The World Bank Sustainable Croatian Railways in Europe (P147499)
REPORT NO.: RES27033 Public Disclosure Authorized
RESTRUCTURING PAPER
ON A
PROPOSED PROJECT RESTRUCTURING
OF SUSTAINABLE CROATIAN RAILWAYS IN EUROPE APPROVED ON APRIL 30, 2015 TO Public Disclosure Authorized HZ INFRASTRUCTURE,HZ CARGO,HZ PASSENGER TRANSPORT
TRANSPORT & DIGITAL DEVELOPMENT
EUROPE AND CENTRAL ASIA Public Disclosure Authorized
Regional Vice President: Cyril E Muller Country Director: Arup Banerji Senior Global Practice Director: Jose Luis Irigoyen Practice Manager/Manager: Juan Gaviria Task Team Leader: Jean-Francois Marteau Public Disclosure Authorized The World Bank Sustainable Croatian Railways in Europe (P147499)
ABBREVIATIONS AND ACRONYMS
Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. DMU Diesel Multiple Unit DO Development Objectives EBRD European Bank for Reconstruction and Development EMU Electric Multiple Unit ERR Economic Rate of Return EU European Union EUR Euro HRK Croatian Kuna HZ Croatian Railways HZC HZ Cargo HZI HZ Infrastructure HZP HZ Passenger Transport IBRD International Bank for Reconstruction and Development IP Implementation Progress IT Information Technology MSTI Ministry of Sea, Transport and Infrastructure SOE State Owned Enterprise TENT-T Trans-European Transport Network in Europe VAT Value Added Tax
BASIC DATA
Product Information
Project ID Financing Instrument
P147499 Investment Project Financing
Original EA Category Current EA Category
Partial Assessment (B) Partial Assessment (B)
Approval Date Current Closing Date
30-Apr-2015 31-May-2020
Organizations The World Bank Sustainable Croatian Railways in Europe (P147499)
Borrower Responsible Agency
HZ Infrastructure,HZ Cargo,HZ Passenger Transport Ministry of Sea, Transport and Infrastructure
Project Development Objective (PDO)
Original PDO
The Project Development Objective (PDO) is to improve the operational efficiency and the financial sustainability of the public railway sector in Croatia.
OPS_TABLE_PDO_CURRENTPDOSummary Status of Financing
Net
Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed
IBRD-85000 30-Apr-2015 06-May-2015 04-Aug-2015 31-May-2020 88.65 29.91 58.44
IBRD-85010 30-Apr-2015 06-May-2015 04-Aug-2015 31-May-2020 48.20 18.76 29.76
IBRD-85020 30-Apr-2015 06-May-2015 04-Aug-2015 31-May-2020 46.50 29.60 16.83
Policy Waiver(s)
Does this restructuring trigger the need for any policy waiver(s)?
No
Note to Task Teams: End of system generated content, document is editable from here. The World Bank Sustainable Croatian Railways in Europe (P147499)
I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING
1. The Sustainable Croatian Railways in Europe Project (“the Project”) is providing EUR 163.5 million in lending to three public enterprises controlled by the Republic of Croatia through three IBRD loans (8500-HR, 8501-HR, 8502-HR) approved on April 30, 2015. The proposed Project restructuring was prepared in response to a request from the Republic of Croatia dated January 17, 2017 to provide funding for the rehabilitation of the railway line Savski Marof - Zagreb and consultancy support for the operational restructuring of HZ Infrastructure. In addition, the restructuring would enable the use of World Bank funding for new Diesel Multiple Units (DMU) trains for HZ Passenger Transport, as requested by the Republic of Croatia in a complementary request dated August 28, 2017. The restructuring entails (i) modification of the Intermediate Outcome Indicators for the project, (ii) modification of the project description, and (iii) revision of disbursement estimates and reallocation between disbursement categories. The restructuring does not modify the safeguard category or trigger new safeguard policies. The processing and acceptance of the government’s proposal for restructuring took significant time as the Bank requested formal evidence of government commitment to the proposed reforms supported by the restructuring, including a letter of sector policy (under preparation) and the inclusion of rail reform in its National Reform Program (adopted in March 2018).
