/-V rZ5 .) --

TheWorld Baik

WR OmcuL uSE ONLY

.dl II' j)f3 C ' ,;E (Wit,.Y

Ai i fc-G: Rc)hN, Hi1 Repoit No. P-5888.POL

ii =MAJl AND COMENDATflON

OF ToE

PRESIDENT OF THE

11 TA B§AMNK POR RECOISTRICTON Al DEVELOPNE

TO TM

EXEUTI DIRECTORS

ON A

PROPOSED LO

I1 AN A1 ) EQUIVALET TO US$150 UmaIol To

TIl REBLIC oF POLA)

FOR k

ROADS PROJECT

FEBRuAtY 11, 1993

Tnis document has a restricted distribution and may be used by recipients only in the performnce of

ie;r offieCil duties. its contentsi may not otise be disclosed ithout World Bank authorizatio

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CUkRENCY EQUIVALENT

Currency Unit - Zlotys (ZL) (average rates)

1988 i2B2 1222 1991 1922

US$1 = ZL 503 6500 9500 11458 13500 (July)

WEIGHTS AND MEASURESXekic SLvstenUS t m

1 meter (m) 3.2808 feet (ft)1 kIlometer (km) 0.6214 mile (mi)1 square Idlometer (kim) 0.3861 square mile (mi2)I metric ton (m ton) 0.9842 long ton (Ig ton)1 Idlogram (kg) 2.2046 pounds abs)

ABBREVIATIONSAADT = Annual Average Daily TrafficBPRSD = Road Network Planning BureaucOCOM = Coordinating Committee for Multilateral ExportsCTC = Centralized Traffic ControlDODP = Regional Administration of GDDPERR = Economic Rate of RetumnFYR = First Year Rate of ReturnGDDP = General Directorate of Public RoadsGNP = Gross National ProductGOP = Government of PolandIBDM = Institute of Road and Bridge ResearchLOT Polish AirlinesMIS = Management Information SystemMT(E = Ministry of Transport, and Maritime EconomyNBP = National Bank of PolandPEKAES = International Road Freight CompanyPKP = Polish State RailwaysPKS = National Road Transport EnterpnsePMS = Pavement Management SystemPMU = Project Monitoring Unit (MTME)POL = Polish Ocean LinesPSK = Polish Domestic Freight FowardersSHRP = Strategic Highway Research ProgramTA = Technical AssistanceTM = Traffic ManagementTMIS = Transport Management Information System

POLAND - FISCAL YEARJanuary 1 - December 31

FOR OMCIL USE ONLY

POLAND

ROADS PROJECT

Loan and Prect Summary

X LQoZ Republic of Poland

:zmdng AgcWMinistry of Transport and Maritime Economy, andGeneral Directorate of Public Roads

AmounD US$150 million equivalent

Terms 17 years maturity with 5 years grace at the Bank's standardvariable interest rate.

Einang Plan:

EoMiLza LOWI2__________US$ million

_ m_ _ _ 146.8 146.8 l

IBRD 150.0 0.0 150.0

Total 150.0 146.8 296.8l

EcQnomi, Rateof lletum: About 20%

Staff AppresalReport No. 11226-POL

MpU No- IBRD 23783

I This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

REIOT AND RECOMMENDATIO OF THE PRESIDENT OF THEINI RNATIONAL BANK FOR RECONSTU(;ICON AND DEVELOPMEN

TO TH EXECUTIVE DIRECTORSON A PROPOSED LOAN IN AN AMOUNT EOUIVALENT TO US$150 MILLI

TO THE REPUBLIC OF POLANDFOR A ROADS PROJECT

1. I submit for your approval the following report and recommendation on a proposedloan to the Republic of Poland for th_ equivalent of US$150 million, in support of a RoadsProject. The loan would have a term of 17 years, including a grace period of 5 years at thestandard variable interest rate.

2. &agkg=rDjd: Poland's transport sector is in the midst of a complete restructuringwhich aims at the breakup of the old monopolistic organizations and the implementation of anew tansport policy aimed at more efficient transport based on increased competition. Tothis end many of the former monopolistic enterprises have been broken up into smaller part,restrictions on access to the markets have been removed, tariffs have been freed fromGovernment controls and subsidies have been reduced. Substantial progress has beenachieved; operating subsidies to transport enterprises have been reduced to a thfid of their1989 level, tariffs have been raised to better reflect costs and private trucking companieshave developed rapidly. Half of all trucks are now privately owned, which provides realcompetition both within the trucking industry and also to the railways.

