bank-financed investments between 2004-2009. Due mainly to high debt service, PRA is not able to generate cash flow sufficient to cover any significant new investments until 2018. As part of the project components, new mobile cranes and equipment would be procured by PRA, then rented to LR under commercial terms agreed during negotiations.
The ratio of cash from operations (plus government subsidy earmarked for debt service and repayments from LR for severance payments) to total debt service should reach 1.0 in 2003-2005, and 1.3 in 2006 and thereafter.
With these assumptions, gradual, though modest, improvements can be expected. PRA will gradually be transformed into a self-financing port system which depends less on government subsidies. Total budget support for PRA will rise from HRK 29 million (0.02% of GDP) in 2002 to HRK 70 million (0.03% of GDP) in 2005-2006, but gradually decrease to HRK 18 million (0.005% of GDP) in 2019. Beginning in 2020, PRA will no longer depend on the public subsidy.
-47- PRA I-~ Y~6xirg~31,~thcyt, 2cm (In Mllasd K~R$ DYXU33amwtpiceq.XC4~~mid~plees sludadhslaor$d M 2ooo arm 2002 zan 2004 zom 2006 2007 2008 2009 mo m1 m2 m3 m4 m5 ma m7 ma m9mmaCm 83 83 7.9 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0
la8 9.6 11.5 14.2 14.9 155 169 182 19.5 M9 222 232 24.3 255 268 281 29.6 31.0 326 34.2 359 3.7 396 0.9 1.7 29 25 7.8 8.4 138 14.4 19.5 19.8 M1 ,223 M5 P.8 21.0 21.3 21.6 21.9 222 226 229 233 237 0.9 1.1 21 0.8 a7 1.1 4.3 4.4 7.4 7.4 7.4 7.4 7.4 7.4 7.4 7.4 7.4 7.4 7.4 7.4 7.4 7.4 7.4 0.0 ao 0.0 1.0 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 0.0 a7 a8 0.4 1.6 1.8 28 33 4.1 4.4 4.7 4.9 51 5.4 56 59 6.2 6.5 68 7.2 7.5 7.9 8.3 0.3 1.4 1.4 27 27 39 39 39 39 39 39 3.9 39 3.9 39 3.9 39 39 39 39 37 34 3.2 34 34 35 36 36 37 50 3.9 39 4.0 4.1 4.2 4.3 4.4 4.4 4.7 4.9 51 54 57 11.9 120 121 123 124 125 126 128 129 130 131 154 14.7 17.6 220 260 27.5 34.3 353 428 457 461 47.4 a7 624 €4.2 €60 67.9 89.9 721 74.4 769 79.4 E21 3.8 06 7.7 55 30 0.6 06 0.6 la0 420 40.0 420 250 250 MO MO MO 150 150 150 ao a7 4.0 iao la8 157 21.6 262 285 282 256 230 20.3 17.6 150 123 9.6 7.0 4.3 27 38 1.3 11.7 155 138 163 222 268 385 m2 656 610 453 426 350 323 29.6 220 193 17.7 0.0 0.0 0.c 192 160 29.3 355 88 438 566 611 81.3 113.9 111.7 110.4 1ffi.1 1051 93.1 983 97.5 91.9 91.4 922 769 794 E21 mnebaense wags,~dhsl;ta 55 56 57 5.8 59 61 62 63 64 66 67 68 7.0 7.1 7.2 7.4 7.5 7.7 7.8 80 82 83 85 MirienTce 4.4 1.6 9.3 6.9 7.4 a5 9.8 la5 10.9 10.6 10.2 9.8 9.4 9.0 86 8.2 7.8 7.5 7.4 7.4 7.2 7.1 7.c WeialadWErgj 0.4 1.2 0.7 1.0 1.1 1.3 1.5 1.6 22 21 20 20 1.9 1.8 1.7 1.6 1.6 1.5 1.5 1.5 1.4 1.4 1.4 Vaa-addeairg 1.4 1.9 1.8 1.8 1.9 20 21 22 24 25 26 27 29 30 32 33 3.5 37 38 4.0 4.2 4.4 4.i kk4adadlegl 0.9 1.9 1.7 1.7 1.7 1.8 1.8 1.8 1.9 1.9 1.9 20 20 21 21 21 22 22 23 23 24 24 2: WTkisiaivseqx~~~ 1.6 20 25 25 26 26 27 27 28 28 29 30 30 31 31 32 33 33 34 35 35 36 3i aterl 55 30 26 27 27 28 28 29 30 30 31 31 32 3.3 33 34 35 35 36 37 38 38 35 T+Wrg+ 197 17.1 24.3 226 234 250 269 281 29.4 29.5 29.4 29.4 294 29.3 293 29.3 29.4 29.4 29.8 3Q3 3Q7 31.2 31d mng 1- (0.9 (1.1) 50 129 164 la8 296 350 51.9 w.4 523 81.0 767 757 me. mo ea2 625 61.6 61.9 61 483 5a: DqEaaim 16.3 163 17.2 241 248 289 342 37.2 387 389 38.9 389 389 X9 X9 389 389 3iO 335 43 409 41.5 42' inkfxgirs,&madw 1.1 22 1.6 22 22 23 23 24 24 25 25 26 26 27 27 28 28 29 30 32 33 22 22 m 0.0 a7 4.0 a3 la8 157 21.6 262 a5 282 zi6 230 a3 17.6 150 123 9.6 7.0 4.3 27 23 21 1.t inw,fxbss,e&-xicx 0.6 a9 36 36 36 3.6 36 36 36 36 3.6 36 36 36 36 36 36 36 36 36 36 36 3.f ~~"~(u~hah)(163 (169 (iaap (zaq (219 (nap (n.9 (299 (169 i6i 166 iao 165 la2 150 169 iaa 159 17.2 la4 27 33 54 WI"M(VAU=WW (219 (iaiJ mnq (364 (344 (434 (49 (554 (ssi) (521) (w (289 ~4 (a9 (154 (la9 (61~ WJ a6 27 33 54 gloD mrg*(vihs.t&+j) la3% 107% 83% WYO W% 57% 46% 45% 26% 26% 26% 27% 28% 28% 3% x% 33% 3% 23?% 23% 40% 9%28 ~rg~(Wat&)1B% 117% 1%?% 113% 90% 91% 76% iT/o 68% W% €4% 62% 46% 4Ph 46% 44% 43% 42% 41% 41% 4% 3% 28 ~,*(vihudv).. 168% ac~o/, 142% 131% 121% im0 icm iwh myo w% 61% v% M% 650/. 89% m 74% iwh m SY~ 91% w %lab(\nntatS+sidy) 234% 2mh 233% 233% 185% 19% 178% lW% 158% 150% 148% 144% llP% 1Wh 1ffi% 103% 101% W% 95% 95% 9% 91% 97 r0tdhdg;tSlRnrt 10.0 18.1 286 31.8 31.8 853 722 368 38.5 682 556 630 45.3 426 350 323 296 220 19.3 17.7 0.0 0.0 0
-48- I-
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- 50 - Port Oueration bv Luka and the Successor Comuanies
Cash flow analysis was performed for the two development options for Luka Rijeka and its Successor Companies, namely: (i)"With" project scenario assuming significant rehabilitation of infrastructure and replacement of equipment under the project and privatization process will take place; and (ii)"Without" project scenario assuming the terminals will remain technically unchanged and the privatization process will not take place.
The key assumptions are: (i)the planned modernization of Rijeka port would facilitate labor restructuring and the increased private sector involvement; (ii)cargo demand increases by about 7 percent per annum (with project), versus 5 percent (without project) per annum, in 2003-2012; (iii)port fees remain at the current levels in real terms; (iv) current surplus labor amounts to about 800 people. Each terminal deploys skilled and experienced workers and a professional management in a state-of-the-art business environment; (v) fixed concession fee will increase from US$0.06 to US$l per m2, but the variable fee remains at the current rate, i.e. 1 percent of total revenue of the terminal. The consultant (IBM BCS) has recommended to change the pricing structure of its variable concession fees so that a flat charge of 1 percent ofthe total revenue of each terminal would be replaced with a declining block charge per ton handled. This will stimulate private operators to improve their cargo handling
-51 - performance, and the Bank is in full support of such fee structure for new agreements with the Successor Companies.
The analysis indicates that the proposed investments and labor restructuring would reduce the operating cost from US$10 per ton to US$3 per ton and increase the annual revenue gradually by US$1 million to US$7 million during 2003-2012, based on an assumption that the annual cargo traffic will increase from 3 million tons in 2003 to 5 million tons in 2012. As a result, the port component would generate positive cash flows of US$9 million in 2003 gradually increasing to US$20 million in 2012, instead of negative cash flows of US$9 million to US$2 million estimated under the "without" project scenario. This will result in an acceptable financial rate of retum (FRR) of US$42 million and NPV of 30 percent at a discount rate of 10 percent.
Port Operation Comparison of With and Without Project (amount in US$ thousand) I With Project I/ 2003 2004 2005 2006 2007 2008 2009 2010 201 1 2012
Revenue 21 18.978 19,652 20,326 22,213 24,101 25,988 27,876 29,763 31,058 32,353 Expense 31 10,313 10,402 10,505 10,786 11,294 11,574 11.833 12,155 12,317 12,466 Interest 111 92 80 76 57 58 50 45 40 25 CAPEX 41 75 208 406 689 463 391 243 331 283 I Cash surplus 8,479 8,950 9,335 10,662 12,286 13,965 15,750 17,231 18,418 19,862
Throughput ('000 ton) 2,946 3,083 3,220 3,521 3,823 4,124 4,426 4,727 4,951 5.17! % change 9% 5% 4% 9% 9% 8% 7% 7% 5% 57
Without Project I/
2003 2004 2005 2006 2007 2008 2009 2010 201 1 2012
Revenue 21 18,251 18,742 19,233 20,130 21,027 21,924 22.821 23,719 24,755 25,791 Expense 31 27,472 27,324 27,340 27,349 27,360 27,367 27.383 27,398 27,413 27,42* Interest 42 34 32 20 8 5 9 10 12 CAPEX 41 0 64 223 0 25 0 144 108 99 I Cash surplus (9,262) (8,680) (8,363) (7,239) (6,365) (5,448) (4,715) (3,797) (2,769) (1,640
Throughput ('000 ton) 2.842 2,944 3,047 3,203 3,359 3,514 3,670 3,826 4,010 4,19, % change 5% 4% 3% 5% 5% 5% 4% 4% 5% 50,
NPV and FRR
2003 2004 2005 2006 2007 2008 2009 2010 201 1 2012 :osts Project investment 51 12,700 36,200 38,000 20,400 9,300 1,100 Other investment 75 144 183 689 438 391 99 223 184 C 3enefits Incremental revenue 727 910 1,093 2,083 3,074 4,064 5,054 6,045 6,303 6,561 Saving in operating cost 17,089 16,864 16,788 16,507 16,016 15,740 15,509 15,207 15,068 14,941 Net benefits 17,741 4,930 (18.502) (20,099) (1.748) 10,113 19,364 21,029 21,186 21,502
NPV (US$ '000) $41,937 Financial IRR 30% 11 "With Project" scenario assuming significant rehabilitation of port infrastructure and replacement of equipment, and portlcity interface redevelopment, thereby privatization process will take place. "Without Project" assuming the terminals remaining technically unchanged and the privatization process not taking place. 21 Includes revenues from main operating activities and excludes miscellaneous revenues such as the government contributions. 31 Excludes depreciation. 41 Small capital investments not related to the project. 51 Includes capital investments in port restructuring and modernization, and portkity interface redevelopment to be financed by the Project.
-52- 11. Croatian Roads and Croatian Motorways
The total length of the public road network in Croatia is 28,349 km, of which 7.430 km are state roads, 10,544 km are county roads, and 10,375 km are local roads. State roads are further broken down into motorways and other main roads as follows:
Table 1: Composition of State Roads in Croatia
Road type Length (km)
I Motorwavs I 455 I I Semi-motorwavs I/ I 43 I II/ sinaie lane motorwavs. I I
By Government decree, the Croatian Road Agency was reorganized in April 2001 into Croatian Motorways (HAC), responsible for construction, operation and maintenance of motorways and other tolled facilities, and Croatian Roads (HC), responsible for the administration of the remainder of the main road network. Both HAC and HC are state-owned limited liability companies. County Road Authorities (CRAs), of which there are twenty, are responsible for developing and maintaining county and local roads. Although CRAs report to their respective county authority, HC is responsible for authorizing plans for developing and maintaining county and local roads.
According to the Government’s four-year program for the Construction and Maintenance ofPublic Roads (2001-2004), about HRK 8 billion will be spent on maintenance, reconstruction and construction of state, county and local roads, and HRK 16 billion on the motorway program. This program should help overcome the diversion of maintenance funds primarily to the motorway program, which occurred during 1998-2000. The Government budget was the primary source of financing of the road sector until 2001. From 2002, the road sector will be funded by the revenues from the fuel tax, vehicle registration fees, and motorway tolls. However, both HAC and HC have a large external financing requirement to implement their capital investment program.
Croatian Roads (HC)
HC is a Govemment-owned limited liability company which reports to the Ministry of Maritime Affairs, Transportation and Communications (MMATC). HC is governed by the Government’s General Assembly, a Supervisory Board and a Management Board. The State, as HC’s sole shareholder, is represented at the General Assembly by the Minister of MMATC. The Supervisory Board consists of five members appointed by the General Assembly for a period of four years. The Assistant Minister of MMATC is the chairman of the Supervisory Board, whose other members include a representative from Ministry of Public Works, Ministry of Finance, Ministry of Environment, and a member of HC trade union.
The Management Board currently has three members appointed for a four-year period by the General
- 53 - Assembly. It is responsible for the day-to-day management of HC and oversees a number of internal committees, councils and control functions. The company has six departments: Strategic Planning, Development and Studies, Engineering Studies and Design, Construction, Maintenance, Financial and Economic Affairs, and Legal and General Administrative Services.
HC is now responsible for the administration of state roads totaling 6,932 km, excluding motorways. HC employs about 300 persons. HC’s headquarters in Zagreb is staffed with about 190 persons, mainly engineers and technicians and has a management role focusing on policy, budget and technical issues. A total of 9 district offices are staffed with about 110 persons. Most of the routine maintenance activities are carried out by 14 companies specialized for road maintenance.
Beginning in 2002, HC’s revenue comes mainly from a dedicated fuel tax. The fuel tax was introduced by the Government in January 2002 and is levied by the refineries at a rate of HRK 0.6 per liter. It is paid directly to HC. The maintenance, reconstruction and construction of state roads for 2001-2005 requires a funding of about HRK 7.5 billion. Within this amount, about HRK 6.1 billion, or 81 percent will be financed by fuel tax. HC will borrow from foreign and local banks to cover the remaining HRK 800 million. HC could obtain up to 25 percent of its resources by borrowing with state guarantee, but will be responsible for debt service.