2. The Project’s progress towards the achievement of the Project Development Objectives (PDO) is Moderately Satisfactory. The progress has been steady for the past two years of the Project implementation, with Moderately Satisfactory ratings for DO since June 2016. The IP was downgraded to Moderately Unsatisfactory at the end of 2017 because of slow implementation of project activities and insufficient progress in companies’ restructuring. Recently, the Ministry of Sea, Transport and Infrastructure (MSTI) has started the preparation of a letter of sector policy that include reforms that would support each company’s restructuring and insure their timely implementation. It has also started to reinforce the capacity of the ministry to coordinate the project. All project audits for the three borrowers are current and satisfactory.
3. This is the first restructuring for the Sustainable Croatian Railways in Europe Project, and it is expected that with the restructuring and the implementation of the proposed measures and the Sector Policy Letter , the project status will become satisfactory. The proposed changes would directly improve the project capacity to support preparation and implementation of restructuring programs for HZ Infrastructure and HZ Passenger Transport by reinforcing funding for capacity building and technical assistance, improving safety and reliability of transport, modernizing and increasing availability of train sets, and decreasing companies’ operating costs. Overall the modification of investment will allow an increased impact on service quality. The restructuring would also improve the capacity of MSTI to finalize its strategy on the future of HZ Cargo and in sector coordination.
4. As of May 10, 2018, the following percentages of loan proceeds have been disbursed: 34.08 percent of loan proceeds for HZ Infrastructure (EUR 26.92 million) and 37.1 percent of loan proceeds for HZ Passenger Transport (EUR 15.95 million),and 63.8 percent for HZ Cargo (EUR 26.5 million) and major contracts for infrastructure emergency investments, rolling stock rehabilitation and institutional development have been signed. The project is rated satisfactory on financial management and the implementing agencies submit satisfactory audit reports on a timely basis.
5. The Borrower has requested the Bank to include partial funding for the rehabilitation of the railway line Savski Marof – Zagreb, a priority section of the TEN-T network that was not eligible for EU funding, instead of several smaller railway line rehabilitations of a lesser importance which were eligible for financing under the loan. In addition, HZ The World Bank Sustainable Croatian Railways in Europe (P147499)
Infrastructure wishes to use a higher share of loan proceeds for consultancy support for implementation of its operational restructuring. For HZ Passenger Transport, a change in component description would enable financing of new DMU trains instead of rehabilitation of old locomotives and thus directly support implementation of its restructuring program. Finally, while starting the preparation of the letter of sector policy, the MSTI has requested to increase the amount allocated to coordination and overall sector restructuring, including a financial advisor to help finding a strategic partner for HZ Cargo, and to correspondingly reduce the size of the loan directly benefiting HZI.
6. For HZ Infrastructure, the rehabilitation of the Savski Marof – Zagreb line would reduce maintenance costs, and would translate into reduced operating costs for operators. During the Initial Project appraisal, the Bank had carried out a prioritization of all sections of the network. The Savski Marof – Zagreb line was assessed among the two first priority for rehabilitation together with lines inside Zagreb. It is of strategic importance as a part of the TEN-T corridor and worsening condition of the infrastructure with substantial speed restrictions (60 km/h). The total value of the Savski Marof – Zagreb line is EUR 37.6 million, of which the Bank would finance EUR 29.5 million of works and equipment and HZ Infrastructure would finance EUR 8.1 million of works. The detailed design and procurement documentation are finalized, and works duration is currently estimated to take two years, which remains to be confirmed at contract signing. The Savski Marof – Zagreb line had not been nominated for the Bank financing during appraisal as it was deemed possible to finance with EU funds. As it was later confirmed that the EU funds were not able to cover the line rehabilitation, HZ Infrastructure requested to include it in the Project due to its urgency and their inability to secure large funds from commercial sources.
7. In addition, the loan restructuring would reallocate funds to support the implementation of a comprehensive restructuring plan that was initiated by the new management team appointed in 2016-2017. The restructuring would improve sustainability as it should tackle system inefficiencies, including procurement, maintenance and traffic management, and diminish the company’s reliance on the state budget. A company’s diagnostic and a time-bound restructuring plan were prepared (first phase). The company has already started implementing cost savings measures, including removal of sidings at marshalling yards aimed at minimizing marshalling activities, partial restructuring of its repairs and maintenance subsidiary to absorb some maintenance activities in HZ Infrastructure and some voluntary retrenchment.
