Document of The World Bank
FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 44539-HR
PROJECT APPRAISAL DOCUMENT
ON A Public Disclosure Authorized PROPOSED LOAN
IN THE AMOUNT OF €84 MILLION (US$ 122.5 MILLION EQUIVALENT)
TO THE
PORT OF RIJEKA AUTHORITY
WITH THE GUARANTEE OF THE REPUBLIC OF CROATIA Public Disclosure Authorized
FOR THE
SECOND RIJEKA GATEWAY PROJECT
November 12,2008
Sustainable Development Department CentraySouth Europe and Baltics Country Unit Europe and Central Asia Region Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS
(Exchange Rate Effective September 30,2008)
Currency Unit = HRK (Kunas) HRK 1 = US$0.205 US$1 = HRK4.88 €1 = US1.46
FISCAL YEAR January 1 - December 31
ABBREVIATIONS AND ACRONYMS
I I Development I I I
Vice President: Shgeo Katsu, ECAVP Country Director: Orsalia Kalantzopoulos, ECCUS Sector Director: Peter D. Thomson, ECSSD Sector Manager: Motoo Konishi, ECSSD Task Team Leader: Gerald Ollivier. ECSSD CROATIA Rijeka Gateway I1
CONTENTS
Page
I. STRATEGIC CONTEXT AND RATIONALE ...... 1 A . Country and sector issues...... 1 B. Rationale for Bank involvement ...... 4 C . Higher level objectives to which the project contributes ...... 4
I1. PROJECT DESCRIPTION ...... 4 A . Lending instrument. financing arrangements and other approaches ...... :...... 4 B. Project development objective and key indicators ...... 4 C . Project components ...... 5 D. Lessons learned and reflected in the project design...... 6 E. Alternatives considered and reasons for rejection ...... 8
I11. IMPLEMENTATION ...... 8 A . Partnership arrangements ...... 8 B. Institutional and implementation arrangements ...... 8 C . Monitoring and evaluation of outcomesh-esults...... 9 ... D. Sustainability ...... 9 E. Critical risks and possible controversial aspects ...... 9 F. Loan conditions and covenants ...... 10
IV. APPRAISAL SUMMARY ...... 12 A . Economic and financial analyses ...... 12 B. Technical ...... 13 C . Fiduciary ...... 14 D. Social...... 15 E. Environment...... 15 F. Safeguard policies ...... 16 G. Policy Exceptions and Readiness ...... 18
Annex 1: Country and Sector or Program Background ...... 19 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...... 26
Annex 3: Results Framework and Monitoring...... 27
Annex 4: Detailed Project Description ...... 30
Annex 5: Project Costs ...... 33
Annex 6: Implementation Arrangements ...... 34
Annex 7: Financial Management and Disbursement Arrangements ...... 35
Annex 8: Procurement Arrangements ...... 41
Annex 9: Economic and Financial Analysis ...... 45
Annex 10: Safeguard Policy Issues...... 57
Annex 11: Project Preparation and Supervision ...... 62
Annex 12: Documents in the Project File ...... 64
Annex 13: Statement ofLoans and Credits ...... 65
Annex 14: Country at a Glance ...... 66
Maps IBRD 36381 and IBRD 36382 CROATIA
RIJEKA GATEWAY I1
PROJECT APPRAISAL DOCUMENT
EUROPE AND CENTRAL ASIA
ECSSD
Date: November 12,2008 Team Leader: Gerald Paul Ollivier Country Director: Orsalia Kalantzopoulos Sectors: Ports, waterways and shipping Sector ManagedDirector: Motoo Konishi (90%); Other domestic and international trade (10%) Themes: Infrastructure services for private sector development (P);Other urban development (S);Corporate governance (S) Project ID: P102365 Environmental screening category: A (Full Assessment) Lending Instrument: Specific Investment Loan
[XI Loan [ ]Credit [ ]Grant [ ]Guarantee [ ]Other:
For Loans/Credits/Others: Total Bank financing (e million.): 84.00 (US$122.5 million equivalent) Proposed terms: IBRD Flexible Euro-denominated 84 million Loan at six month LIBOR for Euro plus fixed spread, with annuity repayments and a maturity of23 years, including a 10-year grace period, with commitment-linked repayment schedule
Development ~ ~ Croatia: Govt. of 2.73 1.27 4.00 Total: 65.58 22.42 88.00
Borrower: Port ofRijeka Authority Croatia Responsible Agency: Port ofRijeka Authority, Riva 1, Croatia Tel: (385-5) 135 11 70 [email protected] http://www.portauthority.hr/english/rijeka/port-rij eka- authority. shtml FY 10 11 12 13 14 15 Annual 2.00 7.00 20.00 20.00 22.00 13.00 Cumulative1 2.00 I 9.00 I 29.00 I 49.00 I 71.00 I 84.00 I Project implementation period: Start February 10,2009 End: September 15,2014 Expected effectiveness date: July 1,2009 1Expected closing date: December 15, 2014 Does the project depart from the CAS in content or other significant respects? [ ]Yes [XINO Re$ PAD I.C. Does the project require any exceptions from Bank policies? Re$ PAD IV.G. Have these been approved by Bank management? Is approval for any policy exception sought from the Board? [ ]Yes [ IN0 Does the project include any critical risks rated “substantial” or “high”? [XIYes [ ]No Ref: PAD IILE. Does the project meet the Regional criteria for readiness for implementation? [XIYes [ ]No ReJ PAD IV.G. Project development objective Ref: PAD II.C., Technical Annex 3 The overall project development objective is to develop the capacity, financial performance, and quality of services in the port ofRijeka to meet growing traffic demand, through public-private partnershps, while facilitating urban renewal by enabling the relocation ofport activities.
Project description [one-sentence summary of each component] Ref: PAD ILD., Technical Annex 4 The Project will have three components: (i)the Port Terminal Development component includes the extension ofthe existing Brajdica Container Terminal by about 330 meters; and construction of infrastructure for a 400 meter long Zagreb Container terminal; (ii)the Port Service Enhancement component includes support in concessioning selected terminals, equipment and technical services for information flow integration and secured port access, enhanced environmental response, and technical studies to prepare for the Masterplan implementation; and (iii)the Project Implementation component includes the supervision of civil works activities, audit services for the project and support in procurement and project management.
Which safeguard policies are triggered, if any? ReJ PAD IT.:F., Technical Annex 10 Environmental Assessment (OP/BP 4.01) Physical Cultural Resources (OP/BP 4.1 1) Projects on International Waterways (OP/BP 7.50)
Significant, non-standard conditions, if any, for: Ref: PAD IILF. Board presentation: None.
Loadcredit effectiveness : None. Covenants applicable to project implementation:
Except as the Bank shall otherwise agree, the Borrower shall not incur any debt unless a reasonable forecast ofthe revenues and expenditures of the Borrower shows that the estimated net revenues ofthe Borrower for each fiscal year during the term of the debt to be incurred shall be at least 1.1 times the estimated debt service requirements ofthe Borrower in such year on all debt ofthe Borrower including the debt to be incurred.
The Borrower shall monitor and evaluate the progress ofthe Project and prepare Project Reports in accordance with the provisions of Section 5.08 ofthe General Conditions and on the basis of the monitoring and evaluation indicators. Each Project Report shall cover the period of one calendar semester, and shall be furnished to the Bank not later than one month after the end ofthe period covered by such report.
The Borrower shall take all action necessary to carry out the measures identified in the Environmental Management Plan at all times in a timely manner, ensuring that adequate information on the implementation of said measures, including on the screening ofthe physical cultural resources located in the proximity ofthe Zagreb terminal, is suitably included in the Project Reports.
The Borrower shall prepare, under terms ofreference satisfactory to the Bank, and furnish to the Bank on or about September 30,201 1, a report integrating the results of the monitoring and evaluation activities and setting out the measures recommended to ensure the efficient carrying out ofthe Project and the achievement ofthe objectives thereof during the period following such date and review with the Bank, on or about December 15,201 1, this report, and thereafter take all measures required to ensure the efficient completion ofthe Project and the achievement ofthe objectives thereof, based on the report and the Bank’s view on the matter. I. STRATEGIC CONTEXT AND RATIONALE A. Country and sector issues
1. The strategic objective of the Croatian Government is to join the European Union (EU) as a dynamic and competitive economy able to rapidly achieve convergence to EU living standards. The process gained momentum following the October 2005 decision of the EU to officially start membership negotiations with a targeted conclusion of negotiations by November 2009. Croatia also aims to position itself as a leader in Southeast Europe for sustainable economic development, regional cooperation and ethnic reconciliation.
2. The development of Pan-European transport corridors plays a central role in this convergence strategy. The Corridors X, Vb and Vc cross Croatia and carry the majority of trade, transit and tourist traffic between the EU and the Southeast European region, and within the region. These corridors are central to the program of transport infrastructure modernization ofthe Croatian Government, with major on-going investments in Croatian railways, in its two international ports (RijekdPloce), and in roads and motonvays. Croatia also signed a regional Memorandum of Understanding on the development of the Southeast Europe Core Regional Transport Network in June 2004, fostering regional cooperation to improve corridor transport infrastructure, services and procedures.
3. Rijeka is strategically located as the gateway for Corridor Vb, both as a port and as a destination for business and tourism. The Port of Rijeka is the largest international seaport in Croatia with 5.6 million tons of dry cargo handled in 2007 and has the only container terminal in Croatia. It offers the shortest land transport distance to reach Belgrade in Serbia and Budapest in Hungary. The Greater City of Rijeka with its 235,000 inhabitants (third largest Croatian city) is located less than 25 kilometers away from the EU border, in an area generating about 28 percent oftourism nights in Croatia. The port and city development are historically closely related.
4. As most port-cities, Rijeka faces the complex challenge of balancing the demand for additional space for both port and city activities. Free space in Rijeka is scarce, as the city is bordered by a mountain range and the sea. The present layout of the port provides insufficient and inadequate space for modern cargo operation. High urban density and very limited sea access still confer an industrial image on Rijeka. This reduces its attractiveness as a tourist and business destination.
5. International practice in revival of city-ports points to the need to integrate port development, corridor connections, and port city enhancement as one package, as presently supported under the Rijeka Gateway program of projects'. It usually entails shifting port activities to new areas and converting freed space into urban areas. As part of the Rijeka Gateway project, the Port of Rijeka Authority (PRA) in close cooperation with the City established detailed design guidelines for the conversion of 13 hectares of port land for urban purposes. These guidelines were presented to the public in June 2008 and placed online, as a first consultation step. This conversion remains contingent on the availability of new port space to become available as a result ofthe Rijeka Gateway Program. City connections to major transport corridors were enhanced by widening a section of the Rijeka bypass, and will be further
1 Rijeka Gateway, Rijeka Gateway Additional Financing, and Rijeka Gateway 11.
1 improved with the opening of the east access road by mid 2009, connecting the container terminal and main city streets with the city bypass.
6. The port reestablished its relevance and experienced strong growth in container activities over the past five years. Overall dry cargo traffic grew 107 percent and passenger traffic by 144 percent between 2002 and 2007. Container traffic grew from 15 kTEU (thousand twenty-foot- equivalent container units) in 2002 to 145 kTEU in 2007, including a 54 percent growth in 2007, exceeding in 2006 the traffic level expected in 2020 in its 2003 port Masterplan. This rapid increase came from a market shift. The port of Rijeka evolved from a feeder port for small vessels to a port of call for liner services, with much larger vessels (up to 4,000 TEU in capacity) calling in. The port offers a deep access channel suitable for large container vessels.
7. After three years ofheavy growth, the three main Northern Adriatic ports serving Central Europe (Trieste, Koper and Rijeka) are now close to congestion levels for container traffic. Container traffic through these ports grew by 58 percent from 2005 to 2007. The Northern Adriatic ports handled a total of 720 kTEU in 2007, very close to their estimated capacity of 770 kTEU. Growth came from a rapid increase in container transport from the Far East to Central European markets. At the same time this container traffic started to use increasingly Northern Adriatic ports in complement to routes through larger Northern European ports. Savings in both ship travel time and land transport costs make the Adriatic route attractive and explain the strong growth in those ports. Even accounting for a slowdown in container traffic growth to the long term global average of 8 percent, an estimated additional 1 million TEU capacity will be required by 2020, giving ample opportunities for expansion in all three ports.
8. The port of Rijeka needs to align its capacity with market demand to maintain this positive momentum. The old industrial layout of the port limits its ability to respond to modern port handling requirements. The port can be characterized as having excess handling berths coupled with insufficient storage space, and excessive storage time for specific commodities like wood. In turn cargo handling productivity is constrained, even though it has improved over the past four years. For container cargo, the port is operating close to its full capacity.
9. Institutionally, the port is gradually evolving from a tool port to a landlord port management model. PRA, a non-profit legal entity, established in 1996, oversees port development and operations by concessionaires in accordance with the 1995 Law on Seaports, in line with a tool port management model. Dry cargo port operations are handled by one concessionaire, Luka Rijeka, d.d. (LR). LR is a publicly traded joint-stock company, owned primarily by the State (58 percent), employees (16 percent) and small shareholders. It operates on the basis of a 12 year priority concession granted in 2000. LR also owns Adriatic Gate JSC, which won a ten year concession for the operation of the container terminal (Brajdica), lasting until November 201 1. LR prepared a detailed reorganization study and started working on its implementation. The reorganization is expected to lead to a split of the company by terminals. For a number of selected terminals, LR is expected to solicit an extension in concessions against new investments. LR will then seek strategic partners to bring both capital and know-how in those terminals.
2 10. Realizing both the opportunities and challenges it faces, PRA completed a comprehensive update in 2008 of its earlier port development Masterplan (2003) and defined strategic priorities for the coming ten years. The Masterplan is based on a detailed review of economic growth, trade patterns, corridor access and alternative corridors to neighboring countries and value added by type of cargoes. The Masterplan includes a program of investments of about US$220 to US$300 million, depending on market demand, focused on upgrading container terminal capacity, relocating wood and gravel activities outside the city, modernizing the silo and converting part ofthe old port into an urban area.
11. Most of new investments are expected to take place under public private partnerships, with PRA providing infrastructure, and concessionaires providing superstructure and equipment, following a landlord port model. Based on Croatian laws, two main modalities are expected to be used: (i)extension of concession agreements for existing terminals against new investments by successor companies to LR, followed by sale of shares in those companies; and (ii)public tender of concessions for new terminals, such as the proposed Zagreb Container Terminal. PRA met with major container shipping lines and private terminal operators as part of project preparation. Several companies confirmed their interest in long term concession for container activities, including investments in superstructure and equipment.
12. Increases in concession fees will accompany the implementation of this development program. While PRA is a non-profit entity, its financial goal is to progressively become self- sufficient. Over the past five years, PRA improved its operating ratio from 230 percent to 153 percent. Recent tariff adjustments and traffic growth are expected to further such improvement. PRA will seek adjustments in concession fees on all extended concessions, based on cost recovery principles, mindful of its competition, while concessions fees for new concessions will be market-based and defined as a result of offers received during tenders.
13. PRA may request further financing for its Zagreb Container Terminal after the competitive selection of its concessionaire. PRA seeks to be market responsive in implementing its Masterplan, while managing its financial risk exposure. Among recommended Masterplan investments, the development of the new Zagreb Container Terminal is presented in two options, with a length of either 400 meters or about 700 meters. The present project, together with the ongoing Rijeka Gateway program, is proposing to finance the 400 meter option2. While a 700 meter terminal offers advantages in terms of capacity and unit cost of construction, it would also increase financing investment needs and risks for PRA. As recommended by the Masterplan, PRA will decide whether to build the 700 meter option once the concessionaire is competitively selected and confirmed its readiness to bear the commercial risk for the longer terminal, subject to economic evaluation. In that case, PRA may seek further funding and the concessionaire would pay an additional fixed concession fee to cover the related financial costs.
2 In the original Rijeka Gateway project, a 250 m multipurpose facility was foreseen. In 2007, it was adjusted to a 300 meter container terminal using the RG Additional Financing. With vessels over 4,000 TEU starting to call in late 2007, the Masterplan and consulted operators indicated the need for at least 400 meters to operate the largest vessels. B. Rationale for Bank involvement
14. The Bank is sought both as an advisor and a financier building on the solid cooperation established to date, in the port and corridor development sector under the Rijeka Gateway Project, the Rijeka Gateway Additional Financing, the Trade and Transport Integration project, and the Trade and Transport Facilitation project; and in the urban sector under the Coastal Cities Pollution Control projects. The combined Rijeka Gateway program draws on a combination of disciplines for which the Bank brings a global expertise drawing on its sustainable development network including public private partnerships in ports, port development, corridor development, participatory process and urban competitiveness. The project is also closely integrated with ongoing projects and provides continuity in the overall government approach to the development of its international seaports. In case PRA decides to proceed with the extended Zagreb Container Terminal, the Bank would also be in a good position to offer further additional financing for the additional 300 meters, after reviewing the outcome of the concessionaire selection and the economic justification.
C. Higher level objectives to which the project contributes
15. The proposed Rijeka Gateway I1 project was originally identified in the Country Assistance Strategy Progress report FY05-FY08 (NO. 39641-HR), with high strategic reward and medium implementation risks. The project has also been confirmed as part of the Country Partnership Strategy FY09-FY12 endorsed by the Board on September 30,2008. It contributes to the second pillar of the Strategy focused on strengthening private sector led growth and accelerating convergence with the EU by ensuring that infrastructure and related services develop rapidly enough to keep up with increased demand.
11. PROJECT DESCRIPTION A. Lending instrument, financing arrangements and other approaches
16. The lending instrument proposed for this project is a Specific Investment Loan (SIL) to PRA with a Guarantee from the Republic of Croatia. The Loan type is an IBRD Flexible Euro- denominated €84 million Loan at six month LIBOR for Euro plus fixed spread, with annuity repayments and a maturity of 23 years, including a 10-year grace period, with commitment- linked repayment schedule.
B. Project development objective and key indicators
17. The overall project development objective is to develop the capacity, financial performance, and quality of services in the port of Rijeka to meet growing traffic demand, through public-private partnerships, while facilitating urban renewal by enabling the relocation ofport activities.
