Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: 60778-HR

PROJECT PAPER

ON AN

ADDITIONAL FINANCING LOAN

IN THE AMOUNT OF EURO 50 MILLION

(US$66.92 MILLION EQUIVALENT)

TO THE

PORT OF PLOČE AUTHORITY

WITH THE GUARANTEE OF THE REPUBLIC OF CROATIA

FOR THE

TRADE AND TRANSPORT INTEGRATION PROJECT

June 29, 2011

Sustainable Development Department

South Central Europe Country Unit

Europe and Central Asia Region

This document is being made publicly available prior to Board consideration. This does not

imply a presumed outcome. This document may be updated following Board consideration

and the updated document will be made publicly available in accordance with the Bank’s

Policy on Access to Information.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective December 31, 2010)

Currency Unit = HRK (Kunas)

HRK 1 = US$ 0.18

US$1 = HRK5.55

EUR1 = US$ 1.33835

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

AF Additional Financing

BiH Bosnia and Herzegovina

BT Bulk Terminal

CPS Country Partnership Strategy

CT Container Terminal

DWT Dead Weight Ton

EBRD European Bank for Reconstruction and Development

EIA Environmental Impact Assessment

EMP Environmental Management Plan

EU European Union

ISR Implementation Status Report

LP Luka Ploče d.d. (concessionaire for BT and CT)

MT Million Tonne

NPV Net Present Value

ORAF Operational Risk Assessment Framework

PDO Project Development Objective

PIU Project Implementation Unit

PPA Port of Ploče Authority

TEU Twenty Foot Equivalent Unit

TTI Trade and Transport Integration

Vice President: Philippe H. Le Houérou

Country Director: Peter Harrold

Country Manager: Hongjoo Hahm

Sector Manager: Henry G. R. Kerali

Task Team Leader: Gerald Ollivier

CROATIA

Trade and Transport Integration Project

CONTENTS

I. Introduction ............................................................................................................................ 1 II. Background and Rationale for Additional Financing ............................................................ 1

III. Proposed Changes ................................................................................................................. 4 IV. Appraisal Summary ............................................................................................................. 5

Annex 1: Results Framework and Monitoring........................................................................... 7 Annex 2 Operational Risk Assessment Framework (ORAF) ................................................... 12

Annex 3: Updated Financing Plan and Cost Table .................................................................. 15

Croatia

TRADE AND TRANSPORT INTEGRATION PROJECT

Additional Financing Data Sheet

Basic Information - Additional Financing (AF)

Country Director: Peter Harrold

Sector Director: Peter D. Thomson

Sector Manager: Henry G. R. Kerali

Team Leader: Gerald Ollivier

Project ID: P118260

Expected Effectiveness Date: December 15,

2011

Lending Instrument: Specific Investment

Loan

Additional Financing Type: Scaling up and

Financing Gap

Sectors: ECSSD

Themes: Ports, Waterways and

Shipping (100%)

Environmental category: A- Full

Assessment (carried out for the

original project)

Expected Closing Date: June 30,

2014

Joint IFC:

Joint Level:

Basic Information - Original Project

Project ID: P093767 Environmental category: A-Full

Assessment

Project Name: Trade and Transport

Integration Project

Expected Closing Date: June 30,

2014

Original Closing Date : December 31,

2011

Lending Instrument: Specific Investment

Loan

Joint IFC:

Joint Level:

AF Project Financing Data

[ x] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other:

Proposed terms: Euro denominated Flexible Loan with variable spread, with a 23 year

maturity including a 12 year grace period, with level repayment of principal.

AF Financing Plan (US$m)

Source Total Amount (US $m)

Total Project Cost:

Cofinancing:

Borrower:

Total Bank Financing:

IBRD

66.92

66.92

Client Information

Recipient: Port of Ploče Authority

Responsible Agency: Port of Ploče Authority

Contact Person: Mr. Tomislav Batur, Executive Director

Telephone No.: +385 20 603 281

Fax No.: + 385 20 670 271

Email: batur@port-authority.hr

AF Estimated Disbursements (Bank FY/US$m)

FY 2012 2013 2014

Annual 10.0 38.0 18.92

Cumulative 10.0 48.0 66.92

Project Development Objective and Description

Original project development objective:

The project objective is to develop trade along Corridor Vc by improving the capacity, efficiency

and quality of services on the southern end of Corridor Vc with particular focus on the port of

Ploče and on coordination aspects among all corridor participants.

Revised project development objective:

The project development objective remains the same as in the original project. The end outcome

targets in terms of productivity and capacity are raised to capture expected improvements in service

quality and capacity.