8. For HZ Passenger Transport, project activities related to the passenger service obligations are being finalized. They will allow the rebalancing of the sector subsidies and an improvement of the overall adequacy of the services to the demand. In that context, the restructuring will allow the procurement of four new Diesel Multiple Unit (DMU) trains of which the first is scheduled to be delivered in 2019. This would translate into improvement in services and a fifty percent decrease in operating costs on lines where new DMU trains would be operating. New DMU sets would allow the disposal of old diesel locomotive and coaches, and later that of older DMUs if the company continues to renew its fleet. They would not require shunting, cutting down costs and the requirement for employees of both HZI and HZP at regional locations, and would provide faster service (at acceleration, braking and less work at stations) than locomotive-hauled sets, thereby enabling improved travel times and timetables. The financing of new trains is considered preferable to some of the rolling stock rehabilitation which the Project is currently funding. These activities have been limited to critical items. The four DMU trains are part of a large fleet renewal that was initiated in 2013, when Koncar was contracted after a competitive bidding process for the production of 12 DMUs and 32 Electric Multiple Unit (EMUs), of which 1 DMU prototype and 21 EMUs have been delivered. Due to shortage of funds, the delivery of the rest was put on hold. HZP is finalizing discussions with the European Commission about the potential financing of the remaining 11 EMUs. That project, which is designed with and reviewed by Jaspers, would be financed The World Bank Sustainable Croatian Railways in Europe (P147499)
out of the OP Competitiveness & Cohesion, so the proposed intervention would be complementary to EU funded actions.
9. The project would also help faster modernization of HZ Cargo. HZ Cargo’s operations have not changed significantly over the past two years and restructuring has not yielded the expected results. The company appears to continue to operate wagon load trains that stop at marshalling yards, unlike new operators that noticeably operate door to door block trains. As a result, HZ Cargo’s is loosing the most profitable traffic. HZ Cargo will be left with inefficient traffic which will be costly to service. While clients enjoy low rates and have remained with rail, this will eventually result in most of this traffic moving to private operators for profitable lines and to roads for the rest. This has been partially hidden, because the return of growth in Croatia and good economic conditions in neighbouring countries have triggered an overall increase of traffic, even if most of it has been captured by the newly authorized cargo operators. As a result, while HZ Cargo’s market share has decreased to 80 percent in 2017, its tonnage transported has not decreased. A further decrease in competitive positioning and weaker operating results would require additional investment from external investors to avoid HZ Cargo’s bankruptcy, while the search of a strategic partner is considered a priority for the company. Therefore, the Ministry of Sea, Transport and Infrastructure has requested a hiring of the financial advisor to assess options for the opening of capital of HZ Cargo to external investors as part of the component of the project benefiting the MSTI (component A).
10. Finally, the project implementation so far has revealed a weakness of the MSTI in coordinating the project and in shaping the sector policy. Skills are lacking in planning, control of public companies, transport economics, etc. The current component is committed to only the review of the passenger service contract, project coordination and the rationalization of the assets between the three companies. It was agreed to increase the allocation to this component to reinforce the capacity of the MSTI further, particularly related to financial restructuring and project coordination, and to support the activity related to HZ Cargo options for shareholding opening..
II. DESCRIPTION OF PROPOSED CHANGES
11. The proposed Level 2 project restructuring envisages modification of Intermediate Outcome Indicators values measuring the PDO, modification of project description, revision of disbursement estimates and change in components. The restructuring does not modify the safeguard category or trigger new safeguard policies. The proposed changes are specified below in detail.
A. Project Components
12. The proposed project restructuring requires modification of the project component description for the Ministry of Sea, Transport and Infrastructure, HZ Infrastructure and HZ Passenger Transport to expand the scope of activities. The modified scope of the Project activities will be reflected in revised Project descriptions in Legal Agreements and the Project performance monitoring indicators. Changes will include amendments to the following: The World Bank Sustainable Croatian Railways in Europe (P147499)
13. Component A: Project Coordination and Sector Policy Support. The scope of this Component will expand to finance advisory services for the sector restructuring, namely specialized services in the area of financial restructuring for HZ Cargo, and additional consulting services to reinforce project coordination and provide support to policy aspects will require to increase the amount allocated to this component by Euro 1.5 million.
14. Component B: Support to HZ Passenger Transport Restructuring. The scope of this Component will now finance new rolling stock fleet (four DMUs) as a part of the broader scope of activities contributing to the restructuring plan of HZP, while activities related to IT systems and existing fleet rehabilitation will be accordingly scaled down.
15. Component D: Support to HZ Infrastructure Restructuring and Enabling Investment to Increase System Efficiency. The scope of this Component will expand to finance advisory support for the company restructuring by Euro 3 million, the rehabilitation of the Savski Marof-Zagreb line, and remove financing for several small sections rehabilitation and reduce the scale of retrenchment funding, which could be covered with existing EBRD funding.