HC was established in April 2001 and thus has audited accounts for only nine months of 200 1. In 2001, the primary source of HC’s revenue was the Government transfer. In 2002, total revenue was HRK 1.2 billion, most of which came from fuel tax. Another source ofrevenue, although very small in amount, is the registration fees of imported vehicles. HC’s main expenditure items were maintenance and depreciation costs. Maintenance costs were HRK 736 million accounting for 60 percent of the operating costs. Although HC is not the owner of public roads, depreciation of public roads is stated as a cost in HC’s profit and loss account using depreciation rates prescribed by the Government, and covered by fuel taxes. Depreciation of the public roads amounted to HRK 457 million, accounting for 37 percent of the total operating cost. HC’s losses of HRK 25 million in 2002 were made ofall non-cash losses. HC had sufficient cash to cover HRK 436 million spent on new construction and rehabilitation works.
At the end of 2002, nearly all of HC’s assets were fixed assets, totaling HRK 66.6 billion. The current assets were very small amounting to HRK 0.3 billion. HC’s equity capital and reserves amounted to HRK 66.7 billion, most ofwhich represent the Government share capital. The share capital represents the value of public roads and construction contract work in progress. Its liabilities totaling HRK0.2 billion were mostly related to short-term borrowings. HC is expected to increase its maintenance and construction works by HRK 600 million in 2003. For this, an EIB loan of Euro 60 million and a loan from local bank were obtained to cover the financing gap and only HRK 7 million were utilized in 2002.
A part of HC’s revenue from fuel tax (about HRK 0.1 per liter) is transferred to the County Road Authorities (CRAs) for administration of county and local roads (20,919 km) beginning in 2002. Vehicle registration fees, that are set by the Government and vary by vehicle size, are the main revenue of CRAs. The annual budget thus consists of about HRK 250 million transferred from HC and HRK 450 million from vehicle registration fees. CRAs may receive additional transfers from county budget at the discretion of the relevant county authorities. CRA could also obtain up to 25 percent of its resources by borrowing with HC guarantee. The risk of default on debt service payment is almost negligible because: (i)the CRAs’ funding sources are fixed; (ii)all lenders require debt service payment not to exceed 20% of CRAs’ revenue, and furthermore, some lenders will freeze the transfer of funds from HC in case of default; and (iii)like all budget entities, CRAs have to balance their books.
- 54 - HC IncomeStatement Yean Ending December 31,2001 through 2014 (In Millions of Kunas) 2001-2003 wmt prices; 2004-2014 constant mid 2003 prices 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 OPERATING REVENUES foreign Wide transit fee 20 14 15 15 16 16 17 18 18 19 20 21 22 revenue from fuel tax 1,149 1,308 1,360 1,415 1,471 1,530 1,591 1,655 1,721 1,790 1,862 1,936 2,014 govanment grants 752 26 8 other operating inwme 16 17 13 14 14 15 16 16 17 18 18 19 20 20 TOTAL OPERATING REVENUES 768 1,211 1,344 1,389 1,444 1,502 1,562 1,625 1,690 1,751 1,827 1,901 1,977 2,056
OPERATING EXPENSES material and energy 4 4 4 4 4 4 4 5 5 5 5 556 maintemnceand services 299 736 909 965 992 1,057 1,004 1,016 1,051 1,093 1,146 1,213 1,290 1,368 personnel 23 39 44 46 47 49 51 52 54 56 58 60 6264 depredation 609 457 460 464 468 474 479 484 489 493 496 499 5M 504 other expmses 3 5 7 7 7 8 8 8 9 9 9 10 10 11 TOTAL OPERAllNG EXPENSES 938 1,240 1,424 1,485 1,519 1,582 1,547 1,566 1,607 1,656 1,714 1,788 1,869 1,953
OPERATING INCOME (170) (30) (SO) (96) (75) (90) 16 58 82 102 113 113 107 103
OTHER REVENUES interest 2 3 3 3 3 3 3 3 3 3 3 444 foreign exchange gains 0 0 0 inmefrom shares, dividends, disposals 5 6 6 6 6 6 0 extrawdinary revenue 2 4 4 4 4 4 5 5 5 5 5 6 66 TOTAL OTHER REVENUES 9 14 12 13 13 13 8 8 8 8 9 9 IO 10
OTHER EXPENSES interest and dwges 20 2 3 12 36 70 94 109 123 122 119 115 109 102 foreing ewchange lasses 0 0 other finanaal msts 13 0 00 0 0 0 0 0 0 0 000 extraordinary expmses 4 7 5 5 6 6 6 6 6 7 7 7 78 TOTALOMERMPENSES 37 9 9 18 42 76 100 115 129 129 126 122 116 109
NET INCOME (198) (25) (76) (101) (103) (152) (77) (48) (39) (19) (4) 0 I3 working ratio 43% 65% 72% 74% 73% 74% 68% 67% 66% 66% 67% 68% 69% 70% Operating ratio 122% 102% 106% 107% 105% 106% 99% 96% 95% 94% 94% 94% 95% 95%
-55- 3 m4
186 144 0 0 2 4 4 5 6 6 7 7 a ia 2972565656%5656565656%56 56 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 0 0 217267 56 56 XI EI m 61 62a626364 73
4044 6853 66,768 67,140 67,708 4220 4437 68,389 4328 4236 4117 67,919 61,824
@,a09 66,585 66,563 66,471 66,364 66,254 =,la2 66,a 65,976 65,937 65,919 65,914 65,915 65,915 129 129 129 129 129 129 129 129 129 129 129 129 129 129 (19 (25) (76) (101) (152) (n) (49) (39) (19) (4) 0 1 3 67,940 66,688 66,m 66,499 66,388 66,m 66,154 66,105 66,066 66,047 66,043 66,043 66,044 66,047
“w liabilities lcng term loas &dimme tdd “nt liabilities anwd liatilitie tradeanddher~es laZ 157 14 14 14 14 14 14 14 14 14 14 14 14 am& tax liabilities 2 tdd ament liabilities 104 157 14 14 14 14 14 14 14 14 14 14 14 14
- 56 - CashflowsMement Years MingDecember 31, #K)l thragh 2014 (In Millions of Kmas)
net lncanefran qY3atlm (1%) (25) (76) (101) (103) (152) (77) (48) (39) ($9) (4) 0 1 3 4 5 (6) (6) (6) (6) 609 457460464468474 479 484 489 493 496 493 502 504 0 0 0 0 net cash fran operating activities 415 438 377 356 358 315 4w 436 450 474 492 493 502 508 increasldecrease in recsivables 25 (43) 17 0 0 0 0 0 0 0 0 0 0 0 im&W- in inv&mes 0 000 00 0 0 0 0 0 0 0 0 tncrdWeaseinpqatdes (99) 119 (144) 0 00 0 0 0 0 0 0 0 0
(73) 76 (127) 0 00 0 0 0 0 0 0 0 0 508 investingactivities irc./dec.inbngbleandintan.&s (219) (384) (589) (B)(1,034) (710) (596) (591) (308) (268) (195) (146) (115) (a0 finandal assets 1 000 00 0 0 0 0 0 0 0 0 Payables 666 66 0 0 0 0 0 0 0 0 prmfor targible assets 5 netcash~~~~Iininvestingadivities (213) (377) (583) (823) (998) (704) (5%) (591) (308) (268) (195) (146) (115) (Sa financing activities short term finandal assets (1) 0 0 0 00 0 0 0 0 0 0 0 C inv. in shares and longterm loans 0 0 longterm loars 7 141 480 677 460 283 266 liatilitiesforshort tm loans 67 (67) debts” (87) (W (3) (13) (36) (70) (94) (109) (132) (164) (208) (234) (248) (X ne! cash used in finarcing aciivities (21) (128) 138 467 641 390 194 156 (132) (164) (208) (234) (248) (26c increase in cash and cash equiv. 108 8 (195) 1 2 1 1 0 10 42 89 119 140 16e castatstartofyear 79 186 194 0 02 4 4 5 6 6 7 7 E cash at end of year 186 194 0 0 24 4 5 6 6 7 7 8 1E debtservicecoverage ratio 3.9 7.4 73.7 28.3 9.9 4.5 4.3 4.0 3.4 2.9 2.4 2.1 2.0 2.
Croatian Motorways (HAC)
HAC is a Government-owned limited liability company which reports to the Ministry of Public Works, Reconstruction and Construction (MPWRC). The Ministry of Maritime Affairs, Transportation and Communications (MMATC) is responsible for the planning of the motonvay network up to location permit stage.
HAC is governed by the Government’s General Assembly, a Supervisory Board and a Management Board. The State, as HAC’S sole shareholder, is represented at the General Assembly by the Minister of Public Works, Reconstruction and Construction. The Supervisory Board consists of five members appointed by the General Assembly for a period of four years. The Minister of Public Works, Reconstruction and Construction is the chairman ofthe Supervisory Board, whose other members include a representative from MMATC, Ministry of Finance, Ministry of Environment, and HAC employees.
The Management Board currently has two members appointed for a four-year period by the General
- 57 - Assembly. It is responsible for the day-to-day management of HAC and oversees a number of internal committees, councils and control functions. The company has six departments: Development and Planning, Construction, Maintenance, Finance and Economy, Legal and General Affairs, and Toll Collection.
HAC employed 966 workers at end-2001, and has now grown to a staff of 1,370. About 650 of HAC’S staff are involved in routine and emergency maintenance, which are carried out in-house. This amounts to about 10 percent of the maintenance budget. Periodic and winter maintenance, accounting for the remaining 90 percent of the maintenance budget, are contracted out. HAC is developing a database of construction and maintenance records to improve efficiency of its maintenance activities. Another 450 people are involved in toll collection.
The construction program for 2001-2005 requires completion of450 km of new motorways and 81 km of semi-motorways. HAC will complete 400 km of motorways and other concessionaires will complete the remaining 50 km of motorways and 81 km of semi-motorways. Concessions have been awarded for the development of two motorways, and these are supervised by HAC: (i)Rijeka-Zagreb motorway: Rijeka-Zagreb Highway Company, which is 100% state-owned; and (ii)Istrian motorway: Bina Istra Company which is 5 1% owned by Bouygues and 49% by the state. A third concession agreement is now under negotiation with a German company. HAC is also responsible for maintenance ofthe existing 455 km ofmotorways and 43 km of semi-motorways.
For HAC, the five-year program requires a funding of about Euro 2.3 billion (HRK 18 billion). HAC will spend Euro 2 billion for new motorway construction (mainly the completion of the Zagreb-Split motorway), and Euro 150 million for existing motorways for rehabilitation and maintenance. Routine maintenance and operation will cost Euro 200 million. The revenue of HAC will cover only 50 percent of the funding needs in 2001-2005. HAC has therefore a large external financing requirement and will need to raise finance from a number of sources to implement its capital program.
Commercial banks are expected to provide loans for new motorway construction, whereas IFIs will provide finance for motorway rehabilitation. The Government will provide sovereign guarantees to finance the completion of the capital program. HAC has appointed a financial adviser to assist with obtaining a credit rating so that it can consider borrowing from the market without recourse to sovereign guarantees. In the meantime, the Government raised Euro 500 million in February 2003 with an issue of Eurobonds. Out of the above proceeds, Euro 150 million will be transferred to HAC between March and May 2003. The Government is currently seeking for another domestic bond issue ofEuro 100 million to provide these proceeds to HAC. HAC will be responsible for debt service ofthe loans including its share of these bonds.
HAC’s total debt service obligations in 2001-2005 are estimated at about Euro 370 million, and will increase sharply to about Euro 1.1 billion for the following five years in 2006-2010. Given this significant level of borrowings and increasing debt service, it is crucial that the Govemment adjust the fuel tax and tolls periodically to cover inflation. HAC will have to improve efficiency and reduce operating costs through better road management and performance based maintenance targets.
HAC’s revenue comes from a separate fuel tax, motorway tolls and a small amount ofrental income. The Government introduced HAC’s fuel tax in April 2001, which is levied by the refineries at a rate of HRK 0.4 per liter, and has increased to HRK 0.6 per liter since early 2002. All motorways in Croatia are tolled with tolls varying by vehicle type and size. An open tolling system is operated on the Corridor 10 motorway under which vehicles pay a fixed amount regardless of distance traveled. A closed system operates on all other motorway sections under which vehicles pay on exit according to distance traveled.
- 58 - HAC intends to introduce a closed system on the Corridor 10 motorway in the future.
HAC was established in April 200 1 and thus has audited accounts for only nine months of 200 1. The primary source of HAC’s revenue in 2001 was the Government transfer of HRK 633 million, of which HRK 623 million was the revenue from the fuel tax. It did not receive any revenue from tolls, which were transferred to the state budget. HAC also received a Govemment grant of HRKlO million for land acquisition and current expenses, and a small concession fee of HRK 2 million. In 2002, HAC’s financial position improved as a result of the following key changes: (i)The fuel levy was increased at the beginning ofthe year from HRK 0.4 per liter to HRK 0.6 per liter; (ii)Revenue from the fuel tax is now paid directly to HAC; and (iii)HAC receives all revenues from tolls.
In 2002, total revenue was HRK 1.7 billion, consisting of HRK 1.3 billion from fuel tax and HRK 0.4 billion from tolls. HAC’s main expenditure items were maintenance and depreciation costs. Maintenance costs were HRK 11 1 million accounting for 13 percent of the operating costs. Depreciation of the motorways and public roads amounted to HRK 568 million, accounting for almost 70 percent of the total operating expenses. Annual depreciation rate of motorways and public roads is 3%. HAC had a net income ofHRK 929 million in 2002.
At the end of 2002, total assets of HAC were HRK 24 billion, of which over 95 percent were in fixed assets. HAC’s equity capital and reserves amounted to HRK 21 billion, most of which represent the Government share capital. The share capital represents the value of motorways, public roads and construction contract work in progress. Over 80 percent of HAC’S liabilities totaling HRK3 billion was related to long-term borrowings, a main source of financing for construction of tolled roads and maintenance. HAC’s long-term liabilities increased by almost HRK 2 billion in 2002. In 2001, HAC raised HRK 900 million in loans from commercial banks, in addition to a long-term debt of IJS$213 million transferred from the Croatian Road Agency when established in April 2001.