Project description:

The project seeks to achieve this objective through: (i) investments in increased capacity of the port

infrastructure (new bulk terminal and new container terminal); (ii) introduction of a modern

electronic port community system; (iii) strengthened corridor dialogue among corridor participants;

(iv) establishment of cost recovery based concession arrangements; and (v) increased private sector

involvement.

Safeguard and Exception to Policies

Safeguard policies triggered:

Environmental Assessment (OP/BP 4.01)

Natural Habitats (OP/BP 4.04)

Forests (OP/BP 4.36)

Pest Management (OP 4.09)

Physical Cultural Resources (OP/BP 4.11)

Indigenous Peoples (OP/BP 4.10)

Involuntary Resettlement (OP/BP 4.12)

Safety of Dams (OP/BP 4.37)

Projects on International Waters (OP/BP 7.50)

Projects in Disputed Areas (OP/BP 7.60)

[x]Yes [ ] No

[x]Yes [ ] No

[ ]Yes [x] No

[ ]Yes [x] No

[ ]Yes [x] No

[ ]Yes [x] No

[ ]Yes [x] No

[ ]Yes [x] No

[x]Yes [ ] No

[ ]Yes [x] No

Does the project require any exceptions from Bank policies?

Have these been approved by Bank management?

[ ]Yes [x] No

[ ]Yes [ ] No

Conditions and Legal Covenants:

Financing Agreement Reference Description of

Condition/Covenant

Date Due

Guarantee Agreement,

Section 2.03. (a) and

Letter of Development Policy,

Section (e)

The Guarantor shall take all

necessary measures to reduce

the state ownership in Luka

Ploče to no more than twenty

percent (20%), in accordance

with its existing laws and

regulations and in consultation

with the Bank. This process

shall be based on fair market

value principles and be

completed in due time to

enable Luka Ploče to secure

sufficient financing, on

commercial terms, for the

purchase of equipment for the

new terminals to be

constructed under Part A of

the Original Project.

This is not a dated covenant.

Not yet due.

The reduction in state

ownership in Luka Ploce dd

is ongoing and will take

place in two steps: the sale

of about 23 percent of

existing shares to employees

on a nominal basis with a

five year lock-in period

(done) and the issuance of

new shares based on fair

market value principles

bringing down the state

ownership to no more than

20 percent, in case of full

placement of the new shares.

Loan Agreement,

Schedule 2 Section V

Except as the Bank shall

otherwise agree, the Borrower

shall not incur any debt unless

the net revenues, net non-

operating income and

accumulated earning of the

Borrower, shall be at least 1.1

times the estimated maximum

debt service requirements of

the Borrower.

This is a recurrent covenant.

Complied with.

Loan Agreement,

Schedule 2 Section I C

The Borrower shall take all

necessary measures to ensure

that the Project is implemented

in accordance with the EMP.

Complied with.

Loan Agreement

Schedule 2 Section I A 2

The Borrower shall implement

the Project in accordance with

the Project Implementation

Plan agreed upon between the

Bank and the Borrower, as

such plan may be amended

from time to time upon the

agreement between the

Borrower and the Bank.

Complied with.

I. INTRODUCTION

1. This Project Paper seeks the approval of the Executive Directors to provide an additional

loan in the amount of EUR50 million to the Port of Ploče Authority (PPA), with a guarantee of

the Republic of Croatia for the Trade and Transport Integration (TTI) Project (P093767, Loan

No. 7410-HR).

2. The proposed additional loan of EUR50 million would help finance the total additional

costs of EUR51.3 million associated with: (i) a scaling up (EUR5 million) and financing gap

coverage (EUR35.9 million) for the Bulk Terminal (BT) to be constructed under the project; and

(ii) financing gap coverage (EUR10.4 million) for the Container Terminal (CT), which is

completed. The remainder of the additional cost would be covered by reallocating EUR1.3

million from the category interest accrued in the original loan to the category civil works. This

would reflect lower than anticipated interest rates during the past three years.

3. Other significant changes from the original project would include: (i) extension of the

closing date for the original project and for interest capitalization from December 31, 2011 to

June 30, 2014, allowing for completion of the scaled-up BT; (ii) adjustment to the minimum debt

service coverage ratio of PPA to 1.1 instead of 1.3 (see paragraph 21); and (iii) adoption of the

World Bank procurement guidelines published in May 2004, and Revised in October 2006 and

May 2010.

4. The original project is co-financed with an EBRD loan of EUR11.2 million that would be

used for financing a portion of the BT costs, as incorporated in the overall BT financing plan.

