Document of The World Bank Public Disclosure Authorized Report No: 25371-HR FOR OFFICIAL USE ONLY PROJECT APPRAISAL DOCUMENT ON A Public Disclosure Authorized PROPOSED LOAN IN THE AMOUNT OF US$156.5 MILLION TO REPUBLIC OF CROATIA FOR THE RIJEKA GATEWAY PROJECT Public Disclosure Authorized May 9,2003 Infrastructure Sector Unit South Central Europe Country Unit Europe and Central Asia Region document has a restricted distribution and may be used by recipients only in the performance of heir official duties. Its contents mav not otherwise be disclosed without World Bank authorization. I Public Disclosure Authorized CURRENCY EQUIVALENTS (Exchange Rate Effective May 9,2003) CurrencyUnit = HRK HRKl = US$0.12 US$ = HRK6.65 FISCAL YEAR January 1 -- December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CES Croatian Employment Service CFAA Country Financial Accountability Assessment EA Environmental Assessment EBRD European Bank for Reconstruction and Development ED1 Electronic Data Interchange EMP Environmental Management Plan ERR Economic Rate ofReturn FRR Financial Rate ofReturn GDP Gross Domestic Product GPN General Procurement Notice HAC Hrvatske Autoceste (Croatian Motorways Company) HC Hrvatske Ceste (Croatian Roads Company) HZ Hrvatske Zeljeznice (Croatian Railways Company) ICR Implementation Completion Report LR Luka Rijeka d.d. (port operating company) MMATC Ministry of Maritime Affairs, Transport and Communications MOI Ministry of Interior MPWRC Ministry ofPublic Works, Reconstruction and Construction NEAR North East Adriatic Range NPV Net Present Value PHRD Japan Policy and Human Resources Development Fund PMS/BMS Pavement and Bridge Management System PPF Project Preparation Facility PPP Private-Public Partnership PR4 Port of Rijeka Authority RMG Rotterdam Maritime Group (Consultant) SOE State Owned Enterprise TTFSE Trade and Transport Facilitation in Southeast Europe VTMS Vessel Traffic Management System Vice President: Johannes F. Linn, ECAVP Country Managermirector: Andrew N. Vorkink, ECCUOS Sector Managerhlirector: Eva MolnarIHossein Razavi, ECSIE Task Team Leader/Task Manager: Michel Audige, ECSIE FOR OFFICIAL USE ONLY CROATIA RIJEKA GATEWAY PROJECT CONTENTS A. Project Development Objective Page 1. Project development objective 3 2. Key performance indicators 3 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 3 2. Main sector issues and Government strategy 4 3. Sector issues to be addressed by the project and strategic choices 9 C. Project Description Summary 1. Project components 9 2. Key policy and institutional reforms supported by the project 12 3. Benefits and target population 12 4. Institutional and implementation arrangements 12 D. Project Rationale 1. Project alternatives considered and reasons for rejection 14 2. Major related projects financed by the Bank andor other development agencies 14 3. Lessons learned and reflected in the project design 15 4. Indications ofborrower commitment and ownership 16 5. Value added ofBank support in this project 16 E. Summary Project Analysis 1. Economic 16 2. Financial 17 3. Technical 22 4. Institutional 22 5. Environmental 23 6. Social 25 7. Safeguard Policies 27 F. Sustainability and Risks 1. Sustainability 27 2. Critical risks 27 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. 3. Possible controversial aspects 28 G. Main Conditions 1. Effectiveness Condition 28 2. Other 28 H. Readiness for Implementation 30 I. Compliance with Bank Policies 30 Annexes Annex 1: Project Design Summary 31 Annex 2: Detailed Project Description 34 Annex 3: Estimated Project Costs 39 Annex 4: Cost Benefit Analysis Summary, or Cost-Effectiveness Analysis Summary 40 Annex 5: Financial Summary for Revenue-Earning Project Entities, or Financial Summary 43 Annex 6: (A) Procurement Arrangements 62 (B) Financial Management and Disbursement Arrangements 69 Annex 7: Project Processing Schedule 73 Annex 8: Documents in the Project File 74 Annex 9: Statement of Loans and Credits 76 Annex 10: Country at a Glance 78 Annex 11: SWOT analysis for the port ofRijeka 80 Annex 12: Environmental Assessment Executive Summary 87 Annex 13: Land Acquisition and Resettlement Plan 96 Annex 14: Government Project Policy Letter (Draft) 102 MAP(S) No. IBRD 32355 ECSIE Date: May 9,2003 Team Leader: Michel Audige Sector Manager: Eva Molnar Sector(s): Roads and highways (45%), Ports, waterways Country Director: Andrew N. Vorkink and shipping (45%), Central government administration Project ID: PO43 195 ( 10%) Lending Instrument: Specific Investment Loan (SIL) Theme(s): Export development and competitiveness (p), Infrastructure services for private