16. The investment under component D will continue to satisfy to criteria including intensity of traffic for cargo and passengers as well as cost, and all listed in the Supplemental Letter 4 to the loan agreement, which stipulates a set of ranking criteria for sections to be prioritized in the network. The proposed section of the Savski Marof-Zagreb line was the second highest prioritized and the choice of this investment is consistent with the Supplemental Letter.
B. Results Framework and Monitoring
17. The PDO level results indicators and the Intermediate Outcome indicators and their annual and target values will be adjusted to reflect the proposed changes in the scope and implementation of the Project. The indicator related to citizen engagement will also be revised. The original indicator related to publication of consultation results, was linked to consultation of users by HZP but was not directly linked to project activities. The proposed indicator is the following: Percentage of affected workers, who participated in the social mitigation programs, reporting satisfaction with the programs including gender disaggregated data. This indicator reflects better the impact of the project than the previous indicator, which covered user feedbacks on passenger services, which is not directly linked to the project activities.
18. Revised Supplemental Letters to Loan Agreements, which will include the updated Results Framework (as presented in Annex 1 to this paper) are part of the restructuring package.
C. FINANCING
Project Costs
19. The borrowers’ co-financing share in the Project will be modified to reflect a modified schedule of rolling stock rehabilitation, co-financing of Savski Marof - Zagreb by HZI, and the fact that HZP and HZI have decided not to claim VAT payments for civil works, goods, works, non-consulting services, consultants’ services and training, which will now appear as borrower financing in the project financing table. Thus, total borrowers’ co-financing share in the Project is increasing to an estimated 20 percent at US$ 46 million, while the Bank financing will remain at US$183.4 million. The World Bank Sustainable Croatian Railways in Europe (P147499)
Table 1. Project Costs by Component (US$ million including VAT)
Components Current Proposed Project Cost IBRD Borrower % of IBRD Project IBRD Borrower % of IBRD (in USD) Financing Financing Financing Cost Financing Financing Financing (in USD) (in USD) in Total (in USD) (in USD) (in USD) in Total Project Project Cost Cost Component A: 2.9 2.9 0.0 100% 5.7 4.7 1 82 Project Coordination and Sector Policy Support Component B: 58.7 48.2 10.5 82% 65 48.2 16.8 74 Support to HZ Passenger Transport Restructuring Component C: 53.4 46.5 6.9 87% 53.4 46.5 6.9 87 Support to HZ Cargo Restructuring Component D: 85.8 85.8 0.0 100% 93.1 84 9.1 90 Support to HZ Infrastructure Restructuring TOTAL 200.8 183.4 17.4 91% 217.2 183.4 33.8 84
Disbursement Estimates
20. The disbursement estimates are revised to reflect current progress, changes in the scope and timetable for new activities (all amounts in Euro per calendar year). Please note that the estimates on table
HZI 2018 2019 2020 Consulting Services, Goods, Works 15,740,370 15,740,370 15,740,370 Retrenchment 2,190,514 2,190,514 2,190,514 The World Bank Sustainable Croatian Railways in Europe (P147499)
HZP 2018 2019 2020 Retrenchment 2,004,399 2,120,000 1,778,702 Consulting Services 230,000 182,000 Goods 8,430,560 12,584,867 Goods, Non-consulting Services 490,000 460,000 IT, Non-consulting Services 300,000 445,000
HZC 2018 2019 2020 Retrenchment 1,352,743 568,592 Goods, Non-consulting Services 7,918,371 3,547,782 Consulting Services 742,190 1,214,091
Disbursement Arrangements
21. Civil works, goods, non-consulting and consulting services procured under the loans are subject to a 25 percent VAT, which was deemed to be paid out of loan proceeds and refunded to companies afterward by the state. Three entities involved in the project (Ministry of Sea, Transport and Infrastructure, HZ Infrastructure and HZ Passenger Transport) have requested a change in the disbursement arrangements by which expenditures for civil works, goods, non-consulting services, consultants' services and training will be financed exclusive of VAT. The corresponding VAT payments would be borne by respective Project beneficiaries, as recipients of the related VAT refunds. HZC decided to continue using the current disbursement percentages. Retrenchment payments are not subject to VAT. When this was discussed with the borrowers at the time of the restructuring request for HZP, the Bank recommended to use the flexibility currently given by the existing disbursement arrangements, as borrowers are not obliged to claim 100 percent of costs including taxes for each expenditure. As a result, since the second half of 2017 the disbursement applications under loans 8500-HR and 8501 HR include expenses without VAT, and it was agreed that the same practice would continue going forward, without any modification of the disbursement percentages as part of this project restructuring, to maintain the above mentioned flexible approach.