-59- liMx#L?sMement Years Wing December 31,2001 tkm& 2014 (In Mllions of Kunas)
2oooMo3 current prices; 2004-2014 axlstmt mid 2003 prim audited unaudited forex5t 2001 Mo2 2003 Mo4 2035 2006 2007 2008 2009 2010 2011 2012 2013 2014 &412-Dec.31 operatingkvenues Revenuefrom tolls 430 406 665 820 853 887 923 958 998 1,038 1,079 1,122 1,167 Revenue from fuel tax 623 1,236 1,308 1,367 1,435 1,493 1,552 1,614 1,679 1,746 1,816 1,889 1,964 2043 Government grants 10 0 0 0 0 00 0 00 0 0 0 0 other operating 1"s 2 12 15 16 16 17 18 18 19 20 21 21 22 23 Total operating revenues 636 1,679 1,729 2,048 2,272 2,362 2457 2,555 2,657 2764 2$74 2989 3,109 3,233 operating Matenal and energy 18 27 29 31 34 3636 36 363636 36 36 36 bhmtm~e-and mce 60 111 278 101 124 111 113 114 108 123 124 139 140 153 FWSomd 64 112 143 145 148 153 157 162 167 172 I77 182 188 193 Dep-eaatl0-l 554 568 618 730 818 1,066 1,066 1,066 1,066 1,066 1,066 1,066 1,066 1,066 Rovlslon for bad debts 22 0 0 0 0 00 0 00 0 0 0 0 other 8 16 17 17 18 19 19 20 21 22 23 24 25 26 Total operating eqmses 727 833 1,084 1,024 1,141 1,384 1,391 1,398 1,398 1,418 1,426 1,446 1,451 1,474 c)perating l-e (91) 845 645 1,024 1,131 978 1,066 1,157 1,260 1,345 1,449 1,543 1,655 1,760 other Revenue Interest 1 4 0 0 0 00 0 00 0 0 0 0 Foragn exchange gars 100 233 0 0 0 0 0 0 000 0 0 0 lncwnefrm shes and diqxsals 25 0 0 0 0 0 0 0 00 0 0 0 0 Wraordinary re" 1 63 6 6 5 44 4 44 4 4 4 4 Total other re" 127 306 6 6 5 44 4 44 4 4 4 4
Interest 15 128 259 452 51 5 512 493 460 426 389 301 171 114 85 --Foragn excfrange losses 8 82 0 0 0 00 0 00 0 0 0 0 Wraordlnary expawe 1 12 7 6 7 3 3 3 33 3 3 3 3 Tdal other expews 24 m 266 458 522 515 496 463 429 392 304 174 117 88
Net lnarne 11 929 385 571 614 467 574 698 835 957 1,148 1,373 1,542 1,676 Working Ratio 27% 16% 27% 14% 14% 13% 13% 13% 12% 13% 13% 13% 12% 13% IQEratiig Ratio 114% Wh 63% Wh 50% 59% 57% 55% 53% 51% Wh 48% 47% 46%
- 60 - T& % Tdal % "lo cfTd an1 2M2 2M3 aM4 2031-14 dTdal
WitflOAs Tdl - 53 67 6 111 321 707 4% 173 1% an 213 1,m 28% Fdta 84 186 173 18) 167 m za% 1% ap 210 218 227 1,051 236 2% 256 266 2% 45% afer 19 38 23 w 3% - Wk w 1% Logtemlcgscfviidr 121 475 563 330 19 1,614 5B% - Wh 1.614 i8% Ru83%hedstirglars 121 16 83 m I m Ru83%franwkas 28548333019 1,250 1,250
TdCahdhS 225 m 823 E€?3 447 2a lox 3n 258 285 2B3 276 1,433 IWk 442 247 239 235 5425 lWh
(bxs$lrueassinCiEh (33 3 16 11 23#16681114320 (33) 186 218 244 915 QhdsWdyzf 5 3 6 910 5 16 35 76 141 222 16 33333488x6 5 Cajhddcfyzf 3 6 9 10 16 16 357614122233 333 33488x6960950 IMWOe~tZ40 53 aa 89 88 1.0 1.1 1.2 1.3 1.4 1.6 09 21 25 28
- 61 - Annex 6(A): Procurement Arrangements CROATIA: RIJEKA GATEWAY PROJECT
Procurement General. The Bank-financed procurement will be carried out in accordance with the provisions stipulated in the Loan Agreement and: a) the World Bank's Guidelines for Procurement (published in January 1995, revised in January and August 1996, September 1997 and January 1999) for goods and works and; b) the World Bank's Guidelines for Selection and Employment ofConsultants (published in January 1997, revised in September 1997, January 1999 and May 2002) for technical assistance and other consultants assignments. The Bank's Standard Prequalification and Bidding Documents and the Bank's Standard Request for Proposal will be used for the Bank-financed ICB works/goods and consultant services, respectively. For NCB procurement of works the Bank's Standard Bidding Documents will also be used. The project's procurement arrangements for each component are summarized in Table A. The Borrower will be committed, under the Project loan agreement, to ensure that, for National Competitive Bidding procedures, the general sections of bidding documents and contracts will be identical to the general sections of the Bank standard documents.
Advertisement. A General Procurement Notice (GPN) was published in the Development Business, issue No. dated December 30, 2002. It announced works, goods and consultants services to be procured and invited interested eligible suppliers, contractors and consultants to express interest and to request any complementary information from the three respective PIUs. The Specific Procurement Notice for prequalification for the first road works contract was published on February 21, 2003, and the SPN for supervision ofbridge rehabilitation works was published on March 14,2003.
Procurement Records. Procurement records of the project, including records of time taken to complete key steps in the process and procurement activities will be maintained by the PIUs. These records will be maintained for at least one year after the end of the fiscal year in which the last disbursement was made. The records for goods and works will include public notices, bidding documents and addenda, bid opening information, bid evaluation reports, formal appeals by bidders and outcomes, signed contracts with related addenda, records on claims and other useful information. The records for consultants will include public notices for expression of interest, request for proposals and addenda, technical and financial reports, formal appeals by consultants and outcomes, signed contracts and related addenda, records on claims and other useful information.
A procurement assessment of the three implementing agencies -- PRA, HC, and HAC -- was discussed during the pre-appraisal and appraisal missions in November 2002 and March 2003. The final daft report was completed during the March 2003 appraisal mission, and was sent to the Regional Procurement Advisor's office for comments/clearance. It will be finalized prior to the invitation to negotiate. Each PIU will coordinate and monitor implementation of its components, including procurement planning, scheduling, monitoring and reporting, disbursements and internal controls, maintenance of project accounts and preparation of project management reports. Each ofthe three PIUs is headed by its director, and staffed with an engineer, procurement specialist, accountant, and an administrative assistant. If necessary, PRA, HC, and HAC agreed to provide more staff or to hire extemal consultants in accordance with Bank Guidelines, to assist the respective PIUs in carrying out its activities, including preparing bidding documents and monitoring project implementation. Procurement staff ofthe HC and HAC'SPIUs are familiar with Bank procurement policies and procedures since they have been involved in the procurement activities of the recently completed Highway Sector and Emergency Transport and Mine Clearing projects, and Bank projects in another sectors. The implementation of these projects has been rated satisfactory by the Bank and by the Government ofCroatia. PRA's procurement staff has shown due
- 62 - diligence while implementing the US$1.5 million technical assistance component of the project preparation facility. However, procurement training will be provided to all relevant staff before at the early stages ofproject implementation.
Procurement administration under the Project. In order to effectively carry out the procurement activities under the project, it was agreed that the three implementing agencies will make available additional lawyers and additional staff members with computer skills. The three executing agencies will draft TORS, technical specifications and prepare the bidding documents or Requests for Proposal. After reviewing the documents, they will forward those which require prior review to the Bank for review and no-objection. The three PIUs will be responsible for advertising and receiving expressions of interest, proposals and bids. PIUs will organize the bid evaluation and will draft the bid or proposals evaluation reports, with the participation of the technicians from the executing agencies. PIU directors will forward the evaluation report for the Bank review and no objection as necessary.
Procurement Plan. Each of the three implementing agencies has prepared a detailed procurement plan for the six years of project implementation, which identifies clearly most part ofthe works, services and goods to be procured under the project. The procurement plans are an integral part of the Project Implementation Plan (PIP), will be updated annually, and will be agreed with the Bank. The annual updated procurement plans will include: i) list of contracts completed, under execution, under procurement, to be procured; ii)cost of completed and under execution contracts and estimated costs for upcoming contracts; ii) schedule of bidding; and iv) particular methods of procurement of goods or selection ofconsultants.
Procurement methods (Table A)
Goods International Competitive Bidding (ICB). Goods estimated to cost US$400,000 equivalent or more may be procured under contracts awarded on the basis of ICB procedures. Twenty three contracts have been identified to be procured under this method. They relate to the purchase of software, heavy mobile, safety and antipollution equipment for the Rijeka Port, as well as equipment for Croatian Roads and Motonvays.
National Competitive Building (NCB). Goods estimated to cost less than US$400,000 equivalent, but not less than US$lOO,OOO equivalent per contract, may be procured under contracts awarded on the basis ofNCB procedures. Two contracts have been identified to be procured under this method. They relate to the purchase of vehicles and management software for the various government entities involved in project implementation.
International Shopping (IS). Procedures for IS will be used for contracts for goods and equipment estimated to cost less than US$lOO,OOO per contract, where the cost ofICB will clearly outweigh possible price advantages. International shopping procedures will be based on comparing price quotations obtained from at least three suppliers from two different countries in accordance with the Bank’s “Guidelines for Procurement Under IBRD Loans and IDA Credits” (January 1995, amended in September 1997 and January 1999). Three contracts have been identified to be procured under this method.
National Shopping (NS). Minor sundry items not exceeding US$50,000 per contract, may be purchased on the basis of prudent national shopping by comparing price quotations obtained from at least three local suppliers, in accordance with Bank Guidelines. This includes small pavementbridge management
-63- software, office equipment, etc. Civil Works International Competitive Bidding (ICB). All works contracts estimated to cost USE5,000,000 equivalent or more will be procured through International Competitive Bidding (ICB) procedure. All complex contracts, and those costing more than US$lO,OOO,OOO are subject to preqalification. About ten contracts will be procured under this method.
National Competitive Building (NCB). Works estimated to cost less than US$5,000,000 equivalent, but not less than US$lOO,OOO equivalent per contract, may be procured under contracts awarded on the basis of NCB procedures. ECA standard NCB bidding documents dated August 1999 shall be followed. Bids will be advertised in the national press andor official gazette, opened publicly, and awarded to the lowest evaluated bidder. Foreign firms will be allowed to participate. About forty contracts will be procured under NCB method under the port rehabilitation and black spot improvement components ofthe project.
Procurement of Minor Works (MW). Works estimated to cost less than USElO0,OOO equivalent per contract may be procured under lump-sum, fixed-price contracts awarded on the basis of quotations obtained from at least three qualified domestic contractors in response to a written invitation. About ten contracts will be procured under SW method under the black spot elimination component of the project. Consulting Services Consultant services would be procured to prepare studies, designs, technical specifications, and to provide technical support and supervision of the civil works. The PIU will use Bank standard contracts for all consultant services contracts. The following procurement procedures will be used:
Quality and Cost Based Selection (QCBS) procedures would be used for contracting firms for supervision of civil works, preparation of designs and axle load study, and assistance to implement Luka Rijeka Business Plan. All consulting assignments above the value of US$200,000 will be advertised in Development Business. The estimated total value is US5i10.5 million.
Least-Cost Selection (LCS) procedure will be used for consultant services and technical assistance and training contracts, costing less than US$200,000, but not less than US$lOO,OOO.
Selection based on Consultants' Qualifications (CQ) procedure will be used for consultants services contracts costing less than US$ 100,000.
Individual Consultant based on Qualification procedure will be used for assignments which meet the criteria specified in Section V of the Guidelines.
Single-Source Selection (SS) procedure is expected to be used for about 3 contracts, totalling US$200,000, to provide specialized training. In submitting a request for any single-source selection, the Borrower will justify that the proposed assignment meets the criteria specified in Sections 3.8 to 3.11 of the Guidelines.
- 64 - Table A: Project Costs by Procurement Arrangements (US$ million equivalent)
Procurement Method' Expenditure Category ICB NCB Other? N.B.F. Total Cost 1. Works 174.50 35.80 0.00 0.00 210.30 (84.10) (16.60) (0.00) (0.00) (100.70) 2. Goods 30.80 0.60 0.30 0.00 3 1.70 (30.80) (0.60) (0.30) (0.00) (3 1.70) 3. Services 0.00 0.00 15.10 0.00 15.10 (0.00) (0.00) (15.10) (0.00) (15.10) Redundancy Payments 0.00 0.00 7.50 0.00 7.50 (0.00) (0.00) (7.50) (0.00) (7.50) 5. Front-end fee 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) Other 0.00 0.00 0.00 (0.00) (0.00) 0 0 (0.00) Total 205.30 36.40 22.90 0.00 264.60 (1 14.90) (17.20) (22.90) (0.00) (155.00)
- 65 - Selection Method Consultant Services Expenditure Category QCBS QBS SFB LCS CQ Other N.B.F. Total cost' A. Firms 12.70 I 0.00 I 0.00 I 0.15 I 1.00 I 0.00 I 0.00 13.85 (12.70) (0.00) (0.00) (0.15) (1.00) (0.00) (0.00) (13.85) B. Individuals 0.00 0.00 0.00 0.00 0.20 1.05 0.00 1.25 (0.00) (0.00) (0.00) (0.00) (0.20) (1.05) (0.00) (1.25) Total 12.70 0.00 0.00 0.15 1.20 1.05 0.00 15.10 (12.70) (0.00) (0.00) (0.15) (1.20) (1.05) (0.00) (15.10)
" Including contingencies Note: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines), Commercial Practices, etc., and training of HC, HAC and PRA staff N.B.F. = Not Bank-financed Figures in parentheses are the amounts to be financed by the Bank Loan.
-66- Prior review thresholds (Table B) The Bank’s procurement review will be made in accordance with Appendix 1 of the Guidelines for Procurement and Appendix 1 of the Guidelines for Selection and Employment of Consultants and the provisions stipulated in the Loan Agreement. Prior review. The following procurement processes will be subject to the Bank’s prior review (refer to table B): (i) all works contracts costing US$5 million or more; (ii) the first three works contracts below US$5 million; (iii) all goods contracts costing more than US$0.4 million; (iv) the first three goods contracts costing less than US0.4 million; (v) the first three goods contracts costing less than US$O. 1 million; (vi) all consultant contracts with firms estimated to cost the equivalent ofUS$lOO,OOO or more. In this case, the following documents will be reviewed: terms of reference, request for proposals, short lists, terms and condition ofcontracts as well as evaluation reports and recommendation for award; (vii) individual consultant contracts estimated to cost the equivalent of US$50,000 or more, in which case the qualification, terms of reference and draft of the contract will be forwarded to the Bank and will be awarded only after the Bank’s concurrence.
Ex-post preview. All contracts, regardless of value, are subject to ex-post review. All documentation, including but not limited to: terms of reference, bidding documents or request for proposals, bids or proposals received, correspondence on all bids either prior to or following award of contract, including Bank’s no objections, contracts and any subsequent amendments should be maintained until at least two years following the close of the Project. During Bank’s supervision missions, not less than 1 in 10 tenders not subject to Bank‘s prior review, will be examined ex-post.
- 67 - Table B: Thresholds for Procurement Methods and Prior Review'
Contract Value Contracts Subject to Threshold Procurement Prior Review Expenditure Category (US$ millions) Method (US$ millions) 1. Works >=5.0 ICB 250.0 -4.0 NCB 9.0
Total value of contracts subject to prior review: ICB: USS150 million; NCB: US$4 million; goods: US$27.3 million; US$0.8 million; cons.: USS13.2 million = US$195.3 Overall Procurement Risk Assessment: Average Frequency of procurement supervision missions proposed: One every 6 months (includes special procurement supervision for post-reviewlaudits)
I\ Thresholds generally differ by country and project. Consult "Assessment ofAgency's Capacity to Implement Procurement" and contact the Regional Procurement Adviser for guidance.
