world bank document · 2016. 8. 6. · document of the world bank report no. 18385-pl project...

Document ofThe World Bank

Report No. 18385-PL

PROJECT APPRAISAL DOCUMENT

OFA

PROPOSED DEM 20 MILLION (US$11.12 MILLION) LOAN

TO THE

REPUBLIC OF POLAND

FOR THE

WHOLESALE MARKETS PROJECT II

August 31, 1998

Environmentally and Socially Sustainable DevelopmentEurope and Central Asia Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective August 28, 1998)

Currency Units = Polish Zloty (PLZ)German Mark (DEM)

PLZ 1 = US$0.2611US$1.00 = PLZ 3.8300DEM 1 = US$0.5589

US$1.00 = DEM 1.7893

FISCAL YEAR

January 1 - December 31

ACRONYMS AND ABBREVIATIONS

ASAL Agriculture Sector Adjustment LoanCAS Country Assistance StrategyDEM German MarkEIA Environmental Impact AssessmentERR Economic Rate of ReturnEU European UnionFRR Financial Rate of ReturnFY Fiscal YearIBRD International Bank for Reconstruction and DevelopmentICR Implementation Completion ReportMAFE Ministry of Agriculture and Food EconomyOCC Opportunity Cost of CapitalPAD Project Appraisal DocumentPCD Project Concept DocumentLGRO Lubelska Gielda Rolno Ogrodnicza S.A.SCF Standard Conversion FactorVAT Value Added Tax

Vice President Johannes F. LinnCountry Director Basil G. Kavaslky

Sector Director Kevin M. CleaverTeam Leader Richard L. Lacroix

Republic of PolandWholesale Markets Project II

CONTENTS

Project Description ............................................................ 2Project development objectives ............................................................ 2Project components ............................................................ 2Benefits and target population ....................... ..................................... 2Institutional and implementation arrangements ..................................................... 2

Project Rationale ........................................................... 3CAS objective(s) supported by the project ........ ......................................... 3........3M ain sector issues and government strategy ........................................................ 3Sector issues to be addressed by the project and strategic choices ........................ 3Project alternatives considered and reasons for rejection ...................................... 3Major related projects financed by the Bank and/or other development agencies .. 3Lessons learned and reflected in the project design..3............................................3Indications of borrower commitment and ownership........3................ -- ............ 3Value added of Bank support ......................................................... 3

Summary Project Assessments ............................................................. 4Economic Assessment ............................................................ 4

Fiscal Impact ........................................................... 4Financial Assessment . ............................................................ 4Technical Assessment ............................................................. 4Institutional Assessment ............................................................ 5

Executing agency ........................................................... 5Project management ............................................................ 5

Social Assessment ............................................................ 5Environmental Assessment ............................................................ 5Participatory Approach ............................................................ 5Sustainability ........................................................... 5Critical Risks ........................................................... 5Possible Controversial Aspects ......................... ................................... 6

Main Loan Conditions ............................................................ 7Negotiations ...................... - 7Effectiveness ....................... 7During Construction ....................... 7When Operating ...................... 7

Compliance with Bank Policies ...................... 7

CONTENTS (cont'd.)

Annexes

Annex 1. Project Design Summary ....................................................... 8Annex 2. Detailed Project Description ......................... .............................. 9Annex 3. Estimated Project Costs ....................................................... 10Annex 4. Cost Benefit Analysis Summary ............................................... 1........ 1Annex 5. Financial Summary ....................................................... 13Annex 5. Financial Summary for Lublin Wholesale Market Company ....................... 14Annex 6. Procurement, Disbursement and Auditing Arrangements ........................... 15Annex 7. Project Processing Budget and Schedule ................................................... 17Annex 8. Documents in the Project File ....................................................... 18Annex 9. Status of Bank Group Operations in Poland, IBRD Loans and IDA

Credits in the Operations Portfolio ....................................................... 19Annex 10. Poland at a Glance ....................................................... 20

Poland: Wholesale Markets Project 11 Page 1

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENTINTERNATIONAL DEvELoPENT AsSOCIATION

Poland, Estonia, Latvia, Lithuania Country UnitEurope and Central Asia

Project Appraisal Document

PolandWholesale Markets Project II

Date: August 28, 1998 | Draft | FinalTask Manager: Richard Lacroix Country Manager: Basil G. KavalskyProject ID: PL-PE-55988 Sector: AgriculturalLending Instrument: Specific Investment Loan PTI: I E Yes No