Note to Task Teams: The following sections are system generated and can only be edited online in the Portal.
The World Bank Sustainable Croatian Railways in Europe (P147499)
III. SUMMARY OF CHANGES
Changed Not Changed
Change in Results Framework ✔
Change in Components and Cost ✔
Reallocation between Disbursement Categories ✔
Change in Disbursement Estimates ✔
Change in Institutional Arrangements ✔
Change in Implementation Schedule ✔
Other Change(s) ✔
Change in Economic and Financial Analysis ✔
Change in Technical Analysis ✔
Change in Environmental Analysis ✔
Change in Implementing Agency ✔
Change in DDO Status ✔
Change in Project's Development Objectives ✔
Change in Loan Closing Date(s) ✔
Cancellations Proposed ✔
Change in Disbursements Arrangements ✔
Change in Overall Risk Rating ✔
Change in Safeguard Policies Triggered ✔ The World Bank Sustainable Croatian Railways in Europe (P147499)
Change of EA category ✔
Change in Legal Covenants ✔
Change in Financial Management ✔
Change in Procurement ✔
Change in Social Analysis ✔
IV. DETAILED CHANGE(S)
OPS_DETAILEDCHANGES_RESULTS_TABLE
RESULTS FRAMEWORK
Project Development Objective Indicators
PDO_IND_TABLE
Prioritized railway sector development and infrastructure maintenance program developed
Unit of Measure: Yes/No
Indicator Type: Custom
Baseline Actual (Current) End Target Action
Value No No Yes No Change
Date 31-Dec-2014 25-Dec-2017 31-Dec-2019
HZP operating expenses per train-km (in HRK)
Unit of Measure: Number The World Bank Sustainable Croatian Railways in Europe (P147499)
Indicator Type: Custom
Baseline Actual (Current) End Target Action
Value 45.00 43.10 41.40 Revised
Date 31-Dec-2014 30-Oct-2017 31-Dec-2019
HZC viability ratio
Unit of Measure: Number
Indicator Type: Custom
Baseline Actual (Current) End Target Action
Value 0.26 1.00 1.09 Revised
Date 31-Dec-2014 01-Jun-2018 30-Sep-2019
HZI million train-km per track-km
Unit of Measure: Number
Indicator Type: Custom
Baseline Actual (Current) End Target Action
Value 9965.00 8641.00 9063.00 New
Date 01-Jan-2014 01-Jun-2018 29-May-2020
Number of annual train-km operated per HZI employee
Unit of Measure: Number The World Bank Sustainable Croatian Railways in Europe (P147499)
Indicator Type: Custom
Baseline Actual (Current) End Target Action
Value 4032.00 3638.00 3834.00 Revised
Date 31-Dec-2014 01-Jun-2018 31-Dec-2019
Intermediate Indicators
IO_IND_TABLE
Number of Project Beneficiaries including women beneficiaries
Unit of Measure: Text
Indicator Type: Custom
Baseline Actual (Current) End Target Action
110 000 including 110 000 including 110 000 including Value No Change women, 50% women, 50% women, 50%
Date 31-Dec-2014 29-Dec-2017 31-Dec-2019
Percentage of assets with resolved legal titles
Unit of Measure: Percentage
Indicator Type: Custom
Baseline Actual (Current) End Target Action The World Bank Sustainable Croatian Railways in Europe (P147499)
Value 0.00 0.00 40.00 Revised
Date 31-Dec-2014 29-Dec-2017 31-Dec-2019
Number of HZP staff retrenched
Unit of Measure: Number
Indicator Type: Custom
Baseline Actual (Current) End Target Action
Value 0.00 774.00 731.00 Revised
Date 31-Dec-2014 29-Nov-2017 31-Dec-2019
Number of HZP rolling stock rehabilitated
Unit of Measure: Number
Indicator Type: Custom
Baseline Actual (Current) End Target Action
Value 0.00 12.00 12.00 Revised
Date 31-Dec-2014 29-Nov-2017 31-Dec-2019
DMUs and diesel locomotives
Unit of Measure: Number
Indicator Type: Custom Breakdown
Baseline Actual (Current) End Target Action The World Bank Sustainable Croatian Railways in Europe (P147499)
Value 0.00 0.00 4.00 Revised
Date 31-Dec-2014 01-Jun-2018 31-Dec-2019
EMUs and electric locomotives rehabilitated
