world bank document€¦ · document of the world bank report no: icr0000811 implementation...

Document of The World Bank

Report No: ICR0000811

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-70390 IBRD-70400)

ON TWO LOANS

IN THE AMOUNT OF EUR 29.3 MILLION (US$27.5 MILLION EQUIVALENT)

TO

THE REPUBLIC OF POLAND

AND EUR 11.7 MILLION (US$11.0 MILLION EQUIVALENT)

TO

ZARZAD MORSKIEGO PORTU SZCZECIN-SWINOUJSCIE S.A. (THE SZCZECIN-SWINOUJSCIE SEAPORT AUTHORITY)

WITH THE GUARANTEE OF THE REPUBLIC OF POLAND

FOR A

SZCZECIN-SWINOUJSCIE SEAWAY AND PORT MODERNIZATION PROJECT

December 30, 2008

Sustainable Development Department South Central Europe and Baltics Country Unit Europe and Central Asia Region

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

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

CURRENCY EQUIVALENTS

(Exchange Rate Effective November 6, 2008)

Currency Unit = Zloty 1.00 = US$ 0.36

US$ 1.00 = 2.77 Zlotys

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS

EBRD European Bank for Reconstruction and Development EIB European Investment Bank EMP Environment Management Plan EU European Union ERR Economic Rate of Return GOP Government of Poland ICB International Competitive Bidding IFAC International Federation of Accountants MIS Management Information System MTME Ministry of Transport and Maritime Economy MOS Maritime Office Szczecin PIT Project Implementation Team PKP Polish State Railways PMU Project Management Unit SCL Single Currency Loan SSSA Szczecin-Swinoujscie Seaport Authority TA Technical Assistance TEU Twenty-Foot Equivalent Unit VAT Value Added Tax VTMS Vessel Traffic Management System

Vice President:Shigeo Katsu

Country Director:Orsalia Kalantzopoulos

Sector Manager:Motoo Konishi

Project Team Leader:Michel Audige

ICR Team Leader:Ross Pavis

REPUBLIC OF POLAND Szczecin-Swinoujscie Seaway and Port Modernization Project

CONTENTS

Data Sheet A. Basic Information

B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

1. Project Context, Development Objectives and Design ...............................................12. Key Factors Affecting Implementation and Outcomes...............................................43. Assessment of Outcomes ............................................................................................84. Assessment of Risk to Development Outcome.........................................................135. Assessment of Bank and Borrower Performance......................................................146. Lessons Learned........................................................................................................157. Comments on Issues Raised by Borrower/Implementing Agencies/Partners...........16Annex 1. Project Costs and Financing ..........................................................................17Annex 2. Outputs by Component..................................................................................18Annex 3. Economic and Financial Analysis .................................................................19Annex 4. Bank Lending and Implementation Support/Supervision Processes.............22Annex 5. Beneficiary Survey Results ...........................................................................25Annex 6. Stakeholder Workshop Report and Results...................................................26Annex 7. Summary of Borrower’s ICR and/or Comments on Draft ICR .....................27Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders .......................31Annex 9. List of Supporting Documents.......................................................................32MAP ..............................................................................................................................33

i

A. Basic Information Country: Poland Project Name:

Szczecin-Swinoujscie Seaway & Port Modernization Project

Project ID: P008615 L/C/TF Number(s): IBRD-70390,IBRD-70400

ICR Date: 12/30/2008 ICR Type: Core ICR

Lending Instrument: SIL Borrower: GOVT. OF POL. & SZCZECIN PORT AUTHORITY

Original Total Commitment:

USD 38.5M Disbursed Amount: USD 41.5M

Environmental Category: A Implementing Agencies: Maritime Office of Szczecin, Szczecin-Swinoujscie Seaport Authority Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual Date(s)

Concept Review: 09/06/1996 Effectiveness: 03/14/2001 03/14/2001 Appraisal: 01/24/2000 Restructuring(s): Approval: 12/12/2000 Mid-term Review: 12/12/2002 Closing: 06/30/2005 06/30/2008 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Moderately Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Satisfactory Government: Satisfactory

Quality of Supervision: Satisfactory Implementing Agency/Agencies: Moderately Satisfactory

Overall Bank Performance: Satisfactory Overall Borrower

Performance: Moderately Satisfactory

ii

C.3 Quality at Entry and Implementation Performance Indicators Implementation

Performance Indicators QAG Assessments (if any) Rating

Potential Problem Project at any time (Yes/No):

No Quality at Entry (QEA):

None

Problem Project at any time (Yes/No):

Yes Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Moderately Satisfactory

D. Sector and Theme Codes

Original Actual Sector Code (as % of total Bank financing) Ports, waterways and shipping 100 100

Theme Code (Primary/Secondary) Infrastructure services for private sector development Primary Primary Other financial and private sector development Primary Primary E. Bank Staff

Positions At ICR At Approval Vice President: Shigeo Katsu Johannes F. Linn Country Director: Orsalia Kalantzopoulos Basil G. Kavalsky Sector Manager: Motoo Konishi Eva Molnar Project Team Leader: Michel Audige Graham Smith ICR Team Leader: Ross S. Pavis ICR Primary Author: Ross S. Pavis Michel Luc Donner F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The Project Development Objective as written in the Results Framework is to facilitate private sector involvement in port operations through the improvement of physical facilities and better navigation safety. In the main body of the Project Appraisal Document (PAD), the project's objective is written in the context of a two-phased (and two-project) program which supports Poland's Port Sector Modernization Program as described in 1995. The objective of the program was to promote Poland's trade by developing an efficient administrative/managerial structure and improving physical facilities in the main ports of Gdansk, Gdynia, and Szczecin-Swinoujscie.

iii

Revised Project Development Objectives (as approved by original approving authority) NA (a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Total traffic cargo in the port of Szczecin Value quantitative or Qualitative)

12.87 tons (PAD Annex 4)

PAD projection for 2007, 16.5 million tons

Total traffic cargo in 2008 16.9 million tons

Date achieved 11/11/2000 06/30/2004 06/30/2008 Comments (incl. % achievement)

New berth facility on Grabowski Island is not yet operational. Expected in mid 2009, this should have a significant impact on traffic cargo (see Economic Analysis, Annex 3).

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Improvement of physical facilities - Rehabilitation of the breakwater along the Szczecin-Swinoujscie seaway

Value (quantitative or Qualitative)

Highly degraded Works completed Works completed

Date achieved 01/01/2001 09/30/2004 09/30/2004

Comments (incl. % achievement)

Breakwater completion satisfactory. However, contract covering breakwater also covered embankment reinforcement; Govt claimed contractor had not met all technical specs and deficiency would limit future capacity. Dispute went to arbitration; Govt lost.

Indicator 2 : Piastowski canal maintenance costs Value (quantitative or Qualitative)

4.5 million PLZ over 5 years No target set 186,000 PLZ


Baseline derived from 1995-1999 data. Yearly amounts spent since then have varied widely, though all have been much lower: 2002, 119,650 PLN; 2003, 10,000 PLN; 2004, 206,431 PLN; 2005, 61,807 PLN.

Indicator 3 : Ship sailing time through the canal


21 to 25 minutes 18 minutes

Average 18 minutes for vessels with < than 6 meters draft; average 21 minutes

iv

for largest ships Date achieved 01/01/2001 06/30/2004 05/08/2007 Comments (incl. % achievement)

Some works outside of project scope relating to full rehabilitation of Canal are not yet completed. New regulations which will further impact sailing time will not be introduced until final completion.

Indicator 4 : Incidents in the canal


1 every two years on average None

2005: 0 2006: 2 2007: 0 2008: 1


Data is difficult to assess as baseline was very low and events are sometimes caused by other factors in addition to physical seaway conditions.

Indicator 5 : Container traffic Value (quantitative or Qualitative)

12,840 TEUs (PAD Annex 4) 16,000 by 2005 47,976 TEUs


New container facility is not yet operational so increases do not reflect impact of the Project.

Indicator 6 : Ro Ro vessels Value (quantitative or Qualitative)

1,727 million tons per year (Ref. PAD Annex 14)

1.9 million in 2004 2 million tons


Same comment as above.