The amount of Government contribution to the project costs would remain unchanged at

EUR21.1 million.

II. BACKGROUND AND RATIONALE FOR ADDITIONAL FINANCING

5. The strategic objective of Croatia is to join the European Union (EU) as a competitive

economy. Pan-European Transport Corridors carry the vast majority of trade, transit and tourist

traffic between the EU and the Southeast European region, and within the region. Corridor Vc,

running from Ploče in Croatia to Budapest in Hungary, is one of these Corridors.

6. The Port of Ploče, located on the Adriatic coast, is the gateway to Corridor Vc. It directly

influences the overall efficiency and capacity of this corridor. It is the natural port for industries

located in southern Dalmatia (Croatia) and in Bosnia and Herzegovina (BiH). As a result, the

TTI project, while investing primarily in port development, contributes significantly to regional

economic prosperity and stability.

7. The original TTI project cost was estimated at EUR91 million with a World Bank loan of

EUR58.8 million to the Port of Ploče Authority. The loan was approved on November 14, 2006

and became effective on March 20, 2007. The overall development objective is to develop trade

along Corridor Vc, by improving the capacity, efficiency and quality of services on the southern

2

end of the corridor, with particular focus on the port of Ploče and on coordination aspects among

all corridor participants. The project seeks to achieve those objectives by providing financing to

build two new port terminals,1 introducing a modern electronic port community system,

establishing concession arrangements for terminals based on cost recovery and increasing private

sector involvement to secure financing for cargo handling equipment.

8. The project is progressing well towards meeting its development objectives, with

satisfactory ratings over the last three years, despite a temporary setback in 2009 due to the

global economic crisis. In particular: (i) traffic grew rapidly from 2005 to 2008 (+83 percent)

using almost the entire port bulk cargo capacity; (ii) the concessions for both the CT and BT

were signed on January 18, 2010 with cost recovery terms for concession fees and major

investments expected2 from the concessionaire, Luka Ploče dd (LP); (iii) the financial

performance of the PPA and LP steadily improved until 2008 building on traffic growth and tight

cost control; (iv) the transport corridor through Ploče continued to be price competitive for its

main markets compared with alternative corridors; (v) the CT is completed and in operation; and

(vi) preparatory civil works for the BT are nearing completion.

9. After a sharp drop in 2009, traffic rebounded by 58 percent in 2010, and the existing bulk

terminal is expected to be used at full capacity in 2011. 2010 traffic was below original estimates

as it needs to further recover from the setback in 2009. Traffic projections completed in

November 2010 continue to support the need for a new terminal. In February 2010, LP received

new letters of intent from its main bulk clients, confirming their future production plans and their

intent to channel a total of 4.5 million tons of bulk cargo throughput annually through Ploče,

excluding transshipment. The main transshipment client also indicated that the port would be the

most suitable transshipment port for its purposes. Clients emphasized that the new terminal

should provide increased handling productivity, storage capacity and be able to accommodate

larger vessels (so called “Capesize” vessels).

10. In March 2010, the Government consented to the process of capital increase for LP,

overall in line with the project letter of development policy. This will allow LP to secure the

private funds needed to acquire and install equipment on the new terminals. The reduction in

state ownership in Luka Ploce dd is ongoing and will take place in two steps: the sale of 51,771

shares out of 222,614 existing shares to employees on a nominal basis with a five year lock-in

period (completed), and by the issuance of new shares based on fair market value principles

bringing down the state ownership to no more than 20 percent, in case of full placement of the

new shares. The transaction is expected to be completed by September 2011.

11. The project implementation performance ratings and implementation capacity have been

satisfactory, as assessed during the mid-term review (April 2009), and moderately satisfactory as

rated in the latest supervision mission (April 2011). The downgrading to moderately satisfactory

reflects mostly the delays in completing the design of the BT. Delays resulted primarily from

adjustments in the design of the terminal to make it more market responsive. The project is in

compliance with its key legal covenants, as defined in the Loan Agreement. All project risks

1 BT with an originally planned capacity of 4.0 million tons and CT with an initial capacity of 66,000 TEU.

2 Investments by the concessionaire are expected to be higher in value over the life of the concession than State

investments made through the port of Ploče authority, including the present project.

3

rated “high” in the original project have been mitigated at this point: concessions have been

signed, the approach to increase private participation is finalized and will be implemented in

2011, and both BiH and Croatia are actively upgrading the remainder of Corridor Vc.

