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Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized /,00V .3 / 49 3 - fdoA 3 / 49 C/ -Z e4 ReportNo. 8431-POL STAFF APPRAISALREPORT Public Disclosure Authorized POLAND FIRST TRANSPORTPROJECT APRIL 5, 1990 Public Disclosure Authorized Public Disclosure Authorized InfrastructureOperations Division CountryDepartment IV Europe,Middle East and North Africa Region This documenthas a restricted distributionand may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCYAND EOUIVALENTUNITS CurrencyUnit - Zloty (ZL) (Averagerates) May Dec. Jan. 1986 1987 1988 1989 1989 1990 1 US$ 175 265 430 850 4900 9500 WEIGHTS AND MEASURES Metric System US System 1 meter (m) 3.2808 feet (ft) 1 kilometer (km) - 0.6214 mile (mi) 2 1 square kilometer (kin) - 0.3861 square mile (Mi) 1 metric ton (m ton) = 0.9842 long ton (lg ton) 1 kilogram (kg) - 2.2046 pounds (lbs) ABBREVIATIONSAND ACRONYMS AADT - Annual Average Daily Traffic ABS - AutomaticBlock System COCOM - CoordinatingCommittee for MultilateralExports CTC - CentralizedTraffic Control GDDP - DirectorateGeneral of Public Roads GNP - Gross National Product LOT - Polish Airlines MIS ManagementInformation System MTME - Ministryof Transportand Maritime Economy MY - Marshalling Yard NBP - National Bank of Poland OMIS OperatingManagement Information System PEKAES - InternationalRoad Freight Company PKP - Polish State Railways PKS - NationalRoad TransportEnterprise PMS - PavementManagement System POL - Polish Ocean Lines PSK Polish Domestic FreightForwarders S & T - Signallingand Telecommunications TM - Traffic Management TMIS - TransportManagement Information System UIC - InternationalRailway Union ZNTKS - Enterprisefor the Repair of Rolling Stock at Stargard ZwUS - Signal Equipment Works POLAND: FISCAL YEAR January 1 - December 31 FOR OMCIAL UE ONLY STAFF APPRAISALREPORT POLAND FIRST TRANSPORTPROJECT Table of Contents Pag-eNo. Loans and ProjectSummary ......................... i-iii I. THE TRANSPORTSECTOR A. The TransportSystem ........................ 1 B. The Sector in Context....................... 2 C. Issues...................................... 4 II. RAILWAYS AND HIGHWAYS A. Railways.................................... 5 B. Highways............ 11 III. THE PROJECT A. Objectives.................... 14 B. Description............ 15 C. Engineering............ 23 D. Cost Estimates............ ..... 23 E. Financing............ 24 F. The Loans, the Borrowersand the Beneficiaries.25 G. Implementation............ 25 H. Procurement............ 26 I. Disbursement............ 29 J. Reportingand Audit............ 29 K. EnvironmentalImpacts ............ 30 IV. ECONOMIC EVALUATION A. General.32 B Project Costs and Benefits.32 C. EconomicReturns .32 D. Project Risks.34 This report was preparedmainly on the basis of an appraisal mission to Poland in May 1989 by Messrs. E. Vasur (Economist),K. Viswanathan(Railway Engineer),W. Hayden (FinancialAnalyst), and J. Lane (HighwayEngineer). This documenthas a restricteddistribution and may be used by recipientsonly in the performance of their officialduties. Its contentsmay not otherwisebe disclose withoutWorld Bank authorization. Page No. V. FINANCIAL ANALYSIS A. Introduction.......... 35 B. Accounting ....................................... 35 C. Tariffs, Subsidiesand TransferPrices ......... 36 D. Past FinancialPerformance ........ 38 E. ForecastFinancial Performance ........ 40 VI. AGREEMENTSTO BE REACHED AND RECOMMENDATIONS.. 47 ANNEES 1 Managementand Performanceof ZWUS.................... 48 2 Managementand Performanceof ZNTKS................... 52 3 Reorganizationof PKP Workshop for Increased Specializationand Higher Productivity.............. 56 4 Equipmentto be Procuredunder the Project A. PKP Works.ops Equipment........................... 60 B. Track MaintenanceMachines to be Financed Under the Project............................... 61 C. Machines and Equipmentto be Procured for ZNTKS/Stargard.................................. 62 D. List of Machines and Equipmentfor ZWUS........... 63 E. Equipmentand Services for GDDP................... 66 5 MIS, Terms of Reference............................... 67 6 Lorg-termLocomotive Design and MaintenancePractices Terms of Reference.................................. 73 7 Rationalizationof Train Formationand Dispatching Terms of Reference.................................. 75 8 Know-How Transfer to ZWUS and ZNTKS................... 77 9 PKP Operatingand FinancialTargets ................... 81 10 Project Coordinationand Monitoring.82 11 Study of PKP PassengerSubsidies Draft Terms of Reference.84 12 PKP Income Accounts,Cash Flow Statementsand Balance Sheets.87 13 ZWUS Income Accounts, Cash Flow Statementsand Balance Sheets.90 14 ZNTKS Income Accounts,Cash Flow Statementsand Balance Sheets.93 15 DocumentsAvailable in the ProjectFile .96 - iii - SUPPORTINGTABLES (cont.) Page-No,. Table 1: FreightTransport According to Mode of Transport............ ,.,. 98 Table 2: PassengerTraffic by Public Transport.99 Table 3: Number ofNotor Vehicles.100 Table 4: FreightTransport by the Polish State Railways.101 Table 5: Length of Public Roads (excludingurban) . 102 Table 6: Length of Public Roads in Poland in 1987. 103 Table 7: Excerpts of Vehicle and Traffic Regulations 104 Table 8: Annual Average Daily Traffic on E-Roads in 1985.105 Table 9: General Directorateof Public Roads Expenditure1986-88 .106 Table 10: Project Costs, Detailedand Summary.107 Table 11: Project ImplementationSchedule .109 Table 12: EstimatedDisbursements ........................ 110 CHARTS 1 Organization CErt of PKP .ll 2 OrganizationChart of GDDP.112 IBRD 20327R-POLAND POLAND FIRST TRANSPORTPROJECT Loans and Proiect Summary Borrowers: Republic of Poland and Polish State Railways (PK'P) Beneficiaries: The beneficiariesof the Loan to the Republicwculd be the Ministryof Transportand Maritime Economy (MTME) and the General Directorateof Public Roads (GDDP). Part of the loan to PKP would be allocatedto Signal EquipmentWorks (ZWUS),and to Enterprisefor the Repair of Rolling Stock at Stazgard (ZNTKS). Amounts: A total of US$153 million equivalentwith $8 million equivalentfor the Republic of Poland and $145 million equivalentfor the Polish State Railways. Terms: 17 years, including5 years of grace, at Bank standard variable interevtrate. AllocationTerms: US$20.00 million and US$7.75 million equivalentwould be allocatedto ZWUS and ZNTKS respectivelyfor a period of 10 years including3 years of grace, at DM LIBOR plus 2X. The allocationswould be made in DM with PKP bearing the cross-currencyrisk between the DM and the Bank pool of currencies. Prolect Objective: The project'sobjectives are to: (i) supportthe government'sefforts to restructurethe transport sector, eliminatingrigidities, central commands, excessivelyengineering-oriented and capital-intensive solutionsand introducinginstead towardsmodern organizationalforms and managementstrategies that would be more responsiveto the market-basedeconomy currentlybeing developedin Poland; (ii) introduce more efficientinternal management systemsand maintenanceprocedures as well as provide financing for -he equipmentnecessary to support this; (iii) train managers in modern managementtechniques; (iv) increasecompetition in the transportsector; and (v) improvethe economic,financial and operating performanceof Polish State Railways. Project DescriRtion: The project comprises: (i) repair and modernization of equipmentand facilitiesfor railway rollingstock, track maintenanceand signallingand telecommuni- cations; (ii) measurementand laboratoryequipment for maintenanceand repair of the highway network; (iii) technicalassistance to introducean improved - ii - managementinformation system in PKP and to investigatelong-term strategic issues in the sector; and (iv) training for senior managers of sector institutions. Benefits The proposedproject would help the Governmentto and Risks: implementimproved institutional structures and managementtechniques for the transportsector, particularlyfor PKP and GDDP, as well as to establish a monitorableprogram to improveefficiency of railway operations(financial, economic and technical). While the main benefitswill come in the long run through the increasedefficiency of the transportsystem as a whole, such work at the sectoral level will also complementand reinforcethe Government's macroeconomicmanagement efforts by reducing subsidies througha combinationof improvedoperating efficiency,closing down uneconomic lines and raising tariffs,end ensuringthat investmentis allocatedto high return activities. Furthermore,the proposed projectwould also support the high priority export effortswhich would be compromisedif the deteriorationof the transportsystem is not arrested. Finally it would assure that the investmentsrespond to environmentalconcerns. Economicbenefits from the project would come from: (i) enhancedmaintenance efficiency obtained through the loweringof resource inputs resultingfrom the use of more efficientmachinery and equipmentand appropriatematerial inputs: (ii) improvedoperating efficiencythrough heavier trains and lower turnaround times, and, for the highways,lower road maintenance and vehicle operatingcosts; (iii) saving from the closureof uneconomicrailway lines and stations. Economicrates of return are estimatedat generally not lower than 9.0 for each loan. A risk pertainingto the centralobjectives of the project is the progress of the overall economic reform. Since