Indicator 7 : Ship transit time on the facility Value (quantitative or Qualitative)

49 hours 45 hours New facility is not yet operational.


#Transit time# is more accurately defined as turnaround time alongside the facility. Same comment as above.

Indicator 8 : Area leased to port operators Value (quantitative or Qualitative)

53.8% of total port area 55% 52%


Though the concession agreement has not yet been signed, the authors consider it very likely it will be signed shortly. Once signed, the leased percentage will increase.

v

G. Ratings of Project Performance in ISRs

No. Date ISR Archived DO IP

Actual Disbursements (USD millions)

1 06/14/2001 Satisfactory Satisfactory 0.00 2 12/19/2001 Satisfactory Satisfactory 1.65 3 06/28/2002 Satisfactory Satisfactory 2.87 4 08/28/2002 Satisfactory Satisfactory 2.87 5 12/19/2002 Satisfactory Satisfactory 4.24 6 06/16/2003 Satisfactory Satisfactory 10.24 7 12/22/2003 Satisfactory Satisfactory 20.04 8 06/18/2004 Unsatisfactory Unsatisfactory 26.19 9 10/28/2004 Unsatisfactory Unsatisfactory 29.62

10 04/01/2005 Satisfactory Satisfactory 29.62 11 06/03/2005 Satisfactory Satisfactory 29.62 12 03/22/2006 Satisfactory Satisfactory 29.62 13 12/22/2006 Satisfactory Satisfactory 33.51 14 05/16/2007 Satisfactory Satisfactory 36.61 15 01/09/2008 Satisfactory Satisfactory 41.09 16 05/30/2008 Satisfactory Satisfactory 41.42 17 11/25/2008 Moderately Satisfactory Moderately Satisfactory 41.53

H. Restructuring (if any) Not Applicable

vi

I. Disbursement Profile

1

1. Project Context, Development Objectives and Design

1.1 Context at Appraisal In 2000, Poland’s maritime sector was still recovering from the impact of the economic transition on ports and shipping, increased competition in global shipping and shipbuilding, and significant changes in external trade orientations. Yet Poland’s long Baltic coastline ensured that maritime transport would continue to play an important role in the Polish economy, even as its trading patterns changed radically toward EU and other western markets. It offered an environment-friendly alternative to road and rail transport for international cargo movements – if it could realize its potential by improving reliability of services and could keep costs and prices low. Maritime transport accounted for about 11 percent of total national expenditures on transportation and its ports handled over 50 million tons per year. With four main ports in Poland, Gda sk handled 41 percent of the total, Gdynia 15 percent, and Szczecin and

winouj cie 37 percent. The nature and directions of Polish trade was evolving rapidly from year to year. Investing in ports had been a risky business: international road transport, railways and pipelines were competing for the same traffic as the Polish ports, and there was strong competition among alternative routes for cargo between major hub ports (Rotterdam, Hamburg) and eastern Baltic destinations. In addition, new port infrastructure such as breakwaters, channels, and land access, was costly. That being said, Szczecin, owing to its geographical location, had unique advantages. Szczecin was the closest maritime gateway to the Berlin area and a large part of eastern Germany, whereas the closest German port, Rostock, was 240 km away from the German capital. A second consideration was the effort that was being made by the EU to promote short-sea shipping as a means to alleviate land transport congestion. A first review of the potential for Polish ports to benefit from such a move indicated Szczecin was well positioned to receive traffic coming and going between Baltic countries and Western Europe. Opening up the ports sector to more private sector involvement in commercial operations was also a major objective of a new Ports Law which took effect in August 1997, and the newly established landlord port authorities had taken over from the previously existing public port companies. In Szczecin, incorporation of the new Szczecin-Swinoujscie Seaport Authority (SSSA) as the new port authority company fulfilling the requirements of the Ports Law was completed by December 1999. SSSA was in the process of refining its organizational structure and consolidating its financial structure, including establishing a corporate business plan as well as short and long-term budgetary forecasts. Establishment of the new landlord port authorities was consistent with separating public statutory and regulatory functions from commercial operations. In Szczccin-Swinoujscie, an agreement had been reached between SSSA and the Ministry of State Treasury, its main shareholder, on completing full divestiture of SSSA’s remaining shares in the port operating companies by 2003.

2

The project was consistent with the main CAS objective of increasing private sector participation in infrastructure, and supporting the development of new private sector activities in the Szczecin port. It was also an important follow-on to the first Port Access and Management Project.

1.2 Original Project Development Objectives (PDO) and Key Indicators The project development objectives written in the Loan Agreements

1

were to: (a) promote Poland’s maritime trade; (b) accelerate the development of Szczecin port; and (c) assist in adapting Polish maritime transport practices to European Union standards, through: (i) improving navigational safety on the seaway connecting the Szczecin-Swinoujscie port with the Baltic Sea; (ii) strengthening the functions of Zarzad Morskiego Portu Szczecin-Swinoujscie S.A.; and (iii) preparing and upgrading the basic infrastructure required by port operators to develop new operational facilities.

The outcome indicators outlined in the Loan Agreement included the following: For the Maritime Office Szczecin (MOS): (i) seaway maintenance costs; (ii) ship sailing time through the seaway; (iii) shipyard and oversized ship traffic; (iv) collision statistics in the seaway; and (v) quantity of dredged materials dumped in new containment area. For the Szczecin-Swinoujscie Seaport Authority (SSSA): (i) total vessel traffic; (ii) total cargo traffic; (iii) ship service time on the new facilities; (iv) number of port operators; and (v) area leased to port operators (% of total available areas).

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification N/A

1.4 Main Beneficiaries, The Szczecin-Swinoujscie Seaport Authority, the Municipality of Szczecin, and the maritime operators and customers of port services were intended to be the primary beneficiaries of the project. By extension, Polish shippers, importers and exporters stood to benefit from improved nautical access conditions to the port and new infrastructure facilities made available to commercial port operators. The project was also to provide more jobs and income to the region, allowing a further reduction of poverty related to unemployment. At the time, Szczecin was a city with 420,000 inhabitants, and the average unemployment rate was 16 percent against the national average of 13 percent. In addition, benefits in terms of more cost-effective port services, lower transit times and increased efficiency of the sea/land interface in Szczecin were expected to reach the national community as a whole, providing a sound commercial competitive framework for transport cost savings to be transferred to the final customer.

1 This project was comprised of two loans: US$27.5 million equivalent to the Republic of Poland and US$11.0 million equivalent to the Szczecin-Swinoujscie Seaport Authority with the Guarantee of the Republic of Poland.

3

1.5 Original Components (as approved)

The Project was comprised of two loans: the first to the Government of Poland which funded components 1 and 2 below; the second to the Szczecin-Swinoujscie Seaport Authority (guaranteed by the Government), which funded components 3 and 4. Component 1. Physical Modernization of Szczecin-Swinoujscie Seaway (US$54.8 million, total). Measures to improve the seaway configuration, including slope protection in the Piastowski canal, which was in poor condition and in need of repair and upgrading; rebuilding of intermediate breakwaters at the Southern entrance of the canal which were dilapidated and did not protect passing ships from transverse currents; strengthening of the banks of parts of the channel over a total length of 2,600 meters; and establishment of acontainment area for dredged materials in the vicinity of Szczecin. Component 2. Maritime Office Technical Assistance and Training (US$0.6 million, total). Provision of technical assistance and training to build capacity within the Maritime Office for identifying and implementing environmentally sound dredging methods to separate out potentially contaminated soils. Component 3. Szczecin-Swinoujscie Seaport Authority: Katowice Peninsula (US$14.6 million, total). Included land preparation and construction of berthing facilities to provide additional operational space to be leased out to private enterprises and operators for cargo handling, storage and packaging facilities, mainly for industrial bulks. Works included: (i) construction of new berthing facilities along the peninsula: 410 m for sea-going vessels, and 80 m for river barges; (ii) bank/slope protection on 580 m along the banks not to be used for berthing purposes; (iii) leveling and land preparation on 160,000 sqm. Component 4. Szczecin-Swinoujscie Seaport Authority: Grabowski Island (US$11.8 million, total). Included land preparation and construction of berthing facilities to provide additional operational space to be leased out to private enterprises and operators for cargo handling, storage and packaging facilities, mainly for general cargo (food products, paper, steel products), and containers. Works included: (i) construction of new berthing facilities on 232 m along the western side of the island; (ii) construction of a roll-on/roll-off platform; (iii) bank/slope protection; (iv) dredging 400,000 m3; and (v) access road, drainage.