12. The risk for project implementation is lower than at the time of the original project

preparation. The main risk factor is the ability of LP to finance and install terminal equipment

on time for the opening of the terminal. The recently signed concession agreements for both

terminals and the Government consent to support a capital increase mitigate this risk. LP has

already ordered the gantry crane equipment for the CT, to be delivered in 2011.

13. Rail transport along corridor Vc remains the primary transport mode for bulk cargo

transport from the port to its users. Rail corridor conditions are improving through major

rehabilitation of rail infrastructure in BiH. In 2006, railway companies of Croatia and BiH signed

a Memorandum of Cooperation on rail transport along Corridor Vc. The Memorandum, together

with an Action Plan specifying individual coordinated activities is now under implementation. It

includes activities needed to improve the technical capacity and operational quality in the Ploče

railway yard and to better coordinate corridor activities. Progress on this aspect has been

relatively modest to date, but corridor discussions are gaining momentum at a regional level.

14. The additional financing would cover a financing gap for the BT (estimated at EUR35.9

million) to ensure the soundness of the new BT infrastructure and reflect current price levels.

After the original project was approved, Croatia adjusted its design codes for structural

engineering works towards the Eurocode. Following additional geotechnical studies, design work

and review by official reviewers, the technical solution originally foreseen for the quay (use of a

combiwall) was reevaluated and found to be insufficiently stable considering the quality of the

subsoil, earthquake and safety factors. The design was adjusted accordingly for the quay

structure using a standard open structure (steel piles with rear slope) assessed as suitable by

independent authorized reviewers. The estimated financing gap reflects both the increased

structural need and price adjustments related to accumulated delays in the BT implementation.

15. The BT scaling up (estimated at EUR5 million for infrastructure) would enhance the port

commercial responsiveness by better matching the BT infrastructure with current and expected

market needs. It would increase the port resilience to market fluctuations, by offering higher

quality services3 to a wider range of clients. The port traffic evolved rapidly in the past five

years. Transshipment, which was not using the port in 2005, now represents 30 percent of cargo,

despite inadequate infrastructure. At the same time, flows from traditional BiH companies

experienced rapid fluctuations. This led PPA and LP to select a more flexible design, competitive

for a broader range of market segments than the original design, which primarily targeted exports

from BiH.

16. The additional financing would also cover a financing gap for the container terminal. The

CT construction is completed with a Permit for Use issued in August 2010. The original designer

estimates proved to be too low for the quay construction and storage area compared to the

3 Allowing loading and unloading of two vessels at a time, handling of vessels up to 120,000 DWT instead of 80,000

DWT, and unloading speed of 2200 t/hour instead of 890.

4

contracted price. The contract was awarded after proper competition. The original design for the

container terminal has not been changed.

17. The use of additional World Bank financing offers multiple advantages compared to

other potential sources of financing. In particular: (i) all necessary implementation arrangements

are in place; (ii) ongoing dialogue under the project involves both policy aspects and

implementation aspects warranting continuity; (iii) the additional financing would finance a

contract already included in the original project; (iv) World Bank financing is competitive

compared to alternatives. Considering current economic conditions, the amount of Government

contribution to the overall project financing would remain the same as in the original project,

with the new loan covering all additional costs.

III. PROPOSED CHANGES

18. Project Development Objectives. Project Development Objectives would remain

unchanged. However the associated end outcome targets would be raised to capture the expected

improvements in service quality and capacity. Traffic forecasts would be adjusted downward to

reflect the latest projections and the traffic setback in 2009. Intermediate values for results

indicators would be adjusted to reflect the current implementation schedule as per Annex 1.

19. BT Scaling Up. The new scaled up BT will increase service quality by providing

infrastructure that can accommodate higher capacity equipment from the port concessionaire and

larger vessels. This would increase the capacity of the terminal from 4.0 to 4.6 million tons. This

entails a pile-based pier structure instead of a combi-wall structure, a maritime basin with a depth

of 18 meters instead of 15 m to accommodate larger vessels up to 120,000 DWT instead of

80,000 DWT, an adjusted berth position and layout to enable efficient transshipment operations,

an access bridge to accommodate simultaneous handling of two vessels, foundation for higher

capacity handling equipment (+ 30 percent for each), increased power supply and installation,

and adjusted railway tracks within the port.

20. Financing Plan. The amounts of Government, PPA and EBRD contributions to the

financing plan remain unchanged, while the additional costs would be covered by the additional

financing. The updated financing plan for the project is provided in Annex 3. Since interest rates

were lower than anticipated over the past three years, EUR1.3 million would be reallocated from

the category “interest and other charges” to the category “works” in the original loan.