Unit of Measure: Number
Indicator Type: Custom Breakdown
Baseline Actual (Current) End Target Action
Value 0.00 8.00 8.00 Revised
Date 31-Dec-2014 01-Jun-2018 31-Dec-2019
Passenger wagons
Unit of Measure: Number
Indicator Type: Custom Breakdown
Baseline Actual (Current) End Target Action
Value 0.00 0.00 0.00 Marked for Deletion
Date 31-Dec-2014 29-Nov-2017 31-Dec-2019
HZP commercial revenues per employee (in HRK)
Unit of Measure: Number
Indicator Type: Custom The World Bank Sustainable Croatian Railways in Europe (P147499)
Baseline Actual (Current) End Target Action
Value 0.26 0.21 0.21 Revised
Date 31-Dec-2014 30-Dec-2016 31-Dec-2019
HZP four new DMU trains
Unit of Measure: Number
Indicator Type: Custom
Baseline Actual (Current) End Target Action
Value 0.00 0.00 4.00 New
Date 01-Jan-2014 05-Jun-2018 29-May-2020
Number of HZC staff retrenched
Unit of Measure: Number
Indicator Type: Custom
Baseline Actual (Current) End Target Action
Value 0.00 880.00 910.00 Revised
Date 31-Dec-2014 05-Jun-2018 31-Dec-2019
Number of HZC rolling stock rehabilitated
Unit of Measure: Number
Indicator Type: Custom The World Bank Sustainable Croatian Railways in Europe (P147499)
Baseline Actual (Current) End Target Action
Value 0.00 1563.00 2166.00 Revised
Date 31-Dec-2014 01-Jun-2018 30-Sep-2019
Wagons
Unit of Measure: Number
Indicator Type: Custom Breakdown
Baseline Actual (Current) End Target Action
Value 0.00 1550.00 2150.00 Revised
Date 31-Dec-2014 30-Oct-2017 31-Dec-2019
Locomotives
Unit of Measure: Number
Indicator Type: Custom Breakdown
Baseline Actual (Current) End Target Action
Value 0.00 13.00 16.00 Revised
Date 27-Feb-2015 01-Jun-2018 31-Dec-2019
Number of HZI staff retrenched
Unit of Measure: Number The World Bank Sustainable Croatian Railways in Europe (P147499)
Indicator Type: Custom
Baseline Actual (Current) End Target Action
Value 0.00 1070.00 1098.00 Revised
Date 31-Dec-2014 01-Jun-2018 31-Dec-2019
Number of kms of line sections rehabilitated or improved
Unit of Measure: Kilometers
Indicator Type: Custom
Baseline Actual (Current) End Target Action
Value 0.00 239.20 306.25 Revised
Date 31-Dec-2014 05-Jun-2018 30-Sep-2019
Fatalities per 10 million train-km
Unit of Measure: Number
Indicator Type: Custom
Baseline Actual (Current) End Target Action
Value 10.00 8.00 7.00 Revised
Date 31-Dec-2014 05-Jun-2018 31-Dec-2019
Million train-km per track-km
Unit of Measure: Number The World Bank Sustainable Croatian Railways in Europe (P147499)
Indicator Type: Custom
Baseline Actual (Current) End Target Action
Value 9965.00 8000.00 10170.00 Marked for Deletion
Date 31-Dec-2014 30-Dec-2016 31-Dec-2019
Project-supported organization(s) publish reports on inputs and effect of consultation on project including gender disaggregated impacts
Unit of Measure: Yes/No
Indicator Type: Custom
Baseline Actual (Current) End Target Action
Value No No Yes Marked for Deletion
Date 31-Dec-2014 30-Jan-2017 31-Dec-2019
Percentage of affected workers, who participated in social mitigation programs, expressing satisfaction with the program including gender disaggregated data
Unit of Measure: Percentage
Indicator Type: Custom
Baseline Actual (Current) End Target Action
Value 0.00 0.00 65.00 New
Date 01-Jun-2018 01-Jun-2018 31-Jan-2020 The World Bank Sustainable Croatian Railways in Europe (P147499)
OPS_DETAILEDCHANGES_COMPONENTS_TABLE
COMPONENTS
Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M)
Project Coordination and Sector Project Coordination and 2.90 Revised 5.70 Policy Support Sector Policy Support
Support to HZ Passenger Support to HZ Passenger 58.70 Revised 65.00 Transport Restructuring Transport Restructuring
Support to HZ Cargo Support to HZ Cargo 53.40 Revised 53.40 Restructuring Restructuring