1.6 Revised Components NA

4

1.7 Other significant changes (a) Multiple re-biddings on major works contracts on Grabowski Island and Katowice Peninsula delayed implementation such that market prices escalated and it was necessary to reduce the scope of work. New berthing facilities on the Katowicki Peninsula were dropped from the project. (See Section 2.2 for further details on this sequence of events. (b) Because of a variety of legal and political issues, a new containment area for contaminated dredged materials was never built. (c) Originally intended to close on June 30, 2005, the Project was extended twice and closed on June 30, 2008.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry The project was a direct follow-on to the Port Access and Management Project which constituted the first phase of the Port Sector Modernization Program supported by the Bank. The Bank had been deeply involved in modernizing port sectors in numerous countries, and in particular, in helping to define and implement new institutional and managerial framework, so the lessons learned were significant and included the following: • Prior Lesson: The decision to run a port under the landlord principle has implications

for land ownership, the regulatory environment for private operators, cost recovery policy, and distribution. Therefore, basic project choices must be made as early as possible in the project cycle. Mostly Applied. The team deliberately slowed the pace of preparation to ensure that the new Port Law was enacted and implemented and the new landlord port authorities were in place before critical design factors were set down. One area where this could have been improved was with regard to a binding agreement on the site selection for the containment facility.

• Prior Lesson: There must be real autonomy of the landlord port authorities in management and administration matters. Applied: By structuring the project into two loans -- one to the Government and one to the Port (guaranteed by the Government) – SSSA had maximum autonomy.

• Prior Lesson: There should be a separation between statutory and regulatory functions vested in the public port authority, and the commercial activities to be carried out by independent private operators. Applied: The project supported this principle by limiting the investments of SSSA to providing access and basic infrastructure, while all operational assets, including

5

handling equipment previously financed by the ports, would be left to be financed and operated by the private sector.

• Prior Lesson: Another feature of reform of port authorities which seemed beneficial

to managerial efficiency was their gradual move from the status of statutory company to the status of joint-stock company. The concept behind the three main Polish ports reflects this evolution by establishing a structure where, apart from the central Treasury, municipalities become important shareholders sitting on the management board of the port authorities. This is the case in the Szczecin-Swinoujscie Port Authority, where the cities of Szczecin and Swinoujscie together hold 49% of the shares.

Applied: Project design followed closely the institutional evolution supported during preparation of both the previous Port Access and Management Project and the present one, with direct lending to a new port authority preferred over an onlending arrangement from MTME. This strengthened empowerment of the new entity and underscored its financial autonomy.

2.2 Implementation Key factors during implementation

The project benefited from the institutional evolution brought about by the previous Port Access and Management Project. In particular, the previous implementation of the landlord port management model provided a well sequenced conceptual and institutional continuity between the two projects, which in turn, allowed a well structured approach to the Port Modernization components. As noted above, the team incorporated lessons learned, and in almost every respect the project was ready to go upon Effectiveness. The construction of the Katowice Peninsula berths was not completed. Before the major works could be undertaken, it was necessary to remove existing electrical and sewerage networks, and this was responsible for some initial delay. However, far more importantly, there were extensive procurement problems related to the works on Grabowski Island and the Katowice Peninsula which caused delays of several years. During the first tender for the major works contract, the lowest bids were about 40 percent higher than the estimated cost, and it was decided to re-bid. The second tendering also failed when the winning contract submitted to the Bank for no objection did not include a completion date. A review of this tendering by the Government raised a variety of internal issues which resulted in changes in the Government’s implementation team. During the same period, other events, unrelated to the Project, resulted in the Supervisory Board of SSSA being dismissed in 2004. After more delays there was another re-bid which was successful. During the course of these bidding processes, prices for works had escalated such that it was necessary to reduce the scope of works to proceed. It was agreed the berths would not be built.

6

Co-financing was leveraged from the European Regional Development Fund (ERDF). In 2005 because of the implementation delays, the replacement of the Board and other related issues, SSSA was ready to cancel the project. The Bank team, to its credit, was able to work with the ERDF which eventually agreed to cover seventy-five percent of the costs for the works on Grabowski Island. This was the first time ERDF had given such a grant which was seen as an important innovation. SSSA agreed to continue with the project and because of the additional funds, it was possible to cancel equivalent funds from the World Bank Loan.2

Construction of a containment area for contaminated dredged material was not built. Throughout the eight years of the project, there were continual discussions, agreements, government meetings, and Bank attempts to resolve the issues surrounding the location for the CDF. Part of the problem can be traced to discrepancies between the Polish regulations – which underwent changes during the course of the project – and the initial project design. This is not the only Bank project that has had this problem: the Klaipeda Ports Project in Lithuania, which is about to close at the end of December, 2008, has had the same outcome. Timing of the concession process. The construction of the Grabowski Island basic port infrastructure was completed in February 2008. It would have been reasonably possible for SSSA to successfully initiate and conduct the tendering process in early 2007 so that the selection and mobilization of the concessionaire would have taken place quickly upon completion of the works. In this way, the facility could have been operational as early as mid-2008, as compared to mid-2009, as per the current most optimistic expectations. The Bank has not taken part in the concession process, but has drawn the Client’s attention repeatedly to this problem. Overall, the Government could have benefitted from technical assistance regarding PPP’s, however, the project did not provide any funds for this. As noted earlier, at the time of the writing of this ICR, though there has been a pre-agreement, a final concession contract has not been signed by the Minister. Contractor claim on the embankment rehabilitation works in Piastowski Canal. Almost all of the implementation problems described in this section relate to the SSSA side of the project. By and large, the activities and works carried out under the Maritime Office Szczecin (MOS) were relatively on schedule and that part of the project was largely completed in 2006, with one exception. The Government claimed that the works done on the embankment rehabilitation were not completed to the specifications outlined in the contract. Though the completed embankment is suitable for current conditions and standards, according to their engineers, as traffic in the channel increases and larger ships begin to pass through, it will be necessary to do additional work on the embankment to make it suitable for the change in conditions. According to the contract, the embankment should have met the standards for future capacity. The case went to arbitration and the Government lost.

2 Given the time element and the changes in administration at SSSA, it was no longer considered a priority to use these additional funds for the activities that had been dropped earlier because of the procurement delays.

7

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization M&E, design, implementation and utilization were satisfactory. Project monitoring was based on indicators confirmed during appraisal, and on the Project Implementation Plan prepared by the Borrowers, and agreed during negotiations. The selected indicators are standard for these types of projects. They were incorporated into the ISR and kept up to date by the Government. M&E was carried out by the implementation agencies, SSSA and the Maritime office. Generally, data was gathered from annual statistics, and by contract supervision and site visits. Bank supervision missions took place at a minimum of twice a year, and frequently more often. A financial management specialist and procurement officer also made regular supervisory visits.

2.4 Safeguard and Fiduciary Compliance Safeguards. An important safeguard concern at the beginning of the project was the disposal of contaminated dredging material. (The amount was small; only about five percent of the total removed material contained contaminants). This was the reasoning behind the decision to build the containment facility as part of the project. As seen earlier, the facility was not built, and the likelihood is, it will not be3. This, however, is not meant to imply that the handling of the dredged materials was unsafe during implementation of the project. Materials were handled correctly and put into safe but temporary facilities. A decision still needs to be taken as to where they will be sent. Under the project, staff in the maritime office received training in new and safer dredging methods. Financial Management. When the project closed, financial management was rated as satisfactory. All quarterly reports, financial statements and audits were completed on schedule and were satisfactory. Procurement. Though the procurement of works, goods and consulting services were carried out according to World Bank procedures and guidelines, the many delays of the tender involving the works on Grabowski Island and the Katowice Peninsula were responsible for at least one extension of the project, and a reduction in the scope of works. The fault for this can be attributed partly to external events and partly to those responsible for the management of procurement activities at SSSA. The contract dispute regarding the embankment construction that went to arbitration is less clear. According to all Government experts and the World Bank team, the contractor was at fault, and the Arbitration itself, which took place out of the country, was overtly biased.