18. The project is an extension of the ongoing Rijeka Gateway program which seeks to improve the competitiveness of Rijeka as a port-city, by modernizing strategic port facilities, increasing private sector involvement in the port, improving PRA financial performance enabling
4 a gradual reduction of subsidies3, and enhancing the port-city environment, while better integrating Rijeka in international transport corridors. It provides a widening in scope to respond to new traffic demand by including new port extensions. The Zagreb Container Terminal will be covered by all three ongoing projects, under a single contract. The project will build on the partnerships and achievements ofthe first Rijeka Gateway Project, engaging a broad spectrum of stakeholders.
19. Key Indicators. Project performance will be assessed through a number of qualitative and quantitative indicators. The specified indicators will be regularly monitored by PRA using a scorecard method on an index scale of 0-100. The key proposed indicators are detailed in Annex 3 and include:
20. Project Outcome Indicators Rijeka Port container capacity increased from 150 kTEU to 250 kTEU by December 2012 and to 575 kTEU by December 2014. Container traffic increased from 145 kTEU to 280 kTEU by 2014. 0 PRA operating ratio improving from 153 percent in 2007 to 120 percent in 2014. Subsidies for interest reduced from 46 percent of operating revenues in 2007 to 10 percent in 20 14. 0 Container terminal move per crane per hour increasing from 18 to 22. Private sector investments of over US$25 million by 2014. 85 percent of dry cargo port activities carried out by operators with a private majority ownership by end 2012.
0 Redevelopment of at least 7 ha ofport land into an urban area by 2014.
21. Intermediate Outcome Indicators Construction ofBrajdica Container Terminal extension completed by 2011. Construction ofZagreb terminal completed by 2014. Area of at least 7 ha available for urban redevelopment by 2012. Selection of a private developer to redevelop the DeltdPort ofBaross area by September 2010. 0 Concession for at least two terminals signed by 201 1. Development ofport environment protection plan by 2010.
C. Project components
22. The project total cost is estimated at €88 million, with €84 million from a World Bank loan (US$122.5 million equivalent), and €4 million from the Government. In addition to the cost of the three components below, project costs include interest during construction and front end fee (€8 million). The Project includes three components: (i)Port Terminal Development; (ii)Port Service Enhancements; and (iii)Project Implementation. The components are shown below (see Annex 4 for additional details). In parallel the Government has plans to finance upgrades to the
~___ In 2007, subsidies were provided for new development and debt servicing. The project is expected to enable a reduction in subsidies for interest payment (equivalent to 46 percent ofoperating revenues in 2007).
5 railway infi-astructure connection to Rijeka and development of road D403 connecting the future Zagreb terminal to the city bypass.
23. Component 1: (total cost with contingencies - €67.8 million). The Port Terminal Development component includes the following subcomponents: (i)extension of the existing Brajdica Container Terminal by about 330 meters, increasing its capacity by 200 kTEU to be constructed from 2009 to end 2011; (ii)Construction of infrastructure for a 400 meter long4 Zagreb Container Terminal able to accommodate post-panamax container vessels, with a capacity of about 225 kTEU to be constructed from 2010 to 2014. This component will enable the conversion of the Delta and port of Baross areas, by making alternative port space available. The concessionaire for each terminal will finance and provide superstructure and equipment.
24. Component 2: (total cost with contingencies - €6.4 million). The Port Service Enhancement component includes the following subcomponents: (i)support in concessioning selected terminals; (ii)equipment and technical services for information flow integration and secured port access; (iii)enhanced environmental response with the development of a comprehensive port environment protection plan and purchase of waste collection vessel to address traffic increase in line with Croatian and Marpol requirements; (iv) technical studies to prepare for the Masterplan implementation.
25. Component 3: (total cost with contingencies - €5.8 million). The Project Implementation component includes the following subcomponents: (i)supervision of civil works activities; (ii) audit services for the project; and (iii)support in procurement and project management.
D. Lessons learned and reflected in the project design
26. Marine Works Risks. Marine works in deep water are inherently complex and can be a significant source of risks that need to be managed. Under the Rijeka Gateway project, PRA encountered weaker soil condition than originally anticipated at the time of design for the construction of Zagreb Terminal. Growth in container traffic and type of vessels also called for new requirements in terms of terminal characteristics. After seeking a negotiated approach with the contractor in place, PRA, as advised by its international technical team, concluded that contract termination and retender on the basis of a design build approach was a better option.
27. The project design integrated those elements in different ways. For the Brajdica Terminal extension, the program of soil investigation was reviewed by international and national reviewers and received a positive opinion. The design also received a positive opinion. The proposed construction technology has been applied in the first phase of construction, reducing construction risk. For the Zagreb Terminal, comprehensive soil analysis were carried out based on a program defined by an experienced international expert, and PRA contracted an experienced international consultant to prepare a bidding package for the construction ofthis terminal under a design-build approach. The proposed design will be subject to due review. PRA currently employs qualified consultants to support its supervision activities on technical matters as required.
The Rijeka Gateway I1 provides financing for an additional 100 meters compared to what is covered under the existing Ejeka Gateway and Rijeka Gateway Additional Financing. See Annex 4 for details.
6 28. The project is expected to last a little less than six years, primarily to enable the implementation of the design build approach selected for the construction of the Zagreb Container Terminal. The use of a design build approach has become an international practice in the port development industry, as it brings the best potential design options and transfer overall design and construction risk to a single consortium.
29. Implementation Capacity. The Port Authority, while having good capacity to manage mid-size contracts, has more limited experience in handling large civil works contracts. With the construction of new terminals added to the present workload, the Project Implementation Unit (PIU) capacity needed strengthening. The PIU is staffed with PRA employees, paid by PRA, working part time or full time on the project. The PIU has been strengthened both internally by appointing a project Deputy Director, and by identifying areas for which experienced consultants would be required to support the PIU on management of large civil works contracts. Strengthened implementation arrangements were finalized prior to negotiations.
30. Corridor Development. The port development needs to coincide with the development of connecting corridors. The Government will finance the development of its rail and road corridors through other sources of funds. Rail and road corridor upgrades are progressing on schedule to meet the new port requirements. Close focus will be required on the intermodal connections and management of the rail marshalling yard. In terms of capacity increases yet to be implemented, the only significant component is the construction ofroad D403, connecting the Zagreb Terminal with the Rijeka bypass. The Government confirmed that this road will be constructed in due time to coincide with the completion ofthe terminal.
3 1. Broad Based Dialogue. The investments proposed under the Rijeka program will have a significant positive impact on the population of Rijeka. A number of consultation events were organized to receive stakeholder feedback. In particular, the conversion of part of the port area into an urban area can play a major role in giving Rijeka a more dynamic identity. As part of a Governance Learning Grant, the Port, the City and the Bank organized a workshop on governance and public consultation in port city development in June 2008 and launched a first round of public consultation about the proposed conversion of port space in an urban area. The project will continue to draw on such international expertise and active dialogue.
32. Port City Interface. The proposed redevelopment of part of the port area into an urban area is overseen by a Steering Group, including representatives ofPRA and ofthe City ofRijeka. The potential role of the Delta is identified in the recently approved General Urbanistic Plan for Rijeka and in the detailed design guidelines prepared for PRA by international consultants. Surveys confirmed public support for this conversion and the public interest for additional public space. While a number ofissues have already been addressed over the past three years, a formal approach to the redevelopment balancing the interests of major stakeholders is still being formulated from a legal, financial and institutional perspective. The Bank worked closely with PRA and the City to facilitate the emergence of a consensus through dialogue and consultations. Intensified supervision and consultation will be maintained on this component.
7 E. Alternatives considered and reasons for rejection
33. The project could have been packaged as an additional financing for scaling up activities, since it met most parameters applicable for such instruments. The Rijeka Gateway project implementation is rated satisfactory. PRA maintained compliance with project conditions. The proposed activities are in line with the original project objective, and are extensions of components funded under component A of the original project. However the time needed to implement the Rijeka Gateway I1 project exceeds the time that would have been allowed under the rules applicable for additional financing. Given this last parameter, the use of a regular project approach provides a more appropriate instrument.
34. At this stage it is foreseeable that additional opportunities for scaling up exist, as foreseen in the new Country Partnership Strategy. The Masterplan identifies in particular the possibility of expanding the Zagreb Container Terminal and other port terminals in need of upgrading. The Rijeka Gateway program could also benefit from additional financing to support both the long term institutional mechanism and part of the infrastructure cost related to the redevelopment of the Delta area. This is common practice in such urban revival projects worldwide. Such components were however not ready for appraisal at this stage. They could be considered, when ready.
111. IMPLEMENTATION A. Partnership arrangements
35. The World Bank has maintained regular contracts with representatives of the European Commission regarding this project, to keep them informed and to consult with them on the content of the Project during its preparation phase. A particular area of focus recommended by the Commission is to ensure that security issues and integrated border management are properly integrated in the overall approach, to meet EU requirements in those areas. Component two under this project will address in part these aspects through information flow integration among port users and further strengthening of access to the secured port area and video monitoring.
B. Institutional and implementation arrangements
36. The Project will be implemented by the existing project management structure, within PRA, strengthened to match the scaled up activities, with additional expertise in large civil works implementation. PRA has the overall responsibility for project implementation through its integrated PIU, gathering relevant PRA staff from its various departments and reporting to a Project Director and her Deputy. For each significant activity under the project, PRA designated a component manager, who reports to the Project Director and her Deputy. They are supported by a PIU coordinator, a legal advisor, a Financial Management Specialist with extensive experience in working with the Bank, a Procurement Specialist and an Administrator. Additional support in procurement for complex assignments is contracted out as required. An Environmental Specialist follows up on the implementation of the Environmental Management Plans for the Gateway program. These arrangements are detailed in the updated Project Implementation Plan, which includes job descriptions with definition of duties, responsibilities, lines of supervision, and limits of authority for each staff.
8 C. Monitoring and evaluation of outcomes/results
37. Monitoring and evaluation of results and outcomes of the Project will be carried out by PRA staff. This will include review and monitoring of the Project performance according to the established Results Framework and Monitoring indicators (see Annex 3). The Project performance will be assessed through a number of quantitative indicators and qualitative assessments. Indicators have been developed for measuring Project progress and to timely detect and address gaps in Project implementation. To this end, annual targets have been established and individual indicators will be measured against these targets. Project progress reports will be prepared by the PIU on a semi-annual basis and submitted for the Bank’s review.
D. Sustainability
38. The project, within the broader program ofdevelopment of Croatia, rests on four strategic pillars for a sustainable development of the port. From a commercial and financial angle, it builds on sustained growth in traffic and solid long-term prospects. From an efficiency perspective, it seeks to bring in expertise from international terminal operators. From a corridor integration perspective, it fits into ongoing infrastructure development programs. From a port- city interface perspective, it provides the space needed to relocate part of port activities and enable the conversion ofport land into urban space.
E. Critical risks and possible controversial aspects
Risk Rating Risk Minimization Measure Residual Risk Rating Increased private PRA and LR management are finalizing their M sector participation approach to the restructuring of LR. The in the port sector proposed approach balances ease of will face resistance implementation with impact. Staff retrenchment from unions. made significant progress under the first project. PRA and LR will maintain an active dialogue with the unions throughout the process. Maritime works are Detailed geotechnical works took place during M complex and can be project preparation. The design for the Brajdica a source of terminal is consistent with the existing terminal technical risks and and has been reviewed independently. PRA hired additional costs. external expertise for support in complex technical areas. Insufficient corridor M International rail and road connections are being M capacity limits the upgraded. The Government confirmed it would project impact. proceed with the construction ofroad D403 to connect the Zagreb Terminal to the Rijeka bypass. Modal interface will be closely monitored.
9 New large civil S PRA strengthened its operating structure both M work components internally and by selecting external expertise to will overwhelm deal with highly specialized issues including PRA’s capacity. technical matters and procurement ofdesign build construction. No financial management issues have been identified that might be controversial or pose reputational risks for the Bank. Permitting process S A permit for the construction of the Brajdica S and the status ofthe Container Terminal has been requested and is Brajdica terminal in expected in the fall. The definition ofthe Brajdica the urbanistic plan terminal in the urbanistic plan as temporary (see para 50) will appears flexible enough for the Supervisory slow down Board of PRA to conclude. External experts have implementation. been selected to support PRA in the management ofthe design build approach for the Zagreb Terminal. Concessionaire for S The process of selection of a concessionaire and M Zagreb Terminal is selection of a design build company are selected too late to progressing in parallel. PRA monitors progress in decide for the both assignments. The design period will provide optional extension. PRA with some flexibility in case the concessioning is delayed. As a category A M Diligent monitoring ofEMP implementation will M project in an urban take place using a PIU which demonstrated good setting, potential capacity and track record. PRA will also negative strengthen its focus on broader environmental environmental aspects under the project. imDacts. Overall Risk M Rating iskRating - H (High Ris 1, S (SubstantialRisk), M (Modest Risk), N (Negligible or Low Risk)
F. Loan conditions and covenants
39. There are no tailor-made conditions of Board presentation or effectiveness (only the standard ones). Thus, in order to declare effectiveness of the Loan and Guarantee Agreements, two legal opinions need to be submitted to the Bank: (i)fiom the Guarantor, confirming that the executed Guarantee Agreement has been ratified by the Parliament, and is valid and binding in accordance with its terms; and (ii)from the Borrower, confirming that the executed Loan Agreement is valid and binding in accordance with its terms.
40. Project Covenants: (i) Except as the Bank shall otherwise agree, the Borrower shall not incur any debt unless a reasonable forecast of the revenues and expenditures of the Borrower shows that the estimated net revenues of the Borrower for each fiscal year during the term of the debt to be incurred shall be at least 1.1 times the estimated debt
10 service requirements of the Borrower in such year on all debt of the Borrower including the debt to be incurred.
(ii) The Borrower shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 5.08 of the General Conditions and on the basis of the Monitoring and Evaluation indicators. Each Project Report shall cover the period of one calendar semester, and shall be furnished to the Bank not later than one month after the end of the period covered by such report.
(iii) The Borrower shall take all action necessary to carry out the measures identified in the Environmental Management Plan at all times in a timely manner, ensuring that adequate information on the implementation of said measures, including on the screening of the physical cultural resources located in the proximity of the Zagreb terminal, is suitably included in the Project Reports.
(iv> The Borrower shall prepare, under terms ofreference satisfactory to the Bank, and furnish to the Bank on or about September 30, 2011, a report integrating the results of the monitoring and evaluation activities and setting out the measures recommended to ensure the efficient carrying out of the Project and the achievement of the objectives thereof during the period following such date and review with the Bank, on or about December 15, 201 1, this report, and thereafter take all measures required to ensure the efficient completion of the Project and the achievement ofthe objectives thereof, based on the report and the Bank’s view on the matter.
41. Financial Covenants: (i) The Borrower shall maintain or cause to be maintained a financial management system in accordance with the provisions of Section 5.09 of the General Conditions.
(ii) The Borrower shall prepare and furnish to the Bank as part of the Project Report not later than forty-five (45) days after the end of each calendar quarter, interim unaudited financial reports for the Project covering the quarter, in form and substance satisfactory to the Bank.
(iii) The Borrower shall have its Financial Statements (Project and PRA financial statements, Statement of Expenses and Designated Account) audited in accordance with the provisions of Section 5.09 (b) of the General Conditions. Each audit of the Financial Statements shall cover the period of one fiscal year of the Borrower. The audited Financial Statements for each such period shall be furnished to the Bank not later than six months after the end of such period.
11 IV. APPRAISAL SUMMARY A. Economic and financial analyses Economic (Cost-Benefit) Analysis: EIRR=16 percent; NPV(at 12 percent)=$59 million Financial Analysis: FRR=13 percent; NPV (at 6.6 percent)=$198 million
42. The economic and the financial analyses have been carried out for the overall project. This includes the project costs and the cost of the Zagreb Container Terminal funded under Rijeka Gateway I.The economic analysis was made for the total project, and includes costs for PRA and the concessionaire, as well as for individual piers (400 meter Zagreb Terminal and Brajdica extension). The financial analysis reviews: (i)the financial rate of return of the proposed investments; (ii)the impact on PRA’s financial sustainability; and (iii)the expected return for the concessionaire(s) to assess the project commercial feasibility.
43. Based on data available through the April 2008 Masterplan, audited 2007 accounts, and other sources, the project has a satisfactory economic and financial rate of return. The Economic Internal Rate of Return (IRR) is 16 percent and the NPV is US$59 million, with a discount rate of 12 percent, under the base case traffic scenario. The expected economic return for individual piers is also satisfactory, with the Economic IRR for the Zagreb Terminal and Brajdica Terminal extension being respectively 14 percent and 17 percent. The project has a financial rate of return of 13 percent, well above the estimated project cost of capital of 6.6 percent, and a financial NPV of US$198 million. The project financial return of individual piers is also satisfactory, with the financial IRR ofZagreb and Brajdica being respectively 11 percent and 15 percent. The period of analysis is based on a 25 year period of operation under concession, which is below the life expectancy ofthe infrastructure.
44. Under the current assumptions, the project is likely to generate significant interest from the private sector. The estimated investment from the concessionaires would generate a financial rate ofreturn in excess of 15 percent for each ofthe two terminals.
45. With the expected revenue from the concessions and port dues, PRA financial performance is forecast to remain satisfactory and to improve over the life of the project. PRA would be able to undertake the proposed investment under the project with limited budget support. Under the base case traffic scenario, assuming concession fees set at 20 percent of the operator revenues and LR to assume debt service obligations of its US$9 million sub-loan under the Rijeka Gateway Project, it is expected that additional budget support would no longer be needed aside from the €4 million counterpart funding to the loan, after the two terminals are in full operation. Under the base scenario, PRA cash balance remains positive during the life of the concession, with the lowest point reached in 2015-2016 due to increasing debt service while budget support is decreasing. Effective July 1, 2008, PRA converted port dues from US dollar to Euro to minimize foreign exchange exposure by aligning its main revenue and cost streams. PRA also increased port dues for dry cargo by 10 percent.
12 46. Debt service coverage ratio (DSCR)’ inclusive of cash balance available at the beginning of the year is expected to remain above 1.3 and operating ratio6 to keep on improving from 153 percent in 2007 to at least 120 percent in 2014, with further decline afterwards. PRA’s asset depreciation is estimated to triple as a result of planned investments under the ongoing World Bank-financed projects. DSCR without cash balance ranges from 0.6 to 0.9 in the period 2009- 2015, which reflects the ramping up phase of the new terminals, during which the terminals are used initially at partial capacity. PRA is nonetheless expected to be able to service its debt without additional contributions from the Government over what is foreseen to date under the Rijeka Gateway program.