Support to HZ Infrastructure Support to HZ Infrastructure Restructuring and Enabling Restructuring and Enabling 85.80 Revised 93.10 Investment to Increase the Investment to Increase the System Efficiency System Efficiency
TOTAL 200.80
OPS_DETAILEDCHANGES_REALLOCATION _TABLE
REALLOCATION BETWEEN DISBURSEMENT CATEGORIES
Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total)
Current Proposed
IBRD-85000-001 | Currency: EUR The World Bank Sustainable Croatian Railways in Europe (P147499)
iLap Category Sequence No: 1 Current Expenditure Category: GD,Non-CS,CS,TRNG for Part A
2,600,000.00 274,216.11 4,100,000.00 100.00 100
iLap Category Sequence No: 6 Current Expenditure Category: HZI Retrenchment pymt for Part D
13,700,000.00 1,339,400.31 7,900,000.00 100.00 100
iLap Category Sequence No: 7 Current Expenditure Category: GD,CW,Non-CS,CS,TRNG for Part D
62,502,500.00 23,843,975.10 66,802,500.00 100.00 100
Total 78,802,500.00 25,457,591.52 78,802,500.00
OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES
Change in Disbursement Estimates
Yes
Year Current Proposed
2015 0.00 0.00
2016 0.00 30,000,000.00
2017 0.00 29,465,544.80
2018 0.00 37,702,363.00
2019 0.00 37,371,330.00
2020 0.00 18,860,763.00
2021 0.00 0.00 The World Bank Sustainable Croatian Railways in Europe (P147499)
The World Bank Sustainable Croatian Railways in Europe (P147499)
.
. The World Bank Sustainable Croatian Railways in Europe (P147499)
Note to Task Teams: End of system generated content, document is editable from here.
V. APPRAISAL SUMMARY
Economic and Financial Analyses
22. The project appraisal document included financial analysis of the three companies, as well as an economic analysis related to (i) the investment to be carried out by HZI, and (ii) the retrenchment programs.
23. Under the proposed restructuring, the rehabilitation of the Savski Marof - Zagreb section replaces some smaller works initially to be carried out by HZI, and therefore requires a specific economic analysis similar to the one carried out for the initial investment. For a line rehabilitation, these benefits are mostly (i) savings in train operating costs for both passengers and freight and (ii) increased speed for passenger services resulting in savings based on the value of time (it is considered that for freight services the type of delays is such that a value of time would not be representative). Savski Marof - Zagreb includes one of the heavily trafficked sections on the network with more than 100 train per day for passengers and 13 on average for cargo until 2015. As a result, with substantial savings contemplated, the ERR for the 278 million HRK investment is of 18.3 % and the ERR under pessimistic demand scenarios or scenario of increase in cost by 20 percent is still over 14 percent.
24. An analysis of the DMU purchase for HZP was prepared. These DMUs would be replacing traditional trains powered by diesel locomotives, and the number of such services is such that the 4 DMUs proposed under the restructuring can be used immediately after being procured. While these new trains can have several additional benefits, including to attract extra passengers as they provide for a better riding experience, and a gain of transit time because of better speed and acceleration patterns, for the purpose of this analysis we have limited the analysis to the reduced operating costs of the new DMUs comprising routine maintenance and spare parts and fuel economies. Without counting the environmental cost of the fuel, the differential of cost per kilometre is such that the full economic cost of the investment is recovered in less than 10 years.