3 This could potentially raise issues related to EU compliance.

8

2.5 Post-completion Operation/Next Phase At the time of project closing (June 30, 2008), an agreement with the selected operator (PCC) for the new facilities at the SSSA had not been signed4. However, though there are currently one or two relatively minor issues to be ironed out, the ICR team is very confident the agreement between PCC and the Government will be signed shortly and PCC will begin the outfitting and preparation of the new quay by the end of 2008 or early 2009. It should be operational in the latter half of next year. There are no other Bank funded port projects foreseen in Poland at this time.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation The objectives in the Project Appraisal Document, Loan Agreement and Implementation Status and Results Report are written differently, but generally emphasize improvements in the facilities, private sector involvement, safety, and promoting maritime trade. These objectives were relevant at the inception of the project and remain so today.

The Seaway Modernization components were largely aimed at preserving the status quo, in as much as they aimed at restoring, sustaining and protecting the physical capacity levels enjoyed by the Szczecin port and shipbuilding industry in earlier days, and which have gradually become eroded and endangered by a lack of maintenance.

The Port Modernization components were meant to materially assist SSSA to progress towards the “landlord port” administration model (the model preferred by the World Bank), by financing basic port infrastructures. This would, in turn, enable SSSA to offer said port facilities for further operational public private partnerships.

In these respects, the components have contributed effectively to the original objectives.

However, some aspects of the objectives, beyond the project’s control, have been diluted with the passage of time, and have lost part of their relevance during the course of an implementation period lengthened by two extensions. These include such areas as new sources of competition around the Szczecin Port, and changes in the worldwide shipping market. For a more detailed analysis of this issue, see paragraph 3.5 below.

4 A “pre-agreement” has been signed but will not become effective until the final agreement is signed by the Treasury Minister.

9

3.2 Achievement of Project Development Objectives Objective 1. Promote economic growth in the Szczecin-Swinoujscie region through improved maritime access Mostly Achieved Seaway modernization aimed at improving the navigation safety and protection of maritime entry to the port of Szczecin:

(a) Partial rehabilitation of the slope protection does effectively contribute to stopping the decay of the banks of the Szczecin-Swinoujscie canal, and provides sustainability by significantly slowing down the bank erosion caused by the waves created by the transit of vessels in the canal. The Maritime Office of Szczecin is considering recommending additional rehabilitation works along the canal.

The completion of this component suffered from a major contractor claim which went to arbitration and was not resolved in favor of the Borrower. MOS contended (and the Bank team agreed) that the weakness of the material used by the contractor will preclude future dredging of the canal below 10.5 m, whereas the initial design and intention was 12.5 m. If this is the case, and considering the increasing size of the container vessels about to be deployed in the Baltics, as described in 3.5 (c) (v), this weakness could become an inhibiting factor to the future commercial success of the concession at Grabowski Island.

(b) The rehabilitation of the breakwaters at the southern entrance of the Piastowski Canal does significantly enhance navigation safety by sheltering vessels from strong, irregular cross-currents encountered at the junction of the Canal into the Zalew Szczecinski lagoon.

(c) Establishing a containment area for dredged materials in the vicinity of Szczecin was not completed and most likely will not be in the foreseeable future. The reasons for this stemmed from interpretations of the Polish Environmental Legal framework for the construction of Controlled Disposal Facilities for dredged materials. While this subcomponent has limited direct bearing on the success of this overall objective, the failure to carry it out, and the importance of environmental safeguards in Bank projects, requires that it carry some weight for this rating as well as the rating of the project. Objective 2: Facilitate private sector involvement in port operations in Szczecin Partially Achieved Two areas were to be prepared and equipped with basic port infrastructure to allow private investors to develop new operational facilities.

10

(a) Land preparation and construction of berthing facilities to provide additional operational space and to be leased out to private enterprises and operators at Grabowski Island. Completed Outputs: 1. Construction of new berthing facilities on 232 m along the western side of the island 2. Leveling and land preparation on 160,000 sqm 3. Construction of a roll-on/roll-off ramp 4. Bank/slope protection 5. Dredging 400,000 m3 6. Access road, drainage

The above enabled SSSA to offer a reasonably attractive section of the port to the Private Initiative for further development into a fully operational container and RoRo terminal through a concession agreement.

The above works were physically completed in February 2008 and the handover to SSSA took place in April 2008.

A first tender to find a private operator was declared inconclusive. The second attempt succeeded to award the 30 years concession on the berth and area to “PCC”, a Polish-German private logistics and rail operator. A concession pre-agreement has been signed by SSSA and PCC on 25 March 2008, with a blank start date. This is viewed by both parties as an official document, which only requires a further endorsement by the Ministry of Treasury to become firm and final. At the time of the ICR mission, it was expected that said endorsement would be forthcoming no later than January 2009. While there are still some diverging views between the conceding power and the concessionaire as to the proper location and design of the gate, at the time of writing, it is safe to say that the GI facility has finally found a dynamic private operator. The paving works for the storage area will be conducted in a staggered manner, which would allow for an operational start by mid-2009, with full completion by mid-2010. Various scenarios are envisaged to deploy one or two STS gantry cranes that would allow better handling of gearless container-vessels.

In this respect, the specific development objective has been achieved, albeit four years behind schedule. (b) Land preparation and construction of 2 berths at Katowice Peninsula Planned Outputs

1. Construction of new berthing facilities along the peninsula: 410 m for sea-going vessels, and 80 m for river barges

2. Bank/slope protection on 580 m along the banks not to be used for berthing purposes

11

3. Leveling and land preparation on 160,000 sqm. Only items 2 (partially) and 3 have been carried out. The land is still in settlement phase. Item 1 has been subject to a scope reduction and reallocation. SSSA still intends to build the berths when other financing sources become available. In its present state of achievement, and pending the construction of quays, the area cannot be operationalized, and it is unlikely that private operators would show immediate interest to enter into a leasing agreement for the facility in its present condition. Overall the project development objectives were partially achieved. The components that have been completed will be effective and contribute to the fulfillment of the objectives; however, two major sub-components were not completed, and the delays in overall project implementation might have inhibited faster port development, private sector involvement, and the growth of maritime trade.

3.3 Efficiency See Economic Analysis, Annex 3.

3.4 Justification of Overall Outcome Rating Rating: Moderately satisfactory The components, as designed, adequately addressed the PDOs. However, three major factors are responsible for a less than satisfactory rating. (a) One of the two components of the Port Modernization objective, the Katowice Peninsula port facility has not been completed, and is thus not ready for tendering to private operators. (b) The other component of the Port Modernization objective, the Grabowski Island container terminal, while physically delivered, at the time of the writing of this ICR, has not yet been full concessioned to a private operator, and as a consequence, is not likely to be operational before June 2009. As a consequence, the concessionaire-to-be will enter the market very late, and in an unfavorable market situation. (c) The subcomponent “establishing containment areas for dredged materials in the vicinity of Szczecin” has not been carried out, and will probably not be in the foreseeable future. In addition to the above, there is the matter of the arbitration settlement with the maritime office which cost the Government substantial sums. Second, because the project had two extensions and the works were completed several years late, it is possible opportunities were missed in the development of the Szczecin-Swinoujscie Seaway and Port. (See 3.5 (c) directly below.)