3. Road traffic has shown a spectacular increase during the past 20 years. Since 1970the number of cars has increased more than 10 times, although car ownership, now at a levelof 124 cars/1O00 inhabitants, is still only one third of Western European levels. During thepast 5 years the annual growth rate has been 7-8% and the average growth in traffic on thenational road network was 4% per year. On the main network, traffic increased at a rate of7% per year. Due to Poland's difficult budget situation, funding for roads has decreasedsteeply over the last few years, with the total GDDP budget of 1991 being a thrd of what itwas in 1987. This has created a significant backlog of maintenance and rehabilitadon. Withthe continuing increases in traffic, road accidents have increased and Poland now has one ofthe highest per capita rates of highway fatalities in Europe. There is also an urgent need toplan for the future construction of urban by-passes and motorways. The present projectaddresses priority needs of the national road network and its administration.

4. Previous Bank Involvement in the Sector: The Bank has been involved in the sectorsince the late 80's. The ongoing First Transport Project (Loans 3193-PO and 3194-PO,US$4.8 and US$145.0 millions respectively, Staff Appraisal Report 8431-POL of April 5,1990) aims to support the restructuring of the sector through developing more efficient

-2 -

internal management systems and maintenance procedures, together with the financingnecessary to support this. The project has concentrated heavily on the Polish Railways, witha smaller component going to the Highway Administration for the establishment of aPavement Management System which includes the supply of field measurement equipmentand computers as well as the supply of laboratory equipment for better on-site quality controlof works. The project is progressing well, with policy reform and restructuring beingimplemented faster than foreseen and with disbursements well ahead of schedule. The steadyprogress of the ongoing project has demonstrated that it is possible to achieve meaningful andreasonable results in the sector, based on a clear understanding between the parties on thenecessity of the measures proposed.

5. Rationale for Bank Involvement: Poland's economic reform program both raquiresand drives the restructuring and modernization of the transport sector. As the necessarypublic and private actions are complex and time-consuming, they need to be viewed as along-term process, which will be constantly modified and needs to be supported over the longrun. The Bank'_. strategy of assistance to Poland focusses on the redefinition of the role ofthe state in the economy, including establishment of a Government role and capacitiesappropriate to a more i-arket-oriented economy, and privatization. Through this proposedproject, the Bank will help put this stategy into practical operaion in the roads sector.Through sector and project work, the Bank is also helping to mobilize additional sources offinance for the sector, in the context of sound sectoral and fiscal policies.

6. :Mect gbiwdves: The main objective of the project is to support and speed up themodernization and transformation of the sector along the lines described above, with sp xialemphasis on the national road network and the administration responsible for it, GDDP. Inparticular the project would: (i) help impro,ve the road network; (ii) continue the Bank'ssupport started in the first Tmn'port Proje3t for the development of modern managementtools in GDDP; (i help develop a privaze construction industry and introduce competitivebidding for road works; (iv) improve the road safety situation; (v) and initiate edevelopment of modern combined transport systems. In order to achieve these objectives,the project wil address questions like GDDP's budget, evaluation and selection ofinvestments, and road safety.

7. PoEact Description: (a) Poicy. The Government will develop and implementpolicies covering: adequate maintenance and strengthening of high-priority roads, includingbridges; road safety; planning, project evaluation and investment selection techniques andcompetitive bidding procedures for carrying out of works. (b) Investments and Institutions.A portion of GDDP's 1993-95 investment program in the following areas would be financedfrom the loan: rehabilitation, upgrading, realignment or resurfacing of priority roadsections, emergency bridge reconstruction and repair, road safety measures; TA, studies andtraining of GDDP and contractors' staff; TA and equipment for a road safety program; and apilot project for the development of combined transports through the estabLishment of a

- 3 -

company, comprised of existing transport enterprises, which would operate a number ofterminals and assume responsibility for door to door transport.

S. Aoject Smplemenatim: The project would be implemented through MTME andGDDP. The Bank's first transport project has already developed some implementation andprocurement capacity in GDDP. Further development of this capacity is part of the project.Sample bidding documents for works are being prepared, and it is intended to prequalifycontractors for bidding before loan negotiations. The Road Safety and the CombinedTransport Pilot Projects will be administered through MTME.

9. Prect Sustanability

The project is considered to be sustainable. The institutional development is welunderway, in part through the ongoing project and in part through actions started during thepreparation of the proposed project. The risks associated with institutional development areterefore small. With respect to financial constraints, see para. 13, Risks, below.