47. The projections are directly linked to the level of concession fees that PRA would be able to obtain for the Zagreb and Brajdica terminals. During preparation PRA presented the broad parameters for the concession with companies that expressed interest in becoming concessionaire. The market feedback received so far is positive with private sector interest in: (i) long-term concession for container activities including an option for being associated with Adriatic Gate for the Brajdica Terminal under sufficient management control; (ii)the 400 meter option for the new Zagreb Container Terminal with an integrated expansion plan for an additional 300 meters right at the outset of terminal construction; (iii)attracting 5,000 TEU- 9,000 TEU vessels to serve hinterland as well as feeder hub for smaller ports in Croatia; and (iv) a fixed lease contract with clearly defined long-term leasing terms for infrastructure plus a variable concession fee based on actual handling volume.
B. Technical
48. Extension of Brajdica Container Terminal. The soil investigation and technical design of the Brajdica Terminal extension was carried out by the consulting company that designed the first part of the terminal. Settlement behavior is known as it has been observed during and after the construction of that first phase. Additional soil investigation and geotechnical observations were carried out, captured in a geotechnical investigation report and reflected in the design. The report was officially endorsed by a panel of experts. The proposed design for the pier is straightforward from a construction point of view with a quay wall constructed directly on the seabed with concrete blocks, interlocked by cement grout after final placement. The design has been through a comprehensive final independent review, in accordance with Croatian laws and was confirmed as suitable, as documented in project files.
49. Zagreb Container Terminal. Under the Rijeka Gateway project, PRA elected to terminate the original contract for the construction of a Zagreb multipurpose terminal, given the change in soil conditions and user requirements, as well as a review of available options. PRA concluded that retendering the contract using a design-build approach would be more appropriate, given the complex nature of soil conditions pertaining to the location and the need to attract the best technical solution accordingly. Further soil investigations were carried out, and a
DSCR is defmed as the ratio of cash flow available during the year divided by debt service (principal repayment and interest). A debt service above 1.0 means that the entity is able to service its debt from its cash flow generated from operations during the same period. Adding the cash balance reflects funds available for the overall debt service for this non-profit organization. ‘ Operating ratio is defined as the ratio of operating expenses (including asset depreciation) to total operating revenue (without state subsidies).
13 qualified consultant appointed to support PRA in preparing a full design build package for the terminal. Based on the data available, the circumstances and the analysis provided, the Bank concurred that this approach is suitable fiom a technical and procurement point of view. Preparation of the tender package is ongoing accordingly, for issuance in late 2008. This will be closely coordinated with the process of selection of a concessionaire for the terminal.
50. Concession Period for Brajdica. The duration of a concession for the Brajdica Terminal is likely to exceed the period of validity of the General Urbanistic Plan of the City of Rijeka, in which the terminal is described as temporary, but the interpretation of temporary provides sufficient flexibility. The development, planning and building within Rijeka city limits are regulated by two fundamental physical planning documents: the Physical Plan of the City of Rijeka (Official Gazette no. 3 1/03) and the General Urbanistic Plan (GUP) (Official Gazette no. 7/07). The Southern Brajdica Terminal is referred as an area planned for infiastructural facilities. Article 19 of the Decision on Enactment of the Physical Plan of the City of Rijeka allows building of port facilities within the following areas designated for infiastructural facilities: Rijeka Basin and Southern Brajdica. Article 144 of the decision stipulates the space-related conditions for building, specifying that the infrastructural facilities in Southern Brajdica can be used until the development and physical planning on the Rijeka Basin takes place. This would entail building of a brand new terminal as a continuation of the building of the docks (Zagreb Terminal) on a 1,200-meter stretch of the coastline, and construction of a new dock and quay (the Prague Quay). These are investments likely to take place in the very long term.
C. Fiduciary
51. The financial management aspects will be handled by the PIU, and the PIU will be responsible for the flow of fimds, accounting, reporting, and auditing. There would be no changes in financial management and disbursement arrangements except for the percentage of expenditures to be funded by the new project established at 95 percent.
52. The financial management arrangements of the Rijeka Gateway Project implemented by PRA have been reviewed periodically as part of project supervision and have been found satisfactory. According to the latest Financial Management supervision (July 2008), the financial management arrangements of PRA for the project continue to be satisfactory and the control procedures are in place.
53. PRA is in compliance with the audit covenant and all PRA audit reports have been received to date. For the project financial statements for the year ended December 3 1, 2007, the auditors have given unqualified opinion and there were no significant internal control issues in the management letter. For the entity, for the year ended December 3 1, 2007, the auditors have given an unqualified audit opinion with emphasis of matter paragraphs. The paragraphs did not influence the unqualified (clean) entity audit opinion. The auditors also issued a management letter. No significant deficiencies or weaknesses in the system of internal controls and accounting issues have been raised in the management letters. Nevertheless, there were some points included relating to uncertainties in respect of collection of an advance payment fiom supplier Kajima. The Rijeka Gateway I1project audit will be included in the existing audit arrangements.
14 54. The financial management arrangements of the project are acceptable to the Bank. The overall FM risk for the project is moderate.
55. Procurement. The organization of procurement work for the Project will build on existing capacity, strengthened, where required, by external expertise. The PIU has conducted an extensive number of procurements successfully. For large civil work contracts, it will prepare bidding documents with support of external consultants. The procurement guidelines of May 2004 as revised in October 2006 will apply for all contracts funded under this project, including for components funded jointly by Rijeka Gateway Iand 11. Further details related to procurement arrangements are outlined in Annex 8.
D. Social
56. The project will positively impact the overall quality of life in Rijeka by offering new business opportunities through port development and enabling the conversion of former port land into an urban area. As part of project preparation, with the support on a learning grant on Governance (GAC), public consultation was launched on the proposed conversion of the Delta area. This entailed public visit of the site proposed for conversion, as well as launching a webpage enabling citizens to share their views and post comments regarding the proposed design guidelines for the redevelopment (http:l/www.iMojadelta.com/). International speakers, recommended by the Association of City Ports, also shared their experience in such redevelopments. LR, which presently has a concession on the area to be converted is part of the Steering Committee that oversees the redevelopment. None of the proposed construction activities and extension of the container terminals will require land acquisition or involuntary resettlement. There are no squatters. All new construction will take place on port property within a previously enclosed and secured area.
E. Environment
57. From a broad regional perspective, the extended Brajdica and Zagreb container terminals are expected to significantly reduce transport distance for container traffic originated in the Far East and destined to Central Europe. Increased capacity in the port of Rijeka will help reduce congestion problems in the Northern European ports and land transport corridors for cargo originating in the Far East and destined for Central Europe. Corridor Vb offers the shortest land transport route to Serbia and Hungary in particular. Maritime transport distance from the Far East to Central Europe is also notably shorter through Rijeka than through Northern European ports. The corridor approach, supported by greater information system integration and private sector participation, will also encourage the use ofrail transportation for containers.
58. Environmental impacts associated with the project can be properly mitigated by PRA. Such impacts were reviewed in details as part of project preparation through soil investigations, engineering studies and environmental impact studies for the project and its components in accordance with the local environmental laws and the World Bank policies. Environmental baseline data was established for current air, sea and sediments quality, noise and waste management. The legal and regulatory framework includes allocation of responsibility for port management related to environmental monitoring and compliance (e.g., fire prevention and emergency response, security and safety, waste disposal, ecosystem protection).
15 59. Impacts are associated with the proposed construction works and with the expected increase in traffic flows on the corridor when terminals are in operation. A comprehensive review of these impacts took place as part of project preparation and suitable environmental measures were identified for PRA to mitigate such impacts and duly disclosed, discussed with stakeholders and endorsed by Croatian authorities.
60. All construction activities will take place in the designated port area and extend terminals already located in semi-industrial areas. Potential impacts related to the construction of port extensions include: (i)air emissions from construction equipment, work vessels, trucks and other vehicles used in construction work; (ii)increased risk of accidental spills or mishandling of hazardous materials leading to sea pollution and direct or indirect contamination of surface waters; (iii)soil, air and seawater pollution in case of dredging operations and disposal of dredged material; (iv) noise and dust; (v) potential disturbance of marine ecosystem; and (vi) effects related to general waste reception, liquid, solid and hazardous materials waste management. The environment management plans for both of these terminals address these issues, which will be carefully monitored by PRA.
61. Incremental traffic is expected to result in limited environmental impact. The new terminals will offer a capacity increment of only about 6 percent of the total current traffic reaching Trieste, Koper and Rijeka. Containerized cargo is also less susceptible to generate environmental hazards than other type of dominant cargoes (oil). This additional traffic is likely to generate additional noise and waste, potential traffic congestion as well as additional handling and storage of dangerous cargoes. The completion of two connecting roads under separate projects will provide the necessary additional road capacity. The port waste management plan for ship generated waste and cargo residues, supported by the purchase of additional equipment under the project will enable PRA to respond to additional needs in terms of waste disposal from ships. In addition to the specific environmental management plan for the construction of terminals, PRA will develop a port environmental protection plan and management system under the project. This plan will provide a comprehensive operational and institutional framework covering all port related activities and enable PRA to align its systems with best practice in the management of environmental aspects in ports.
F. Safeguard policies
Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) [XI [I Natural Habitats (OP/BP 4.04) [I [XI Pest Management (OP 4.09) [I [XI Physical Cultural Resources (OP,BP 4.1 1) [XI [I Involuntary Resettlement (OP/BP 4.12) [I [XI Indigenous Peoples (OP/BP 4.10) [I [XI Forests (OP/BP 4.36) [I [XI Safety ofDams (OP/BP 4.37) [I [XI Projects in Disputed Areas (OP/BP 7.60)' [I [XI Projects on International Waterways (OP/BP 7.50) [XI [I
* By supporting the proposed project, the Bank does not intend to prejudice the final detemination of the parties' claims on the disputed areas
16 62. The project has been classified as an environmental category A and its proposed investments trigger the World Bank Policies OP/BP 4.01 on Environmental Assessment (EA), the OP/BP 4.1 1 on Physical Cultural Resources, the OP/BP 7.50 on Projects on International Waterways, and the OP 17.50 on Disclosure Policy.
63. Environmental Assessment. Detailed environmental impact studies (EIS) and environmental management plans (EMP) were prepared for the project and its main components. Those documents were prepared by PRA in accordance with the Croatian EIA law and revised to be consistent with OP 4.01. Available documents include: (i)an Overarching Executive Summary for the project prepared in 2008; (ii)an EIS covering the construction of the Zagreb Container Terminal prepared in 2002 and the related EIA and EMP prepared in 2003 for the Rijeka Gateway Project; (iii)an EIS for the Brajdica Terminal prepared in 2005 and its EMP revised in 2008. These reports highlighted possible long-term environmental impacts that may arise during the construction and operation phase and recommended the implementation of proper environmental mitigation and monitoring programs including analysis of air, seawater, sediments and noise quality around the terminals.
64. Public Consultation and Disclosure. The Overarching Executive Summary of the RGII project, the updated Executive Summary for the Brajdica Terminal and a related EMP were disclosed in Croatian on PRA website on May 7, 2008 and discussed during a public meeting held on May 19, 2008. Participants raised questions related to the oversight and handling of ship ballast waters in the port of Rijeka, noise generated by ships, relocation of containers activities, the quality of reclamation materials to be used, future plans for development of the bulk cargo terminal in the Bakar port, and the environmental assessment process for the Zagreb Terminal extension from the initial 250 m to about 700 m. As requested by OP/BP 4.01, the documents were also disclosed in English at the Bank’s Infoshop in Washington DC on May 8,2008.
65. Disclosure of the EIS and EMP for both terminals had taken place earlier. The EIS and EMP for Brajdica were publicly disclosed in Croatian on September 14, 2005 with minutes of meeting published. The 2005 EIS for Brajdica was disclosed in Infoshop on May 8, 2008. The consultation for Brajdica did not follow OP 4.01 for one aspect. The terms of reference for the EIS were not disclosed to the public for consultation. Two consultations took place nonetheless, one in September 2005 when the EIS was first disclosed according to Croatian procedures, and on May 19,2008, when the EIA for the present project was publicly disclosed by PRA. The EIA for the overall extension of the Zagreb pier was disclosed and discussed in 2002 in accordance with the Croatian legislation. An overall public consultation for the whole project Rijeka Gateway project took place on January 15, 2003, and the project EA, EA-Summary, and the EMP were made available to the public for comments, including in Infoshop.
66. Physical Cultural Resources. Direct impacts on cultural heritage are not expected during project implementation. The proposed construction of terminals does not entail activities in any protected buildings within the port area. However, the policy is triggered because of two protected warehouses (based on a decision made by the Ministry of Culture) located in proximity of the Zagreb Terminal. The EMP prepared by PRA also provides for screening for physical cultural resources and includes instructions for dealing with archaeological chance finds.
17 67. Projects on International Waterways. Although the Project triggers OP/BP 7.50 on “Projects on International Waternays ”, the proposed works are primarily extensions of the existing port operations (i.e., “an ongoing scheme” as stipulated in paragraph 7 (a) of OP 7.50) and, based on the EA, they are not going to lead to any adverse change in the quality or quantity of waters of the Bay of Kvarner for the riparian states. Accordingly, the project falls under the exception to the notification requirement to other riparian countries under Paragraph 7(a) of the Policy (minor additions or alterations to on-going scheme). This exception was authorized on May 18,2008, as per the OP.
G. Policy Exceptions and Readiness
68. The Project complies with all applicable Bank policies. The procurement plan has been agreed upon and procurement packages will be prepared in accordance with the procurement plan timeline. The procurement documents for the Brajdica Terminal are complete and ready for the start ofProject implementation. The Project Implementation Plan has been finalized.
18 Annex 1: Country and Sector or Program Background CROATIA: Rijeka Gateway I1
69. This annex provides additional information on the following topics: (i)legal and institutional framework in the maritime sector; (ii)progress under the Rijeka Gateway project; (iii)corridor aspects; and (iv) approach to private sector involvement in port operations. Traffic and analysis ofother ports in the North Adriatic is in Annex 9.
Maritime Sector: Legal and Institutional Framework
70. The Seaport Act of 1995 forms the basis for present institutional arrangement in the Port of Rijeka. The management of the port of Rijeka is under the responsibility of the Port of Rijeka Authority (PRA). PRA is a non profit legal entity established by Government Decision (N. 42/96). In accordance with Article 62 Seaport Act, Luka Rijeka d.d (LR), formally a socially- owned port enterprise, received a 12 year Priority Concession signed in September 19, 2000, for most terminals excluding the container terminal and liquid terminal. On November 16, 2001, PRA and Adriatic Gate (a joint venture between LR and Contship) signed a 10 year concession for the container terminal. Adriatic Gate is now fully owned by LR.
71. The Maritime Domain and Seaport Act, enacted on September 25, 2003 (Official Gazette 158/2003) regulates the maritime domain, its management, protection, and use, the classification of seaports, the establishment of the port authorities, port activities and their performance, building and use of port superstructure and infrastructure, including new concession arrangements. The Act defines the responsibilities of the Ministry of Sea, Transport and Infrastructure (MSTI) in discussing issues and settling disputes related to concession on the Maritime Domain. It is supplemented by a Regulation on the Procedure for Granting Concession on the Maritime Domain (Official Gazette 23/2004), a number of amendments, and by a Bylaw on the Criteria for the Extension of the Concession period. The latter foresees the possibility of extension ofconcessions in case of significant investments by the concessionaire.
72. The Seaport Act defines the establishment of Port Authorities as not for profit legal persons, with a Management Board and an Executive Director, and specifies their roles in Article 50: (i)building, maintaining, upgrading and managing the maritime domain (dock area); (ii) building and maintaining infrastructure; (iii)controlling the quality of port infrastructure and superstructure; (iv) ensuring permanent and undisturbed traffic and safety of navigation; (v) ensuring provision of services of general interest, or those for which other economic subjects have no interest; (vi) coordinating and supervising operations of the concessionaires; and (vii) deciding on establishing and managing a free zone in the port area. PRA employs about 46 staff.
73. The port is gradually evolving from a toolport to a landlord port management model. Up to recently, PRA provided equipment, infrastructure and superstructure to LR against nominal concession fees. Amendments in the law on Seaport in 2006 now entitles private ownership in handling equipment on the maritime domain, which greatly facilitates the securing of financing for such equipment. Private investments in terminal paving and ancillary buildings are also allowed. As original concessions are now close to reaching their term, the port authorities in
19 internationally relevant ports (Rijeka and Ploce) are now preparing to implement concession fees that are either defined through tender results for new terminals, or reflect cost recovery principle for concessions that are extended, mindful of competition.
74. LR is the only port operator for dry cargo at present. LR is a joint stock company with a majority of state ownership (58 percent under the privatization fund) and employee ownership (16 percent). The company is traded on the Zagreb Stock Exchange. It employs 954 staff, following a major staff retrenchment program of about 480 staff under the Rijeka Gateway project. LR outsources cargo handling to nine private companies, under ongoing contracts. Those companies perform services on a daily basis, and are paid either based on cargo handled or man hours. About 29 percent of LR activities are privately outsourced that way.
75. The restructuring of LR experienced delays, but is now progressing actively. The Priority Concession was designed as a transitional instrument. It foresaw the conversion of LR into holding companies to be further divided into independent operational units to be privatized. Ths process made limited progress when traffic was low, coinciding with a low level of private interest. Following the sustained traffic growth and strong interest of private partners, LR launched in mid 2007 a consulting assignment to update its restructuring program and implement the first transaction to bring in a private partner. After a detailed analysis of the legal framework, existing concession agreements and market opportunities, LR is now finalizing its proposals for a complete restructuring within the next two years.
76. Port tariffs are set commercially according to the Seaport Act (Official Gazette no. 108/95). Port tariffs consist of port dues paid to the Port Authority and port fees paid to companies delivering services. Port fees are paid by port users for the service they receive (handling, towage, mooring). The Port Authority sets the maximum tariff for port fees, based on an analysis of competing ports. Within that ceiling, concessionaires apply commercial pricing.