21. Reduced Debt Service Coverage Ratio. In line with the status of PPA as a non-profit

organization, the target debt service coverage ratio for PPA would be adjusted to 1.1, instead of

1.3 as currently indicated in the Loan Agreement. This would reduce the need for government

contributions to PPA and enable PPA to maintain its debt service coverage ratio in line with

actual needs.

22. Implementation Period. The project closing date would be extended to June 30, 2014,

to be aligned with the expected completion of the new bulk terminal. The capitalization of

interest and other financial charges under the project would be extended similarly.

5

23. Contributions during repayment period. The Government would provide support to

PPA during the first loan servicing period. PPA will need Government support to service its

existing loan during the repayment period from 2012 to 2021, since the repayment period of the

loan principal for the existing loan (10 years) is much shorter than the economic life of the

corresponding asset (45 years). The exact amount will depend on traffic and port dues, but is

estimated at about EUR5.7 million per annum during the period of repayment of the first loan,

while such amount can be repaid by PPA in subsequent periods. Confirmation of the

Government commitment to provide contribution to PPA during the repayment period is

captured through the Guarantee Agreement, but PPA is not expected to need budget support for

the repayment of the additional loan.

IV. APPRAISAL SUMMARY

24. The need for additional financing was identified in 2008 and is reflected in the Country

Partnership Strategy (44879-HR). It was reviewed during the project mid-term review (April

2009). The Minister of Finance, based on a request from the Ministry of Sea, Transport and

Infrastructure, requested an additional loan from the World Bank on behalf of PPA on April 30,

2009, to cover the scaling up cost for the BT and financing gap for the completed CT. An

updated economic and financial evaluation has been carried out for the scaled up BT.

25. The new scaled-up BT would better respond to the needs of the market and would be

aligned with the business plan prepared by the concessionaire as part of the conditions preceding

the BT concession agreement. The scaling up will enhance the project development impact and

the port long-term competitiveness and resilience to market changes. An updated economic and

financial evaluation has been carried out for the scaled up BT and confirms its feasibility.

26. Economic Aspects. The economic analysis of the proposed scaled-up BT indicates that it

is economically sound with an NPV of EUR33.9 million (using a 12 percent discount rate) and a

rate of return of 15.3 percent. Compared with the original design, the scaled-up terminal brings

an economic rate of return of 73.8 percent (NPV of EUR75 million), as a result of greater

productivity and expanded potential client base.

27. Financial Aspects. Based on current projections and assumptions, the overall project

would be financially viable for PPA, even though PPA will need to receive cash flow support

during the debt servicing period of the first loan. The overall financial return for the scaled up

BT is estimated to be 10.7 percent, well above the project estimated cost of capital of 8 percent

with an NPV of EUR28.2 million (discounted at 8%). For PPA, the expected financial rate of

return is 5.8% and the NPV is EUR18.0 m (discounted at PPA cost of capital of 4.5%). Based

on concession fees and port dues, PPA is expected to reach full cost recovery over the life of the

concession.

28. Technical. The main design for the proposed scaled-up bulk terminal layout is being

finalized. The design has been prepared by a consortium of international designers in close

cooperation with authorized reviewers for different types of structures. A Location Permit has

been issued based on the scaled up layout (received on July 7, 2009). This design has been

6

validated by independent authorized reviewers. The technical aspects of other project

components remain unchanged.

29. Safeguards. The project is rated as an environment category A project due to its location

near an environmentally sensitive area. Compared to the original design for the bulk terminal, the

scaling up is not expected to result in any significant incremental change from an environmental

point of view, since there would not be: (i) additional areas affected by civil works and future

port layout; (ii) any expansion of civil works into sensitive habitats or protected areas to be

converted into port operational areas; (iii) any additional connectivity construction such as roads,

railway links or bridges. There will be additional dredging works in the coastal waters adjacent

to the port, but in the same location as originally foreseen, and all addition material will be

deposited in the same area as foreseen by the original project. The Croatian Ministry of

Environmental Protection has officially confirmed that the scaled up terminal does not require

modifications of existing EIA. However upon the Bank request, PPA prepared an addendum to

the EIA which has been properly disclosed as per Bank requirements. The proposed modification

does not trigger any new safeguards policy, and does not require any exception from existing

Bank policies.

30. Institutional. The additional loan would continue using the existing project management

structure, and institutional arrangements. The procurement guidelines published in May 2004

and revised in October 2006 and May 2010 would be applied to the project. The project’s

financial management (flow of funds, accounting, reporting and auditing) and disbursement

arrangements would not be modified as a result of additional financing.