- 68 - Annex 6(B): Financial Management and Disbursement Arrangements CROATIA: RIJEKA GATEWAY PROJECT
Financial Manapement 1. Summary of the Financial Management Assessment
Country Zssues CFAA for Croatia was carried out in 1999. The reforms carried out to date in the area of financial management put Croatia ahead of many other CEE countries. Croatia has, in fact, set up a modem legal and regulatory framework, compatible with the needs of a market-driven economy, completely discarded the old accounting system and opted to introduce a comprehensive new framework based on international guidelines. In order to enhance public sector financial management and to achieve a higher level of accountability, the issues related to the integrity and universal coverage of the budget process need to be addressed in greater depth, together with the start of the Treasury, the modernization of accounting and reporting systems and the further development of the institutions in charge of budget compliance through internal and external audits. Bank rehabilitation is under way but additional efforts are needed to strengthen banking supervision and improve credit institutions risk-management. Financial markets and their regulatory institutions need further development; this would also make the privatization process more effective. Market competition and corporate governance are main areas to be reformed to achieve greater transparency and financial accountability for the private sector. The organization of the accounting and auditing profession should be defined by a self-regulating and standard-setting national body, ensuring the application of high standards of ethics and progressively taking on the functions currently performed by the government. From a financial management perspective, the project however, is considered having moderate risk due to the following reasons. The three Borrowers are independent entities with their own financial management and information systems, with adequate controls and procedures in place. Where there is a weakness, it has been mitigated by providing technical assistance through the project. Two ofthe entities (HC and PRA) have experience in implementing Bank financed projects or grants. Some staff with prior experience in Bank financed projects have moved from HC to HAC, and are able to help HAC.
Strengths and Weaknesses The significant strengths that provide the basis of reliance on the project financial management system include: (i)the experience gained by the core team of Rijeka Port and HC, including the accountant in implementing a Bank financed project and satisfying Bank’s financial management requirements; and the clean audit opinions on the on-going projects. The HC has only a few staff who have had experience (they moved from HC to HAC) in Bank financed projects. No major weaknesses are noted.
Implementing Entities Each executing agency - PRA, HC, and HAC will implement its respective component. HC, and to a lesser extent HAC, are staffed by trained professionals with adequate capacity to implement the project. PRA staff responsible for implementation of the port component has performed very well while implementing the PPF studies. The Porthrban interface redevelopment component will be implemented on the basis of a memorandum of understanding between PRA, LR and the Municipality of Rijeka. The project management capacity of PRA, HC, and HAC is satisfactory. The three organizations will receive some training (in the use of the financial management system and in procurement) and consultant assistance (for preparation of designs, supervision of works, and drafting of technical specifications) under the PPF and during project implementation. Both HC and HAC have financial management systems acceptable to the Bank. Funding has been provided under the project to upgrade the financial management and management information systems of PRA, which will then be in a position to use the
- 69 - new system to produce reports acceptable to the Bank. Till the main system is upgraded, an interim XL-based system has been established (similar interim systems have been used in other Bank financed projects) at the PRA PIU, to keep account for the on-going PHRD grant and the PPF.
Funds Flow All three entities will open Special Accounts in commercial banks acceptable to the Bank, to maintain Bank funds. Local suppliers eligible for Bank financing will be paid from the SA, upon converting the funds into has. Counterpart funds will be paid from the entities own bank accounts. For the severance payment component for LR, the number of people to be retrenched and the reporting formats to be included as part of the FMR were finalized and agreed during Negotiations and detailed in the PIP.
Staffing All three entities have a core group of staff malung up the PIUS, at a minimum, including a Director, procurement officer and a financial manager. Staff at HC and PRA have had experienc in working on Bank financed loans and grants, while some of the staff in HAC (who moved from HC) have prior experience.
Accounting Policies and Procedures The respective PIUs will take all necessary steps to ensure that the project complies with the relevant Bank policies (OP/BP 10.02). This includes the establishment of proper accounting procedures and internal controls, as documented in their respective Project Implementation Plans.
2. Audit Arrangements
Internal Audit Not applicable.
External Audit The three entities will appoint independent auditors under terms of reference acceptable to the Bank (attached). The auditors selected for the Project are required to be both members of the International Federation of Accountants (IFAC) and also acceptable to the Bank. Audited Project Financial Statements, and the audited financial statements of RPA, Luka Rijeka, HC and HAC will be submitted to the Bank with the audit report six months after end of each year audited. Costs of the audit will be financed by the Loan for PRA, while HC and HAC will finance the audits from their own funds.
Audit Report Due Date Entity (HC,HAC,PRA, LR) June 30,2004 Project (HC,HAC,PRA) June 30,2004 SOE (HC,HAC,PRA) June 30,2004 Special Account (HC,HAC,PRA) June 30,2004
Reporting and Monitoring The HC, HAC and PRA will maintain accounts of the Project and will ensure appropriate accounting of the funds provided. They will be responsible for preparing FMRs on a quarterly basis, and the formats are attached. The FMRs will include: 0 Project Sources and Uses ofFunds 0 Uses of Funds by Project Activity 0 Special Account Statement Plus Local Bank Account Statement 0 Project Progress Reporting
- 70 - 0 Procurement Reporting 0 Statements of Expenditure for severance payments for LR
Information Systems Both HC and HAC have financial management systems, capable of providing accurate and timely information regarding project resources and expenditures, including planning, procurement accounting and financial reporting. PRA's financial management system needs to be upgraded in order to maintain proper accounts for the project. Funding will be provided under the project to review the existing system at PRA and upgrade the system for the PRA as a whole, which then will be capable of recording and reporting project related data as well as the normal operations of the PRA. In the interim, a XL-based software program (which has been used in projects in Serbia as an interim system and found acceptable to the Bank) has been established at the PIU in the PRA. The PIU is already preparing reports acceptable to the Bank on this system to keep accounts for the PPF.
Impact of Procurement Arrangements Each PIU will coordinate and monitor implementation of its components, including procurement planning, scheduling, monitoring and reporting, disbursements and internal controls, maintenance of project accounts and preparation of project management reports. Each of the three PIUs is headed by its director, and staffed with an engineer, procurement specialist, accountant, and an administrative assistant. If necessary, PRA, HC, and HAC agreed to provide more staff or to hire external consultants in accordance with Bank Guidelines, to assist the respective PIUs in carrying out its activities, including preparing bidding documents and monitoring project implementation. Procurement staff of the HC and HAC'S PIUs are familiar with Bank procurement policies and procedures since they have been involved in the procurement activities of the recently completed Highway Sector and Emergency Transport and Mine Clearing projects. The implementation of the two projects has been rated satisfactory by the Bank and by the Government of Croatia. PRA's procurement staff has already done well while implementing the US$1.5 million technical assistance component of the project preparation facility. However, although many of the staff of these entities have adequate knowledge of the procurement under national rules and adequate capacity for supervision of procurement with Bank financing, procurement training will be provided to all relevant staff before the beginning of project implementation.
3. Disbursement Arrangements Disbursements arrangements for the entities will be made based on traditional disbursement methods (i.e., from the Special Account with reimbursements made based on Statements of Expenditures (SOEs) and full documentation, The Bank may require withdrawals from the Loan Account to be made on the basis of statements of expenditure for expenditures for: (i)goods under contracts not exceeding $400,000 equivalent; (ii)works under contracts not exceeding $5,000,000 equivalent; (iii)services provided by consulting firms and individuals under contracts not exceeding $ 100,000 and $50,000 equivalent, respectively; and (iv) severance payments (only for LR), all under such terms and conditions as the Bank shall specify by notice to the Borrower. The option to move to a FMR based disbursements will be considered at a later date, when the entities and the Bank has agreed that such a move isjustifiable.
Supervision Plan Progress of project implementation, with respect to financial management aspects will be monitored in detail during supervision missions. FMRs will be reviewed on a quarterly basis by the field based FMS and the results or issues followed up during the supervision missions. Audit reports ofthe project will be reviewed and issues identified and followed up.
-71 - Allocation of loan proceeds (Table C)
Allocation of Loan Proceeds Allocation of Loan Proceeds
Civil works 109.6 Civil works 27.8 Goods and equipment 22.8 Goods and equipment 11.7 Consultant services 13.6 Consultant services* 6.1 Redundancy payment 7.5 Redundancy payment 7.5 Refundng of PPF advance 1.5 Refunding of PPF advance 1.5 Total project costs 155.0 Total project costs 54.6 front-end fee 1.6 front-end fee 0.5 156.6 Total -55.1 HC HAC Allocation of Loan Proceeds Allocation of Loan Proceeds
Expenditure Category Amount in US$ M Expenditure Category Amount in US$ M
Civil works 66.8 Civil works 15.0 Goods and equipment 11.1 Goods and equipment 0.0 Consultant services 5.4 Consultant services 2.1 Redundancy payment 0.0 Redundancy payment 0.0
Total project costs 83.3 Total project costs 17.1 front-end fee 0.8 front-end fee 0.2 Total 84.1 Total 17.3
Special account: Separate Special Accounts will be opened in commercial banks for PRA, HAC and HC. The amount of the Special Account for PRA will be USD 5,000,000 (limited to USD 2,500,000 until disbursement exceed USD 5,000,000). The amount of the Special Account for HAC will be EUR 1,500,000. The amount of the Special Account for HC will be EUR 7,000,000 (limited to EUR 3,500,000 until disbursement exceed EUR 5,000,000)
Retroactive financing
Retroactive financing shall be allowed for expenditures for Works subsequent to March 31, 2003 as follows: HC - up to EUR 7,600,000 and HAC - up to EUR 1,500,000.
- 72 - Annex 7: Project Processing Schedule CROATIA: RIJEKA GATEWAY PROJECT
1 Project Schedule Planned Actual /Time taken to prepare the project (months) I 30 I 24 I First Bank mission (identification) 0910 1I200 1 09/01/2001 I I I ~ ~~ 1 Appraisal mission departure 03/03/2003 04/07/2003 Negotiations 0511 512003 05/05/2003 Planned Date of Effectiveness 09/30/2003
Prepared by: Project Team
Preparation assistance: Japanese PHRD Grant and PPF
Bank staff who worked on the project ncluded: Name Soecialitv Michel AudigC Program Team Leader - Lead Port Specialist Peter Parker Co-Team Leader - Sr. Economist Irina Kichigina Sr. Councel Vladimir Skendrovic Consultant - Transport Specialist Elena Kastlerova Transport specialist Sunja Kim Sr. Financial Analyst Anders Halldin Sr. Environmental Specialist Stan Peabody Lead Social Scientist Hiran Herat Sr. Financial Analyst - FMS Vladislav Krasikov Sr. Procurement Specialist Patrick Fourgeaud Sr. Port Operation Specialist Nirmala Saraswat Environmental Engineer Marc Juhel Peer reviewer - Lead Transport Specialist Guillermo Ruan Peer reviewer - Sr. Highway Engineer Charles Chandler Quality reviewer - Project LogFrame Lorraine Mccan Kosinslu Program Assistant Lisa Fonick Haworth Editor
- 73 - Annex 8: Documents in the Project File* CROATIA RIJEKA GATEWAY PROJECT
A. Project Implementation Plan
RijekaGateway-PIP01 .doc
B. Bank Staff Assessments Aide-memoires:
Identification Mission - September 2001, Preparation Mission - March 2002,
CroatiaORijekaOAMOSeplO2001 IdentificationMissior CroatiaORijekaOAMOMarchI102002PreparationMissio
Pre-appraisal missi Appraisal mission - March 2003
CroatiaORijekaOAMOSept2002PreAppraisaIMissio CroRijekaAMMarch03f.docIwl
C. Other Transport Sector Strategy 1999
CroatiaTransportStrategyla Nov1999.d Workshop on Port privatization - Rijeka, March 2002 Cooperation Agreement between Port and City - March 15,2002
RijekaCoopAgreement.do
World Bank comments on the draft Maritime Domain and Seaports Act, and Concessions Law - November 2002
2CroRijekaAM11O2a.doc
Decision of Minister of Culture on port warehouses - December 2002
~~ DecisionMinisterPortWarehousesHR.1rjesenje minkulture.doc
- 74 - EA Workshop - January 15,2003 Iwl MinutesEnvWorkshopJan2003.dcRijekaGateway-EIA-RoundTa ble-Participants
Rotterdam Maritime Group Study - Rehabilitation of the port functions & ..svelopement study (March 2002)
~ Iwl Iwl RMGFinalReportExecSummaryApr2002 CroRMGFinaIReportMar2002.d(CroRMGFinalReportMar2002Annex.c
Land Acquisition and resettelement Plan Project Policy Letter Approval of Negotiations
HCFinalLARPlanMay22-2003.p PRO POLICY LET RIJEKA.p(
GovernmentApproval.pc
*Including electronic files
- 75 - Annex 9: Statement of Loans and Credits CROATIA: RIJEKA GATEWAY PROJECT 11-Mar-2003 Difference between expected and actual Original Amount in US$ Millions disbursements' Project ID FY Purpose IBRD IDA GEF Cancel, Undisb, Orig Frm Rev'd PO63546 2003 PENSION SYS INVST 27.30 0.00 0.00 0.00 27.30 0.00 0.00 PO67149 2003 REAL PROP REG 8 CADASTRE 25.70 0.00 0.00 0.00 27.79 -0.28 0.00 PO67223 2002 SAL 202.00 0.00 0.00 0.00 100.00 66.67 0.00 PO42014 2002 KARST ECOSYS CONSV (GEF) 0.00 0.00 5.07 0.00 5.39 0.16 0.00 PO70088 2001 TRADE 8 TRANS FAClL IN SE EUR 13.93 0.00 0.00 0.00 14.82 12.67 0.00 PO65466 2001 COURT 8 BANKRUPTCY ADM (LIL) 5.00 0.00 0.00 0.00 4.61 -0.39 0.00 PO51273 2000 HEALTH SYSTEM 29.00 0.00 0.00 0.00 21.18 -7.79 0.00 PO3916 1 1999 RAILWAY MOD. 8 REST. 101.00 0.00 0.00 0.00 54.93 67.18 0.00 PO57767 1999 TA INST REG REF PSD 7.30 0.00 0.00 0.00 4.49 4.49 0.00 Po43444 1998 MUN ENV INFRA 36.30 0.00 0.00 0.00 23.39 17.83 0.00 PO48983 1998 EAST SLAVONIA REC 40.60 0.00 0.80 0.00 19.66 20.42 0.00 PO08334 1997 COASTAL FOREST RECON 42.00 0.00 0.00 0.00 5.56 5.56 1.14
~~~ ~ ~ ~ Total 530 13 0 00 5 87 000 30912 18654 114
- 76 - CROATIA STATEMENT OF IFC's Held and Disbursed Portfolio Ju~30 - 2002 In Millions US Dollars
Committed Disbursed IFC IFC FY Approval Company Loan Equity -Quasi Partic Loan Equity Quasi -Partic 1999 E&S Bank 12.99 0.00 0.00 0.00 12.99 0.00 0.00 0.00 2001 Pliva 22.92 0.00 10.00 11.25 22.92 0.00 10.00 11.25 T.S. Banka D.D. 0.00 0.13 0.00 0.00 0.00 0.13 0.00 0.00 1996199 Viktor Lenac 6.00 1.90 4.20 9.00 6.00 1.90 3.70 9.00 2000 Belisce 9.97 6.01 0.00 5.92 9.97 6.01 0.00 5.92 1973181198 Croatia Banka 8.93 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2002 Croatia Capital 0.00 5.00 0.00 0.00 0.00 2.96 0.00 0.00 1999 Total Portfolio: 60.81 13.04 14.20 26.17 51.88 11.00 13.70 26.17
Auurovals Pendine Commitment FY Approval Company Loan Equity Quasi Partic 2002 Belisce Exp. 9.93 0.00 0.00 12.80 2000 RZB Pension 0.00 0.00 3.00 0.00 2001 Locat Leasing CR 5.00 0.00 I.20 0.00 2002 Croatia Banka 8.07 0.00 3.59 0.00 2002 ESBank Zagreb I1 26.91 0.00 0.00 0.00
Total Pending Commitment: 49.90 0.00 7.79 12.80
- 77 - Annex 10: Country at a Glance CROATIA RIJEKA GATEWAY PROJECT Europe 8 Upper- POVERTY and SOCIAL Central middle- Croatia Asia income 1 Development diamond' 2001 Population, mid-year (millions) 4.4 475 504 Life expectancy GNI per capita (Atlas method, US$) 4,550 1,960 4,460 GNI (Atlas method, US$ billions) 19.9 930 2,248 I T Average annual growth, 1995-01 I Population (77) -0.9 0.1 1.3 Labor force (%) 0.4 0.8 1.8 1 GNI Gross per - primary Most recent estimate (latest year available, 1995-01) capita nrollment Poverty (% of population below nationalpoverty line) 8 Urban population (% of total population) 58 63 77 Life expectancy at birth (years) 73 69 71 - Infant mortality (per 1,000 live births) 8 20 24 Child malnutrition (% of children under 5) 1 9 Access to improved water source Access to an improved water source (% of population) 95 90 87 Illiteracy ("A ofpopulation age 15+) 2 3 10 Gross primary enrollment (% of school-age population) 97 102 127 I -Croatia Male 97 103 128 Upper-middle-incomegrow Female 96 101 126
KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1981 I991 2000 2001 Economic ratios' GDP (US$ billions) 18.2 19.0 20.3 Gross domestic investmenffGDP 10.5 22.0 23.8 Trade Exports of gods and services/GDP 77.7 45.0 46.7 Gross domestic savings/GDP 2.0 16.4 17.6 Gross national savings/GDP 1.3 19 0 19.9 Current account balanceiGDP -3.5 -2.3 -2.9 interest payments/GDP 2.5 Total debffGDP 55.5 52.1 Total debt service/exports 20.9 Present value of debffGDP 63.7 Present value of debffexports 121.4 I Indebtedness 1981-91 1991-01 2000 2001 2001-05 (average annual growth) GDP .. 2.7 3.7 4.1 ' -Croatia GDP per capita .. 3.9 3.6 4.1 - Upper-middle-incomegroup Exoorts of ooods and services .. 5.9 8.7 9.0 STRUCTURE of the ECONOMY 1981 1991 2000 2001 Growth of Investment and GDP (%) (% of GDP) 140 - Agriculture 10.4 9.5 9.3 I Industry 33.0 32.8 32.7 Manufacturing 28.0 23.2 23.3 Services 56.8 57.7 58.0 Private consumption 74.5 57.2 58.2 General government consumption 23.5 26.5 24.1 -GDI -O-GDP Imports of goods and services 86.1 50.6 52.8 I -~ 1981-91 1991-01 2000 2001 Growth of exports and imports (%) (average annual growth) 30 - Agriculture -0.6 1.3 0.7 I Industry 0.7 1.5 4.3 Manufacturing 0.1 4.1 6.0 Services 3.8 5.0 4.8 Private consumption 2.7 4.1 4.8 General government consumption 0.4 -0.7 -3.9 Gross domestic investment 7.6 -0.1 13.7 ---~xports -imports I lmwrts of oods and services 4.8 4.2 9.3
Note: 2001 data are preliminary estimates. 'The diamonds show four key indicators in the country (in bold) compared with its incomegroup average. If data are missing, the diamond will be incomplete.