Table 1.1. Port Tariffs (see http://www,portauthority.hr/english/rijeka/port-dues.shtml) Paid. by c nt
Lung& of pier occupied (for vessel P~b~i~~edtariff staying with any purpose not covered by
1I) i1 UT loaded tans when bmkering WSWI
vessel
20 Update on Rijeka Gateway Project
77. Overall Impact. The project is on track to achieving its original objectives, with some delays. The port gained significantly in competitiveness. Traffic growth has been sustained meeting overall targets and exceeding those for container and passenger traffic. This enabled PRA to exceed its targeted financial operating performance (153 percent in 2007 compared to a target of 180). Overall port productivity increased for most products (with gains reaching 23 percent for container cargo), although slower than expected for general cargo. LR managed to reduce its staff by about 30 percent through a redundancy program and outsource to private companies the handling of about 29 percent of cargo. Based on growing private sector interest, LR re-launched its restructuring process with the first transactions expected over the coming 12 months.
78. Implementation Progress. The project is well underway with about 80 percent of the original loan disbursed and all components, but one, expected to be completed by the original closing date of the project. PRA completed 17 major contracts, including civil works (rehabilitation of Vienna berth), purchase of harbor cranes (leased to LR), computerization, numerous technical assistance projects, and preparation for the conversion of the Delta area. About 10 additional contracts are ongoing. PRA also on-lent to LR to implement its staff redundancy program and to support advisory service for LR restructuring. Until end 2008 the Government provided contributions to PRA to service this on-lent amount to LR and LR booked accumulated arrears towards PRA accordingly. Among components, only the construction of the Zagreb multipurpose terminal experienced delays that extend beyond the term of the original project. The contract for that component was recently terminated and will be retendered based on a new tender procedure. The new passenger terminal and connecting roads are expected to be completed by mid 2009.
Corridor Aspects
79. The Masterplan update analyzed traffic origination resulting from the recommended port expansion and defined needed corridor improvements to ensure the sustainable integration of these new traffic flows with its surroundings. This includes a western port access road, a proposed new rail marshalling yard, and intelligent transport systems enhancement. The masterplan update was presented to the key stakeholders and agreement was reached on the most critical corridor upgrades required.
80. From a regional perspective, the port of Rijeka is located on Pan European Corridor Vb. A number of upgrades are recommended in that corridor based on the South-East Europe Core Regional Transport Network Development Plan - Five Year Multi Annual Plan 2008 to 2012. The Plan compiled by the South East Europe Transport Observatory (SEET0)7 indicates in particular investment needs in the rail connection to the port based on demand forecast and track condition.
SEETO aims to promote the development of the core regional transport network.
21 Table 1.2.On-going and Scheduled Parallel Investments (M€)
Rail corridor Vb 180 Croatian. Railway (approved program by Parliament)- ~ode~~~~~~n ongoing Lowland railway Vb (1" 2008- 590 Croatian Railway (approved prcrgram by Parliament)- Pan) 3012- under design Rijeka bypass widening 20~~-~~~~87 Moronvay Rij eka Zagreb (funded con~~~r~lal~~~~ ongoing-- Motornay Rijeka Zagreb 2008-7009 329 blotornay Rijzka Zagreb (funded through EHKI)-EIB)) complerion ongoing Rijelea East Access Road 2008 1. I7 Croatian. Roads (World ~~~-o~~oin~ D404 Kijeka Access Road W03 1009-2012 40 To be confirmed in next Croatian Road Development plan
81. Rail Connections to Rijeka. In line with the SEETO Multi Annual Plan, investments are scheduled over the next 5 years to upgrade the track condition to Rijeka. The Port of Rijeka is connected with the Trans European Railway Networks via railway corridor Vb that leads from Budapest to Rijeka. The Croatian part of this railway corridor, from the border of Hungary to Rijeka, is 308 km long, and was constructed at the end of 19fh century. It has been gradually upgraded ever since and electrified in second half of 20th century. Freight to and from the port of Rijeka has always been the most important traffic on this line, peaking in the early 80-ties at 12.8 million gross tons, but has been significantly reduced ever since (in 2006 total traffic was only 5.8 million gross tons). About 176 km of track on corridor Vb are rated to be in poor condition, increasing transport time and cost. The National Program for Development of Railway
, Infrastructure envisages investment of €1 80 million in rehabilitation and modernization of a railway infrastructure on corridor Vb, between 2008 and 2012. Those investments would enable normal rail operations on this line.
82. In addition to investments in the existing railway corridor Vb, the National Program also includes the modernization of railway junctions in Zagreb and Rijeka, and beginning of construction oflow land railway between those two cities. Active discussions between PRA and Croatian railways will be required to ensure an optimal connection in both terminals. Overall investments to be provided for this purpose amount to €590 million between 2008-2012. Taking into consideration present and projected transport needs frodto port of Rijeka, which are considerably below quantities that were transported via this corridor in early 80-ties, and planned investments in rehabilitation, railway corridor Vb is expected to have sufficient capacity for transport of expected quantities of cargo to/from port of Rijeka in the coming period. Improved handling equipment for loading trains in Rijeka port is also highly required but is much smaller in terms of investment and expected to be addressed separately.
83. Road Connections to Rijeka. The road connections of significance for the project are or will be upgraded by the time the terminals are ready for operation. The status of plans for roads upgrading are as follows:
22 0 Construction of Road D404. Construction of road D404 is expected to be completed in June 2009. This road will provide a direct access fiom the Eastern part of Rijeka, where the Brajdica terminal is located, to the bypass of Rijeka. The road is funded by the Rijeka Gateway Project.
Widening of DS-Rijeka bypass (the section Orehovica-Diracje, south roadway, in the length of 8.8 km): The works on construction of the south roadway are ongoing and will be completed by June 1, 2009. The investing authority is the Motonvay Rijeka Zagreb company, fully owned by the government, and the contractor is a consortium of local contractors. The works in the value of €87 million are being financed by DEXIA Kommunalkredit AG (Austria) and Banca Infiastrutture Innovazione e Sviluppo S.pA (Italy).
Widening of Motorway Rijeka-Zagreb. The Motonvay between Rijeka and Hungary will be completed as a four lane highway by 2009. Works on construction of the right roadway between Kikovica-Stara Susica (right roadway, length 44 km) are ongoing and will be completed by the end of2008. The investing authority is the Motonvay Rijeka Zagreb company, fully owned by the government, and the contractor is a consortium of local contractors. The works in the value of € 329 million are being financed by EBRD and EIB.
0 Construction of D403 (connector road between the Zagreb Terminal and the Rijeka bypass): It is expected that the construction of D403 will be included in the next four-year road investment and maintenance program (2009-2012). It is planned to complete the road and put it into operation before the end of 2013. The sources of financing will be known after the program has been drafted for presentation to the Parliament, which is expected to take place in late 2008. The final road connection will need to be designed to based on the actual length of the terminal (earlier plans foresaw a connection to a 1,200 meter long terminal).
84. Due to delays in crossing EU borders, Rijeka has not yet been able to compete on equal footing with Koper and Trieste for the Central Eastern European markets, but this impediment will disappear with EU accession. The disappearance of inner borders with the EU is expected to take place before the terminals are in operation and would provide both terminals with similar international access than the two other ports.
Private Sector Involvement
85. An increase in private sector participation in the port of Rijeka is a stated objective of the Government under the Rijeka Gateway Project. The indicator used to that end is the percentage of port (dry cargo) traffic handled by the private sector, which is currently expected to grow to 45 percent in 2009 and 80 percent in 2010 (or about two years later than originally anticipated). At present LR outsources about 30 percent ofits activities to outside private firms following the implementation ofits severance program and substantial reduction in staff.
23 86. Since PRA is a non-profit organization, the goal of greater private sector involvement is to allow the port to bring new expertise in port operations, to self-finance its future development and maintenance while reducing commercial risks associated with this expansion. From a broader perspective it will lead to the progressive transformation of the port from a toolport to a landlord port.
87. In support of this approach, PRA and LR, with the support of the ongoing Rijeka Gateway project, conducted the following activities to set a framework for private sector participation: (i)preparation of a business and restructuring plan for LR in 2003; (ii)redundancy program for LR; (iii)update of the port master-plan completed in April 2008, (iii)advisory services for the implementation of the LR restructuring plan including an updated review of various strategic options for LR and implementation of a first transaction (ongoing activity); (iv) informal discussions with known interested parties for the concession of the Zagreb Terminal during the Summer 2008. In parallel PRA launched the procurement for a transaction advisor for PRA for the concession of the Zagreb container terminal. Laws are being adjusted in parallel as part of the process of alignment with the EU acquis. Accordingly the new laws on concession and public private partnership will be applicable for the concession ofthe Zagreb Terminal.
88. The first phase of advisory services for the restructuring of LR led to the recent preparation of a number of reports: (i)legal due diligence; (ii)valuation report; (iii)strategic option report. For each, it identified various options for LR Board to select. LR Board supported the option recommended by the consultant. The guiding principles for the proposed recommendation include: (i)value creation with an increase and acceleration of revenues and reduction and delaying of costs; and (ii)ease of implementation considering in particular the legal risk, social and political acceptance and the overall market appetite.
89. The selected option foresees the use of LR as a transition vehicle with partial withdrawal from selected business activities with healthy market potential while continuing its presence in other activities. The terminals, for which partial withdrawal are expected to take place, include the Brajdica Container Terminal, the silo terminal and the bulk terminal, altogether representing 80 percent of dry cargo activities. LR would seek an extension of the concession agreements against commitment for new investments and set up successor companies for these terminal operations. PRA would seek negotiated concession fees that meet cost recovery principles for such terminals. LR would then select new partners, with a majority stake in the successor companies, through public tender to provide both capital and know-how.
Table 1.3. Cost Recovery Foreseen Framework for Concession Extensions
cost ~~~~~~~~ Cost ~~~~~~~
24 90. Aside from the above, PRA intends to launch a public tender for the Zagreb Container Terminal. The terminal would be concessioned under a scheme that includes investments by the concessionaire in equipment and superstructure and concession fees for the use ofinfrastructure.
91. When finalizing these options, the following considerations need to be taken into account.
After commissioning the Brajdica Terminal, significant rehabilitation works will be necessary on the existing terminal to bring it up to speed and make it compatible in a fully integrated operational frame. While admittedly that terminal will not enjoy the same water-depth as the Zagreb Terminal (14.5m vs 16m), it will be important to ensure that the concession payments for the two terminals are not set too far apart from one another.
0 The development of Zagreb Terminal is foreseen with two main options: (i)a 400 meter berth; or (ii)a berth of about 700 meters. The selection of a concessionaire for the Zagreb Terminal will be based on an international public tender. The result of this tender will enable PRA to define the most suitable ofthese two options.
25 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies CROATIA: Rijeka Gateway I1
Agency/ Effec the/ Amount Objectives Results Project Closing ($US Date million) 051021200 1 20.4 0 Facilitate non-tariff costs to Significant reduction in Trade and 0313 112005 trade and transport and border waiting time/ Transport IP and DO: reduce smuggling and computerization ofCustoms Facilitation Satisfactory corruption at border Administration' new border Program in crossings. procedureslincreased regional Southeast cooperatiodopening of new Europe crossings, including joint facilities.
World Bank loll 0103 266.1 0 Improve the effectiveness of Significant increase in Rijeka Ongoing +48.0 the transport chain through general cargo/container traffic Gateway IP and DO: the Rijeka Gateway for both using port Project Satisfactory freight and passenger traffic Improvement in Port (P043195) by modernizing the port and Authority financial position. And Additional road network connections, Operator became profitable. Financing and privatizing port Increase in private sector (P105238) operations. participation.
WorldBank 03/04/97 0 Develop trade along Strong traffic increase, draft Trade and 0613 O/OO Corridor Vc by improving concession agreement based Transport IP/DO the capacity, efficiency, and on cost recovery being Integration /QAG: quality ofservices on the drafted, construction ofnew Project Satisfactory southern end of Corridor Vc. terminals proceeding as expected. Railway 0 610 919 9 Diminish the burden of HZ New railway law in place; Modernization 06130105 on the Government budget restructuring moving forward; and IP: while creating a competitive but government subsidies Restructuring Satisfactory railway company. remain; improvement in Project DO: recent years in operating Moderately ratio. satisfactory
EU 2001 - 2008 Multi 0 Development of a program Definition and CARDS country of integrated border implementation ofdetailed Program management in Southeast strategy and action plan to Europe including all facilitate cooperation among agencies. border agencies and across I countries in line with requirements from the European Commission.
26 Annex 3: Results Framework and Monitoring CROATIA: Rijeka Gateway I1
Results Framework
PI30 It nformation To develop the capacity, financial Increased container capacity from The information will be used by performance, and quality ofservices 150 kTEU8to 575 kTEU by the Port Authority, MSTI and in the port ofRijeka to meet growing December 20 14 under public-private the City ofRijeka to monitor traffic demand, through public- partnershp arrangements; performance. private partnershps, while Container traffic increased from 145 facilitating urban renewal by kTEU to 280 kTEU in 2014; enabling the relocation ofport PRA operating ratio improving from activities. 153 to 120 in 2014; Subsidies for interest reduced from 46 percent of operating revenues in 2007 to 10 percent in 2014; Container terminal move per crane per hour increasing from 18 to 22; Over $25 million in private investments attracted in port by 2014; 85 percent of dry cargo carried out by operators with private majority ownership by end 2012; and Redevelopment of at least 7 ha of port land in urban area by 2014. ~~t~r~~~~~~eQ~~~~~e Iiadicatators Port Terminal Development Component The information will be used by Completion ofworks contract for :onstruction completed by 201 1 for the Port Authority and the new Port Terminals (Brajdica lrajdica and 2014 for Zagreb Container Stevedoring Company to IUZagreb Container Terminals). 'erminals. monitor implementation progress. uea available for at least 7 ha ofurban :development by 2012 and selection of developer by September 2010. Port Service Enhancement
Concessioning of select terminals. :oncession for at least two terminals igned by 20 11.
)evelopment ofport environmental rotection plan by 2010. Project Implementation Component Quality supervision ofworks. lomprehensive supervision reports. Ifnot achieved, analyze reasons for delays and define remedies.
* Presently capacity is 150,000 TEU. At the end ofthe Rijeka Gateway project, it will be 250,000 TEU.
27 Arrangements for results monitoring
92. The Project performance will be assessed through a number of quantitative indicators and qualitative assessments. The indicators and assessments will be regularly monitored as per frequency outlined in the Arrangements for Results Monitoring table, and additionally supported by using a scorecard method, on an index scale of 0 -100. In the scorecard, individual indicators will be measured against annual targets and then given a weight factor for distribution based on their importance when making an aggregation ofthe scores.
93. The scorecard format is included in the Project Implementation Plan, and will be updated on an annual basis. The input will be organized and supplied by the Port of Rijeka Authority (PRA), through the regular project progress reports.
Calculation Methods
94. Port of Rijeka container capacity. Calculation of cargo handling capacity and cargo loading productivity will be based on standard industry methods.
95. Container traffic. Container traffic throughput (loaded and unloaded) will be provided in kTEU units (thousand twenty-foot-equivalent container units). The frequency of this assessment should be done monthly and maintained on a year to date basis for input into the scorecard. The source ofinformation will be PRA and the terminal operators.
96. Operating ratio. Operating ratio is defined as the ratio of operating expenses (incl. asset depreciation) to total operating revenue (without Government subsidies). This indicator will be prepared by PRA financial department on an annual basis.
97. Increased container terminal efficiency will be measured as ratio of total moves and total gross crane hours.
98. Private investments will include the investments to support development of the port terminals made by companies with over 5 1 percent ofprivate capital.
99. Private sector participation in Port of Rijeka operations will be measured based on the amount of cargo handled by operators with private majority ownership. This assessment should be done on an annual basis. The source of information will be PRA, LR and other concessionaires.
28 e3
I
- Ya
Y0
L-3s X
X
t Annex 4: Detailed Project Description CROATIA: Rijeka Gateway I1
100. Component 1: (total cost with contingencies - €67.8 million). The Port Terminal Development component includes the following subcomponents under Rijeka Gateway 11:
(i) Extension of the existing Brajdica Container Terminal by about 330 m, increasing its capacity by 200 kTEU, with a water depth of 14.5 m, to be constructed from 2009 to end 201 1 (bidding to be launched in Fall 08). The expansion includes the addition of about 14 ha (10.7 ha on land and 3.4 ha reclaimed from the sea). It will be integrated technically and organizationally with the existing terminal giving the full terminal a capacity of about 350 kTEU per annum, with a storage area of 12.5 ha. These characteristics will allow the terminal to accommodate vessels up to 60,000 DWT. The structure will be built using the same technology as used for the existing terminal, as a concrete structure constructed on a stone/gravel mound built on the seabed. The reclamation between the quay wall and the existing shore line will be filled with rock material collected from existing regulated quarries and road construction sites in accordance with construction standards.
(ii) Extension by 100 meters of the Zagreb Container Terminal. With this addition the Rijeka Program is financing the construction of a 400 meter long Zagreb Container Terminal able to accommodate post-panamax container vessels, with a capacity of about 225 kTEU to be constructed from 2010'0 to 2014. The design draft would be about 16 m. This Zagreb Terminal construction would include the infrastructure for an area of 15 ha, of which 10 ha of paved stacking area. Technical solutions for this terminal will be selected following a Design and Build tender process that will enable the identification of the most suitable design option from a cost and duration of construction perspectives.
101. The project will only finance construction of the terminal infrastructure (fill/land reclamation, quay wall including crane girders, and fendering). The concessionaire would be responsible to provide all equipment and build the superstructure (pavement, lighting, utilities, and buildings) to meet modem operational requirements. It is expected that the concessionaire will install a minimum three ship-to-shore gantry cranes for a container handling capacity of 290,000 TEU.
Table 4.1. Estimated Total Costs for
Brajdica: Pies extension, entrance facility, container PRA (RG il) 53 million
36 ~~~~~~~ Zagreb Terminat: quay wfl, fill, rubble darn, PM 44 rnillioPa fendering, crane girders (3i30 m) Rijttka Careway and Addi tional F~~~~n~~~~
38 milZion
loWhile actual construction would start in 2010, the design build bidding would be launched in late 2008.
30 102. Beyond the financing proposed under this project, in case the concessionaire is willing to take the commercial risk for a longer terminal, an optional extension of about 300 m could be launched simultaneously with the first phase, after securing financing. The terminal, in that case, would include a total area of 22 ha, with about 700 meters of pier. This is not covered under the present project.