7

ANNEX 1: RESULTS FRAMEWORK AND MONITORING

CROATIA: AF-TRADE & TRANSPORT INTEGRATION

Results Framework

Revisions to the Results Framework Comments/

Rationale for Change

PDO

Current (PAD) Proposed

To develop trade along Corridor Vc by

improving the capacity, efficiency and

quality of services on the southern end of

Corridor Vc with particular focus on the

port of Ploče and on coordination aspects

among all corridor participants.

Unchanged.

PDO indicators

Current (PAD) Proposed change*

Effective bulk port capacity End target value changed.

Increase in new terminal

capacity from 4 MT to 4.6 MT.

Increase resilience of the port to

traffic fluctuation by serving a

broader market, including

transshipment.

Effective direct container handling

capacity

Unchanged.

Gross bulk crane productivity End target value changed.

Increase in power supply

infrastructure for unloading

equipment allowing the use of

un-loaders of 2000 t/h nominal

capacity instead of 1500 t/h.

This is equivalent to 1100 t/h in

gross bulk unloading crane

productivity instead of the

original 890 t/h.

Provide higher quality of services

to enable fast unloading of vessels

calling in the port and reduce their

waiting time. Investment in

equipment to be made by

concessionaire.

Gross Bulk Unloading Capacity at new

terminal

New indicator. Increase in

infrastructure for unloading

equipment allowing for two un-

loaders of 2000 t/h nominal

capacity instead of one un-loader

or 2200 t/h in gross bulk

unloading capacity.

Provide high quality of services to

enable fast unloading of vessels

calling in the port, reduce their

waiting time and offer greater

reliability. Investment in

equipment to be made by

concessionaire.

Gross container crane productivity Unchanged.

Rail commercial speed Changed intermediate targets.

Unchanged end target.

Ongoing reconstruction of rail line

in BiH is temporarily slowing

down the rail commercial speed at

this point.

Vessel waiting time Unchanged.

Cargo tracking in port End target unchanged, timeline

adjusted.

Adjustments to reflect current

implementation status.

Cargo throughput Reduced to reflect drop in traffic The 2009 global crisis postponed

8

Revisions to the Results Framework Comments/

Rationale for Change in 2009. some of the original targets to a

later time.

Corridor cost compared to alternative

corridors

Unchanged.

Private sector participation Unchanged.

Intermediate Results indicators

Current (PAD) Proposed change*

Port Development

Construction of Bulk Terminal,

Container Terminal and Port

Infrastructure completed respectively by

2011, 2009 and 2010.

Construction completed

respectively by end 2013, 2010

and 2012.

Adjustments to reflect current

implementation status

Trade and Transport Integration

Electronic exchange of documents in

place within the port for all stakeholders

End target unchanged, timeline

adjusted.

Adjustments to reflect current

implementation status

Systematic Corridor Performance

Measurement System in use.

End target unchanged, timeline

adjusted.

Adjustments to reflect current

implementation status

Project Implementation

Suitable concession agreement for new

terminals by June 2007 as per Letter of

Development Policy

Unchanged.

Clients satisfaction with the Port of

Ploče

Unchanged.

Comprehensive supervision reports Unchanged.

9

REVISED PROJECT RESULTS FRAMEWORK

Project Development Objective (PDO): To develop trade along Corridor Vc by improving the capacity, efficiency and quality of services on the

southern end of Corridor Vc with particular focus on the port of Ploče and on coordination aspects among all corridor participants.

PDO remains unchanged.

PDO Level Results Indicators

Co

re UOM4

Baseline

Original

Project

Start

(2005)

Progress

To Date

(2010)

Cumulative Target Values5 Frequency Data Source/

Methodology

Responsibility

for Data

Collection

Comments

2011 2012 2013

Increased Capacity

Bulk Cargo Capacity Mil tons p.a. 3.1 4.2 4.2 4.2 8.8 Annual

Technical

documentation LP Annual

Direct Loading/Unloading

Capacity for Container Cellular

Vessels

1,000 TEU

p.a. NA 66 66 66 66 Annual

Technical

documentation LP

General Cargo Capacity Mil tons p.a. 1.2 1.4 1.4 1.4 1.4 Annual

Technical

documentation LP

Rail yard Capacity

Number of

shunting

tracks

8 8 8 8 12 Annual Technical

documentation LP

Efficient Operations

Gross Container LoLo

Productivity Cellular Vessels

Moves/hour/

gang or

crane

NA 15 18 18 18 Annual Operational

documents LP

Gross Bulk Unloading Crane

Productivity Tons/hour 100 700 700 700 1100 Annual Operational

documents LP

Gross Bulk Unloading capacity

at new terminal Tons/hour 100 700 700 700 2200 Annual Operational

documents LP New indicator

Gross General Cargo

Crane/Gang Productivity Tons/hour 42 50 65 65 65 Annual Operational

documents LP

Average Commercial Speed of

Vc Corridor Km/h 7.5 7.5 7.5 7.5 10.3 Annual Operational

documents Railways

Safety: Lost Time Accidents Accidents 3.1 1.8 1.8 1.8 1.6 Monthly Operational PPA/LP