- 78 - Croatia
PRICES and GOVERNMENT FINANCE 1981 1991 2000 2001 Inflation (%) Domestic prices 10 - (% change) i Consumer prices 122.6 6.2 4.9 Implicit GDP deflator 99.3 6.5 3.1 Government finance (“A of GDP, includes current grants) 0 Current revenue 35.1 45.2 44.3 96 97 98 99 w Current budget balance -3.5 -1.9 -1.6 -GDP deflator ‘D’CPI Overall surplus/deficit -4.3 -5.4 -3.7
TRADE 1981 1991 2000 2001 Export and import levels (US$ mill.) (US$ millions) Total exports (fob) 3,533 4,567 4,752 1 Raw materials, excluding fuels 171 251 24 1 Mineral fuels and lubricants 223 486 474 Manufactures 1,869 2,223 2,393 Total imports (cif) 3,828 7,771 8,764 Food 243 556 691 Fuel and energy 657 1,145 1,174 Capital goods 481 2,568 3,005 1 95 96 97 98 99 00 01 Export price index (1995=100) 149 150 Import price index (1995=100) 148 149 Exports Imports 101 101 I Terms of trade (1995=100)
BALANCE of PAYMENTS 2001 1981 1991 2000 Current account balance to GDP (Oh) (US$ millions) Exports of goods and services 4,568 8,663 9,625 0- Imports of goods and services 5,067 9,599 10,659 Resource balance -499 -936 -1,034 11 -5 ! Net income -101 -380 -529 Net current transfers -31 883 966 -10 Current account balance -631 -433 -597 - Financing items (net) 631 1,015 1,910 l~ Changes in net reserves 0 -582 -1,313 -15 1 Memo: Reserves including gold (US$ millions) 3,525 4,704 Conversion rate (DEC, /ocal/US$) 2.43E-2 8.3 8.3
EXTERNAL DEBT and RESOURCE FLOWS 1981 1991 2000 2001 (US$ millions) Composition of 2001 debt (US$ mill.) Total debt outstanding and disbursed 10,569 10,555 I 413 469 A: 469 IBRD G:223 c: 122 IDA 0 0 Total debt service 2,085 IBRD 45 37 IDA 0 0 Composition of net resource flows Official grants Official creditors 190 Private creditors 969 Foreign direct investment 1,086 1,325 Portfolio equity 722 716 F 8,166 World Bank program 1 Commitments 14 207 E ~ Bilateral Disbursements 54 75 1DF-t: -Other multilateral Pnvate Principal repayments 22 18 C-IMF G - Short-term 32 57 I Net flows Interest payments 22 19 Net transfers 10 38
- 79 - Additional Annex 11 : SWOT Analysis, traffic forecast and performance indicators for the port of Rijeka CROATIA: RIJEKA GATEWAY PROJECT
A - SWOT Analvsis
Consultant IBM BCS carried out a SWOT analysis of the port of Rijeka to assess its major Strengths, Weaknesses, Opportunities and Threats . The strengths and weaknesses focus on the Port of Rijeka operational performance, whereas the Opportunities and Threats position the Port of Rijeka in the North East Adriatic Range. The table below summarizes the finding of the analysis which was validated by both the Port Authority and Luka Rijeka d.d.
Strenpths: Weaknesses: . Good quality ofinfrastructure at Declining market share in all commodity Bakar -, Frigo -, and Livestock segments (1990-2001); terminal; 1 Concession Fee structure: variable part of . Good quality of superstructure at concession fee provides no incentive for Bakar better performance; . Sufficient quay length and berthing . High ship call costs due to light dues; capacity; . Low productivitylemployee due to Planned short term infrastructure overstaffing LR; investments for the general cargo; . Limited expansion possibilities Rijeka . Planned Short term suFerstructure Basin due to city centre; investments to be financed by PRA; . Poor quality port infrastructure (except . Competitive labour costhit Bakar, Frigo, and Livestock terminals); (compared to Koper & Trieste); . Poor quality port superstructure (except . Concession Fee PoK < CF PoR < CF Bakar recently rehabilitated); POT; . Poor operational performance; . Free Zone & warehouse complex in Poor rail and road hinterland connections Skrljevo and Kukuljanovo; generating additional delays; Opportunities Threats . Positive long-term 2.8% annual Large market share of Koper in Bulk growth rate of the NEAR market for segment (49% in 2001); general cargo and bulk commodities; . Large market share Trieste in General . Limited free handling capacity (with cargo segment (75%); the competitors Koper & Trieste) for Very competitive market as all players general cargo and bulk; have same captive hinterland; . Bring Rijeka productivity up to . Infrastructure and superstructure competitors standards through investments financed by the state (K, T); privatisation of port operations; . Planned infrastructure development . Position the Skrljevo Free Zone and projects (Koper and Trieste); Kukuljevo Industrial Zone as a . Large free capacity FrigoIFruit and Distribution Centre for Croatia and Livestock terminals in the market; neighboring countries; . Trieste strategy to promote North East Adriatic Port System, without Rijeka; Koper soon becoming an EU port;
-80- Competitive positioning Port of Riieka
The competitive position ofthe Port of Rijeka is determined based on the comparative analysis methodology. The analysis concentrates on two aspects:
Port analysis: analysis of each ofthe ports individually; Inter port analysis: comparison of the ports in their business environment;
The comparative analysis processes a large number of subjects covered in the supply and demand analysis. The numerous relevant aspect can be classified into three main categories: strategic, structural and operational.
The results of the analysis is summarized in the graphic below which is a snapshot of the current situation ofthe ports of Koper, Trieste and Rijeka.
0% no/, 20% 30% 40% 3% 60% XPh 80% 90% xx)%
Based on the Competitive Position of the Port of Rijeka and the SWOT Analysis, IBM BCS developed a limited number ofrecommendations that are key to improving the competitive position ofthe Port.
Economical Aspects
Increase port growth, throughput and market share The average annual growth rate of sea-bome traffic in the NEAR market (1990-2001) amounted to 2,8%. However, the Port of Rijeka has been loosing cargo volume during the same period. IBM BCS recommends to catch up with market growth in short term and gain market share in the long run. Realising such a traffic growth will only be feasible through implementation of the other included recommendations.
Adapt the Concession Fee Structure
-81 - The variable part of the current concession fee does not provide an incentive for the operator to improve its performance. However, the concession fee structure should stimulate the (future) private operators to improve their cargo handling performance, for example through a decreasing fee for increasing terminal throughput. Such a new structure could be implemented during the privatisation process (see further).
Revise the light dues Call costs have a significant impact on the competitive position of a port. The Port of Rijeka faces the highest call costs in the NEAR market due to high light dues. A decrease in light dues at Koper level is recommended.
Organisational Asuects
Facilitate privatisation According to the Priority Concession, Luka Rijeka intends to hold majority stakes in the shareholders structure ofthe future Successor Companies. In order to facilitate privatisation and increase interest from private investors, it will be necessary to include adequate incentive during the concessioning process of the Successor Companies which will be implemented through public international bidding process.
Intensify cooperation with competitors in the market The strategy of the ports of Trieste and Koper is to develop a consolidated North East Adriatic port system capable of competing with the North Atlantic ports. Luka Koper and Compagnia Portuale di Monfalcone have already implemented this strategy through investments in certain Port of Trieste operators. The Port of bjeka should further develop cooperation with the North East Adriatic ports.
Operational Aspects
Improve operational performance and reliability of handling in the port LR still operates old and outdated superstructure leading to poor operational performance and low productivity figures compared to competitors in the NEAR market. New investments in superstructure are required to improve port operations and enhance the operator’s service level. Except for the heavy mobile cranes financed by the PRA, equipment should be financed by the private partners in each ofthe Successor Companies.
Increase the labour productivity through development of a redundancy schedule Compared to competitors in the market, the current labour productivity in the Port of Rijeka proves poor performance. Increasing labour productivity through reduction of overstaffing will be completed by a continuous monitoring of operation performance on vessel by vessel basis with periodic reporting and analysis.
Develop the port information management system and increase automation level IBM BCS recommends to increase the automation level in the port through implementation ofsupporting modem IT systems using WEB based interfaces with port users and clients, providing improved visibility and quicker administrative procedures.
Infrastructural and geographical Aspects
Improve hinterland accessibility Gradual improvements to the hinterland transport infrastructure of Rijeka are required. IBM BCS supports the World Bank investment program focussed on improving the international road connections linked to the Rijeka Gateway. Moreover, a higher service level from the national railway company is
- 82 - required to ensure reliable door-to-door services.
Accelerate port modernisation through infrastructure and superstructure investments IBM BCS supports the current Port Modernisation program. Significant infrastructure and superstructure investments are required in order to match market requirements and improve port operations.
B - Traffic forecasts (RMG Studv April 2002)
Forecasting results cargo throughput. This paragraph presents the results ofthe Low and Medium case scenarios. It should be noted that domestic transport is not analysed separately, but is incorporated in the import and export (incoming and outgoing) flows. Furthermore, it should be noted that the total amount of cargo handled in the port ofRijeka in 2000 amounted to 2,569,309 tons, of which 2,440,000 tons is maritime related. In the forecasts only the maritime related freight flows are considered.
It should be noted that all forecasting results should be treated with care. The standard and statistical economic uncertainties in Western developed countries are much larger in countries in an economic, social and political transformation process (Croatia and several countries in its hinterland). Moreover, the political situation in Croatia and the Balkan countries (Macedonia, Bosnia-Herzegovina and Albania) are far from stable and at this moment there are no clear prospects for a long term solution. For these reasons all results should be considered as indicative, giving possible directions.
Low scenario
In table 3.20 the results of the low scenario are shown. These results are used as reference for market shifts in the other two scenarios. It represents purely the growth ofthe throughput in Rijeka if it would grow in equal rate with the growth of total transport in the catchment area.
Table 3.20 Forecast results low scenario (in 1,000 tons)
An increase of total throughput in the port of Rijeka can be observed from 2.44 million tons to 3.15 million in 2005 (annual average 5.2%), almost 4 million in 2010 (annual average 5.0%) and almost 5.9
- 83 - million in 2020 (annual average 4.5%). The forecast shows a rapid growth in the first years, after which the growth slows down. The share of bulk cargo in the total throughput will increase from 77 percent in 2000 to 80 percent in 2020.
The general cargo is forecasted to increase from 670,000 tons to 904,000 in 2005 (annual average 6.2%), 1.1 million in 2010 (annual average 5.3%) and 1.65 million in 2020 (annual average 4.6%). Within this general cargo, the container throughput will increase from 9,700 TEU in 2000 to 23,000 TEU in 2020.
The bulk transport increases from 1.6 million tons to 2 million in 2005 (annual average 5.1%), 2.6 million in 2010 (annual average 5.0%) and 3.9 million in 2020 (annual average 4.6%).
The timber transport increases from 166,000 tons to 189,000 in 2005 (annual average 2.6%), 220,000 in 2010 (annual average 2.9%) and 282,000 in 2020 (annual average 2.7%). So in this case a larger increase is foreseen after 2005 up to 2010 than in the other periods.
Medium scenario
2000 2005 2010 2020 Exvort 76 138 I 219 293 97 228 376 603
General cargo 670 1,144 1,793 2,636 Export 172 20 1 300 392 Import 173 213 335 482 Transit 1,260 1,786 2,550 3,901 Bulk cargo 1,604 2,199 3,185 4,774 Export 35 38 52 72 ImDort 0 0 0 0
Total throughput 2440 3,5 18 5,228 7,730 Containers in 1,000 TEU 9.7 31 56 85
In this scenario the total throughput grows from 2.4 million tons in 2000 to 3.5 million tons in 2005, 5.2 million tons in 2010 and 7.7 million tons in 2020.
Comparing the medium scenario of the throughput in the port of Rijeka with the low scenario, market shares will be won back especially in the first period up to 2010, after which it stabilises.