103. Component 2. (total cost with contingencies - €6.4 million). The Port Service Enhancement component includes the following subcomponents:
(i) PPP arrangement for selected terminals (€1.2 million): transaction advisers for concessioning ofselected terminals. (ii) Information flow integratiodsecure port access (€2.7 million):
0 integration ofinformation flows across supply chain (continuation ofED1 approach on a corridor basis, including required hardware). This would cover an integration ofnew port terminals from PRA perspective, building on the technical specifications being developed under RG to establish a Port Community system, enabling integrated data communication among port community participants.
0 extension of controlled access to port (video CCTV, ID cards): extend the video CCTV beyond the three terminals covered under the RG project, in compliance with international standards on port security and to ensure the safety of goods. Id cards enables the terminal operators to register all persons (including the truck drivers) visiting the port facilities, while video CCTV provide a visual oversight over activities. (iii) Environmental Response (€1.2 million): development of a comprehensive port environment protection plan. Technical support to develop an environmental management system (EMS) for the port. This formal framework for integrating the consideration of environmental issues into the overall management structure, would identify relevant environmental aspects for the port; highlight and prioritize areas of risk; promote pollution prevention; and track progress toward environmental goals. It would be a dynamic, proactive, and adaptable management system that provides a logical, step-by-step process for integrating environmental issues into the overall operating structure.
0 purchase of waste-oil/garbage collection vessel to address traffic increase in line with CroatidMarpol requirements' ' . Technical characteristics: Tonnage: 200- 300 m3 in several oil tanks; place for 2-3 containers for collecting garbage from ships; equipment for simple treatment of collecting oil; Pumps for collecting and transferring oil ; anti-pollution equipment.
11 Croatia is a signatory Party to the international Convention ofMARPOL73178 and its Annexes Iand V dealing in particular with the prevention of ship-generated pollution from oil and garbage. The Government ofCroatia has adopted a number of regulations and other instruments which deal with the provision of port reception facilities including waste management. Port Authorities are responsible to organize and provide reception facilities for ship-generated wastes. According to Sea Port Law (Official Gazette No. 18 1/2004), Regulations Concerning the Terms and Methods of Maintaining Order in Ports and other Parts ofthe Internal Sea Waters and the Territorial Sea ofthe Republic of Croatia, (Official Gazette No. 9012005), Regulation ofrequirements which ports must to meet (Official Gazette No. 110/2004), all ports open for international traffic are required to provide reception facilities. Croatian Regulation is in accordance with European Directive 2000159EC on port reception facilities for ship-generated waste and cargo residues.
31 (iv) Preparation for Masterplan implementation (€1.3 million): The April 2008 Masterplan update identified a number of priority projects for the modernization of the Port authority in line with recent market development. Those projects need to be prepared technically, with proper feasibility study, environmental assessment and preparation of tender documentation. This includes documentation for the following investments: Bakar and RaSa terminals, ID cards, video monitoring, EDI, waste collection ship, a port maritime study, management information system, and telecommunication system. The port will also update its plan to upgrade maritime safety taking into account increase in traffic flows.
104. Component 3. (total cost with contingencies - €5.8 million). The Project Implementation component includes the following subcomponents:
(i) Supervision of civil works activities and installation of equipment (€4.5 million). Supervision for two port terminals to be financed under civil works (Brajdica/Zagreb terminals).
(ii)Audit services for the project (€0.2 million). According obligations from loan conditions PRA have to make contract with authorized consultants which will take responsibility for audit services. Services will be based on international standards and will cover period oftime for years 2008-2012.
(iii)Support in procurement and project management (€1.1 million). Selective support in preparing technicalkender documentation, procuring and managing project components.
32 Annex 5: Project Costs CROATIA: Rijeka Gateway I1
Project Cost by Component and/or Activity Total EUR million Component 1 - Port Terminal Development 67.8 1.1. Bradjica Container Terminal Extension 52.5 1.2. Zagreb Container Terminal (addition to RG/RG AF) 15.3 Component 2 - Port Service Enhancement 6.4 2.I. PPP arrangements for selected terminals 1.2 2.2. Information Flow IntegratiodSecure Port Access 2.7 2.3. Environmental Response (Waste collection vessel, Port Env. Prot. Plan) 1.2 2.4. Preparation for Masterplan Implementation (design/EA/tender documents) 1.3 Component 3 - Project Implementation 5.8 3.1. Audit services 0.2 3.2. Supervision services 4.5 3.3. Support in Procurement and Project Management 1.1 Total Project Costs with Contingencies 80.0 Front end Fee 0.2 Interest during construction 7.8 Total with Financing Costs 88.0 Financing World Bank Financing 84.0 Government financing 4.0
1Identifiable taxes and duties are US$m 0, and the total project cost, net of taxes, is € 84 million. Therefore, the share of project cost net of taxes is 100 percent.
33 Annex 6: Implementation Arrangements CROATIA: Rijeka Gateway I1
105. The Project will be implemented by the project management structure in place for the Rijeka Gateway project, within PRA. This team accumulated significant experience over the past five years in procurement and financial management using World Bank system. It has performed satisfactorily in term of project management and fiduciary requirements. It has been strengthened in terms of number of staff to match the scaled up activities. Given its lesser experience in large civil work contracts, it will secure relevant expertise regarding large civil works procurement and implementation through consultant services provided through the project.
106. PRA has the overall responsibility for project implementation. The Project Director and Deputy Project Director will coordinate activities and will be responsible for quality and timeliness of project implementation. The Project Director and Deputy Project Director are assisted by the Project Implementation Unit (PIU), composed of PRA staff. The PIU will be responsible for adhering to Bank procedures and requirements. The PIU has been operating satisfactorily for five years and has actively participated in project preparation.
107. The PIU positions include a PIU Coordinator, a procurement specialist, a legal advisor, an accountant specialist and an administrator. The PIU will also receive legal, financial, technical and administrative support from other divisions of PRA. Specifically, technical departments will provide technical expertise for preparation of technical specifications and during the evaluation process. Also, legal, commercial and marketing departments will provide their relevant expertise when required. Inputs from these and other departments will be coordinated through Project DirectorDeputy Project Director. The PIU will report to Project DirectorDeputy Project Director who will be responsible for timely and accurately reporting to the PRA Executive Director. Additional support in procurement for complex assignments is contracted out as required.
108. An Environmental Specialist follows up on the implementation of the Environmental Management Plans for the Gateway program. These arrangements are further defined in details in the updated Project Implementation Plan, which includes job descriptions with clear definition ofduties, responsibilities, lines of supervision, and limits ofauthority for each staff.
109. Monitoring and evaluation ofresults and outcomes of the Project will be carried out by PRA staff. This will include review and monitoring of the Project performance according to the established Results Framework and Monitoring indicators (see Annex 3). The Project performance will be assessed through a number of quantitative indicators and qualitative assessments. Indicators have been developed to measure Project progress and to timely detect and address gaps in Project implementation. To ths end, annual targets have been established and individual indicators will be measured against these targets. Project progress reports will be prepared by the PIUon a semi-annual basis and submitted to the Bank’s review.
34 Annex 7: Financial Management and Disbursement Arrangements CROATIA: Rijeka Gateway I1 110. Country Issues. The Croatia CFAA report (May 2005) concludes that the level of fiduciary risk attached to Croatia’s public financial management systems is significant for the legal framework and for the institutional capacity and practices for the core financial control processes such as budgeting, treasury and cash management, accounting, financial reporting, internal control, internal audit, external audit and Parliamentary oversight. 111. Since the date of the report, Croatia is taking action to improve the public financial management system. For example, the authorities have, with the help of EC, established internal audit units in all line ministries, central state organizations, and extra-budgetary funds. Their establishment is also underway in local governments. The Law on Financial Management and Control Systems in the Public Sector has been enacted and controllers have been appointed for all line ministries.
112. Risk Analysis. The overall financial management risk for the project is substantial before mitigation measures; with adequate mitigation measures agreed, the financial management residual risk is rated moderate. The table below summarizes the financial management assessment and risk ratings ofthis project:
Risk Elements FM Risk Mitigating Measures FM Risk Residual Risk INHERENT RISKS - Country level. Weaknesses in the S Project will maintain a robust financial M existing financial accounting and management system; use of private auditors management systems. Lack of and use of acceptable commercial bank for trained staff. Underdeveloped holding a Designated Account. It will be internal audit. Risk of corruption. also periodically audited by the State Audit - Office. Entity level. Risk of political M Any changes to the structure in the M interference in entity’s management implementing agency will require and replacement of the management agreement with IBRD. However, there is a and staffing issues. moderate risk of changes in the staffing, purchases function (procurement) will be - closely monitored. Project level. Project relies on S Several mitigation measures described M country systems. below will help minimize the risk of misappropriation of funds and project assets. ~ OVERALL INHERENT RISK S M CONTROL RISKS - Budget. M Budget based on procurement plan agreed M with the Bank and subject to MSTI and Parliament approval together with the state - budget. Accounting. Application of S Project accounting system already M accounting policies is hindered by developed and can generate the IFRs lack of automatic reporting module. automatically. The project FMS just PIU financial staff needs updates in recently attended FM and disbursement World Bank procedures. training zlrovided bv the World Bank.
35 Internal Controls. Adequate controls I S 1 Project relies on the existing internal IM over the use of funds within PRA. control framework as described in the The internal control procedures internal PRA manuals. should be the same for loan funds. Funds flow M Process part of regular FM supervision, M Simple flow of funds, Ministry will Bank Disbursement Guidelines applied, process the payments to contractors regular trainings attended. through Designated Account (loan) and through Treasury Single I I' Financial Reporting. 1 M 1 No mitigation measures necessary. M IFRs are generated-automatically. Auditing. M Annual project audit performed by M independent auditors and TOR acceptable to the Bank and review of audit reports by country FMS. The ongoing project and PRA received unqualified audit reports for
H - High S - Substantial M - Moderate L - Low
113. Strengths. The strengths that provide a basis of reliance on the project financial management system include the current experience ofPIU staff in implementing the ongoing Rijeka Gateway Project (PO43 195) (IBRD 471 50 and additional financing IBRD 47151), and the fact that staff has sufficient capacity to implement Rijeka Gateway Project I1 based on existing experience.
114. Weaknesses and Action Plan. No weaknesses were identified during the assessment.
115. ImplementingEntities. The financial management aspects will be handled by the PIU in Port ofRijeka Authority, and the PIU will be responsible for the flow of funds, accounting, reporting, and auditing. There would be no changes in financial management arrangements.
116. Staffing. The members of the PIU are current staff of the Port of Rijeka Authority. The PIU staff salaries will not be financed from the IBRD loans. The accounting department of PRA is keeping also the accounting of the project, as an incremental work load. There is one person in charge with the disbursement applications and reporting to the World Bank, which has prior experience on other bank project. The associated financial management risk related to staffing is moderate.
117. Budgeting and Planning. The budgeting process is clearly defined, based on PRA budgeting rules. Budget is done in both physical units and financial measures. Phasing by month is also available. The project budget is approved via the state budget process. The budget is made public in the Official Gazette after Parliament approval, normally in January of the budget year. The financial management risk associated with planning and budgeting is assessed as moderate.
118. Information Systems. After a testing phase, the new MIS system (POINT 2000) has recently become fully operational. The system corrects most of the previous accounting system flaws and provides integrated bookkeeping, having all the financial information in one place: contract database, bookkeeping, payments, fixed assets, payroll, management reports
36 and personnel files, reporting by investing categories, tailor made reports. IFRs are now being generated automatically from the MIS.
119. Back up of the accounting system is done daily and stored on CDs, deposited in an outside safe location. The Rijeka Gateway I1Project will have a set of IFRs, separate from the Rijeka Gateway IProject. The financial management risk associated with information systems is rated moderate.
120. Accounting Policies and Procedures. Accounting is done on a cash basis in accordance with the Accounting Law with the modifications applicable to the non profit organizations. 121. The project’s financial statements will be prepared on a cash basis. The IFRs will be prepared in the currency of the Designated Account. 122. Additional accounting policies to be applied on the project will include the following major assumptions: cash accounting as the basis for recording transactions; reporting in EUR by disbursement categories; consolidated IFRs to be prepared for all components of the project; and counterpart funds will be reflected in the financial reports. 123. There are 3 documents based on which the accounting and internal procedures are conducted, which can be considered substitute for the project accounting an internal control manual: the MoF 10/2008 order (accounting policies applicable for non profit organizations, detailed chart of accounts, rights and responsibilities of responsible persons, asset inventory accounting and inventory), project procurement manual (procurement procedures, contracts, authorizing procedures and signatures, flow of documents and payment of the contractors), internal document- regulation of internal organization (organizational charts, job descriptions and responsibilities). 124. The risk associated with accounting policies and procedures is substantial before mitigation measures. After mitigation measures, it is rated moderate.
125. Internal Controls. The PIU has adequate internal controls for the project, including regular reconciliation of bank accounts, adequate segregation of duties, proper accounting policies and procedures and monthly reconciliation of disbursement summaries of the World Bank with project accounting records is performed. 126. There are several layers of control related to the approval of each invoice and payments. Each invoice is signed by the ordering party, Chief Accountant and PRA Executive Director (and independent site supervisors for the civil works), as well as project coordinator and component manager. 127. There are regular reconciliations in the PlU: quarterly reports prepared are reconciled with the accounting data, SQE are reconciled with the project data for every withdrawal application, DA reconciliation is also performed with every withdrawal application. 128. The access to the accounting software is password protected; there is restricted access to different modules of the database. The journal entries cannot be altered once they are made. Errors can be corrected only with adjusting journal entries and only by the Head of the Accounting department. 129. There is no petty cash under the project. The travel costs of PRA staff are supported from PRA’s budget. 130. There is no separate asset register of the project. The assets resulted from the Rijeka project are evidenced in PRA asset register. The asset register is kept in POINT 2000 database. The bookkeeping of assets is done in the accounting system. The reconciliation
37 between the two systems is performed at 6 months intervals, as there are no major movements in terms of assets. Also, every six months interval, a report is submitted to the State Audit Office.
131. Each asset item is recorded by quantity, value, has unique inventory number and reference number from the accounting department, based on which it can be identified the name of the responsible person and the location of the asset. The physical inventory is performed once a year at end December, beginning of January. The differences found by the inventory commission are mentioned in the inventory report, together with the causes of the shortage. The report is submitted to the Executive Director for approval. After approval, the adjustments are made in the accounting system.
132. The risk associated with the internal control and internal audit is moderate.
133. Reporting and Monitoring. Interim Unaudited Financial Reports (IFRs) will be used for project monitoring and supervision and the sample formats of these have already been agreed with the PIUduring the assessment.
134. Assigned PIU finance staff will prepare consolidated Interim Unaudited Financial Reports (IFRs) for the entire project including all sources of funding (loan and counterpart financing) and all expenditures on a quarterly basis within 45 days as well as annual Project Financial Statements. The IFRs formats and periodicity would be the same as for the ongoing Rijeka Gateway project. The IFRs for the on-going project are submitted on time and acceptable to the bank.
13 5. The basic IFRs required every 3 months will include:
0 Project Sources and Uses ofFunds
0 Uses ofFunds by Project Activity
0 Special Account Statement Plus Local Bank Account Statement 0 Project progress report - contract monitoring report
0 Procurement report
136. IFRs report required for report based disbursement would need additionally to include:
0 Cash forecast for the next 3 months by project categories in currency ofthe loan
0 Summary statement of expenditures by categories and in currency ofthe loan
0 Designated Account reconciliation and a copy ofthe bank statements
137. The risk associated with reporting and monitoring is assessed as moderate.
138. External Audit. As ofthe date of this report, the Borrower is in compliance with its audit covenants of the Bank financed projects. In 2008 the World Bank received unqualified audit reports of the Rijeka Gateway IProject and PRA entity. The auditors have issued an unqualified audit opinion on the project financial statements and entity financial statements for the year ended December 3 1, 2007. In addition, emphasis ofmatter paragraphs were added to the auditors report relating to the PRA entity. The paragraphs did not influence the unqualified (clean) entity audit opinion.
139. The audit reports have been submitted before June 30,2008 and were acceptable to the Bank. The auditors also issued a management letter. No significant deficiencies or weaknesses
38 in the system of internal controls and accounting issues have been raised in the management letters. Nevertheless, there were some points included relating to uncertainties in respect of collection of an advance payment from supplier Kajima.
140. The Rijeka Gateway I1 project audit will be included in the existing audit arrangements.
141. The annual audited Rijeka Gateway I1Project financial statements will be submitted to the Bank within six months ofthe end of each fiscal year and also at the closing ofthe project. The cost ofthe private auditor will be financed from the proceeds ofthe loan.
142. The following chart identifies the audit reports that will be required to be submitted by the project implementationagency together with the due date for submission.
Audit Report Due Date Project financial statements (PFS), including IFRs or SOEs and Within 6 months of the Designated Account. The PFSs include sources and uses of funds by end of each fiscal year category, by components and by financing source; withdrawal and also at the closing applications summary based on IFRs or SOE, Statement of designated of the project. account, notes to financial statements, and reconciliation statement. PRA entity audit. Within 6 months of the end of each fiscal year and also at the closing of the project.
143. Funds Flow and Disbursement Arrangements. There will be a separate Designated Account for the loan. The Designated Account will be opened in a commercial bank acceptable to the World Bank. Loan funds will flow from the World Bank to the Designated Account and then from Designated Account to contractors on the basis of the approved invoices. There will also be a possibility to use special commitments (in case of goods imported) or direct payments methods from World Bank to contractors for larger payments as indicated in the Disbursement Letter.
144. Counterpart Government contributions payments will be made from a separate Treasury project accounts, being sub-accounts of the main entities’ budgetary accounts, and which will be used specifically for the Croatian contributions to the project.
145. Project will use traditional disbursement methods but the option of report based disbursement will be available. The PIU will develop cash flow forecast and reporting capabilities, if the report based disbursements is applied. The withdrawal of funds can be linked with the due date for submission of quarterly IFRs. It means that PIU can apply for the funds between the 3 months period. In such a case the Withdrawal Application shall be accompanying by the cash forecast, reconciliation of the Designated Account and copies of the Bank Statement. Advances will be disbursed provided that there are no overdue IFRs. The reconciliation (recovery process) of expenditures will be carried on a quarterly basis in line with IFRs, therefore each IFRs should be sent to the disbursement department together with the Withdrawal Application. The recovery withdrawal applications will be supported by full IFBs including in particular Summary Statement ofExpenditures (part ofIFRs) showing types of expenditures with applied disbursement percentages and expressed in EUR (currency ofthe loan), and Designated Account statement including copy ofthe Bank Statement.