25. No updated financial analysis was carried out for the purpose of the restructuring paper, but these will be carried out during the mid-term review for the project scheduled for end 2018. For HZ Cargo as the strategy is now that of government divestiture the structure of its business is bound to change significantly after privatization and financial projections before due diligence is carried out it is not pertinent. HZ Infrastructure, HZ Passenger and HZ Infrastructure have respected the financial ratios proposed under the project and while traffic has been lower than initially expected until 2016, it is now on an upwards trend (for HZI). The results of the passenger service contract will likely result in substantial changes in the passenger services in early 2019, and projections will also be more relevant at the end of 2018 to verify the company’s sustainability. The World Bank Sustainable Croatian Railways in Europe (P147499)
Technical
HZI
26. During the original project appraisal, the selection of sections to be prioritized for World Bank financing was based on the level of traffic (based on 2013 data) and nature of the work, and the investment were defined in the Supplemental letter 4 to the loan agreement 8500-HR between HZI and the World Bank. The priorities identified were the corridors towards Slovenia (Savski Marof - Zagreb) and towards Hungary (Zagreb-Dugo Selo), followed by the nodes inside Zagreb. These were not considered at appraisal for loan financing as they were submitted for EU grant financing; however, Savski Marof – Zagreb rehabilitation was ultimately not eligible for EU funds. With the traffic on that line, mostly for cargo transit traffic on corridor X to and from Slovenia, increasing with several private cargo operators on board since 2015, this became a priority. Moreover, passenger traffic on the line includes commuter trains around Zagreb, the most gravitated city.
27. The proposed new investment was designed by HZI as a rehabilitation without structural improvements or change in the right of way, which would have required substantial complementary studies and costs, while the current line can sustain the short and medium term traffic in terms of capacity. It includes reinforcement of structures, and replacement of ballast and rail as well as electrification and signalling. It doesn’t present technical difficulties besides programming the works on one of the busiest stretches in the network (more than 100 trains per day).
28. The restructuring also includes technical studies for the company modernization and restructuring, which have been well prepared by a first phase study. The main technical challenge for implementation lies in the appropriate packaging between specialized tasks and general coordination task, and on the need for HZI to appoint a competent team to lead the change process.
HZP
29. The procurement of four new DMU trains would translate into improvement in services and some 50 percent decrease in running costs on lines where new DMU trains would be operating. New DMU sets would allow the disposal of old diesel locomotive and coaches, and later that of older DMUs if the company continues to renew its fleet. They would not require shunting, cutting down costs and the requirement for employees of both HZI and HZP at regional locations, and would provide faster service (at acceleration, braking and less work at stations) than locomotive-hauled sets, thereby enabling improved travel times and timetables. The financing of new trains is therefore considered preferable to some of the rolling stock rehabilitation that the Project is currently funding. The four DMU trains are part of a large fleet renewal that was initiated in 2013, when Koncar was contracted after a competitive bidding process for the production of 12 DMUs and 32 EMUs, of which 1 DMU prototype and 21 EMUs have been delivered. Due to shortage of funds, the delivery of the rest was put on hold. HZP is finalizing discussions with the European Commission about the potential financing of the remaining 11 EMUs. That project, which is designed with and reviewed by the European Commission through the JASPERS technical assistance facility, would be financed out of the OP Competitiveness & Cohesion, so the proposed intervention would be complementary to EU funded actions. The World Bank Sustainable Croatian Railways in Europe (P147499)
Social
30. The activities funded under the project remain similar to the original project scope. Grievance mechanisms have been established under the project at company level, and are operational. The implementation of successive voluntary retrenchment in the three companies, and involuntary retrenchment in HZC has been followed in compliance with each company’s retrenchment plan and each retrenchment plan amended from time to time on a needs basis. An NGO has been recruited to support accompanying measures for the retrenched employees and will report regularly on the capacity or retrenched employees to find employment. Communication on the overall reform will be supported under the project, as has been the case in the Modernization and Restructuring of the Road Sector Project approved by the World Bank in April 2017.
Environment
31. HZI: the main addition to component D is the rehabilitation of the Savski Marof – Zagreb line. The rehabilitation works will be done on the existing alignment and without modifying structures. Such rehabilitations do not require an EIA under the Croatian national legislation. Nevertheless the Ministry of Environment and Energy will be notified of the planned works. To comply with the triggered WB safeguards policies, the ESMF was updated to address the rehabilitation of the Savski Marof - Zagreb line. Site specific ESMP will be prepared, disclosed and discussed prior to commencement of works.
32. HZP: the purchase of new trains does not require a specific environmental documentation besides compliance with EU norms.
Procurement
33. The procurement activities carried out following the modifications presented in this restructuring paper are similar to the ones that were in the project’s original procurement plan. The only new type of activity is the procurement of new DMU train sets. For this activity, the procurement process followed by the government has been reviewed and is considered acceptable, and a no objection has been issued, which is conditional to the signing of the restructuring paper.
Risks
34. The project overall risk rating remains substantial. The proposed changes in activities represent a mitigation of the risk related to sector policies as it reinforces the coordination mechanism in the MSTI, and a stronger emphasis on reform for HZI.