In the first period up to 2005 the reconstruction will be ongoing and the major effects will take place in the period between 2005 and 2010. In the period up to 2005 change is mainly expected from regaining transit markets (amongst which Yugoslavia). The growth of general cargo in the period up to 2005 can be exclusively contributed to the growth of container flows.
- 84 - In general, it should be noted that the growth of general cargo in the first period up to 2005 and the second period up to 2010 (mainly the first part ofthis period) cannot be seen as a regular trend. Several trend breaks take place in these periods due to assumed recovery of markets that will not take place gradually but within short periods of time. These trend breaks are combined with the market growth of the catchment area. For this reason the growth of general cargo in especially the first period seems rather large in terms of annual growth. The recovery of market share is based on the historical data of the port combined with new developments like the enlargement of the European Union, stabilising developments in former Yugoslavia and competitive aspects.
C - Operational Performances Improvement (IBM BCS March 2003)
In order to facilitate comparison, IBM BCS included the current productivity/gang/shift. The current performance figures included in the table differ from the ones mentioned in the RMG report as IBM BCS took into account remarks and comments indicated in the World Bank Aide Memoire ofNovember 2002 based on detailed performance analysis for typical vessels servicing the port of Rijeka. A sample of seven different vessels time sheets has been prepared and discussed in detail with the LR staff. These time-sheets, which may need to be crossed-checked with the corresponding shipping agents, show that the main contributors for gangs idle time are: (i)waiting for cargo; (ii)breakfast and lunch; (iii) equipment breakdowns; (iii)change of shifts and preparation of work; and (iv) rain. The table below summarizes the operation performance results for the vessels sampling.
More accurate estimates of productivity have been performed by Luka Rijeka, based on realistic information collected by the Operations Department. The table below summarizes the operational performance improvements to be achieved under the project.
- 85 - - a6 - Additional Annex 12: Environmental Assessment Executive Summary CROATIA: RIJEKA GATEWAY PROJECT
BACKGROUND
The ultimate purpose ofthe Rijeka Gateway Project is to increase the trade competitiveness ofCroatia by improving the international transportation chain through Rijeka, which requires the transformation and modernization of the Port of Rijeka. This will be achieved by (i)increasing efficiency and improving financial, social and environmental conditions at Rijeka Port by preparing to privatize port operations, rehabilitating infrastructure and replacing equipment; (ii)preparing to redevelop part of Rijeka Port for urban purposes; and (iii)improving international road connections linked to the Rijeka Port, and the administration ofthe road sector.
The future development of the Port of Rijeka requires that current insufficient and inadequate traffic linkage between the Port of Rijeka and the Croatian State road system be upgraded to international traffic system standards, and that the Port of Rijeka should be modernized in order to efficiently handle cargo and container traffic.
The improvement ofthe port’s operating efficiency implies the construction ofnew and rehabilitation of existing infrastructure that will provide adequate connections between the Port of Rijeka and the national and international traffic network. This requires the construction ofthe eastern part ofRijeka Bypass road (section Orehovica - Draga - Sv. Kuzam ofroad D-S), a connection road between Brajdica - Draga (Road D-404 from the container terminal to the Rijeka eastern bypass), and the rehabilitation of the bridge to the island of Krk (Krkki most). In order to improve and reconstruct the port’s infrastructure, some major construction works have been planned. This refers to the reconstruction, as well as the construction of a new terminal on the current Zagrebaeko berth and various other construction works for handling general cargo in the western part ofthe port.
The long-term vision of the development ofthe Port of Rijeka is related to the long-term strategy ofthe development ofthe Croatian traffic system and the role of to be played by Croatia in connecting Central Europe and the Danube Region with the Mediterranean and the World. The role of the Port of Rijeka should in the long term be considered in light ofits future role within European traffic corridors (corridor Vb) as one of the major port in the North East Adriatic Range. In the long term, when Croatia becomes an EU member, the Croatian economy and its transport system will formally become an integral part of the EU transport network. The development of the Port ofRijeka will then depend to a large extent on the role and significance of transit traffic, which Croatia as a member country will be able to attract. A long-term vision of the development of the Port of Rijeka should also be considered in the context of the construction ofmodern railroad communications from bjeka to Zagreb and from Rijeka to Istria, as well as in the context ofthe construction ofthe Adriatic railroad.
In the light of the problem of the integration of the Port of Rijeka into the transport system of the Republic of Croatia, it is easy to see that the past traffic position and the development of Croatian regions have not resulted in satisfactory internal connections between all parts of Croatia, especially between the Adriatic and the Pannonian regions. The Port ofRijeka is neither adequately integrated into the Croatian State road network, nor into the road network of the neighboring Slovenia and Italy. The Port of Rijeka is practically, in its most important central part, an integral part of the city center. Due to this, the Port has to use already congested city center streets for a major part of its traffic. The basic road connection between the City of Rijeka and the network of city streets, but also the most important State roads, is the Rijeka Bypass road (part of road D-8). The only section that has already been constructed is from the
- 87 - Skurinje Junction (with the highway to Zagreb) toward the west to the crossroad with the road leading to the Ueka Tunnel. A minor part of this road has been constructed as a dual carriageway highway and a major part as a three-lane two-way road, or a road with one carriageway and two traffic lanes for two-way traffic.
Due to the fact that the Bypass road section from the &urinje Junction to Bakar and Crikvenica (D-8) has not been constructed yet, the center of Rljeka is loaded with city and inter-city traffic (connections between Opatija and the eastern parts ofthe City and Kostrena, Bakar, Krk and Crikvenica).
A key external factor of the development of the Port of Rijeka is the construction of the Rijeka Bypass road from the Skurinje Junction to the east. It would, together with the construction of the main city connecting road D-404 (GMC 105) from Delta area to the Rijeka bypass road, provide a good connection between the warehousefindustrial zones of Skrljevo and Kukuljanovo on one side and the city center and the Port of Rijeka on the other.
PROJECT DESCRIPTION
Three main components have been considered as parts of the Project (port, communications and bridge) on which certain interventions will be made in order to ensure higher efficiency of the Port of Rijeka. Interventions refer to recovery worksfmaintenance, reconstruction, some demolition and, as major interventions into space, construction:
0 Port of Rijeka: - western terminal-Zagrebaeko berth (includes reclamation works, the construction of one berth, demolition of unused warehouses, construction of new shelters for wood storage, new yard pavement, and rehabilitation of operational road and rail networks), - Bebko (Vienna) berth - rehabilitation ofthe existing infrastructure, - Redevelopment in the Delta and Port0 Baros Areas 0 Communications: - D-8, eastern Rijeka by-pass roads, construction of the section Orehovica - Sv. Kuzam - D-404, connection road Draga - Brajdica (construction from the container terminal to the eastern Rijeka by-pass) - Elimination of the most critical “black spots” in Croatian national road network 0 Bridge - Krk bridge - rehabilitation works.
1. The Port Component
1.1.Zagreba5ko Berth The planned intervention, i.e., the construction of a new Zagrebaeko berth constitutes the first step for the extension of the western part ofthe port, in compliance with the recently approved Port Master Plan. The construction of the Zagrebaeko berth is closely connected to the overall technological, spatial and traffic restructuring of the Port of Rijeka which creates the conditions for moving a number of port activities from the immediate city center and providing space for new, commercial facilities in the very city center. These facilities are not included in the Project. This component of the project will provide: 250 meters additional berth capacity, which will operate the largest ships in the North East Adriatic Range up to 60,000 Dwt and 15 meter draft, Le., with no draft limitations. - New storage and manipulation (handling) area of about 22 ha, which will be used as outdoor warehouses for general cargo ofup to 2 million Tfyear capacity and for the container terminal of about 1 million Tfyear capacity. - Direct connection of the cargo port with the Rijeka Bypass through D-404 towards Zagreb,
- 88 - Trieste (Italy), Ljubljana (Slovenia) and Split, which will be achieved by the construction ofa tunnel in the center of Rijeka.
1.2. Bekko (Vienna) pier Planned repair work of infrastructure will be performed on the existing areas without change in their use.
1.3. Redevelopment of the Delta and Port0 Bar08 area As a result of the transfer ofall cargoes of timber and lumber to the western part of the port (Zagrebakko multipurpose terminal) and removal of existing wood storage warehouses, fencing, and all unused quay cranes, including those on the breakwater, the space will be made available for the development of the city toward the sea. Future development activities are not included in the Proiect.
2. The Road Component
2.1. D-8 State road, Orehovica - Sv. Kuzam Road Section The State road D-8 is a part of the road network, which is of wider European importance and therefore included in the European Road Network. They are: D-3: Letenje - Zagreb - Karlovac - Rijeka - Triest (E - 65, E - 71, E-63 ) D-8: Koper - Pula - Rijeka - Split - Dubrovnik (E - 75 1, E - 65 - E - 80 )
The existing route of the Adriatic Tourist Road through Rijeka will be replaced with a highway whose route bypasses the City following its longitudinal form of KriiiSae - Orehovica - Matulji. On the Orehovica - Matulji - Rupa highway there are junctions planned for integration of City road network of which the following ones are relevant for this Report: “Orehovica” Junction - to connect the City center and the Port to the beltway. Indirectly, a few City suburbs are connected to the same junction as well. “Draga” Junction - by which SuSak and Kostrena are connected to the junction through the “Eastern Exit” (tunnel connection of Brajdica - Plumbum and a new Plumbum - Draga road). “Sv. Kuzam“ Junction - to which the Port industrial area and the new industrial zone of Kukuljanovo - Cernik are connected. The villages of Krasica, Praputnjak, Skrljevo, and Kukuljanovo are connected to the eastern junction.
2.2. D-404 (GMC 105) State road, Draga - Brajdica Connection Road The State road D-404 (GMC-105) is planned to pass the area of the Rijeka City and the area of SuSak respectively (SE part of the Rijeka City). The route D-404 (GMC-105) runs from the Mrtvi canal bridge that crosses Delta, then a new bridge on the Rjebina River across Brajdica (north of the railway station and parallel to the railway). Almost the entire length of the road route in the area of Peaine and Donja Veiica is laid in the tunnel. Two tunnels are planned: Peaine tunnel (1300 m long) and Bobova tunnel (200 m long). When it leaves the tunnel the route runs through an undeveloped area below the settlements at Veiica, that is on the southwest slope above the MartinSaica Cove (parallel to the DraSh Potok stream) to the Draga area, where it connects to the Draga Junction of the future Adriatic Highway (road D-8).
2.3. Black Spot Elimination
Overall about 147 critical black spots have been identified in the Croatian national road network, leading to large economic and human losses. The project will eliminate about 30 of these black spots through (i) traffic management improvements; (ii) design improvement, or through (iii) combined civil engineering-traffic measures. These activities will not lead to any environmental impact.
- 89 - 3. The Bridge Component
Krk bridge (the bridge to the island of Krk) is a part of the State road system and also a part of the traffic connection system among the parts of the Port of Rijeka. In addition to the road traffic running across the bridge, there is an oil pipeline laid in the bridge. The bridge is currently subject to maintenance works, that is the refurbishment and protection of the reinforced concrete structure of Sv. Marko bridge section (a small arch of the Krk bridge toward the island of Krk). This activitv will not lead to anv environmental impact.
ENVIRONMENTAL ASSESSMENT
ENVIRONMENTAL STUDIES. Evaluation of environmental, cultural, and social issues have been an integral part of planning and design studies undertaken by the Government to support identification, preparation, implementation, and operation of the different Project components in order to not only arrive to the least cost solution, but also to ensure that the least impact on environment, cultural heritage, and peoples life is caused by Project implementation.
The Environmental Impact Studies (EIS) for the Road Components were performed in 1986 and 1994, and for the overall development of the Port of Rijeka, which goes far beyond the Port Component included in the Project, an EIS was carried out during the period 2001-2002.
In order to confirm that these studies also complied with the requirements under World Bank guideline OP 4.01, an Environmental Assessment covering all activities under the Project was performed by the Croatian firm URBING, including also an Environmental Management Plan (EMP).
POLICY AND LEGISLATIVE FRAMEWORK. The system of physical planning in Croatia is regulated by the Law on Physical Planning as a principal law. This law imposes the obligation to prepare physical plans ofvarious levels and scope. Physical plans on higher level determine strategy and concept of development, while physical plans on lower level determine further conditions for physical planning. The standard method of making and elaborating physical plans (physical planning documents) is determined by the Law on Physical Planning and the Rule Book on the contents, criteria for map projections, required spatial indicators and the standards of physical planning studies.
All Project components are prepared in accordance with the relevant physical planning documentation: (a) Physical Planning Program of the Republic of Croatia; and (b) the Physical Plans of the County of Primorje-Gorski kotar.
Every intervention in space is carried out in accordance with physical planning documents, special regulations and the location permit. The location permit is an administrative document issued on the basis of the physical planning documents and special acts and regulations based on relevant legislation. The Ministry of Environmental Protection and Physical Planning issues a location permit for the structures of special national interest and for interventions in space based on the presented documents including the EIS.
The Project components: Port - Zagrebaeko berth, roads - state road D-8 (Orehovica-Draga-Sv. Kuzam section) and state road D-404 (Draga-Brajdica) are spatial interventions that all have already undergone legally prescribed procedures for the defining and approval oflocations.
- 90 - The building permit is a legal document (administrative decision) on the basis ofwhich the construction of a structure can be initiated. It certifies that the general designs, as well as basic, conceptual design are drawn up in conformity with regulations and requirementsfconditions a structure in a certain approved location has to meet. Shortly, it confirms that all the construction prerequisites are met. The Construction Law regulates the building permit issuance.
Project components: Port, state roads D-8 (Orehovica - Sv. Kuzam section) and D-404 represent significant spatial interventions and are subject to location and building permits.
In view oftheir significance and possible environmental influences, the environmental impact assessment (EIA) procedure must be carried out before the location permit is issued. This procedure has been carried out through elaboration of various documents (titles and contents of these documents are in conformity with the requirements of laws and regulations in force at the moment the documents were elaborated). On the basis of an EIA and definition of necessary measures aimed at preventing adverse environmental impacts and environmental monitoring programs, the competent government bodies have accepted the proposed spatial interventions and issued the relevant permits.
CONFORMITY OF THE PROJECT WITH PHYSICAL PLANNING DOCUMENTS As already mentioned, for each spatial intervention a location andor a building permit, respectively, is necessary. The Project components considered are spatial interventions that have undergone all legally prescribed procedures for the definition of locations.
Scheme outline of the Project's components, planned activities and legally required documents and permits
COMPONENT OF THE PROJECT PLANNED ACTIVITIES ENVIRONMENTALIMPACT ' LO€ATION PERMIT BUILDING SNDY PERMIT PORT ZAGREBAEKO BERTH CONSTRUCTION YES * ** YES *** YES BECK0 (VIENNA) BERTH REHABILITATION NO * YES *** YES PORTKITY INTERFACE DEMOLtTION OF WAREHOUSES NO * ** YES YES IREDEVELOPMENT___ _~.- OF. ~__DELTA I I I I AND PORT0 BARROS ARM COMMUNICATIONS STATE ROAD 0-8, SECTION CONSTRUCTION YES * ** YES OREHOVICA '3. KUZAM *** YES - *** STATE ROAD 0-404, CONSTRUCTION YES * ** YES CONNECTION ROAD *** YES DRAGA - BRAIDIC4 ELIMINATION OF BLACK MAINTENANCE NO * NOT SPOTS ALONG NATIONAL REQUIREDNOT ROADS REQUIRED KRK BRIDGE RECONSTRUCTION/ NO * NOT REQUIRED NOT REQUIRED MAlNTFNANrF
* EA prepared and approved by the Government. ** Activities included in the EMP. *** Permit already obtained. Permit will be issued when the main design is approved. Detailed design will be started as soon as the Building permit has been obtained, which design does not need any further approval.