12

Overall Impact Maritime Office Szczecin (MOS) The activities here were generally “defensive” in nature, that is, without these activities being carried out, there could have been further degradation of maritime access to the port and shipyards for certain categories of vessels. This, in turn, could have inhibited seaborne trade in Szczecin and curtailed future growth, especially considering that the size of merchant vessels in general is increasing. The impact here has been satisfactory and the MOS is far better prepared to meet future growth. Seaport Authority (SSSA) The activities at SSSA were aimed at improving the Port Authority’s capacity to attract interest from the private sector for developing new operational facilities. These improvements have been carried out successfully and have attracted private sector interest on Grabrowski Island. That being said, an earlier completion would have made it more efficient. By completion we also mean to include the concessioning out of the facility. It should be noted that this tendering process has provided SSSA with experience and built capacity for conducting PPPs. On Katowice Peninsula, factors described elsewhere in this report have postponed any real impact for the time being. 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development NA (b) Institutional Change/Strengthening Technical assistance and training were provided to the Maritime Office to improve capacity for carrying out environmentally sound dredging methods. (c) Other Unintended Outcomes and Impacts

Competition in and around Szczecin port Changing circumstances brought along by the passage of time have led to a new, largely unforeseen configuration of the competitive aspect of the Grabowski Island Terminal: (i) Swinoujscie container terminal The small Swinoujscie container terminal “VGN Polska terminal Ltd” is to wind down its activities and discontinue operations as GIT activities unfold (ii) Concentration in Szczecin stevedoring The future GIT concessionaire has also taken over the main stevedoring company in Szczecin in January 2008, and is already operating most general cargo, unitized cargo and non-specialized bulk piers in Szczecin

13

(iii) Private container berth project 20 km north of Szczecin A private chemical complex operating a private bulk pier in the nearby city of Police (20 km downstream of Szczecin) is planning to build and operate a container berth in its existing port installations. (iv) Deep-sea “Outer Port” project The Government is promoting and supporting a so-called “Outer Port” project in Swinoujscie, with a natural water-depth of 14.5m. A LNG terminal will be developed by the Government, and a deep-sea container terminal project will take the form of a BOT concession. Either terminal would not be ready before 2014-15. (v) Evolution of the size of container vessels deployed in the liner business The most recent developments in the industry have been the ordering, construction and gradual deployment since 2006 of vessels with 11,000+ Teus capacity. While it is unlikely that such vessels would plough through the Baltic Sea in any foreseeable future, their arrival on the market is freeing up comparatively smaller tonnage. The tendency is that shipping lines are seeking employment for container ships of around 300m LOA on routes that hitherto were served by much smaller tonnage. The concessionaire-to-be, PCC, has indicated that they already have been approached by potential clients (shipping lines) who showed interest in a 300m berth, rather than 232m as today. This development is of such a nature as to put the Grabowski Island Terminal at a competitive disadvantage in the medium-term. (vi) Shipyards One of the social benefits expected from the Seaway Modernization components was to preserve Szczecin’s shipyards’ capacity to deliver new ships with the maximum size of what can safely pass through the S-S canal. At the time of writing, the Polish shipyard industry is facing serious financial difficulties, linked to the world-wide shipbuilding market situation, but also to a bitter conflict with the EU about illegal subsidies. Sizeable segments of the industry might be forced to discontinue the activity altogether. The industry accounts for 8,500 jobs in Szczecin. Very little of the above could have been foreseen at the time of project preparation. That being said, because of the extended implementation period, it is possible that SSSA had less of a role in the unfolding of events than it might have had, if it had become more competitive earlier on.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops NA

4. Assessment of Risk to Development Outcome Rating: Moderate Seaway Modernization component: There is a risk that the Borrower will not make the necessary provisions for the continuous monitoring and upkeep of the works performed.

14

Port modernization component: Provided the concession agreement is signed as planned and PCC takes over the facility and implements the paving and operationalisation of the GIT within the announced time-frame, the GIT will have a solid private operator. The rising competing projects described above will mostly not be completed for several years, and the concessionaire will have a good chance to consolidate its operations and market share before then.

5. Assessment of Bank and Borrower Performance (relating to design, implementation and outcome issues)

5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory The quality at entry was technically sound and there was ample preparation. The project was part of a two-phased program and followed directly upon the successful Port Access and Management Project. There was a comprehensive environmental assessment and action plan; procurement and financial assessments were satisfactory and continuous dialogue with the Government at the local and national level had created a strong collaborative spirit and share objectives. The one area in which a case could be made for an improved design would have been providing technical assistance to the Government for concessioning. This activity, however, was slated for the latter half of the project and it was not clear at the time whether this would be required or not. (b) Quality of Supervision Rating: Satisfactory Supervision of this project was time intensive. Missions visited the country more frequently than was required. The team was flexible in trying to come up with new solutions when problems arose. Of particular merit was their success in leveraging funds from ERDF to pick up costs for works on Grabowski Island. The team was not responsible for delays and the non-completion of activities. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory This was a long project with a long history of events which took a number of different turns. Two sets of works were not carried out: the berths on Katowice Peninsula and the containment area for contaminated dredge materials. In neither of these instances was Bank performance a factor.

15

5.2 Borrower Performance (a) Government Performance Rating: Moderately Satisfactory Two of the chief factors that affected overall project implementation were the procurement delays on the works contracts on Grabowski Island and Katowice Peninsula, and the failure to reach an agreement on the location of the containment facility. The procurement delays led to the reduction in scope on the SSSA component, and the delays – combined with the lack of progress on the containment facility – were also responsible for the two project extensions. The Government was at least partly responsible for the procurement delays, and mostly responsible for the containment facility not being built. This is not to say that the Government did not make a large effort to get the containment facility completed. Many positive steps were taken; agreements, which at the time appeared to be final, were reversed; and officials at many levels did their best. However, this was a complex task which began during a period of changing legislation, and while Poland was navigating its admission into the EU.

(b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory The implementing agency also bore responsibility for the procurement delays. For example, the first winning proposal submitted to the Bank for no objection did not include an implementation date. On the maritime side of the project, there should have been closer supervision of the embankment works so that the weakness in the materials (the subject of the arbitration) was detected earlier and the extended complaint process and the eventual penalties could have been avoided. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory The project is rated moderately satisfactory because of the works that were not completed and because at the time of the closing of the project, an agreement had still not been signed with an operator for the new containment facility – this in a project where one of the key objectives was to facilitate private sector involvement.

6. Lessons Learned (a) If the Bank is going to finance the building of containment facilities for dredge contaminants, it needs to ensure that there is a deep knowledge of a country’s laws and regulations vis a vis the Bank’s own rules and guidelines. If at all possible, there should be a binding agreement on the location of the facility prior to Board or Effectiveness. (b) If the Bank is going to finance facilities which are intended for public-private-partnerships, such as a container terminal, it should try and be certain that the capacity

16

exists in the Government to carry it out. If the capacity does not exist, the Loan should finance technical assistance for that purpose. (c) When considering the extension of a project, others factors should be taken into account in addition to the Project’s activities, namely: • Changing external economic, politic, institutional, legal and social circumstances

could end up diluting the relevance of the development objectives, or place them at cross-purposes with real life developments;

• Turnover of key staff on the Borrower’s side, including major stakeholders, can undermine the project’s success, and lead to a loss of continuity;

• There may be lost opportunities. For example, had the new terminal been commissioned only one year earlier, there could now be a healthy concessionaire firmly in place, having been functioning on a buoyant market for the most part of the year, and much better prepared to confront the current international trade crisis.

(d) Procurement delays are always a risk in a project; however, at some point there must be some kind of an intervention – restructuring, cancelation, a new approach of some kind -- to keep a tendering process from continuing year after year. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies Comments provided by the Borrower rightly focus on several issues central to project implementation. Lengthy procurement processes were a key factor affecting implementation, especially with regard to the reduced scope of project activities. Some of the procurement delays can be attributed to circumstances beyond the Project’s control, while others might have been resolved with greater emphasis on the tendering process and internal coordination. That being said, the Borrower did achieve much, given circumstances that underwent tremendous change during the period of implementation. The ratings are more a factor of what was not achieved (the dredging containment facility, the berths on Katowice Peninsula, and the delays in operationalizing the facility on Grabowski Island) rather than on what was accomplished, which was commendable. (b) Cofinanciers NA

(c) Other partners and stakeholders NA

17

Annex 1. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent)

Components Appraisal Estimate (USD millions)

Actual/Latest Estimate (USD

millions)

Percentage of Appraisal

Szczecin-Swinoujscie Seaway Rehabilitation5

55.4 51.9 93.6

Szczecin Port Modernization Project

27.6 27.54 99.6

Total Project Costs 83.0 79.4 95.6

These tables do not include the � 12.56 million in funds which were granted by the European Regional Development Fund which allowed for the Government to lower its contribution, and which offset some of the funds canceled from the IBRD loan.