10. ABions Agneed; During loan negotiations, confirmation/agreement were reached onthe following:

(I) Government to have prepared a restructuring/privatization plan forformer GDDP road and bridge construction enterprises and for theformer PKS road transport enterprises to be discussed with the Banknot later than December 31, 1993;

i) MTME to prepare a policy statement on axle load policy by June 30,1994;

(iii) all major GDDP investments (US$5 million or more) regardless offinancing source, to show an ERR of not less than 12%;

(iv) first year's road/bridge works program;(v) methodology for bridge reconstruction/rehabilitation economic

evaluation;(vi) Terms of Reference for Technical Assistance and Training;(vii) Road Safety Action Plan and administrative arrangements for road

safety;(viii) cost estimates;(ix) financing arrangements and availability of sufficient and timely

* counterpart funds and that Government will:

(a) make best efforts to gradually incrase, in accordance withbudgetary capabilities, expenditures for national roadmaintenance in a manner and to levels that are technically andeconomically justified; and

(b) ensure that budgetary expenditures for national roadmaintenance in 1993 and thereafter, will be given the highestpriority within GDDP's budget, and that investments, except inemergencies and other specially justified circumstances, will beundertaken after the above mentioned priority is satisfied;

(x) Road Sector Development Statement and Annual Consultations;(xi) arrangements and format of quarterly and audit reports;(xii) fMrmat of contracts and ICB documentation; and(Xiii) Special Account and disbursement conditions.

11. Environmental Consideradons: The project has been classified as a "B" under OD4.00, Annex A, for the road modernization component, meaning that limited environmentalreview will be required. The civil works are generally improvements to existing roads ontheir existing alignments; in most cases they will bring improvements to drainage, less dustand noise, and increased traffic safety. The Polish Ministry of the Environment hasstablished strict procdures for reviewing the environmental impact of highway projectswhich are administred by the environmental departments of the voivodships. The legislationesta0lishes levels of review appropriate to the class of works proposed, ranging from areview of the design report and drawings through to a full EA, which is required in the case,for example, of bypasses on new alignments. The appraisal mission has determined thatthese procedures are similar to the Bank's and that EAs will be (and in some cases alreadyhave been) prepared in aU the circumstances in which the Bank would require one. Thus theBank can have confidence that compliance with these procedures will also bring compliancewith the Bank's. There is already considerable environmental awareness in Poland, and thepower of the voivodship (provincial) administrations to exercise control over centralgovernment agencies is used. For this reason it has been agreed that an environmentalclearance with a copy of the EA, if so required, will be a condition of the Bank's NoObjection to invitations for bids.

12. pEWtk Benefits: The project will: (i) reduce vehicle operating costs; (ii) reducefuture costly reconstruction by timely and adequate maintenance; (iii) reduce road accidents;(iv) contribute to reduced road construction costs by exposing the local construction industryto competitive bidding procedures; and (v) make a start to developing combined transportsin Poland. Based on experience from similar projects elsewhere, an ERR of about 20% canbe expected for the type of works included in the project.

13. Riakj: The main risk is the availability of adequate local funds, which are presentlyinsufficient. The fiscal pressures in Poland are likely to remain such that careful evaluationof priorities and ongoing discussions on inter and intrasectoral budgetary trade-offs willcontinue to be an essential element of Poland's cooperation with the World Bank. Morespecifically in the transport sector it is recommended that GDDP's budget be annually

reviewed and agreed with the Bank. This sanme agreement would also address anotherpotential risk, viz. the sometimes expressed opinion that Poland should initiate a crashprogram of motorway construction, even at the expense of maintaining the existing network.

14. Recommendations: I am satisfied that this loan would comply with the Articles ofAgreement of the Bank, and I recommend that the Executive Directors approve the proposedoperation.

Lewis T. Preston

President

February 11, 1993Washington, D.C.

.

SCHED)ULE 4

PgLAND

ROADS PRQJECI

Estimated Costs and Fiancing(US$ million)

Esdmated Ct:

Component Foreign Local Total

Road & Bridge Works 140.9 143.9 284.8

PrQject Management 0.6 0.2 0.8

Institutional Development 1.5 0.1 1.6

Road SafetyProgram 5.0 2.6 7.6

Combined Transports 2.0 0.0 2.0

Grand Total 150.0 146.8 296.8

(of which contingencies) (13.9) (13.5) (27.4)