39 146. Full documentation in respect of project expenditures will be kept by the PIU and verified by auditors on an annual basis.
147. The risk associated with flow of funds and disbursement is assessed as moderate.
ing Percentage Category ’ Amount of the Loan Percentage of Expenditures to Allocated be financed (expressed in EUR) (1) Goods, works, services 76,000,000 95% (other than consultants’ services), consultant’s services (including audits), and training.
(2) Interest and other charges on 7,790,000 Amounts payable pursuant to the Loan accrued on or before Section 2.04 of the Loan September 14,2014. Agreement and in accordance with Section 2.07(c) of the General Conditions. (3) Front-end Fee. 210,000 Amount payable pursuant to Section 2.03 of the Loan Agreement in accordance with Section 2.07 (b) of the General Conditions.
(4) Premia for Interest Rate 0 Amount due under Caps and Interest Rate Section 2.07 (c) of Collars. the Loan Agreement.
TOTAL, AMOUNT 84,000,000
148. The Country Financing Parameters allow for disbursing up to 100 percent of Project expenditures.
149. Eligible expenditures will include all works, goods, consultants, training costs in accordance with the project cost estimates, the agreed procurement plan, and the annual budgets, which are made in accordance with Bank guidelines and project-specific guidelines specified in the legal agreements.
150. Supervision Plan. As part of its project supervision missions, the Bank will conduct risk-based financial management supervisions, at appropriate intervals. During project implementation, the Bank will supervise the project’s financial management arrangements in the following ways: (a) review the project’s quarterly financial statements (IFRs) as well as the project’s annual audited financial statements and auditor’s management letter and remedial actions recommended in the auditor’s Management Letters; and (b) during the Bank’s on-site supervision missions, review the following key areas (i)project accounting and internal control systems; (ii)budgeting and financial planning arrangements; (iii) disbursement management and financial flows, including counterpart funds, as applicable; and (iv) any incidences of corrupt practices involving project resources. As required, a Bank- accredited Financial Management Specialist will assist in the supervision process.
40 Annex 8: Procurement Arrangements CROATIA: Rijeka Gateway I1
A. General
151. Procurement for the proposed project would be carried out in accordance with the World Bank's "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004 and revised in October 2006; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004 and revised in October 2006, and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described below. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.
152. Procurement of Works. Works procured under this project would include: Construction of Zagreb Terminal and Bradjica Container Terminal extension. In the case of the Zagreb Terminal, given the complex geological conditions a Design and Build contract will be used, while for Bradjica Container Terminal extension, a traditional procurement approach will be followed i.e. detailed design followed by the prequalification and bidding using SBD Procurement ofWorks (Large Contracts).
153. Procurement of Goods. Goods procured under this project would include: IT system for information flow along logistic chains, ID Cards installation (second part), waste collection ship and extension ofclose circuit television system. The procurement will be done using the Bank's SBD for all ICBs and National SBD agreed with or satisfactory to the Bank.
154. Procurement of non-consulting services. Though present procurement plan does not include technical services in case the need arise, the Loan may finance technical services required for geotechnical survey related to civil works subject to availability of funding and change in the Procurement Plan.
155. Selection of Consultants. Will include activities related to technical supervision of civil works, technical assistance for preparation of Private Public Sector Partnership for selected terminals, preparation of the technical specifications and bidding documents for IT related procurements, Port Environmental Protection Plan, Port Maritime study, Project Management and Audit of the Project. Short lists of consultants for services estimated to cost less than $200,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions ofparagraph 2.7 ofthe Consultant Guidelines.
156. Operating Costs. Operating costs related to the project implementation will be covered by PRA.
B. Assessment of the agency's capacity to implement procurement
157. Procurement activities will be carried out by the Port of kjeka Authority. PRA has experience in the implementation of the ongoing Rijeka Gateway Project. PRA has staff experienced in Procurement, who had exposure to a variety of contracts for works, goods and consulting services.
41 158. An updated assessment of the procurement capacity of the Implementing Agency has been carried out by the Bank during the pre-appraisal mission. The assessment reviewed the organizational structure for implementing the project and the interaction between the project staff responsible for procurement and PRA’s relevant central unit for administration and finance.
159. PRA has the overall responsibility for Project coordination through an integrated Project Implementation Unit (PIU), gathering relevant experts from its various departments. The PIU is responsible for the day-to-day management of the Project including procurement, financial management, and liaison with the Bank. The PRA Financial Director is designated as the Project Director and provides general oversight of the project with her Deputy Director. All Procurement related activities while assigned to the specific technical department shall be approved by the Deputy DirectorPIU Coordinator. There is a Procurement Specialist responsible for handling procurement related tasks for consulting services and provide support. All procurement related files are collected and maintained by an Administrator.
160. These arrangements were further detailed in the Project Implementation Plan, which includes job descriptions with clear definition of duties, responsibilities, lines of supervision, and limits ofauthority for each staff.
161. The key issues and risks concerning procurement for implementation of the project have been identified and include:
0 Capacity to manage large size investment project: The Port Authority, while with sufficient capacity to manage mid-size contracts, has experienced more difficulty in handling large civil works contracts. With new terminals construction added to the present workload, the PIU capacity needed strengthening. 0 Risks associated with technical complexity of the Zagreb Terminal Contract. The first attempt to construct terminal using traditional procurement route i.e. detailed design followed by construction based on a Bill of Quantity was not successful (due to unforeseen geotechnical conditions on a deep sea and change in user requirements) and resulted in termination ofthe contract. 0 Potential risk of cost overrun should any change occur throughout project implementation.
162. While the risk related to civil works component implementation is substantial due to their complexity and the relative lack of PRA experience in the execution of similar type of large value structures, a set ofcorrective measure has been agreed to address potential issues.
163. The corrective measures which have been agreed are described below:
a. Capacity to manage large size investment project: Strengthening has taken place under the on-going project. The effectiveness of these strengthened implementation arrangements will be continuously evaluated. Specifically, the procurement plan includes a number of consulting activities which would provide support to PRA for the most complex procurement tasks whle quality control will remain under the responsibility ofthe PRA staff working on the Project.
42 b. Risks associated with technical complexity of the Zagreb Terminal Contract. It is anticipated that these risks will be taken by the Contractor through the use of a Design and Build type of contract. In addition, PRA will be supported for activities related to Project management of Civil Works by an experienced consulting company. c. Potential risk of cost overrun. This will be addressed through allocation of physical contingencies up to 15 percent under each contract (as reflected in cost estimates).
164. The overall project risk for procurement is Medium.
C. Procurement Plan
165. The Borrower, at appraisal, developed a procurement plan for project implementation which provides the basis for the procurement methods. This plan has been agreed between the Borrower and the Project Team on October 27, 2008 and is available at PRA’s office in Rijeka. It will also be available in the project’s database and in the Bank’s external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.
D. Frequency of Procurement Supervision
166. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the Implementing Agency has recommended semi-annual supervision missions to visit the field especially related to Civil works component.
E. Details of the Procurement Arrangements Involving International Competition
1. Goods, Works, and Non Consulting Services
(a) List ofcontract Da :ages to bc procured fol; -wir ICB and ( rect cor ‘acting : 1 2 3 4 -5 6 7 8 9
Ref. Contract Estimated Procurement P- Domestic Review Expected Comments No. (Description) Cost in Method Q Preference by Bid- Euro (yestno) Bank Opening (Prior Date I Post) IT SYSTEM FOR INFORMATION GRG- FLOW ALONG No 1 LOGISTIC 1,900,000 ICB Yes Prior Feb- 11 CHAINS (incl.ED1 UPGRADE) - WASTE GRG- COLLECTION 3 1,100,000 ICB Prior SHIP No Yes Feb-10
CONSTRUCTION OF ZAGREB WRG- BERTH Design and 1 15,300,000 (additional funds ICB Yes No Prior May-09 Build contract part 11) *
~
43 BRAJDICA WRG- CONTAINER Large works 2 TERMINAL 38,460,000 ICB Yes No Prior Mar-09 SBD EXTENSION A
BRAJDICA WRG- CONTAINER Large works 2 TERMINAL B, C, 14,040,000 ICB Yes No Prior Apr-09 SBD D
(a) List ofconsulting assignments with short-list of international firms.
1 2 3 4 5 6 7
Ref. Description of Assignment Estimated Selectio Review Expected Comments No. Cost in n by Proposals Euro Method Bank Submission (Prior I Date Post) CRG Supervision of civil works and QCBS 4,500,000 Prior Jan-09 -1 installation of equipment CRG Rasa and Bakar master plan, 250,000 QCBS Prior Feb-09 -2 design and EIA CRG PPP arrangements for selected 1,250,000 QCBS Prior NOV-09 -3 terminals CRG Technical assistance - Project 850,000 Prior QcBs Dec-08 -8 Management 2008-2012 Project and BD for CRG Environmental protection - 250,000 QCBS Prior Jan-09 -1 1 waste collection ship
(b) Consultancy services estimated to cost above $200,000 per contract and single source selection of consultants (firms) for assignments will be subject to prior review by the Bank.
(c) Short lists composed entirely ofnational consultants: Short lists of consultants for services estimated to cost less than $200,000 equivalent per contract, may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines.
44 Annex 9: Economic and Financial Analysis CROATIA: Rijeka Gateway I1
Summary
167. The economic and the financial analysis have been carried out for the overall project (including the Zagreb Container Terminal parts covered under the Rijeka Gateway project). The economic analysis was made for the total project, and includes costs of individual piers (extended Zagreb Terminal to 400 m and Brajdica Terminal extension) for PRA and the concessionaires. The objectives of the financial analysis were to determine: (i)the expected financial rate of return of the proposed investment; (ii)review the impact on PRA financial sustainability after the proposed investment, and (iii)review the expected return for the concessionaire(s) to assess their willingness to invest in the project. Exchange rates used in this section are the ones applicable as of August lst,2008, namely US$1 equal to HRK4.64 and €1 equal to US$1.56.
168. The project has a robust economic and financial rate of return. The Economic IRR is 16 percent and the NPV is US$59 million, with a discount rate of 12 percent, under the base case traffic scenario. The economic return for individual piers is also satisfactory, with the Economic IRR of Zagreb and Brajdica being respectively 14 percent and 17 percent. The project has a financial rate of return of 13 percent, well above the estimated project cost of capital of 6.6 percent, and a financial NPV ofUS$198 million. The project financial returns of individual piers are also satisfactory, with the financial IRR of Zagreb and Brajdica being respectively 11 percent and 15 percent.
169. Under the current assumptions, the project is likely to generate significant interest from the private sector. The estimated investment from the concessionaires would generate a financial rate ofreturn in excess of 15 percent for each ofthe two terminals.
170. With the proposed investment and expected revenue from the concessions and port dues, PRA financial performance remains satisfactory, improving over the life of the project. PRA would be able to undertake the investment with limited budget support. Under the base case traffic scenario, assuming concession fees set at 20 percent of the operator revenues, it is expected that additional budget support would not be needed aside from the €4 million counterpart funding to the loan. Under the base scenario, PRA cash balance remains positive during the life of the concession, with the lowest point reached in 2015-20 17.
171. To mitigate the exchange rate risk faced in recent years, PRA decided to reduce its exposure by better aligning the currency for its revenue and cost streams. The sizable drop in the US dollar value significantly reduced the Kuna revenues of PRA compared to what could have been expected based on traffic volumes. Effective July 1,2008, port dues were raised by 10 percent and converted from US dollar to Euro to enable a better match between PRA costs with revenues. The competing port of Koper also converted its tariffs to Euro. Most PRA borrowing is also in Euro or Kuna.
172. Debt service coverage ratio (DSCR12) inclusive of cash balance remains above 1.3 and operating ratioI3 keeps on improving from 153 percent in 2007, and is expected to reach 120
DSCR is defined as the ratio of cash flow available during the year divided by debt service (principal and interest). A debt service above 1.0 means that the entity is able to service its debt .from its cash flow during the same period. In this calculation, cash available at the beginning of each year is included.
45 percent in 2014 with further decline afterwards. DSCR without cash balance ranges from 0.6 to 0.9 in the period 2009-2015, which reflect the ramping up phase of the new terminals, during whch the terminals are used initially at partial capacity.
173. The projections are directly linked to the level of concession fees that PRA would be able to obtain for the Zagreb and Brajdica terminals. As such PRA is in the process of validating the broad parameters for the concession with companies that expressed interest in becoming concessionaire. The market feedback received so far is positive with private sector interest in: (i)long-term concession for container activities including an option for being associated with Adriatic Gate for the Brajdica terminal under sufficient management control; (ii)the 400 meter option for the new Zagreb Container Terminal with an integrated expansion plan for an additional 300 meters right at the outset of terminal construction; (iii)attracting 5,000 TEU-9,000 TEU vessels to serve hinterland as well as feeder hub for smaller ports in Croatia; and (iv) a fixed lease contract with clearly defined long-term leasing terms for infi-astructure plus a variable concession fee based on actual handling volume. Preparation is now under way to engage a consultant to help assist PRA with concessioning.
Container Traffic Evolution and Demand in the Northern Adriatic
174. The Port of Rijeka is the largest international seaport in Croatia in terms of throughput volume. Traffic sharply declined in the early 1990s, due to political instability in the region. The port ofRijeka recovered most of its dry cargo traffic, with traffic level in 2007 standing at 87 percent of 1990 traffic (6.4 million tons).
175. The Port of hjeka covers 200 ha with 39 berths. It offers an operative coast length of seven kilometers with a sea depth ranging from 5.5 to 28 m. It includes terminals placed in four separate areas: Rijeka (container, passenger, RoRo, general cargo, cereal, refrigerated cargo, wood), Bakar (bulk, Roro), Omisalj (oil and oil derivatives) and Brsica (general cargo, cattle and wood). Construction activities under the Rijeka Gateway program take place in the Rijeka area.
176. The port reestablished its relevance and experienced strong growth in container activities over the past five years. Overall dry cargo traffic grew 107 percent to 5.6 million tons in 2007. Container traffic grew from 15 kTEU (thousand twenty-foot-equivalent container units) in 2002 to 145 kTEU in 2007, including a 54 percent growth in 2007, exceeding in 2006 the traffic level expected in 2020 in its 2003 port Masterplan. It is becoming one of the most important cargoes for hjeka. This rapid increase came from a market shift. The port of Rijeka evolved from a feeder port for small vessels to a port of call for liner services, with much larger vessels (4000+ TEU) regularly calling in.
177. After three years of heavy growth, the three main Northern Adriatic ports (Trieste, Koper and Rijeka) serving Central Europe are now close to congestion levels for container traffic. Container traffic through these ports grew by 58 percent from 2005 to 2007. The Northern Adriatic ports handled a total of 720 kTEU in 2007, very close to their estimated capacity of 770 kTEU14. Growth came from rapid growth in container transport from the Far East to Central European markets and the integration of Northern Adriatic ports in trade routes to Central Europe in complement to routes through larger Northern European ports.
l3 Operating ratio is defined as the ratio of operating expenses (incl. asset depreciation) to total operating revenue (without state subsidies) l4By comparison, the port of Rotterdam handled 9.6 mTEU in 2006.
46 Substantial savings in both ship travel time and land transport costs make the Adriatic route attractive and explain the strong growth in those ports.
Dry Cargo Throughput Container Throughput (TEU) 2000-2007 (000 tons) Polt of Rijeka Port of Rijeka 6,000 I 160,000
I 140,000 5,000 ~ I - H II 120,000
j~ 4,000
100,000
3,000
1 80,000
2,000 i 1 60,000 1,000 j 40,000
io 2000 2001 2002 2003 2004 2005 2006 2007
I 2001 2002 2003 2004 2005 2006 2007
178. Over the long run, the ports of the Northern Adriatic are forecasted to experience an annual growth in container traffic of about 8 percent (historical global TEU growth) and to require an additional 1 million TEU capacity by 2020. The Port of Rijeka Masterplan reviewed the market potential for Northern Adriatic ports and concluded that those ports were underutilized based on costs and distance to their primary markets in Central and Eastern Europe. These ports did build on such comparative advantage over the past three years as illustrated by their higher-than-average growth. In coming years, the combination of a slowdown in global growth with the emergence of additional competition on the Black Sea is expected to slow container growth in the Northern Adriatic from double digits to about 8 percent. This forecast has been used as the base case scenario for the economic and financial evaluation, although PRA indicated it may be too conservative based on market feedback.
179. All Northern Adriatic ports have expansion programs to respond to this opportunity and will be competing for the cargo they can attract away from the Northern European route. The first phase of expansion (by 2013) is expected to provide an additional capacity of about 500,000 TEU (Terminal 1 in Koper, Brajdica Terminal in Rijeka). The second phase is expected to add about 575,000 TEU (Koper foreseen terminal, Zagreb terminal in Rijeka) by 2015. The port of Trieste also envisages the extension of its container terminal 7 by an additional 400 meters. The overall capacity increase appears commensurate with the demand forecast from the Masterplan.
180. Those three ports offer different characteristics in terms of depth, expansion capacity, and access to their markets. The port of Rijeka offers a deep access channel suitable for the largest container vessels and the shortest distance to Hungary, but still experiences border delays along the corridor and offers poorer hinterland connections. Both of these issues are being addressed. The port of Koper offers well organized space and multimodal integration, but is in a less advantageous position to offer deep access. The port of Trieste offers the
47 largest facilities and good hinterland connections, but it faces constraints in expansion. No change in market share is assumed in the analysis.
Main assumptions for economic and financial analysis
18 1. The period of analysis covers the period of construction and 25 years of full terminal operation under concession (until 2038 for Brajdica, 2040 for Zagreb), although the life ofthe asset is longer.