(b) Financing

Source of Funds Type of Cofinancing

Appraisal Estimate

(USD millions)

Actual/Latest Estimate

(USD millions)

Percentage of Appraisal

Borrower 44.5 37.9 85.0 International Bank for Reconstruction and Development

38.5 41.5 1086

Local Govts. (Prov., District, City) of Borrowing Country

--

5 Includes containment area for contaminated sediment.

6 Though some funds were canceled, the Government benefited from a favorable exchange rate.

18

Annex 2. Outputs by Component Outputs for Maritime/sea channel:

Sub-Component Output Rebuild intermediate breakwaters The eastern breakwater (666 meters) with

the quay (260 meters) The western breakwater (602 meters) Navigation lights on breakwaters’ heads (2)Bank lighting of breakwaters

Strengthen banks of parts of the Seaway's canals

Reconstruction of eastern bank protection (3.019 meters) Reconstruction of western bank protection (3.228 meters) Head light beacons Bank lighting

Establish a new containment area for contaminated dredged materials

Not completed

Provide technical assistance to define and implement environmentally sound dredging methods

Staff in maritime office trained in current environmentally sound methods.

Outputs for Port of Szczecin-Swinoujscie

Sub-Component Output Works on Ostrow Grabowski Island Construction of new berthing facilities on

232 m along the western side of the island. Leveling and land preparation on 160,000 sqm Construction of a roll-on/roll-off ramp Bank/slope protection Dredging 400,000 m3 Access road, drainage

Works on Katowice Peninsula, Bank/slope protection on 580 m along the banks not to be used for berthing purposes Leveling and land preparation on 160,000 sqm.

19

Annex 3. Economic and Financial Analysis

Szczecin-Swinoujscie Seaway and Port Modernization Project Components of the Project were evaluated individually, as follows:

A. Breakwater at Southern Entrance to Piastowski Canal and Slope Protection

1. Value added by Szczecin Shipyard:Added value to the shipyard is not explicitly captured as the current performance of the Shipyard has not been reported. At the appraisal, the Project was envisaged to help avoid a 10-15% cut in production of the largest vessels (35,000 DWT or larger), which would have otherwise cost the Shipyard $6-9 million per year. However, the Government and the Bank have recognized that various external economic conditions that are completely independent of the Project have hindered such aspiration.

2. Avoided recurrent maintenance of Canal:Without the Project, the annual average expenditure on recurrent repairs of the Canal was estimated to drastically increase in the future years. During 1995-1999, a total of 4.5 million PLN (i.e., 900,000 PLN or $187,874 per year) was spent for recurrent repairs. Without the Project, the Maritime Office would have expected an increase of up to $1.5 million per year spending on recurrent repairs to prevent collapsing of the bank and the canal’s profile, which would have otherwise deteriorated further. After the Project, the annual repair cost was reduced to 206,431 PLN ($48,834) in 2004, 61,807 PLN ($14,621) in 2005, and 186,000 PLN ($44,226) in 2006. Cost savings of future years are therefore estimated as the difference between do-nothing costs ($1.5 million per year) and reduced costs due to the Project (projected to be $70,540 per year).

3. Transport cost savings through quicker transit of seaway: The Project was anticipated at appraisal to enable ships to pass through the Canal at higher speeds, and therefore to reduce travel time. However, because of some uncompleted works outside the scope of the Project, but still necessary for the canal to be fully rehabilitated, the regulation on cruising speeds has not as yet been revised as initially anticipated—to 8.5 knots for loaded ships and 12 knots for ships in ballast, from the current limit of 7 knots. In this analysis, it was assumed that the benefits from travel time savings will be realized in 2010 and onward. The annual savings will be approximately $0.27 million in 2010, accounting for 0.25 hrs saving per passage, 7,200 passages per year, and value of travel time $150/hr. It will increase in the future years under an assumption that traffic through the Canal will grow at the rate of an annual average of 3%.

4. Reduced risk of collision and groundings: It was predicted that, without the Project, about one serious collision with the bank or grounding per year will occur as the number of ships using the Canal grows, whereas with the Project, the probability of a serious accident becomes negligible. However, there is always uncertainty in measuring future benefits from avoided collisions and groundings for the following reasons. First, the base value is too low—one accident per year—to verify any future changes as meaningful improvements. Second, such accidents are caused not only by the slope

20

condition but also by a number of other factors, and thus, it is difficult to single out the Project’s impact on the reduction of collision and groundings. Despite these caveats, this analysis used the best possible estimate given recent accident occurrences to capture economic benefits of the Project. In particular, it was predicted that with the Project, one accident will occur every three years from 2009 onward. Comparison was made against the do-nothing case, under which there would be one accident per year according to the computer simulation assessment conducted at appraisal. Consistent with the PAD analysis, $1 million was used as the cost involved in one accident.

5. Table 1 shows comparisons between the initial and ICR estimations of each benefit element. The economic return values (19% vs. 0.7%) suggest that the first component of the Project significantly underperformed its anticipation. However, the unrealized added-value to the Shipyard is the major reason for the low economic efficiency of the Project, other values being relatively close to the initial estimation.

Table 1. Annual benefits and economic return: comparison of initial and ICR estimates

Annual benefits in million Euros Benefit category Initial estimation (PAD) ICR estimation for 2010 Value added through Szczecin Shipyard 6.0+ n/a Recurrent maintenance avoided 1.2 1.44 Cargo transit cost savings 0.4 0.13 Collisions and groundings avoided 0.3 0.67 Total 8.0+ 2.38 Construction cost 43.6 51.9 Economic return 19%+ 0.7%

6. Risk and sensitivity analysis: The sensitivity analysis was conducted for the scenario where the future annual benefits are reduced by 35%.7 With future benefit shortfall of 35%, the NPV of the Project decreases from $-24.2 to $-30.8 million; and the IRR goes negative (-1.8%).

B. Port of Szczecin-Swinoujscie: Katowice Peninsula and Grabowski Island

7. The most recent projection by the Government (2008) updated port traffic forecasts in the revised economic evaluation (2004) also includes actual data for years 2005 through 2007. Major changes from the original forecasts are as follows:

(a) Katowicki Peninsula: The 2008 data/forecast shows that the actual port traffic in 2006 and 2007 largely exceeds the 2004 forecast; in fact, there was almost nine times more general cargo served at the new port in 2007 than predicted (1.30 vs.

7 A cost overrun scenario is not relevant in this case as the construction is complete and there will be no recurrent maintenance costs incurred in future years.

21

0.15 million tons). Based on the actual traffic, the 2008 forecast estimated that the traffic will stabilize at 1.3 million tons a year from 2017, which is 38 percent greater than the 2004 prediction (0.8 million tons at stabilization).

(b) Grabowski Island:The 2004 forecast expected that the port traffic of this new development will be realized in 2007 and onward. However, as of November 2008, it is not operational and thus no traffic has been generated or attracted.8

The revised forecast in 2008 predicted that the traffic growth will begin in 2010. There is also a significant difference in the mix of cargo type between the two forecasts. The 2004 forecast estimated that the ratio of containerized cargo tonnage to general cargo tonnage will be 1.5-2 to 1, whereas the updated forecast estimated much higher concentration of containerized cargo, the same ratio to be 45 to 1 in 2010 and increase further over time. This adjustment is a reflection of the global trend of fast growing containerization and the PCC strategy to concentrate containerized cargos on Grabowski Island.

8. Transport cost savings:Economic benefits from transport cost savings were estimated based on the realized demand (at Katowicki Peninsula) and revised demand forecasts. The economic analysis at the Project appraisal estimated that average cost savings will be $5 per ton for bulk cargoes and $2 per ton for containerized cargo. Adopting those values, future benefits were quantified as below.

(a) Katowicki Peninsula: In 2007, the Katowicki Peninsula port remarkably outperformed the initial estimation (0.15 million tons), treating 1.4 million tons. It is foreseen that the future demand will stabilize at the current level, and the savings on transport cost stabilize at around $2.5 million a year.