sector development (P), Social risk reduction (S), Other public sector govemance (SI Project Financing Data [XI Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other: For Loans/Credits/Others: Amount (US$m): $156.5 - Borrower Rationale for Choice of Loan Terms Available on File: IYes Proposed Terms (IBRD): Variable-Spread Loan (VSL) Grace period (years): 5 Years to maturity: 15 Commitment fee: 0.75% Front end fee (FEF) on Bank loan: 1.00% Financing Plan (US$m): Source Local Foreign Total BORROWERS 45.20 I 64.40 I 109.60 IBRD 56.50 100.00 156.50 Total: 101.70 I 164.40 266.10 Borrower: PRA, HC, HAC Loan amounts including front-end fees (USSm): PRA (55. l),HC (84.1), and HAC (17.3) Responsible agency: PRA, HC, HAC Port of Rijeka Authority (PRA) Address: Riva 1 Street, Rijeka 51 000 Contact Person: Mr. Bojan Hlaca, Director General Tel: 385-51-212 974 Fax: 385-51-213 112 Email: [email protected] Other Agency(ies): Croatian Roads (HC) Address: Voncinina 3, Zagreb 10001 Contact Person: Mr. Vladimir Bizjak, President of the Management Board Tel: 385-1- 472-2580 Fax: 3 85- 1-472-258 1 Email: [email protected] Croatian Motorways (HAC) Address: Voncinina 2, Zagreb 10001 Contact Person: Mr. Stanko Kovac, President of the Management Board Tel: 385-1-469-4400 Fax: 385-1-469-4500 Email: [email protected] Expected closing date: 09/30/2009 -2- A. Project Development Objective 1. Project development objective: (see Annex 1) The overall objective of the project is to increase Croatia's trade competitiveness by improving the international transport chain through the Rijeka Gateway for both freight and passengers traffic through modernizing the port and road network connections, and privatizing port operations. Specific objectives include: (i)increasing efficiency and improving financial, social and environmental conditions at Rijeka Port, rehabilitating infrastructure and replacing equipment; (ii)preparing to redevelop part of Rijeka Port for urban purposes; and (iii)improving international road connections linked to the Rijeka gateway, and the administration of the road sector. 2. Key performance indicators: (see Annex 1) Performance indicators have been designed and agreed with the Government during project preparation. Indicators will center on the speed of transformation and modernization of Rijeka Port, and of the road sector. Key outcome/impact indicators for the project's objectives: financing and operating transport sector infrastructure and services. veloper is selected to redevelop Delta and port0 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: 22633-HR Date of latest CAS discussion: 06/1999 The last Croatia country Assistance strategy was discussed by the Board on June 3, 1999 (R99-89[IFC/R99-75]). A CAS Progress Report was issued on August 22,2001 (Report No. -3- 2263-HR). The Project Development Objectives listed above derive from and support the following CAS objectives: Strengthening market institutions and competitiveness. e Increasing private sector involvement in financing and operating transport sector infrastructure and services. 2. Main sector issues and Government strategy: Croatia has achieved a great deal in the transport sector since independence: war damage has been repaired, a body of law generally suitable to govern the transport sector of a sovereign State has been created, and a number of transport enterprises have been privatized. Sector issues were assessed by the Bank in Republic of Croatia - Policy Directions for Transport (Report No. 19447-hr, June 15, 1999), and as part of a comprehensive diagnosis of strategic development and sector policy issues and recommendations prepared for the new Government (A Policy Agenda for Reform and Growth, February 14,2000). The main sector issues and Government strategy are summarized below: Economic Role of Riieka Port: Transport plays an important role in the international trade which has become more significant since independence and in reestablishing potentially profitable transit traffic. The Government has recognized the key role of Rijeka Port by declaring that Rijeka and Ploce are the two strategic ports (the latter primarily serves Bosnia and Herzegovina, BiH). Rijeka Port's physically protected position and natural depth of 25 meters makes it the only port in the North Eastem Adriatic Range (NEAR) capable of handling the largest vessels. However, between 1980 and 1997, the Port of Rijeka lost almost 70 percent of its total throughput in general and bulk cargo. While the total Northern Adriatic market (Rijeka, Koper, Trieste excluding liquid bulk traffic) increased from about 16 million tons in 1990