Financing lan:

l___________ Foreign Local Total

Government 0.0 146.8 146.8

IBRD 150.0 0.0 150.0

TOTAL 150.0 146.8 296.8

SCRED-ULE aPage 1 of 2

ROADS PRQJE=

(US$ milliony

COMONEN ICB (loan)b/ OTHER tloan) NBF e/ TOAL (loan)

Civil Works 266.9 133.4 10.4 277.3 133.4

Consultant Serv. 8.0 d/ 8.0 - 8.0 8.0

Equipment mad 4.5 4.5 0.8 cl 0.8 - 5.3 5.3Matea ___

IDTA 2.6 c/ 2.6 2.9 5.5 2.6

Thining 0.7 d/ 0.7 . 0.7 0.7TOTALS , 271.4 137.9 12.1 12.1 13.3 296.8 150.0

a/ includirg contingencies and taxesb/figur in (loan) column are amounts to be financed from loan.ci natwonal shoppingd/ in accordance with Consultants' guidelinesel Not Bak financed

SCHEDUIE B1Page 2 of 2

DISBURSEMENT BY CATEGORIES

Category Amount of the Loan % of Expenditures toAllocated (Expressed in be Financed

Dollar Equivalent) __

C:vil Works 119,150,000 50%

Equipment and Materials 4,850,000 100% of foreignexpenditues, 100% oflocal expenditures(ex-factory cost) and50% of localexpenditures for otheritems procured locally

Consulting sevices and 10,000,000 100%technical assistance

Training 800,000 100%

Unallocated 15,200,000

TOTAL 150,000,000

ESTIMATE 1;2ISMMSEMhENTa_HEDL(US$ million)

IBRD FY 94 9_ 96 97 98 | 99

Annual 15 30 36 30 24 15

Cumulative 15 45 81 iso 135 150

SCHM=L C

POLAND

ROADS PROJECT

Timetable of Key Prcessing Stes

(a) Time taken to prepare: 8 months

(b) Prepared by: MTME/GDDP with Bank assistance

(c) Bank Idendficadon Mission: November 1991

(d) Appraisal Mission departed: June 28, 1992

(e) Negotiadons: January 13, 1993

(f) Planned date of effectiveness April 1993

(g) Relevant PCR and PPAR None to date in this sector

.

Us I of 2

STATUS OF 31 GROUP OP 8ATOE

A. STAT E! OF DAM L0*I8 i/(As of December 31, 109S)

U MifLionLoan Fiscal (Lese CancellatioUn)Fo. Yar Nrroer PaorLat toan Undised

Oe Leoan (SAL) Full Disbursed:3247 m1 Repubic of Poland StCuctural Adjustent Loan IDLA

ot"l Puhy Disbused I., SWM and Poam Loaa 300.0

* ~~Loans Under -D&IkgIL20g

S3SS 1000 ation al lank of Poland Industry Export Dewt. 260.0 220.173167 199.0 National Bank of Poland AgroindustrY Export Devt. 100.0 43.033190 10SO Republic of Poland Environment Maagement 18.0 10.553193 100 Repubiic of Poland Transport 4.8 3.193194 1990 Polish State Railways Transport 145.0 110.803215 l000 Polish 0i1 und Gba Co. Enez&y Resourtes Dvt. 250.0 171.193310 1901 PoLish Post, Telephone

and TeLegraph Telecommunications 120.0 95.703338 1001 RepubLic of Poland Employment Promotion Services 104.0 U4.873341 1991 k/ Republic of Poland Financial Institutions Daft. 200.0 124.863342 1991 k/ RepubLic of Poland Privatization and Restruct. 280.0 205.313343 1001 Republic of Poland AgriculturaL Devt. 100.0 09.003377 1991 g/ Republic of Poland seat Supply Restrueturing 75.0 30.823378 1001 8/ Du-Gdensk Heat Supply Restructuring 40.0 3M.523379 1901 / DUE-Gdyata Beat Supply Restructuring A3.0 21.613380 101 I/ Voivodship DEZ Heat Supply Restructuring 5S.0 55.003381 1901 g/ Municipal UM-Krakow Beat Supply Restructuring 25.0 22.263382 1991 M/ Capital Region 2iE seat Supply Restruc^turing 100.0 95.453383 1091 q/ Wielkopolski Bank

Credytowy Heat Supply Restructuring 20.0 20.003468 1902 A/ Republic of Poland 8ealth 130.0 130.003487 1992 Polish Developoent Bank Private Enterprise Devt. 80.0 60.003409 1902 Af Republic of PoLand Housing .20L0 0 _200L00

Total 2,607.8Of which: Repaid -

Total now held by the bank 07

Total Amount Sold 0.0Of which Repaid: 0.0

Total undisbursed 1 eel.f0

A/ The status of these projects is described in a separate report on alL Bank/IDA financed projects iuexecution, which is updated twice yearly and circulated to the Executive Directors on April 30 andOctober 31.

k/ Hybrid loan.

c/ DOE - District Heating Enterprise. Soven loans made for one project; one o- !be loans is not yeteffective.

n lot yet effective.