(b) Grabowski Island: It is projected that the Grabowski Island port will treat 1.35 million tons of containerized cargo and 30,000 tons of general (bulk) cargo in 2010. The demand will gradually increase approximately at a rate of an annual average 3%: 2.3 million (containerized) and 40,000 (general) tons in 2020, and 2.8 million and 49,000 tons in 2027. Accordingly, savings on transport cost will be $2.7 million in 2010, $4.5 million in 2020, and $5.6 million in 2027.

9. Added value generated by the companies developing commercial activities:Economic benefits from development of commercial activities are captured by the Port Authority’s revenues from land leases and vessel charges. The revenue collecting items include land value added by the stevedoring companies, leases from depreciation, and vessel charges. The total annual revenue is estimated to be $2.6 million in 2010, $3.7 million in 2020, and $4.3 million in 2027. These estimates are fairly close to the initial estimate of $4 million per year.

10. Risk and sensitivity analysis: The sensitivity analysis was carried out for three scenarios including (i) cost overrun of 20%, (ii) benefit shortfall of 25%, and (iii)

8 New facility is expected to be operational in mid 2009.

22

combination of (i) and (ii), consistent with the initial analysis. Table 2 summarizes analysis results for each component and the total, with parallel comparison between the initial analysis in the PAD and the ICR analysis. As the figures suggest, the Katowice Peninsula port significantly outperformed the initial estimates (over two times), while the Grabowski Island port underperformed, having suffered from the schedule delay (about 80%). Each component thus to some extent cancels the other, the aggregate value being about 83% of the initial estimate.

Table 2. Sensitivity analysis: comparison of initial and ICR estimates

Katowice Peninsula Grabowski Island Total IRR (%) PAD ICR PAD ICR PAD ICR

Base case 44 101.7 22 17.7 33 27.5 (i) Cost overrun of 20% 37 101.7 19 17.5 27.3 (ii) Benefit shortfall of 25% 34 85.6 17 13.9 21.9 Combination of (i) and (ii) 28 85.6 14 13.8 21.8

C. Caveats and Conclusions

11. Given the less than complete information that was provided, one caveat should be noted: the Project’s intervention on Katowice Peninsula was limited to improvements in bank and slope protection, leveling and land preparation, and resurfacing of access roads; it did not, as originally planned, support the construction of a new berth. Thus, the upsurge in traffic cannot be fully attributed to the improvement of the Port. Rather, it is highly likely that the first component of the Project, the improvement of the Seaway has had spillover effect—easier access has caused more demand for the Port. Therefore, a certain portion of economic benefits from the Port can be attributed to the improvements of the Seaway. But, there is insufficient information to quantify it.

12. The first component of the Project, Szczecin-Swinoujscie Seaway Modernization, has not yielded the anticipated economic benefits to the country, mainly due to the externality on the Shipyard production, which was beyond the Project’s scope. Nevertheless, the Project has satisfactorily achieved the other intended objectives by significantly reducing maintenance costs and cargo transit costs. Its impact on the possibility of collisions and groundings is difficult to conclude, and future changes in this area might benefit from further analysis.

13. The port modernization component of the Project has satisfactorily achieved its intended objectives by bringing in added values through transport cost savings and development of commercial activities. In particular, it is noteworthy that the port has treated and will treat a greater amount of cargo than expected. The analysis determined that the port will have positive net present values, even under cost overrun and benefit shortfall scenarios.

Annex 4. Bank Lending and Implementation Support/Supervision Processes

23

(a) Task Team members

Names Title Unit Responsibility/ Specialty

Lending Marc Juhel Port Specialist INFTD Team Leader Graham Smith Transport Economist ECSIN Transport Piotr Krzyzanowski Environmental Expert ECSIN Environment Alain Ballereau Financial Analyst, Consultant ECSIN FMS Els Hinderdael Procurement Analyst ECSIN Procurement Robert Kietlinski Operations Officer ECSIN Operations Iwona Warzecha Financial Management Specialist ECSIN FMS Damika Somasundaram Program Assistant ECSIN Project Support

Supervision/ICR

Michel Audige Lead Transport Specialist ECSSDProgram Team Leader

Jacques Bure Sr Highway Engineer ECSSDTeam Leader Ross Pavis Operations Officer ECSSDICR Team Leader Radoslaw Czapski Operations Officer ECSSDOperations Anca Cristina Dumitrescu Sr Transport. Spec. AFTTRTransport Spec Piotr Krzyzanowski Consultant ECSSDConsultant Karina Mostipan Sr Procurement Spec. ECSPS Procurement Iwona Warzecha Sr Financial Management SpecialistECSPS FMS Jung Eun Oh Young Professional ECSSDEconomic AnalysisBarbara Ziolkowska Procurement Asst. ECCPLProcurement Marie Laygo Sr Program Assistant ECSSDProject Support

(b) Staff Time and Cost Staff Time and Cost (Bank Budget Only)

Stage of Project Cycle No. of staff weeks USD Thousands (including

travel and consultant costs)9

Lending FY94 2.82 FY95 1.61 FY96 21.42 FY97 90.89 FY98 191.47 FY99 63.85 FY00 42 156.93 FY01 14 53.80

Total: 56 582.79 Supervision/ICR

9 Costs prior to SAP cannot be verified.

24

FY00 00.00 FY01 7 22.60 FY02 19 52.75 FY03 12 40.62 FY04 8 53.78 FY05 12 76.46 FY06 16 54.80 FY07 8 32.16 FY08 14 74.06

Total: 96 407.23

25

Annex 5. Beneficiary Survey Results NA

26

Annex 6. Stakeholder Workshop Report and Results NA

27

Annex 7. Summary of Borrower’s ICR and/or Comments on Draft ICR

The Szczecin and Swinoujscie Seaports Authority’s standpoint on the Implementation Completion and Results Report for a Szczecin- Swinoujscie Seaway

and Port Modernization Project co-financed by the World Bank

1. The Report by the World Bank’s representatives was drafted regarding the investment implemented by Maritime Office Szczecin (MOS) and the two investments implemented by Szczecin and Swinoujscie Seaports Authority in Szczecin port, namely: “Katowicki Peninsula infrastructure construction” and “Construction of the port infrastructure for a container terminal on Ostrów Grabowski Island”, both realized during the years 2006-2008. Hereafter, the Szczecin and Swinoujscie Seaports Authority’s standpoint, strictly limited to the investments realized by this company on the Katowicki Peninsula and the Ostów Grabowski Island in Szczecin port, is presented.

2. With reference to the procurement process for the contractor of the works, one has to

point out the following facts, which have not been fully described by the authors of the report on the completed project:

• The first procurement procedure was completed by SSSA in February 2002 in accordance with the adopted time schedule. The report on evaluation of offers together with the recommendation of awarding the contract to the most favorable bidder was delivered to the World Bank. It has to be underlined that the cheapest offer exceeded the planned investment budget by over 40%. That fact had a material importance in relation to the taken up by SSSA in 2001 and not previously included in the Company’s strategic plan investments concerning the purchase, resulting from the right to first refusal, of the functioning ferry terminal in Swinoujscie – investment cost of 198 mln PLN and the necessity to urgently modernize the Górników quay in Swinoujscie Merchant Port – costs of 60 mln PLN. Proceeding with the above mentioned investments and the necessity to engage over 250 mln PLN, exceptionally diminished the Company’s financial ability for the successive years, thus limiting its ability to realize new investment projects.

• In February 2002 the World Bank communicated its opinion on the procurement of contractors for the contracts covered by the co-financing from the investment loan awarded to SSSA. The Bank’s representatives pointed out some formal imperfections in the offers submitted by the cheapest contractor (in the opinion of SSSA, those imperfections did not disqualify the offer because the data missing in the supplement to the offer had been delivered by the contractor in an another place of the submitted offer documentation), thus recommending to award the contracts to the second cheapest contractor which in consequence resulted in the increase of the investment capital expenditure from 119 mln PLN (the cheapest offer) by

28

additional 5 mln PLN, thus exceeding the pre-investment budget assumptions by over 50%.

• In this economic situation SSSA had not been able to realize the investments and it had taken up steps towards nullification of the procurement process and in consequence towards repeating the procurement procedure, which finally was accepted by the Bank in October 2002.