PARTICIPATORY APPROACH. As mentioned in previous chapter, the EIAs for the Road Components were prepared in 1986 and 1994 respectively, and at that time public consultations were not required by law. However, the public was actually invited to comment on the plans for the proposed road constructions related to the Road Components D-8 and D-404. In addition an extensive exhibition of the
-91 - plan including the road components D-8 and D-404 took place during November 11, 1998 - January 3 1, 1999, when the public could review the plan including all documents, and also meet with team and authorities responsible for the plan.
Concerning the Port Component, a public consultation was held in February 2002.
An overall public consultation for the whole project took place on January 15, 2003, and the EA, EA-Summary, and the EMP were made available to the public for comments. The documents were than made available for further comments during an additional seven days. However, no comments were received during this time.
POTENTIAL ENVIRONMENTAL IMPACTS AND PLANNED MITIGATION MEASURES RELATED TO PORT COMPONENT. In order to modernize the Port of Rijeka, the Project will finance activities to enable a more rational and efficient handling ofcargo. These activities comprise the demolition of all warehouses on the Delta and Porto Barros areas in the eastem part ofthe port, and use the Zagrebaiko berth for the future storage of untreated lumber and timber, currently stored in the Delta and Porto Barros areas. The warehouses on the western part of the port are not used anymore as most of them are in advanced state ofdegradation, and will all - except two which will be rehabilitated under the project for their architectural value - be demolished. In addition, the Project will finance the repair of infrastructure on the Bec berth, in particular the municipal storm water system, which is passing through the Bec berth before discharge into the sea. The major part of the demolition material and soil from excavations will be disposed directly into the sea, in order to reclaim land for the future expansion ofthe Zagrebabko berth in accordance with the physical plan for port development.
Environmental issues have been identified in regard to the use of asbestos material for roofing and side walls on some of the buildings, and part of the soil in some locations have been identified to have unacceptable levels of heavy metals and oil. All asbestos containing material will be separated and disposed at a special landfill in accordance with the Croatian legislation, and soil and demolition material having unacceptable levels of heavy metals and oil will be handled as hazardous waste and directed to a special hazardous waste management facility in accordance with Croatian legislation.
The remaining material is regarded as inert, and will be disposed in the sea directly adjacent to the Zagrebaeko berth. The only expected effect of the disposal will be an increased turbidity from loose material, which could increase the level of suspended material. In order to mitigate that effect, a geo-membrane will be placed from the surface to the bottom, and fully cover the vertical area. The geo-membrane will serve as a filter for the suspended solids, and reduceieliminate an increased turbidity in the sea. It should be mentioned that the concentration ofheavy metals in the soil to be disposed in the sea is on the same level as soil acceptable for agricultural purposes, and the concentration of metals in the building material is in par with background values for construction material, gravel and rocks. The disposal ofthis material is therefore not expected to cause any negative effect on the sea water.
It should be mentioned that the current handling of grains and cereals in the Port, leads to emission of particulate matters when the products are transported to and unloaded from the existing silos. The Rijeka Port Authority has already procured air control equipment in order to eliminate the emission of particulate matters from the silos, and the Project will finance covered conveyer belts for transport the grains between the ships and the silos. In addition, the Project will finance equipment for facilitating separation of different waste generated in the Port and from ships arriving to Rijeka, as well as equipment for abating eventual oil spillage in the harbor.
- 92 - POTENTIAL ENVIRONMENTAL IMPACTS AND PLANNED MITIGATION MEASURES RELATED TO ROAD COMPONENT D-8. The section Orehovica-Sv. Kuzam, of the state road D-8, also called Rijeka Bypass Road, will pass through a mainly agricultural area used for summer gardens, which area also serves as a catchment area for drinking water supplies. The construction of the road will lead to increased noise levels and the risk for pollution of the groundwater is imminent.
In order to mitigate these effects noise barriers as well as green screens of trees will be established along those stretches ofthe road where needed, and a water tight system for collection of run-off water (storm water) and eventual spillage of oil, hazardous material, etc. will be built along the whole road section. The collected water will be diverted to a treatment plant, and treated before its discharge into the sea. The plant is equipped with a buffer tank, in order to make it possible to collect spillage from a vehicle carrying liquids needing additional chemical treatment before its discharge. The buffer tank also provides the possibility to collect the liquids for recycling.
POTENTIAL ENVIRONMENTAL IMPACTS AND PLANNED MITIGATION MEASURES RELATED TO ROAD COMPONENT D-404. Road D-404 (GMC-105)) is a road that represents a consistent solution for one of the transversal - longitudinal routes derived from the global traffic system of Rijeka. This is a road running from the National Theatre in Rijeka across Brajdica container terminal, through the tunnel ofPeseine, to the point below Gornja Veiica where it connects to the highway system at the Draga Junction. Its traffic function is to collect and direct the traffic running through the City from the industrial zone and the Port towards the Draga Junction and towards Kostrena and eastern coastal zones. At the higher level of traffic functions this road connects SuSak and Kostrena. The current traffic runs by the Franjo Rakki Street, a street with high slopes and sharp curves going through the very heart of the City and causing jams and environmental pollution, and yearly several severe accidents.
The D-404 (GMC-105) road eliminates all these problems. Going through the Peseine tunnel, this road will free SuSak from the transit traffic. The D-404 road is functionally an optimal solution of a transversal direction that connects the coastal belt of the City and the City bypass road. It is also a good solution of a primary coastal traffic corridor that runs westward from the National Theatre building by Ivana Zajca and Riva Streets, and as such isjustified for realization.
The construction of the D-404 road is a long-term solution for the traffic in SuSak. In addition to a good and the shortest connection between the Veiica residential area (21,000 inhabitants) and the City center, and the connection of Rijeka WTC building to the City express and inter-regional roads, the existing and future City zones will benefit from this solution in many ways.
Measures to mitigate the environmental impact will be similar to those mentioned for road D-8. In view of that D-404 is passing through an area of large importance for supply of drinking water, the construction work will be limited during periods of high precipitation to avoid creating turbidity in the well water and during the whole construction period the presence of geo-hydrological expertise will be mandatory, and a continued monitoring ofthe groundwater will be carried out.
Substantial environmental and other benefits will result form the construction of D-404: The streets will be relieved of the transit traffic burden. The streets will be relieved ofheavy truck traffic, which is rerouted to D-404 road. Current negative impact from the traffic is reduced: noise, air pollution, landscape impair. Higher safety ofthe participants in traffic. Improvement ofthe city traffic efficiency (pedestrian and buses) because the streets are relieved
- 93 - ofheavy traffic. Shorter travelling and higher economic efficiency ofthe entire traffic system.
POTENTIAL ENVIRONMENTAL IMPACTS AND PLANNED MITIGATION MEASURES RELATED TO ELIMINATION OF BLACK SPOTS. The work will be mainly managerial, and will not include any changes in the road sections. Any environmental impacts are not foreseen, so this part of project is not included in the Environmental Management Plan (EMP) as described below.
TRANSPORTATION OF HAZARDOUS MATERIAL. Transport of hazardous material is in detail regulated by Law, and By-Laws providing regulations concerning type of vehicles allowed for this transport, special requirements related to equipment, type of packaging, education of drivers, manuals in case of accident, and speed restrictions. As mentioned above, the roads financed under the Project will have special collection ditches for all run-off water and spillage in case of accidents in order to prevent groundwater resources.
IMPACTS ON CULTURAL HERITAGE. The EIAs and the overall EA have not identified any objects which would cause conflict with cultural heritage related to the Road Components, but identified six old warehouses within the Port area to be reconstructed including the demolishing of buildings. These six warehouses were ordered to be temporary protected by a decision made by the County branch of Ministry of Culture on March 5,2002.
On November 25, 2002, the Ministry of Culture revisited the previous decision ofpreventive protection and decided to lift the protection for four of the warehouses. The remaining two ware houses (#12 and #17) will still be protected, and it has been agreed that the funds allocated for the Port Component will also be used for rehabilitation ofthese buildings, which also is a covenant in the legal documents.
Furthermore, all construction works includes the risk of finding items and remains of archaeological value. Therefore the construction contracts will include special provisions regulating necessary proceedings in case of chance finds. This requirement is also included as a covenant in the legal documents.
LAND ACQUISITION. Croatian Roads has been forced to acquire additional land in order to construct the Road Components D-8 and D-404. All land required is paid in accordance with prevailing market price, and the land acquisition for section Orehovica-Draga of road D-8 is completed. Concerning section Draga-Sv. Kuzam of road d-8 and road D-404 the land acquisition is still ongoing, and compensation will be provided in accordance with the Croatian Law, which stipulates reimbursement at prevailing market price.
No land acquisition is needed for implementation of the Port Component as all land belongs to the Port of Rijeka.
RESETTLEMENT. Close to the junction of roads D-8 and D-404, two families will be resettled, and an agreement has already been reached. Within the Port area two inhabited buildings will be demolished. The buildings are currently occupied by 10 families, some living in the building for 30 years. All families have been informed for more than three years ago about the move, and will be provided apartments of at least the same size in other parts of Rijeka. It should be mentioned that according to the Croatian legislation the families will be given the opportunity to express there interest to be resettled to a certain area. All families interviewed expressed a very positive attitude to the resettlement, and a clear satisfaction with the procedures established by the authorities.
-94- Annex 13 to the Project Appraisal Document (PAD) describes in more detail the Land Acquisition and Resettlement issues.
ENVIRONMENTAL MANAGEMENT PLAN
An Environmental Management Plan (EMP) has been prepared for each component, which can result in a negative impact during either construction or operation, and requires a continued monitoring. The following activities are regarded to have no environmental impact, and therefore an EMP concerning these activities has not been prepared:
Rehabilitation of Beeko (Vienna) berth Elimination ofblack spots Rehabilitation of Krk bridge
The EMP for the remaining Project components defines all activities which require recording and monitoring, identifies responsibility for supervision and implementation ofthe EMPs, training needs, and reporting requirements. Compliance of the EMP will be guaranteed by the coordinator for environmental issues within each of the involved agencies (Croatian Roads, Croatian Highways, and Rijeka Port Authority). In addition, the Rijeka County Branch of Ministry of Environment will on a regular basis control that the requirements in the EMPs will be followed, and the WB will during each supervision mission control that all requirements are fulfilled.
- 95 - Additional Annex 13: Land Acquisition and Resettlement Plan CROATIA: RIJEKA GATEWAY PROJECT
LAND ACQUISITION AND RESETTLEMENT PLAN RIJEKA GATEWAY PROJECT
BACKGROUND
The Rijeka Gateway Project (the Project) will finance the construction of two road components which will help to divert a lot of traffic from the center of Rijeka and housing areas on the mountain slopes down to the city center. The effect of the road components to be constructed is entirely positive for the population along the current narrow and curvy roads leading to a substantial reduction in noise levels, air pollution and number of serious accidents.
However, the road construction requires the acquisition of land, and also the demolition of a number of houses currently occupied as residences. The following plan provides details about land acquisition process and resettlement policy framework in Croatia, the number of lots already acquired and houses to be demolished, as well as the compensation received, and the number of residences which still need to be resettled.
EXPROPRIATION PROCEDURES AND RESETTELEMENT POLICY FRAMEWORK IN CROATIA
In the Republic of Croatia expropriation is the only exception to the principle of inviolability and confinement of private property that is determined in the Constitution of the Republic of Croatia (Article 48). The process of expropriation is determined in detail in the Law on Expropriation (published in Croatian Official Gazette Narodne Novine 9/94, 35/94, 112/00, 114/01), that enable the government institutions to acquire private property for projects that are deemed to be of state interest, while protecting the interests of those whose assets are expropriated. Three principal provisions guide the process, which must be completed before civil works can be carried out on the site:
0 Minimize expropriation Provide cash compensation according to market price Substitute land and residences, if possible, and mutually acceptable.
The entire process is public and transparent, and carried out in compliance with the Law on General Administrative Procedure, the Law on Expropriation, and the Law on Public Roads (Narodne Novine 100/96).
Once an investment is designated as one of State interest, the public or private entity responsible for the investment is given responsibility for carrying out the acquisition according to regulations and for paying compensation. Without the designation of State Interest, there is no expropriation or resettlement, only willing buyer/willing seller arrangements. The entity can also commission another entity to manage the process on its behalf. With respect to the Project, the investments for which land acquisition is required, have been designated as “of State interest” and, therefore, the above-described procedures will apply. Also, Croatian Roads is the responsible entity for road construction to be carried out under the Project and has designated the City of Rijeka to act on its behalf in the land acquisition process, assisted by private lawyers contracted by Croatian Roads.
- 96 - The process includes the following steps regardless ofoutcome:
1. Public announcement ofplans 2. Notify landowners when tentative alignment is set 3. Compile maps and acquisition needs once alignment is adopted 4. Preliminary value assessment (land and structures) 5. Negotiation with owners, presentation ofalternatives, valuation ofcrops, trees, etc.
If the negotiations are concluded satisfactorily, a. For cash compensation, a contract is drafted and signed, payment is concluded and the land transferred and registered b. For exchange, a swap site is agreed, purchased and transferred to the new owner, who transfers the expropriated site
If the negotiations are not concluded satisfactorilv,(and the deal is not made), then Croatian Roads submits the proposal for expropriation of the real property to the responsible government administration office that enacts the decision on expropriation, which can be disputed by an appeal (within 15 days of the submission ofthe decision on expropriation to the party involved) that will be decided upon by the ministry in charge as the appellate body. A dissatisfied party can appeal the decision made by the appellate body by initiating a challenge at the responsible County court.
1. If the Decision is not challenged, it becomes final after 15 days and the property can be entered immediately upon payment. 2. If owners are not located, or if co-owners have not agreed among themselves on the compensation, payment is made to an escrow account and the property can be entered immediately. 3. If the owner appeals to the Appellate court , Croatian Roads will make payment to the owner and take possession of the site when court decision is made and the property can be entered once the decision on expropriation becomes final.
EXPROPRIATIONRELEVANT TO THE PROJECT
A. ROAD D-8, Section Orehovica - Draga - Sv. Kuzam.
This section is part of the Rijeka Bypass Road allowing the traffic to avoid passing through the congested city center of Rijeka.
Land acquisition. The total land acquired for the road construction is 450,047 m2 including 1,030 lots. The land acquisition was completed in December 2002; the offered price was at or above the prevailing market price. However, there are 17 cases where the sellers are not fully satisfied, and they want to sell more land than the land needed for the road construction. These challenges are expected to be settled during 200312004.
There are no expected implications of these challenges on the Project. If the challenge regards the price, and the County and the Appellate court takes a decision, Croatian Roads makes payment and can expropriate. This does not preclude additional challenge. If the challenge is the amount of land taken, once the County Court takes a decision, Croatian Roads makes payment and can expropriate. The landowner can continue to appeal and, if judgment is ultimately favorable, payment and
- 97 - expropriation follow.