Pue 2 of 2

PMND

STATUS OF BAlK GROUP OMPEAONS

D. STATMEN or ZYC !MVESIHHT

(As of December 31, 1192)

Gross CossiitmentsFiscal Type et ---- ~lSS 1 ATp--Year Obliger _Business Loom mdtM Total

1989 Hostex Agricoultur* a Livestock 17.20 17.20

1900 DO-AL A/ Sales J Expot Pinanc Losasg 28.94 - 28.94100 1B-Dornet Sales 6 Export Finance Leasing 0.1 - 0.121990 MEburoCsmon Sales & Ezport Finance Leoaing 0.06 - 0.0199S ED=-"i Sales 6 Export Finance Leasing 0.10 0.101060 1DB-Ital-Pol Sales 6 Ecport Fiusnce Leasing 0.30 - 0.301990 ZVO-Machelewski Sales & Expert Finance Leasing 0.38 - 0.3819S0 1DU-Hslkiewioa Sales a Export Finance LeasinS 0.06 - 0.061990 EDB-Manzeak Sales a Export Finance Leasing 0.14 - 0.141900 Z3B-MJA Sales a Export Finanee Leasing 0.48 - 0.481990 IDB-Piott Ostrow Sales & Export Finance Leasing 0.19 - 0.191900 EDB-Rottes Sales a& Export Finance Leasing 0.09 0.091990 EDB-Rybka Iron Work Sales & Export Finance Leasing 0.39 - 0.391930 EDB-Seer Papies sales a Export Finance Leasing 0.21 - 0.211990 EnI-Sawena Sales & Exyort Finance Leasing 0.82 - 0.82190 1DB-TworTosos Sales & Export Finance Leasing 0.61 - 0.61

1991 BUistae Hotel Hotel Developunt 10.68 - 10.381991 International Bank

of Poland Commercial Banks - 3.20 3.20

1992 Cbenaegv Real Estate 6 Business Service 10.55 1.06 11.641992 Philips Poland Electrical Apparatus 15.00 - 15.00

1993 Pilkington - Glass & Glass Products - 22.63 22J63

Total Gross Comnitments 84.37 26.69 111.20

Less: Cancellations, Tenminations,Exchange Adjustments, Repayments,Write-offs and Sales .12iJL 0 0 L6

Total Coamitments Held by IFC 71.TS M5 29 864

Total Undisbursed 2.LJZ Z2 MM53S

Total Outstanding 40.48 4.28 44.74

N:\SCcEDD\POLAD. DECFebruar 1, 1993

g/ EDB - Export Development Bank.

rIRD2378

^F ' EDERAic. ' O & tX > v v ' LITHU MIA POLANDROADS PROJECT

T.K- PROPOSED CONSTRUCIlON PROJECT:

12 JOBNUMBERS(seeAnnex4)

a 0 CONSRUCTONOFCYPASSESPL TY - D~~~~~~~~~~~~~~~~~~~~tUAWNGANDUPGRADINGOF ROADS

N ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~RECONSTRUJCTON OFMOTOR WAY

W111,1 GODDPDISTRICrHEADQUARTERS

GO- GDPDTRCTBOUNDARIES

- MAIN ROADS 4 MAJOR PORTS

RAILROADS RIVERS

To ,, WLKCtAWV

NA ARSA NATIONAL CAPITAL

ST P AN ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~E~~~( VOIVOIDSHIP CAPITALS

~~~~' GORA ,pJ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~0 CITIRS AND TOWNS INTERNATIONAL BOUNDARIES

UKRAINE fel~ ~ svONIA~4 USA

FEDRRATION

I c~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I

c BELAM~~~~~~~~~~~\ P LA D b

taLOMETEtS Jj ~~~~~~~~~~~~~~~~~~~~GERMANYTI 5 199 10 20099KRN

TI TALES TR i \ ) UKRAIN

le i l,ZAIIR A K / AUST -A

IA. ~~~~~~~~~~~~~~~~~~~~ A~~~~~~~~~~~~ J ~ ~ ~ ~ ~ ~~~~~~~~~~~ ROA~~~~~~~~OEME "