4 UOM = Unit of Measurement.

5 Interim Target values reflect the latest expected value at the time of the additional financing.

10

per 200k

man hours

documents

Quality of Service

Average vessel waiting time for

available berth Hours <2 <2 <2 <2 <2 Monthly

Operational

documents PPA

Ability to track cargo (Port

Community System

implementation percentage

complete)

% 0% 0% 40% 70% 90% Monthly Operational

documents PPA

Support Regional Development

and Competitiveness

Cargo Throughput (excluding

liquid bulk)

Mil tons p.a. 2.5 3.8 4.6 4.8 5.8 Monthly Annual report PPA

Demand

constrained

by capacity

until new BT

opening

Ploče Corridor (inland costs) cost

vs Rijeka and Bar (to be less than

target %)

% 53% 49% <80% <80% <80% Annual Survey PPA

Private Sector Involvement

Revised and signed Priority

concession agreement

0% 100% Annual Agreement PPA

Private sector participation in

Ploče operations (as % of tons

handled, excl liquid bulk)

% 40% 40.3% 80% 80% 85% Annual Annual report

Ministry of

Sea, Transport

and

Infrastructure/

Ministry of

Finance

Intermediate Results and Indicators

Intermediate Results Indicators

Co

re

Unit of

Measur

ement

Baseline

Original

Project

Start

(2005)

Progress

To Date

(2009)

Target Values

Frequency Data Source/

Methodology

Responsibility

for Data

Collection

Comments 2010 2011 2012 2013

Intermediate Result 1: Port Development

Bulk Terminal Construction % 0 0 0 25 75 100 Every six

months

Project

Monitoring

Reports

PPA

11

Intermediate Results and Indicators

Intermediate Results Indicators

Co

re

Unit of

Measur

ement

Baseline

Original

Project

Start

(2005)

Progress

To Date

(2009)

Target Values

Frequency Data Source/

Methodology

Responsibility

for Data

Collection

Comments 2010 2011 2012 2013

Container Terminal Construction % 0 80 100 100 100 100

Every six

months Project

Monitoring

Reports PPA

Other Port Infrastructure % 0 50 60 80 100 100

Every six

months Project

Monitoring

Reports PPA

Intermediate Result 2: Trade and Transport Integration

Port Community System –

Electronic exchange of documents

within the port

% 0 0 40% 70% 90% Every six

months

Port

Community

System

statistics

PPA

Rail corridor performance

measurement NA 0 80% Annual

Railway

companies

and Port

Community

System

Railway and

PPA

Supported by regional

corridor cooperation

Intermediate Result 3: Project Implementation

Concession agreement for new

terminal 100%

One time

event

Revised

agreement PPA

Client satisfaction

Regular

client

feedback

Annual Annual

survey PPA

Monitored to date

through interviews with

main clients. Feedback

reflected in project

design.

Supervision report for works Received Quarterly Supervision

reports PPA

12

ANNEX 2

OPERATIONAL RISK ASSESSMENT FRAMEWORK (ORAF)

Negotiation and Board Package Version

Project Development Objective(s)

The project objective is to develop trade along Corridor Vc by improving the capacity, efficiency and quality of services on the southern end of Corridor Vc with particular focus on the port of Ploče and on coordination aspects among all corridor participants.

PDO Level Results Indicators:

1. Increased capacity 2. Efficient operations 3. Quality of services 4. Support to regional development and competitiveness 5. Private sector involvement

Risk Category Risk Rating Risk Description Proposed Mitigation Measures

Project Stakeholder Risks Medium-I

The increase in capital by Luka Ploče to finance the necessary equipment may require more time than anticipated and lead to some delays. Main port users are exposed to global market fluctuations and depend on the long term stability of the region. As such traffic may experience fluctuations. Railway capacity may be insufficient and companies may fail to operate the corridor properly.