Traffic and Revenue Assumption
182. Traffic assumptions are based on the Rijeka Port Masterplan, prepared in 2008, constrained to match the capacity of the terminals. The Masterplan base scenario was used for the analysis with the low and high case scenario used for sensitivity analysis. In addition, PRA proposed an updated traffic forecast, more optimistic than the base scenario, on the basis that current traffic volumes are higher than the Masterplan’s projection for 2007. The Masterplan base traffic scenario assumes a yearly increase of general cargo and bulk cargo of 3-4 percent, a 5-7 percent increase in wood cargo, and an 8 percent increase in container cargo and a 1 percent increase in liquid cargo. Most of the increase in traffic comes from container cargo. In the analysis, the traffic volume for container cargo during construction of the two terminals was limited to the 2007 level due to capacity constraints. Revenue from passenger terminal is assumed to remain constant.
Port dues, handling and storage fees, and concession fees
183. Port dues are directly collected by PRA and based on a fee paid per ton of cargo handled. The analysis used the current fee adjusted in 2008 and converted from US dollar to Euro, with an expected average increase of € 0.037 per ton in 2010 and another average increase of€ 0.15 per ton in 2012 (when the current priority concession ends).
184. Revenue from handling and storage is collected by the concessionaire. These fees per TEU have been estimated in the Masterplan as respectively US$lOO per TEU for handling and US$10 per TEU for storage. This level is lower by about 30 percent compared to official (non-discounted) rates of the port of Koper. Traffic is allocated to the various terminals based on total capacity (if a pier has capacity in TEU equal to 50 percent of total capacity, it will attract 50 percent oftraffic).
185. The concession fee structure and level will be known only at the signature of the concession agreement. It is assumed that concession fees would be around 20 percent of the concessionaire total revenue. LR’s consultant recommended LR to make an offer to PRA consistent with this assumption for the Brajdica terminal. The current concession fee for the Adriatic Gate is 1 percent reflecting the complete absence of traffic when this concession was signed, but is expected to increase to cover the debt servicing on gantry cranes. The model assumes it would increase to 20 percent in 20 11, when the current concession agreement ends.
Port Capacity
186. With the development of new terminals, port container capacity is expected to increase from 150,000 TEU in 2008 (Brajdica Terminal Adriatic Gate) to 575,000 TEU in 2015. The completion of each terminal is expected to add capacity as follows:
48 0 Current Brajdica Terminal - Adriatic Gate (current capacity of 150,000) - remains the same. 0 Brajdica (additional capacity of200,000 TEU): full operation in 2014. Zagreb Phase 1 (extension to 400 m for an additional capacity of 225,000 TEU): full operation in 20 15.
187. Revenue to each pier is allocated based on the available capacity as a share of total capacity. In 2008, 100 percent of revenue from container cargo is allocated to the Adriatic Gate. In 2040, the same part of the port will receive 26 percent of total container revenue (26 percent representing 150,000 TEU out of a total capacity of 575,000 TEU).
Investment Assumptions
188. The public sector investment in infrastructure for the program (Brajdica, Zagreb) is estimated at US$174 million, financed by the proposed loan and the already approved Rijeka Gateway and RG Additional Financing. The private sector is expected to finance the gantry cranes, lighting and utilities, and pavement of the pier for Brajdica and Zagreb, for a total of US$84 million.
189. The investment preliminary estimation from PRA and the concessionaires is described belom Pier Entity Total Amount (US$) Brajdica PRA 81 million Concessionaire 25 million Zagreb PRA 93 million Concessionaire 59 million
Operating cost associated with new investment
190. It is assumed that PRA operating cost will not dramatically change following the construction, given that most of the operating costs will be born by the concessionaire. Yearly
49 maintenance of infrastructure is assumed to be equal to 0.1 percent oftotal new infrastructure for the first 7 years and then 1 percent. Yearly increase in PRA operating costs is assumed as follows: (i)3 percent for salaries and benefits, (ii)4.5 percent for material expenses, and (iii)5 percent for non-material expenses.
US$ Labor RepairMaintKons. Other Opex Zagreb 4,220,183 2,385,321 1,284,404 Brajdica 2,752,294 917,431 733,945
Economic Analysis
192. The project is expected to have an overall Economic IRR of 16 percent and an NPV of US$59 million, with a discount rate of 12 percent, under the base case scenario.
193. The targeted traffic increase is growing container transit traffic to Central European countries, which presently goes in part through Northern European ports (Antwerp/Rotterdam/Hamburg /Bremen). The Masterplan Update included a detailed review of traffic flows and established a network model to estimate the market potential through Northern Adriatic ports versus Northern European ports considering the economic growth of the region and different cargo origins. The heart ofthis model is a traffic assignment model to simulate route selection for the container flows to/from the different countries that comprise the catchment areas.
194. The basic premise of this approach is that those routes are selected which offer the least perceived (anticipated) costs, in terms of generalized costs. The generalized cost concept involves a weighted sum of different cost components (direct costs and time) giving them economic significance. Catchment areas were also defined to assess the likelhood of flows from various origins to Central European markets to go via Adriatic ports. The overall additional maritime and land distance to target markets through Northern European ports was estimated to generate an excess cost ofUS$162 per TEU.
195. The economic return for each port terminal is satisfactory, with the Economic IRR of Zagreb and Brajdica terminals being respectively 14 percent and 17 percent.
Financial Analysis 196. The calculation of financial NPV is based on the discount rate of PRA and concessionaire. PRA cost of debt was estimated to be 5 percent and the concessionaire WACC’’ of 10 percent.
197. Based on assumptions outlined above, the project would have a financial rate ofreturn of 13 percent, well above the project cost of capital of 6.6 percent (weighted average of total public investment with PRA cost ofdebt and private investment with WACC), and an NPV of US$198 million. The project financial return of individual piers is also reasonable, with the financial IRR ofZagreb and Brajdica being respectively 11 percent and 15 percent.
198. The investment in individual terminal is likely to provide a return high enough to attract private sector participation. The financial return on the private sector investment in the
l5Weighted Average Cost of Capital.
50 Zagreb Terminal is expected to be 19 percent, for an investment of US$59 million. This return is higher than the estimated cost of capital of 10 percent and would generate an NPV of US$38 million. The return financial return on the private sector investment in Brajdica is expected to be above 20 percent, for an investment of US$25 million. This return is equivalent to an NPV ofUS$69 million.
PRA Financial Sustainability
199. Aside from the financial feasibility of these investments, the impact on PRA of these additional commitments was reviewed. Under RG, PRA has benefited from HRK 320 million in counterpart funding and contribution to debt servicing. As a non profit entity, the most important financial goal for PRA is to maintain a positive cash balance every year (equivalent to a debt service coverage ratio of 1, with inclusion of Cash Balance) while undertaking its expansion program.
200. PRA does not formally depreciate their assets in its financial accounts because they belong to the maritime domain. The annual depreciation cost is calculated according to the accounting rules set for nonprofit legal entity and determines the level of capital subsidy provided by the Government. The depreciation of assets is however reflected in the attached PRA financial accounts. Asset value and source of financing is adjusted for depreciation cost. The operating revenue of PRA (without subsidy) covers 100 percent of its operating cost as well as about a half of estimated depreciation. Revenues from concession fees increase in 2008, as the fees for new investments, corresponding to debt reimbursement, will start being collected. Based on estimated growing traffic and revenue, PRA is expected to cover fully its depreciation cost by 2020.
20 1. With the proposed investment and assumptions listed above, PRA is expected to have sufficient cash flow every year, when combined with its cash balance to service at least 1.3 times the debt. DSCR without cash balance ranges from 0.6 to 0.9 in the period 2009-2015, which reflect the ramping up phase of the new terminals, during which the terminals are used initially at partial capacity. PRA is nonetheless expected to be able to service its debt without additional contributions from the Government over what is foreseen to date under the Rijeka Gateway program (HRK320 million under the first phase for counterpart funds and loan servicing and €4 million for Rijeka Gateway 11). The projections are closely linked to the level of concession fees that PRA would be able to obtain for the Zagreb and Brajdica terminal.
202. PRA’s operating ratio remains acceptable and improves over the life of the project. Due to increased revenue for PRA as a result of the investment, operating ratio improves from an estimated 153 percent in 2007 to 120 percent in 2014, with further improvements afterwards.
51 PRA Sources and Use of CF
Y cc1
I
203. Under the proposed financial terms and base case scenario, after the two terminals are in full operation, PRA would not require budget support to maintain a positive cash flow balance each year, provided it retains its cash balance. The contribution from Central Budget for the project would be about €4 million as counterpart funding. The overall profile for debt servicing is presented below.
I PRA Debt Servicing I 30 000 000
25 OOC 000
-- ancr mot sen ce 20 coo coo 7 0 .me.eSI RG2 OPncpa RG2 E merest RGl Am Rnc pa RG Aoa 0 merest RG1 ORncpa RG
Sensitivity Analysis
204. A sensitivity analysis was performed to determine the impact of different traffic scenario on overall financial and economic return of the project. In addition to the base scenario, the port masterplan (MP) provided a low and high case traffic scenario. The difference between the Masterplan low and high case traffic scenario is about 30 percent for container traffic by 2020 (410 kTEU versus 530 kTEU). PRA prepared an alternative scenario, based on more recent traffic data and their estimation of future traffic growth. The sensitivity analysis shows that the results are moderately sensitive to traffic forecasts scenarios. In case traffic in 2012 is 25 percent lower than expected (190 kTEU or the equivalent of expected 2008 traffic), the economic return would remain above 13 percent. The sensitivity analysis also shows results that are moderately sensitive to price increase in civil
52 works. The project would retain a 12 percent economic rate of return if traffic level increases progressively to 320 kTEU and then remains at this level.
205. The project economic and financial return is not sensitive to the concession fees paid by the concessionaire to PRA since those reflects the sharing ofbenefits between PRA and the concessionaire, rather than the actual project benefits. PRA financial sustainability remains sensitive to container traffic and concession fees paid by the private operator. In addition, it can be seen from the previous table that the various traffic scenario only marginally reduce the project financial and economic return. A 25 percent reduction in container traffic from the base case scenario does reduce the economic IRR to about 13 percent and the financial IRR to about 11 percent. A 25 percent reduction in container traffic compared to the base forecast would still not require central budget support to maintain a positive cash balance. Temporary government contributions would be required should concession fee payment be lower than forecast by 30 percent or more.
53
Annex 10: Safeguard Policy Issues CROATIA: Rijeka Gateway I1
206. In accordance with the World Bank’s safeguard policies and procedures (OP/BP 4.01 on Environmental Assessment) the proposed Project has been classified as environmental assessment Category “A” considering the construction and extension ofport terminals it entails.
207. From a broad regional perspective, the extension of the Brajdica and Zagreb container terminals is expected to lead to a reduced carbon footprint for container traffic originated in the Far East and destined to Central Europe. The route through Corridor Vb offers shorter maritime and land transport distance than the alternative through congested Northern European ports. The extension of two container terminals will allow increased port operational efficiency and capacity and enable PRA to meet part of the expected increase in regional demand for container transport.
208. From a local perspective, the project impacts would take place during construction and operations with higher volumes of traffic, but can be properly mitigated. Such impacts were reviewed in details as part of project preparation through soil investigations, engineering studies and environmental impact studies for the project and its components in accordance with the local environmental laws and the World Bank policies.
209. The project environmental assessment built on earlier environmental studies prepared by PRA in accordance with Croatian EIA legislation. Both terminals received their location permits, which formally validate that the preparation followed the Croatian EIA process.
210. The Zagreb terminal environmental assessment and disclosure was covered under the ongoing Rijeka Gateway project and its suitability confirmed during its appraisal. PRA prepared an EIS including the environmental assessment of the construction works proposed for the entire Zagreb terminal with a total planned length of 1,200 m as envisaged in its 2003 Master Plan. This EIS served as the basis for the 2003 EA for the Rijeka Gateway project, which was disclosed in Infoshop16. Even though the Executive Summary prepared and disclosed for the Rijeka Gateway project referred only the first 250 m funded by the project, the EIS and EA for the project covered the section proposed under Rijeka Gateway 11. In case the proposed “design and built” approach for the Zagreb terminal is susceptible to trigger additional environmental impacts than those already covered by the EA and EMP, the preparation of an updated environmental assessment study will be required. The Rijeka Gateway I1 Overarching Executive Summary addresses the sections covered by both projects, which falls entirely within the 1,200 m analyzed in the original EIS.
21 1. The proposed extension of the Brajdica terminal under the RG I1 was covered under an EIS report prepared and publicly disclosed by PRA in 2005. The environmental process and documentation developed for the Brajdica terminal extension met the requirements of OP/BP
16 http:/limagebank. worldbank.org/servletlWDSContentServerlIW3P/IB/2003/03129/000094946~0303 190408 11541Re nderedPDF/multiOpage.pdf
57 4.01, after addition of an EMP and updated executive summary, except that no disclosure consultation took place on the terms ofreference for the study.
2 12. PRA prepared additional documents and organized additional consultation compared to Croatian EIA legislation to comply with the World Bank OP 4.01 requirements as follows: (1) preparation and disclosure of a project over-arching EA Executive Summary including a brief assessment of the proposed expansion works for the two container terminals; and (2) preparation and disclosure of an EMP for the Brajdica terminal extension works together with the disclosure of an updated English Executive Summary of the Brajdica Component EA document. These documents were disclosed on PRA website on May 7, 2008 and publicly discussed on May 19, 2008.
213. Environmental baseline data was established for current air, sea and sediments quality, noise and waste management. From the analyses performed during the EIA process, the following characterization describes the baseline situation surrounding the two terminals:
0 the air quality in areas surrounding the planned construction sites were considered mildly polluted based on results that showed concentrations of S02, N02, PAHs and H2S as well as smoke and particulate matter higher than the permissible limits in the center ofthe city and around the existing oil refinery. Containerized cargo handling is not expected to lead to significant emissions fiom particles and dust in the air during loadinghnloading cargo activities;
the greatest sources of sea pollution is the oil refinery and to a lesser extend harbor activities related to the transfer of general cargo. Main sources of pollution fiom the oil refinery are liquid waste and the outflow of hydrocarbons into the sea fi-om the polluted underground in the refinery area. Harbor activities including mooring, trans-shipment of goods fiom the ships to indoor and outdoor warehouses and trans-shipment to the means of transport ship-rail-trucks contribute more modestly to the marine pollution in the project area. Yet, sea water quality samples collected around the Brajdica terminal at different depths in four different locations showed results for bacteriological characteristics in compliance with the national standards;
heavy metals analysis in sediment samples collected in three locations around the Rijeka port (Brajdica terminal, Port of Baross, and Zagreb terminal) showed mercury, lead, copper and zinc concentrations higher than the international standard levels for the marine sediments quality. However, due to lack of regular sediment monitoring program in the Rijeka bay it is difficult to correctly evaluate the source of these sediments pollution as the existing oil refinery could be a cause of historical environmental pollution in the area;
0 Containers-reloading activities generate a certain level of noise for the residential area situated north ofproject area. However, the noise originating fiom city traffic and nearby railway (located between the port and residential area) is stronger than the noise produced around the two terminal areas;
58 0 hazardous waste (e.g., waste motor oils, hydraulic and oils originating from transformation substations, oil packaging, as well as sludge from the oil/water separators) and non-hazardous waste from cleaning of the terminal area, maintenance of the sewerage systems, are common waste occurring due to the regular port activities. PRA is implementing a Port Waste Management Plan that regulates procedures for management of ship-generated waste and cargo residues in the port area, the marine environment protection and against discharging, and the protection of the onshore area against pollution.
214. Foreseen impacts are associated with the proposed construction works and with the expected increase in traffic flows on the corridor when terminals are in operation. A comprehensive review of these impacts took place as part of project preparation and suitable environmental measures were identified for PRA to mitigate such impacts and duly disclosed, discussed with stakeholders and endorsed by Croatian authorities.
215. All construction activities will take place in the designated port area and extend terminals already located in semi-industrial areas. The EA describes the possible environment effects affiliated with the construction works as well as the proposed alternative options to the selected technical solutions. These include: (i)air emissions from construction equipment, work vessels, trucks and other vehicles used in construction work; (ii)increased risk of accidental spills or mishandling of hazardous materials leading to sea pollution and direct or indirect contamination of surface waters due to; (iii)soil, air and seawater pollution in case of dredging operations and disposal of dredged material; (iv) noise and dust; (v) potential disturbance of marine ecosystem; and (vi) effects related to general waste reception, liquid, solid and hazardous materials waste management,
216. Additional traffic will come as a result of increased capacity. This additional traffic is likely to generate additional noise and waste, potential traffic congestion as well as additional handling and storage of dangerous cargoes. The completion of two connecting roads under separate projects will provide the necessary additional road capacity. The port waste management plan for ship generated waste and cargo residues, supported by the purchase of additional equipment under the project will enable PRA to respond to new needs. PRA will also develop under the project a comprehensive port environmental management plan, to align with best practice in the management of environmental aspects in port operations.
217. Potential environmental impacts associated with the proposed construction works or with the expected increase in traffic flows during the terminal operation within the port can be satisfactorily addressed through appropriate mitigation measures to be implemented by PRA, as indicated in the EMPs. Mitigation related to construction will be mostly embedded in construction contracts and environmental monitoring by PRA.
218. The EMP entails a thorough presentation on mitigation measures applicable to the construction works as well as the operation stage of the terminals including: (i)site management and institutional controls; (ii)health and safety protection for workers; (iii)emergency responses (including spills); (iv) mitigation measures for collecting and discarding waste, reducing air and noise, soil and seawater pollution. The EMP provides a rigorous environmental monitoring
59 program consisting of sampling and analyzing ofvarious media (seawater, air and noise, soil and sea sediments) on and around the project sites.
219. Regarding operations, PRA is actively working at three levels: (i)traffic management in and out of the terminal; (ii)waste management plan; (iii)operating emergency plan. PRA is implementing a Port Waste Management Plan that regulates reception and handling of ship- generated waste and cargo residues on the entire area under PRA jurisdiction. Currently, PRA is employing four local companies for collecting the ship-generated oil waste and one company for collecting the port related solid waste. PRA will purchase its own ship for collecting oil and solid waste generated by additional port activities and by vessels arriving in the Rijeka bay area. The main concessionaire “Luka Rijeka” also has its own Waste Management Plan (May, 2006) for separately collecting waste from port activity for all terminals, with designated responsible persons.
220. PRA prepared a Maritime Study for Calling and Leaving the Container Terminal, which allows proper management of ships traffic in and out of the terminal. PRA will extend its current spill prevention, control and countermeasures plan to include areas within the port that are sensitive to spills and releases from hazardous material, locations of any water intakes (e.g. cooling water), and training of response personnel in deployment of equipments during emergencies. PRA is also implementing an Operating Emergency Plan, and has an agreement with a specialized firm equipped with emergency response equipment (vessels, skimmers, oil booms, and dispersants).