• In accordance with the Bank’s guidelines in relation to the public procurement it was not possible to repeat the procurement procedure for the same material scope of the initial investment tender. Due to the above, SSSA made respective corrections and redefined the scope of the projects by establishing defined priorities. In relation with the dynamic development of containerized cargo transshipment in Szczecin port and the limited capacity of the temporary container terminal situated at Czeskie quay and further perspectives of container traffic development, the Contract II “Construction of port infrastructure for the container terminal on Ostrów Grabowski Island” was considered a priority investment. Preparatory works related to construction of overloading embankment for the future road and rail were excluded. Because of the urgent character of the earthworks, those were contracted by SSSA itself in 2002 so to obtain time saving in realization of the contract. The original investment cycle scheduled the realization of the project in 3,5 years, whereas after the exclusion of the preparatory works and their realization with SSSA’s own recourses the contract co-financed by the World Bank was realized in the period of 18 months. The material scope and the objective of the second of the planned investments on Katowickie Peninsula were considerably redefined. One resigned from construction of the planned Dabrowskie and Kujawskie ship posts as well as barge quay and it was defined that the main goal of the contract would be the improvement of access to the port territory via modernization of the main communication route for that transshipment area – C�owa and W glowa streets with the combined length of over 1300m together with an additional parking lane for truck vehicles as well as preparation of the not yet activated port areas of over 8ha for yards and facilities of future berths that would be constructed in the second stage of the Katowickie Peninsula port infrastructure development. The current development strategy of the Company assumes realization of the investment’s second stage during the consecutive years 2010-2012.

• The second procurement procedure based on the revised material scope of the both contracts began in second half of 2003. In the meantime, in May 2004 Poland gained membership with the European Union, thus opening new possibilities for financing of the Country’s generally accessible transport infrastructure with the Union’s structural funds. Taking advantage of that situation, SSSA submitted an application under the European Regional Development Fund scheme for co-financing of the project at Ostrów Grabowski, which in parallel was being filled with World Bank financing. In June 2004, the World Bank representatives came to Szczecin port with the intention to close the project and to discuss with the SSSA’s representatives

29

procedures for repayment of the used loan (there was the advance fee as drawn from the loan account in the amount of 117.000 Euro to be repaid). The Company’s Management presented the current situation of the project and turned to the Bank with a proposal to continue co-operation in co-financing the investment on Ostrów Grabowski with consideration of the new situation of SSSA after it had received an initial grant of European funds for the container terminal at Ostrów Grabowski in Szczecin.

• Consultations that SSSA had conducted with the Ministry of Infrastructure, responsible for the use of the EU funds, and with the World Bank were concluded on 26th April 2005 by signing the agreement for co-financing of the investment “Construction of port infrastructure for container terminal at Ostrów Grabowski in Szczecin” with European Regional Development Fund and on 14th June 2005 by signing with the World Bank the Annex to the Loan Agreement confirming the fact of the Bank’s co-financing the project together with the funds received from the EU. It needs to be pointed out that at that time that was a pioneering solution on national scale when one infrastructural investment had been simultaneously supported with European funds and with a long-term investment loan from the World Bank.

• In the beginning of 2006, the joint action taken up by SSSA, the World’s Bank and the Ministry of infrastructure finally resulted in the completion of the procurement procedure for the contractors. The both contracts were realized with a success respectively in 2007 and 2008.

3. In the light of the above mentioned facts, the long-lasting process of preparation for

the investment and the procurement of the contractors ought to be considered as a positive element. Taking the decision to nullify the first procurement process, the decrease of the material scope of the investments and in consequence the use of the EU funds grant in the amount of over 53 mln PLN enabled the feasible matching of the financing system with the financial possibilities of SSSA and it protected the Company from potential loss of cash-flow and enabled allocation of the freed finances to the Company’s other, urgent investment tasks. One has to underline that the investment financing model using the World Bank and the EU funds as worked out by SSSA was a pioneering solution on national scale. In the opinion of the World Bank’s representatives, the solution worked out by SSSA consisting in the financial combination of World Bank’s loan for 25% of the investment’s value and EU funds for 75% of the investments value will allow that institution to design a new product which the Bank will offer in the region to its clients who manage to obtain funds from the EU and who seek an additional long-term source of financing in lieu of their own financial contribution. The gained experience shows that a through preparation of the project documentation and consideration of costs of realization of an investment prior to its commencement are important elements, so at the procurement stage the obtained price levels are not the decisive elements for a need to introduce corrections to material scope of a project and for renewal of a procurement, which requires additional time, or at the extreme to take a decision to resign from realization of the project due to unforeseen increase of investment costs.

30

4. As relates to the realization of the goals of Port Modernization project, it has to be appreciated that that aspect needs to be considered on two levels, i.e. on the basic level by comparing the achieved results with the goals assumed at the project programming stage, but also by considering the goals that had been revised during the project’s scope revision stage. The continuously changing business environment of the port’s operation forced material changes in the project, without consideration of which the project certainly would not be realized at all. Taking the above into consideration, one has to accept that the project’s goals as modified during its implementation, in the part realized by SSSA, were realized in 100%. New port infrastructure was constructed, new investment areas were activated, port access system was unblocked by modernization of basic communication routes, at ‘same time creating new possibilities of expansion and economic activity of private port operators who run transshipment business in Szczecin sea port.

5. Recapitulating the above, the experience in supervision and management of the

investment process based on the guidelines generally binding in the World and FIDIC procedures as well as co-operation with an international financial institution such as World Bank, gained during the realization of the projects will in the nearest future be used by SSSA’s investment divisions during realization of the next Szczecin and Swinoujscie ports’ modernization and infrastructure expansion programs.

31

Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders NA

32

Annex 9. List of Supporting Documents

1. Project Concept Note (formerly “Initial Executive Project Summary”), 1996 2. Project Appraisal Document, November 2000 3. Legal Agreement between IBRD and Zarzad Morskeigo Portu Szczecin-

Swinoujscie S.A., December 2000 4. A legal expert analysis concerning the possibility of building a site designed for

the deposit of dredged spoil in the area of Lake Dabie in the light of the Polish and International law, Jan Jerzmanski, June 2005

5. Aide Memoires 6. Country Assistance Strategy, April 1997 7. Country Assistance Strategy Progress Report, August 1999 8. Country Partnership Strategy, 2005 - 2007 9. Implementation Status & Results Reports 10. Environmental Assessment Report for modernization and development of

infrastructure of sea water way (inland section) and port area of Katowicki Peninsula and Grabowski Island, Agriculture Academy in Szczecin, December 1999

11. Annual Audit Reports and other project financial statements 12. Quarterly Project Management Reports

For detail,see IBRD 30668

Swinoujscie

Trzebiez

Police

SZCZECIN

Dargobadz

Wolin

Stargard

Chociwel

Swidwin

Gryfice

Trzebiatów

Kolobrzeg

Miedzyzdroje

Pasewalk

Reclaw

Goleniów

Nowogard

Recz

Wegorzyno

POLA

ND

GERM

AN

Y

IBRD 30667

NOVEMBER 2000

E65

3

10

E28

E28

B a l t i c S e a

Odra R.

S Z C Z E C I N

WOLINNATIONAL

PARK

0 5 10 15

KILOMETERS

20 25

POLANDSZCZECIN-SWINOUJSCIE SEAWAY AND

PORT MODERNIZATION PROJECTPHYSICAL IMPROVEMENT OF MARITIME ACCESSES

MAJOR HIGHWAYS

MAIN ROADS

OTHER ROADS

RAILROADS

SELECTED TOWNS

PROVINCE (WOJEWODZTWO) CAPITAL

INTERNATIONAL BOUNDARIES

PROJECT COMPONENTS:

BANKS PROTECTION

BREAKWATER REHABILITATION

CHANNEL AXLE

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, o r any endorsemen t or a c c e p t a n c e o f s u c h boundaries.

Baltic Sea

POLAND

WARSAW

GERMANY

CZECHREPUBLIC

SLOVAKREPUBLIC

UKRAINE

BELARUS

LITHUANIADENMARK

SWEDEN

RUSSIANFED.

Gdynia

Szczecin

GdanskSwinoujscieAREA

OFMAP