No secondary encroachers are impacted by the land acquisition and planned construction works.
Resettlement. The construction of the junction between this section with the next section Sv. Kuzam - Krizisce, and Road D-40 includes two plots with residences, thus the expropriation will also result in resettlement. Negotiations for procurement of the land were completed satisfactorily and both families indicated in interviews that they are satisfied with the price offered by Croatian Roads, which at or above market price. In one case a family of four will buy a new place when they receive payment, expected in the very near future. In the other case, the owner is a 84 year-old woman, who will move to the residence of her son after receiving compensation. Croatian Roads will cover the moving costs for both families. In both cases, compensation includes the market cost of land and structures, as well as crops and productive trees, and other assets.
B. ROADD-404
Road D-404 will connect the Port of Rijeka with road D-8, starting at the part ofthe port area called Brajdica. The connector road, 3.5 km, will be constructed partly in tunnels (1552.5 m) partly on viaducts (534.5 m). The part ofthe road passing the important reservoir for drinking water, close to the Draga junction, is to be built entirely as a viaduct, and the road is to be about 15-20 m above the ground and will have no impact on the water resource as all run-off water from the road surface will be collected and diverted to a treatment plant. This also implies that eventual spillage of fluids in case of an accident will be collected and any impact on the water resource can be fully avoided.
Land acquisition. The construction of the road requires the procurement of 60 uninhabited plots, comprising 32,000 m2. The acquisition is currently ongoing and is handled by an independent solicitor agency contracted by the City of Rijeka, which is carrying out all the land acquisition on behalf of Croatian Roads. The price being offered, and subject to negotiation between the landowner and the City, is market price plus 10%. The negotiated prices will be submitted to the World Bank and subject to review during project supervision. A list of the plots including also the owners is available in the Annex to this Plan.
Resettlement. Within the port area (Brajdica), the construction requires the demolition of a number ofbuildings (14). Most of these buildings are warehouses for storing lumber or used as office space. However, among the buildings are also two buildings currently used for residential purposes; building #8 (6 families), #12 (4 families). These two buildings, and several others that will not be demolished, appear to have been constructed for other purposes (one old station, one station master's office complex, several storage buildings, and others). Several decades ago they were converted into residences by the Railways to house employees of the railway. The residences were privatized, although some residents are still paying them off on a long-term basis. Current residents are either railroad employees or retired employees.
Two similar buildings, #13 and #14, one ofwhich was called the "Barracks," were demolished about two years ago. Before demolition, owners of the flats were provided with substitute flats in the city. According to residents who will be moved, their former neighbors were satisfied with the options they were given and have settled satisfactorily in their new homes.
The ten families who own flats in the two buildings to be demolished (#8 and #12), were notified three years ago that they would also be relocated and given substitute housing. They were given no
- 98 - details regarding the timing of the relocation or specific provisions at the time ofthe announcement, however, but they expect action to be taken in the near future. The families involved are listed in the Annex to this Plan.
The resettlement process is being handled by Croatian Roads directly or through an authorized representative, and a lawyer engaged for land acquisition. A lawyer from the Croatian Roads recently met with residents to ask about their preferences and requirements, which will guide the search for housing to be purchased for them. The procedures include the following steps:
(a) Residents are requested to express the preferred areas in Rijeka to be considered for their new home, as well as number ofrooms they need. (b) Authorized lawyer helps the City of Rijeka search for suitable alternative apartments in the desired areas, or nearby. (c) Residents are offered a selection of options, which they visit themselves. (d) When a resident decides to accept one of the options (or others, if the initial selection is unacceptable to them), the City of Rijeka buys the apartment and transfers ownership to the residents in exchange for their current flats. (e) The transfer is made without payment, unless a family agrees to pay a supplement for housing that is significantly more expensive than a reasonable exchange entitlement. (9 The City covers the cost ofmoving and disconnecting and reconnecting utilities.
The World Bank mission met with some of the inhabitants (4 families) and learned that they were willing to accept the move. In particular two of the families expressed a positive attitude toward moving, in principle, and were happy to move as soon as possible from the area, which actually is an industrial area with a lot of train traffic on one side and warehouses on the other side. Nonetheless, the families expressed some concern about their options, especially regarding the number ofrooms in the new flats, indicating some uncertainty about the extent io which they can actually negotiate. The authorized lawyer gave assurances, however, each family is advised of their rights and that the specific needs of each family will be honored in the final selection and purchase of the substitute residence.
This process is expected to be completed before the end of 2003. Lawyers have met with each family to discuss preferences and needs and the search is underway for housing. City officials are confident that there is a large enough supply of flats on the market to obtain suitable housing for each family. The City is committed to locate units that are similar in size and number of rooms to the units being vacated. The City offers options, and each family has the final say in making a choice; there is no forced relocation. Cash compensation is an option, but the value ofnew housing is much higher than the units being vacated, thus there is little expectation that a family would exercise the option. One of the families has a tiny lutchen garden, and wants to move to a place that also has a garden. The other families have no productive assets to lose in the relocation process. Relocation will not affect employment. It is expected that families will factor commuting time and costs when they decide which housing alternative to accept. This is not perceived by affected families to be a burden.
The resettlement process of the ten families will be carried out in accordance with a timetable attached to this plan. The results ofthe process (location and cost ofnew housing) will be transmitted to the World Bank and subject to review during project supervision. As in the case with land acquisition, owners of vacated flats can appeal the actions of administrative bodies (e.g. Municipality offijeka, Croatian Roads) in court.
- 99 - The amount of resettlement was kept to a minimum, leaving a number of other residential buildings along the road alignment that will not be expropriated. During a visit to the site, residents of the remaining units expressed disappointment that their buildings were not be demolished, as they would also like the opportunity to move elsewhere..
C. Black Spot and Bridge Rehabilitation
None of the works related to removing black stops and rehabilitating the bridge are expected to involve either land acquisition or affect third parties. If any need for land acquisition is identified during project implementation, however, the PIU will assess the situation, develop a plan and request the Bank's no objection prior to initiating the work.
FUJEKA GATEWAY PROJECT
RESETTLEMENT SCHEDULE
- 100- Residents in buildings # 8 (Address: Brajdica lla, Rijeka)
Household Description Estimated Estimated Property Actual Price total Contract of the unit total price agreed for nit price e Signing apartment(s) price/(m2 e relocation /m2 (m2) (m2) (apartment area + 10%)
~ 1. Mijat 65,15 m2 947,84 61.75 1,78 71,67 947,84 67.926,95 by ‘4% PribaniC 30,2003
~ 2. Nikola 42,95 m2 980,61 42.1 17,20 47,25 980,61 46.328,92 DujmeSiC 3. Marijan by Sept 67,62 m2 927,24 62.699,97 74,38 927,24 68.969,97 JurkoviC 30,2003 4. ieljko by Sept 46,98 m2 959,79 45.090,93 5 1,68 959,79 49.600,03 TomiEiC 30,2003 5. Milan by Oct 61,47 m2 1.071,15 65.843 39 67,62 1.071,15 72.427,95 Jelovac 30,2003 6. Predrag by Nov 55,18 m2 1.043,98 57.606,82 60,70 1.043,98 63.36730 StojanoviC HZ 30,2003
Residents in buildings # 12 (Address: Brajdica 6, Rijeka)
1. Duro by June 37,19 m2 1.080,80 44.214,45 30, 2o03 VuceliC 1 I by June 2. Ivan CindriC I 53,14 m2 1.048,55 I 61.291,94 1 30, 2o03 3. Stjepan by July 30, 54,82m2 893,45 48.978,93 60,30 893,45 53.876,82 2o03 CindriC 1 I 1 1 1 4. Vlado by July 30, 31,47m2 1.127,21 35.473,30 34,62 1.127,21 39.020,63 2o03 BoiiCeviC 1 I I 1 I Overall Total 1 51597 mz 1.008,06 I 515.477,4 1 567,57 1.008,06 567.025,2 1
Relocation date: Two months upon contract signing.
The table will be updated by Croatian Roads on a quarterly basis and provided to the Bank for review.
- 101 - Additional Annex 14: Government Project Policy Letter (Signed) CROATIA: RIJEKA GATEWAY PROJECT
International Bank for Reconstruction and Development Mr. Andrew N. Vorkink South Central Europe Country Unit Europe and Central Asia Region Zagreb, Croatia
Re: Croatia: Rijeka Gateway Project Project Policy Letter
The Government of the Republic of Croatia has requested the International Bank for Reconstruction and Development (IBRD) for a loan of about US$ 156.5 million equivalent to support the implementation ofthe proposed Rijeka Gateway Project. The Government states its commitment to the objectives of the Project, which include: (i)increasing efficiency and improving financial, social and environmental conditions at Rijeka Port by privatizing port operations, rehabilitating infrastructure and replacing heavy cargo handling equipment; (ii) improving the financial performance of Rijeka Port with a view to gradually reduce Government contributions in the longer term; (iii)preparing to redevelop part of Rijeka Port for urban purposes; (iv) gradually reducing the negative impact of current Plovput’s light dues on the competitiveness of Rijeka vis-a-vis competing ports; and (v) improving international road connections linked to the Rijeka Port, and the administration of the road sector. Over the last three years, the Ministry of Finance, the Ministry of Maritime Affairs, Transport and Communications, the Municipality of Rijeka, and the three borrowers, the Port of Rijeka Authority (PRA), Hrvatske Ceste (HC), and Hrvatske Autoceste (HAC), have cooperated with the IBRD in preparing this Project. They have initiated a number ofreforms with the support of studies financed under a $337,500 PHRD grant from Japan and a US$ 1.5 million loan under the IBRD Project Preparation Facility.
The Government is aware that it must take additional measures in order to achieve the above project objectives. Among these, we agree to take the following key steps: (a) Legislative changes: We will submit the required legislative changes to Parliament by the end of the year 2003 so as to permit: (i)PRA to offer 25 year leases or concessions to private terminal operators on its own authority; and (ii)PRA and the City of Rijeka to redevelop maritime domain at Rijeka port for non-maritime purposes. (b) Financial support for PRA: During the period 2004-2009, which is a transition period during project implementation, we will provide PRA with the necessary financial support from the state budget or otherwise in order to assure that it maintains a satisfactory debt service coverage ratio as described in the table below. It is estimated that around HRK 320 million will be required during 2004-2009 for this purpose. It is also estimated that the required level of annual support
- 102 - will gradually decline as the Project makes an impact on PRA’s financial performance. (c) Privatization ofport operations: The Government will support the privatization of the Rijeka port operations in accordance with the timetable shown below. The strategy will be to attract investors and privatize port operations rather than to privatize LR as a whole. To this end, LR will be split into successor companies by the end of 2004, in accordance with the terms of the Priority Concession granted to LR. Supporting measures will be implemented under the Project, including the provision of new heavy cargo handling equipment, financing severance packages for redundant workers, and technical assistance to improve LR’s performance and make the successor companies attractive to private partners. LR’s performance will be monitored against its Business Plan as agreed among LR, PRA and the Government at negotiations. The Government agrees to: (i)take all necessary steps to support the implementation ofthis Business Plan and subsequent Social Program; and (ii)if LR does not meet agreed performance targets, as detailed in the table below, to consider canceling the Priority Concession before its term and awarding concessions for port operations - on a terminal by terminal, or combination ofterminals basis - to potential private investors on the basis ofa competitive public tender.
1 Containers 13 17 19 22 69 (moveslcranelhour)
(d) Plovput’s Light dues: The Government will take appropriate actions to gradually reduce the negative impact ofthe current excessively high Plovput’s Light dues, which are undermining the competitiveness of Rijeka Port with competing neighboring ports in Northern Adriatic, in accordance with the timetable given below.
- 103- (e) Road Maintenance Policy: The Government recognizes that Croatia’s existing road network is one of its most valuable public assets, with a replacement cost of about US$ 33 billion, and that this value can only be conserved by timely maintenance of the road network. Maintenance expenditures have been inadequate in the past, and the Government agrees to support Hrvatske Ceste’s road management program, also supported under the project, which envisages a gradual increase of the road maintenance standards for both routine and periodic maintenance, from 62% in 2003 to 100% in 201 1. The Government agrees to support the program, which includes a minimum level ofroad maintenance finding as shown in the table below:
- 104- Table: Summary of Agreed Measures and their Timing
(e) Reduction of Plovput light dues negative impact on Rijeka
(0 Road maintenance budget 122 131 134 143 135 (routine and periodic maintenance of main and local roads and motonvays including bridges, US$ millions)
Yours sincerely,
Mato Crkvenac, Minister Ministry of Finance
Roland hvanid, Minister Ministry of Maritime Affairs, Transport and Communications
Zagreb, May 22,2003
- 105-
° ° ° 10 20 30 50° POLAND CZECH UKRAINE GERMANY REP.
AK REP. OV SL MOLDOVA AUSTRIA SWITZ. HUNGARY
SLOVENIA ROMANIA DIRACJE CROATIA Area of Map Adriatic RUJEVICA BOSNIA AND SKURINJE CAVLE Sea HERZEGOVINA SERBIA Black Extent of Tyrrhenian ITALY AND Sea Bank-Financed Sea MONTENEGRO BULGARIA D8 Bypass FYR OREHOVICA MACEDONIA ALBANIA 40° OSTROVICA 40° v Aegean Skrljevo Industrial GREECE Sea TURKEY Rijeka Port Free Zone Rehablitation and 10° 20° New Construction DRAGA
RIJEKA This map was produced by the Map Design Unit of The World Bank. For detail The boundaries, colors, denominations and any other information see map, below. SUSAK shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any KOSTRENA SV. KUZAM endorsement or acceptance of such boundaries.
Port Connector Rijeka 0 1 2 3 CROATIA Road D404 Bypass D8 KILOMETERS RIJEKA GATEWAY PROJECT BAKAR
PROJECT WORKS* NEW CONSTRUCTION: ROADS MEJA HRELJIN REHABILITATION: BRIDGE KRALJEVICA FUTURE ROADS, OTHER LENDERS *30 contracts, scattered across the country are included EXISTING MAIN ROADS under the project to eliminate dangerous conditions at certain positions on the road network, the so-called, EXISTING SECONDARY ROADS "Black Spots." KRIZISCE
RIJEKA PORT PROJECT WORKS AREA BOUNDARY WAREHOUSES TO BE DEMOLISHED UNDER THE PROJECT Krk Bridge WAREHOUSES TO BE REHABILITATED UNDER THE PROJECT Rehablitation OTHER WAREHOUSES AND BUILDINGS
Skl. 29 Skl. 34 Skl. 18 Skl. 13 Skl. 12 Skl. 30 Skl. 20 Skl. 15 Silos N 35 Skl. 22 Skl. 21 Skl. 14 Skl. 7
V V Skl. 16 BUDIMPESTANSKO V N 24 Skl. 19PRASKO BECKO ZAGREBACKO N 23a BERTH Skl. 17 BERTH BERTH Skl. 27 BERTH Skl. 26 N 23b Skl. 23 VISINOV Skl. 9 PIER DE FRANCESHIEV BRATISLAVSKO ORLANDOV BERTH IBRD 32355 BERTH PIER RIJECKIBRE KRK AKWATER APRIL 2003 ISLAND
0 100 200 300 400 500
METERS