221. While the project foresees an increase in traffic and noise, those will primarily have an impact during the construction period. Additional road and rail capacity will absorb the new traffic and allow it to avoid the main city streets. Noise charts indicate that the impact of city traffic and the rail marshalling yard predominate over foreseen cargo operations. PRA will implement mitigation measures to help minimize the impact of increased transportation on the areas surrounding the port.
222. The project does not require resettlement of households, business or residential dwellings. None ofthe proposed construction activities and extension of the container terminals will require land acquisition or involuntary resettlement. There are no squatters. All new construction will take place on port property within a previously enclosed and secure area.
223. Monitoring of project performance and implementation of EMP requirements will be the responsibility of PRA, which will be helped in this task by: (i)Supervising Engineer that will supervise the construction work on the project sites; (ii)contractors that will perform civil works in accordance with the requirements of the current Croatian construction and environmental regulations as well as with the EMP; and (iii)other related local authorities including regional water and environment inspectors and local monitoring institutes.
Public Consultation and Disclosure
224. The Overarching Executive Summary of the RGII project, the updated Executive Summary for Brajdica Terminal and a related EMP were disclosed in Croatian on PRA website
60 on May 7,2008 and discussed during a public meeting held on May 19, 2008. Participants raised questions related to the oversight and handling of ship ballast waters in the port of Rijeka, noise generated by shps, crenels and relocation of containers activities and the quality of the filling materials used in the sea for the future expansion of the terminals hture plans for development ofthe bulk cargo in the Bakar port, and the environmental assessment process for the Zagreb per extension Erom the initial 250 m to the about 700 m. As a request of the OP/BP 4.01, the documents were also disclosed in English at the Bank’s Infoshop in Washington DC on May 8, 2008.
225. The EIA for the overall extension and rehabilitation of Brajdica Container Terminal was publicly disclosed in Croatian during September 14-27, 2005. A summary of the EIA document was also disclosed on the website ofthe Ministry of Environmental Protection, Physical Planning and Construction in Croatian language. The public debate was attended by 16 persons including representatives of local county, Faculty of Science, Society of Historians, NGOs, Civil Society for Maritime Activities Improvement, local governmental authorities, etc. Comments were raised on the future economic growth of the port, technical aspects related to terminal construction design, concerns of air and noise pollution during future works. The 2005 EIA for Brajdica has been disclosed in Infoshop on May 8,2008.
226. The EIA for the overall extension of the Zagreb pier has been disclosed and discussed in 2002 in accordance with the Croatian legislation. An overall public consultation for the whole project RGI took place on January 15, 2003, and the project EA, EA-Summary, and the EMP were made available to the public for comments.
61 Annex 11: Project Preparation and Supervision CROATIA: Rijeka Gateway I1
Planned Actual PCN review 08/29/2007 08/29/2007 Initial PID to PIC 08/3 0/2007 09/06/2007 Initial ISDS to PIC 08/3 0/2007 0 8/3 0/2007 Appraisal 08/14/2008 09/02/2008 Negotiations 10/13/2008 10/27/2008 Board/RVP approval 12/11/2008 Planned date of effectiveness 07/0 1/2009 Planned date ofmid-term review 12/15/2011 Planned closing date 12/15/2014
Key institutions responsible for preparation ofthe project: Port ofRijeka Authority Bank staff and consultants who worked on the project included: Name Title Unit Gerald Ollivier Task Team Leader ECSSD Stjepan Gabric Senior Project Officer ECSSD Sunja Kim Senior Financial Specialist ECSSD Vladislav Krasikov Senior Procurement Specialist ECSPS Michel Luc Donner Transport Specialist ETWTR Claudia Pardisas Ocafia Senior Legal Counsel LEGEM Vladimir Skendrovic Senior PPP Expert ECSSD Wolfhart Pohl Senior Environmental/Geotechnical Specialist ECSSD Rene Bouchet Sr. Maritime Structure Specialist ECSSD Ruxandra Maria Floriou Environmental Specialist ECSSD Natasa Vetma Operations Officer ECSSD Paula Lytle Senior Social Development Specialist ECSSD Lamija Hadzagic FM Specialist ECSPS Vickram Cuttaree Infrastructure Economist ECSSD Hana Huzjak Operations Analyst ECSSD Richard Podolske Consultant ECSSD Lorraine McCann Kosinski Program Assistant ECSSD Ljiljana Boranic Team Assistant ECSSD Elena Chesheva Quality Reviewer ECSSD Jean-Francois Marteau Peer Reviewer AFTRR Cornelius Kruk Peer Reviewer ETWTR Pervaiz Rashid Peer Reviewer ECSPS
62 Bank funds expended to date on project preparation: 1. Bank resources:US$2 19,000 2. Trust funds: US$O 3. Total: US$2 19,000
Estimated Approval and Supervision costs: 1. Remaining costs to approval: US$10,000 2. Estimated annual supervision cost: US$90,000
63 Annex 12: Documents in the Project File CROATIA: Rijeka Gateway I1
Legal
1. Maritime Domain and Seaports Act (Official Gazette 158/2003) Regulation on the Procedure for Granting a Concession on the Maritime Domain (23/2004) 2. Physical Plan ofthe City ofRijeka (3 1/2003) 3. Master Plan ofthe City ofRijeka, GUP (7/2007)
Port Development
4. Port ofRijeka Masterplan, Rotterdam Maritime Group, 2003 5. Port ofRijeka Masterplan Update, Rotterdam Maritime Group, 2008 6. Project Implementation Plan
Environmental
7. EIA for Brajdica Terminal, Rijekaprojekt, 2003. 8. EIA for Zagrebacko Pier, Rijekaprojekt Niskogradnja, 2001. 9. EIA for Rijeka Gateway Project, Urbing, 2003. 10. Overarching Executive Summary for Rijeka Gateway Project, Port of Rijeka Authority, 2008. 11. EMP for Extension and Rehabilitation ofBrajdica Container Terminal, Port of Rijeka Authority, 2008.
64 Annex 13: Statement of Loans and Credits CROATIA: Rijeka Gateway I1
Difference between expected and actual Original Amount in US$ Millions disbursements
Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d P102778 2007 Revenue Admin Modemizn Project 68.00 0.00 0.00 0.00 0.00 68.00 0.67 0.00 (RAMP) PO98948 2007 INLAND WATERS PROJECT 133.41 0.00 0.00 0.00 0.00 131.85 -1.84 0.00 PO94341 2007 PAL 2 197.40 0.00 0.00 0.00 0.00 65.80 -22.62 0.00 PO93767 2007 TRADE & TRANS INTEG 75.30 0.00 0.00 0.00 0.00 66.41 4.77 0.00 PO95389 2006 District Heating Project 29.80 0.00 0.00 0.00 0.00 22.88 2.68 0.00 PO91715 2006 AGRIC ACQUIS COHESION 30.14 0.00 0.00 0.00 0.00 25.42 17.85 0.00 PO86671 2006 EDUC SECTOR DEV PROGRAM (CRL) 85.00 0.00 0.00 0.00 0.00 80.70 42.47 0.00 PO80258 2006 SCI & TECH 40.00 0.00 0.00 0.00 0.00 30.50 3.92 0.00 PO76730 2005 SOC&ECONREC 45.68 0.00 0.00 0.00 0.00 37.38 23.16 0.00 PO69937 2005 SOC WELF DEVT 40.00 0.00 0.00 0.00 0.00 23.28 20.56 0.00 PO79978 2004 ENERGY EFF 5.00 0.00 0.00 0.00 0.00 3.52 2.90 0.74 PO65416 2004 Coastal Cities Pollution APLl 47.54 0.00 0.00 0.00 0.00 21.97 17.81 11.10 PO43195 2004 WEKA GATEWAY 194.94 0.00 0.00 0.00 9.56 87.68 21.07 1.19 PO67149 2003 REAL PROP REG & CADASTRE 25.70 0.00 0.00 0.00 0.00 12.33 2.17 0.00 PO63546 2003 PENSION SYS INVST 27.30 0.00 0.00 0.00 0.00 12.52 12.52 0.00
~ Total. 1,045.21 0 00 0.00 0 00 9 56 690.24 148.09 13.03
CROATIA STATEMENT OF IFC’s Held and Disbursed Portfolio In Millions of US Dollars
Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 1998 Belisce 3.49 6.01 0.00 0.00 3.49 6.01 0.00 0.00 2002 Belisce 12.75 0.00 0.00 9.59 12.75 0.00 0.00 9.59 2006 Belje 50.99 0.00 0.00 0.00 50.99 0.00 0.00 0.00 1999 Croatia Capital 0.00 2.37 0.00 0.00 0.00 2.04 0.00 0.00 1999 E&S Bank 1.85 0.00 0.00 0.00 1.85 0.00 0.00 0.00 2002 E&S Bank 20.40 0.00 0.00 0.00 20.40 0.00 0.00 0.00 2005 PBZ 95.61 0.00 0.00 0.00 95.61 0.00 0.00 0.00 2004 Schwarz Group 49.40 0.00 0.00 0.00 49.40 0.00 0.00 0.00 2000 Viktor Lenac 0.06 0.00 0.50 0.03 0.06 0.00 0.00 0.03 Total portfolio: 234.55 8.38 0.50 9.62 234.55 8.05 0.00 9.62
65 Annex 14: Country at a Glance CROATIA: Rijeka Gateway I1 Europe B Upper- POVERTY and SOCIAL Central middle- Development diamond. C roat i a Asia income 2006 Population. mid-year (millions) 4.4 460 8a Life expectancy GNipercapita (Atlasmethod, US$) 9,320 4,796 5,923 GNI(Atlas method, US$ billions) 424 2206 4,790 T Average annual growth, 2000-06 Population (9 -0.2 00 0.8 GNI Gross Labor force (%) -0.4 05 13 per primary Most recent estimate (latest year available, 2000-06) capita enrollment Poverty (%of population belo wnationalpo vertyline) Urban population (%of totalpopulation) 57 64 75 Life expectancyat birth (pars) 76 69 70 1 Infant mortality (per $000live births) 6 28 26 Child malnutrition (%ofchildren under 5) 5 Access to imorovedwatersource Access to an improvedmtersource (%o fpopulation) a0 92 93 Literacy (% ofpopulation age 159 98 97 93 Gross primary enro liment (%of school-age population) 96 a2 1P -Croatia Male a3 136 ~ Upper-middle-income group Female 130 134
KEY ECONOMIC RATIOS and LONG-TERM TRENDS 2005 1986 1996 2006 Economic ratios' GDP (US$ billions) .. 19.9 38 9 42.9 Gross capital formationiGDP .. 219 310 32.8 I Trade Evorts of goods and serviceslGDP .. 40.2 47 1 47.9 Gross domestic savingsiGDP .. 72.5 22 6 23.9 T Gross national savingslGDP .. n.1 23 3 23.9 Current account ba1anceiGDP .. -5.0 -6 6 -7.6 Domestic Capital Interest paymentslGDP .. 0.4 22 savings formation Total debtiGDP .. 26.7 77 6 Totai debt servicelexports .. 5.6 23 0 Present valueof debtiGDP 76 2 Present value of debtiexports 238 7 Indebtedness 1986-96 1996-06 2005 2006 2006-10 (average annual gro wth) GDP -3.5 3.8 4.3 4.8 4.9 -Croatia GDP percapita -3.2 4.1 4.3 4.9 5.3 __ Umer-middle-income wou~ Exports of goods andservices .. 6.2 4.6 6.9 5.7
STRUCTURE of the ECONOMY
1986 1996 2005 2006 Growth of capital and GDP (%) (%of GDP) Agriculture .. a.3 7.6 7.4 I Industry 33.2 31.6 .. 316 20 Manufacturing .. 22.3 20.9 20.6 Services .. 56.5 60.6 60.9 0 I Household finai consumption expenditure .. 60.5 56.9 56.0 .20 General gov't final consumption expenditure .. 27.0 20.5 20.1 Imports of goods andservices .. 49.7 55.5 56.8 -GCF -&--GDP
1986-96 1996-06 2005 2006 /Growth of exports and imports (%) (average annualgro wth) I Agriculture -5.5 0.7 0.1 2.5 15 Industry -9.3 4.2 4.8 5.4 10 Manufacturing -a.2 4.5 5.8 4.5 Services 0.7 3.6 4.2 4.7 5 Househo Id final consumption expenditure ., 3.9 3.4 3.5 General gov't finai consumption expenditure .. 0.5 0.6 2.2 01 02 03 04 05 06 Gross capital formation 8.1 6.3 a.5 -Exports &Imports Imports of goods andservices .. 6.4 3.5 7.3
Note 2006 data are preiiminaryestimates This table was producedfrom the Development Economics LDB database *Thediamonds showfour keyindicators in the country(in bold) comparedwth its income-group average fdata aremissing,thediamondwli be incomplete
66 Croatia
PRICES and GOVERNMENT FINANCE 1986 1996 2005 2006 Domestic prices (%change) Consumer pnces 50.0 4.3 3.3 3.2 lmpiicit GDP defiator 3.6 3.2 3.4
Government finance (%of GDP, includes current grants) Current revenue 48.9 44.9 45.1 Current budget balance 4.6 3.8 5.4 , i -GDPdefIator WCPI Overall surpiusideficit .16 -2.8 -12 I
TRADE 1986 1996 2005 2006 /Export and import levels (US$ mill.) (US$ millions) Totaiexports (fob) 4,677 8,955 '0,606 I Capital goods 255 488 6x) Chemicals 445 1,219 1568 20 000 Manufactures 1,992 4,338 5,042 15 000 Total imports (cif) 8,165 18,301 21,1l7 10 000 Food 772 1,333 1554 Fuel and energy 856 2,806 3,416 5,000 Capitai goods 2,134 6,115 6,929 0 Export pnce index (2000=MOj 72 72 70 import price index (2000=00j 72 72 70 Terms of trade (2000=MOj 100 '00 x)O
BALANCE of PAYMENTS 1986 1996 2005 2006 account balance to GDP (%) (US$ mdlions) current Exports of goods andservices 7,974 18,876 21,415 imports of goods andservices 9,882 21,702 24,665 Resource balance -1,908 -2,825 -3,249 Net income -103 -1,225 -1390 Net current transfers 1,022 1,475 1383 Current account balance -989 -2,575 -3,255 Financing items (net) 1,553 3,597 4,983 Changes in net reserves -564 -1,022 -1727 1-10 1 Memo: Reserves inciuding gold (US$ millions) 2.314 8,801 11489 Conversion rate (DEC, local/US$) 5.4 5.9 5.8
EXTERNAL DEBT and RESOURCE FLOWS 1986 1996 2005 2006 IComposition of 2005 debt (US5 mill.; (US$ millions) Total debt outstanding and disbursed 5,309 30,169 iBRD 195 798 1028 IDA 0 0 0 Total debt service 530 4,920 IBRD 26 96 112 IDA 0 0 0 Composition of net resourcefiow Officiai grants 25 a2 Officiai creditors -6 -20 Private creditors 563 1,643 Foreign direct investment (net inflow) 511 1,761 Portfolio equity(net infiows) -7 113 , F 23,659 World Bank program Commitments 134 396 0 A - IBRD E- Bilaleri Disbursements 405 ai 243 B - IDA D - Other multilatmd F - Private Principal repayments 16 70 73 C-IMF G - Stnrt-terr Net flow 89 11 89 Interest payments 11 26 39 Net transfers 78 -15 131
~~ Note This table was producedfrom the Development Economics LDB database 9/28/07
67 CROATIA RIJEKA GATEWAY II PROJECT
0 50 100 150 PROJECT PORT KILOMETERS Vb PROJECT CORRIDOR PRIMARY COMPETING PORTS
This map was produced by the II PAN EUROPEAN TRANSPORT CORRIDORS Map Design Unit of The World Bank. MAJOR ROADS CROATIA The boundaries, colors, denominations and any other information shown on MAJOR RAILROADS this map do not imply, on the part of NATIONAL CAPITALS The World Bank Group, any judgment on the legal status of any territory, or INTERNATIONAL BOUNDARIES any endorsement or acceptance of such boundaries.
14° 16° 18° SLOVAK REP. 20° 22° 24° VI UKRAINE
Vienna 48° 48° Bratislava
V AUSTRIA IV Budapest X
V HUNGARY Xa Vb X Xb Vc ITALY V 46° 46° Ljubljana SLOVENIA Zagreb ROMANIA Trieste X Koper Xb CROATIA Vc Rijeka For Detail See IBRD 36382
IV
Belgrade
BOSNIA AND SERBIA Adriatic 44° 44° HERZEGOVINA VII X Vc Sarajevo IV
X
MONTENEGRO Sofia Sea ITALY Podgorica BULGARIA VII
Skopje IBRD 36381 42° 42° JULY 2008 ALBANIA FYR MACEDONIA 14° 16° 18° 20° Port Connector DIRACJE Road D403 RUJEVICA SKURINJE CAVLE
Extent of Bank-Financed D8 Bypass under tunnel OREHOVICA Rijeka Gateway 1 v Skrljevo Industrial Rijeka Port Free Zone Rehablitation and New Construction DRAGA RIJEKA For see map, d etailbelow. SUSAK SV. KUZAM CROATIA KOSTRENA
RIJEKA GATEWAY II PROJECT Port Connector Rijeka PROJECT WORKS*: Road D404 Bypass D8 NEW CONSTRUCTION BAKAR ROADS TERMINAL CONSTRUCTION FUTURE ROADS, OTHER LENDERS EXISTING MAIN ROADS EXISTING SECONDARY ROADS MEJA RIJEKA PORT PROJECT WORKS AREA BOUNDARY
KRALJEVICA This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations V and any other information shown on PRASKO this map do not imply, on the part of BERTH BRAJDICA extensionextension extensionextension The World Bank Group, any judgment areaarea CONTAINER areaarea on the legal status of any territory, or TERMINAL
any endorsement or acceptance of IBRD 36382 OCTOBER 2008 ZAGREB TERMINAL such boundaries. RIJECKI BR EAKWATER DELTA AREA 0 1 2 3 0 100 200 300 400 500 PORT OF BAROS METERS KILOMETERS