Recruitment of an external transaction advisor, with an established track record for such transaction. The advisor provided realistic/cautious estimates for the traffic projection. Preliminary interactions with potential investors took place successfully at the end of 2010. Close follow up by the project team of the transaction implementation. If insufficient capital is raised, Luka Ploče will secure commercial loans. This was addressed during preparation by developing a design offering greater resilience to market conditions (ability to accommodate larger vessels, faster unloading), and by preparing cautious/conservative traffic forecast in close consultation with clients. The corridor is being physically upgraded to restore sufficient capacity for foreseen volumes. This upgrade will be completed by the time the terminal is constructed. In parallel, the EU supports the

13

establishment of regional railway markets and the existing TTI railway memorandum of cooperation enables continuous dialogue with the railways.

Implementing Agency Risks Low

Since the Project Implementation Team is relatively small, in case the project team loses some of its key members, implementation may be delayed.

The Port Authority will progressively recruit new staff to back up the existing team.

Project Risks

Design Medium-I

The bulk terminal design is not yet endorsed by reviewers. This may lead to delays in implementation. The implementation of the electronic port community system under development may be delayed due to its technical complexity.

The project team closely monitors development with respect to the design preparation. The design is now close to completion, with reasonable expectation that it will be completed in early 2011. The Port Authority will maintain its existing internal and external supervision mechanisms for this component to ensure close follow up of progress.

Social & Environmental Medium-L

The dredging and disposal of dredged material for the bulk terminal could disturb the natural surrounding if not implemented in accordance with the EMP.

The Port Authority will maintain its existing internal and external monitoring system to ensure the suitable implementation of the EMP.

Program & Donor Low

Difference of views may emerge between EBRD and the World Bank on some aspects of implementation.

The project team will maintain the existing close dialogue with EBRD.

Delivery Quality Low

The sequencing between the construction of the new terminal and the provision of equipment by the concessionaire may lead to a delayed implementation.

The signed concession agreement specifies the framework for the respective interventions of the concessionaire and the port authority. External supervision engineers will be hired to ensure a proper oversight of the process.

14

Risk Rating: Preparation

Risk Rating: Implementation Comments

Medium-I

Medium-I

The likelihood of not meeting the Project Development Objective is low, with moderate to high impact if a risk materializes. The Port Authority successfully implemented the first terminal. Effective implementation mechanisms are in place. The remaining contracts are straightforward (after completion of their design). The concession arrangements are in place and the approach to capital increase on the basis of public offering is suitable.

15

ANNEX 3: UPDATED FINANCING PLAN AND COST TABLE

Croatia: AF-TRADE & TRANSPORT INTEGRATION

Components by Financiers

(EUR Million) MoF World Bank I World Bank AF PPA EBRD Total

Amount % Amount % Amount % Amount % Amount % Amount %

A. Port Infrastructure Development

Bulk Cargo Terminal 7.4 9 16.6 19.8 49.9 59.5 - - 9.9 11.8 83.9 59.4

Container/Multipurpose Terminal 9.3 28 24.3 72.4 0.0 0.0 - - - - 33.6 23.8

Port Supporting Infrastructure 4.3 41.4 6.0 58.4 0.0 0.2 - - - - 10.3 7.3

Subtotal Port Infrastructure Development 21.0 16.4 47.0 36.8 49.9 39.1 - - 9.9 7.8 127.8 90.6

B. Trade and Transport Integration Component

Port Community System 0.0 - 1.5 100.0 - - - - - - 1.5 1.1

C. Project Implementation Component

Technical Assistance to PPA - - 1.4 100.0 - - - - - - 1.4 1.0

Consultant Services and Audit 0.0 - 2.3 100.0 - - - - - - 2.3 1.6

Consultant Services for Preparation - - 1.6 100.0 - - - - - - 1.6 1.1

Training and Implementation Costs 0.0 - 0.0 42.3 - - 0.1 57.7 - - 0.1 0.1

Subtotal Project Implementation Component 0.0 - 5.3 98.9 - - 0.1 1.1 - - 5.4 3.8

Total PROJECT COSTS 21.0 15.6 53.8 39.9 49.9 37.1 0.1 0.04 9.9 7.4 134.7 95.4

Interest During Implementation - - 4.7 80.0 - - - - 1.2 20.0 5.8 4.1

Commitment Charges - - 0.3 91.6 - - - - 0.03 8.4 0.3 0.2

Front-end fees - - - - 0.1 52.7 - - 0.1 47.3 0.2 0.2

Total Disbursement 21.0 14.9 58.8 41.7 50.0 35.5 0.1 0.04 11.2 8.0 141.1 100.0

This table reflects the overall financing plan while paragraph 2 reflects the financing gaps.