Project Financing Data 0 Loan l Credit EL Guarantee Ll Other [Specify]

Amount (DEMm): 20.00 (US$11.12million equivalent)Proposed Terms: [I] Multicurrency 0 Single currency

Grace period (years): 5 EI Standard Variable LI Fixed 0 LIBOR-basedYears to maturity: 15Commitment fee: 0.75% /year

Financing plan (DEMm):Source Local Foreign Total

Government ---- --IBRD/IDA -- 20.00 20.00LGRO 14.82 -- 14.82Total 14.82 20.00 34.82Borrower: Lubelska Gielda Rolno Ogrodnicza S.A. (LGRO)Guarantor: Republic of PolandLiaison Agency: Ministry of Agriculture and Food EconomyEstimated disbursements (Bank FY/DEMm): 1999 2000 2001 2002 2003

Annual 2.87 8.52 7.59 1.01 0.00Cumulative 2.87 11.39 18.98 20.00 20.00

Expected effectiveness date: 1 November 1998 Closing date: 30 November 2002

p:\poland\rurenv\wholesal.lub\4board\Lubpad3.doc


Block 1: Project Description1. Project development objectives (see Annex 1 for key performance indicators):

The project's primary objective is the construction of a commercially self-sustaining urban wholesale market for the greater Lublinarea, complete with associated physical infrastructure.

2. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown):

Component Category Cost Incl. % ofContingencies Total

(US$M)

Development of Market Facilities and Site Infrastructure, consisting of heavyearth moving, construction of site parking lots for heavy and light vehicles, the Civil Works 9.47 49construction of site roads and connection to the main road and infrastructure for Land 1.06 5sewage treatment, surface and storm water reservoirs and public utility Groundworks &connections; civil works, including the construction of main buildings for fruit, Infrastructure 6.40 33vegetable and provisions trading, flower halls, covered trading bays, offices, Equipment 0.29 2ancillary buildings and perimeter fencing; equipment (vehicle scales, central Environmental Impactheating, water treatment, water tower engineering, first aid and technical Mitigation 0.19 1equipment); working capital; pre-startup expenses and financial charges during Pre-startup 0.58 3construction. Working Capital 0.17 I

Financial Charges 1.20 6

3. Benefits and target populationThe main economic benefits of the proposed wholesale market will include cost savings in search, bargaining and transportation;improved quality produce and choice; reduction of product waste and the risk of adverse selection; improved market transparency andheightened trader competition; and the development of complementary services to traders and clients that will contribute to regionalemployment and economic growth

The primary beneficiaries will be a large proportion of the 0.5 million residents within the Lublin metropolitan area, who will benefitfrom improved retail services that would be facilitated through the operation of the market, and local producers within an area of 50 to150 km from Lublin, who will gain access to a much improved infrastructure for the disposal of farm surpluses. Additionally, theproposed market will serve as a point of aggregation and distribution for exports to the Ukraine and Russia, providing services toproducers and traders from other regions of the country.

4. Institutional and implementation arrangements:Implementation period: : five years (FY 99 -2003)Executing agencies: The project would be executed by the Lublin Wholesale Market Company, whose corporate name is the

Lubelska Gielda Rolno-Ogronicza, Spolka Akcyjna w Lublinie (LGRO), a company incorporated in Poland as a joint stock company in1996. It has competent management as demonstrated by its success in bringing the venture to the point of having obtained all pertinentplanning permits and having raised over PLN 14 million of equity with the participation of several hundred private shareholders. Thewholesale company will be responsible for the implementation of the construction project with the assistance of civil engineeringconsultants. The company will work in close collaboration with the public works department of the city of Lublin and surroundingmunicipalities which will be participating in linking water and sewer services to the proposed construction, while the city's environmentdepartment will oversee the pollution mitigation measures that have been included in design and construction.

Project coordination and oversight: The department of wholesale markets and commodity exchanges of the Ministry of Agricultureand Food Economy (MAFE):Accounting, financial reporting and auditing arrangements: The company will produce a standard annual report with accountsaudited by an independent certified public accountant.Monitoring and evaluation arrangements: The construction will be done under one turn-key contract with periodic progresspayments as contractually agreed, and based upon monitorable progress of physical works. Construction will be supervised by aconstruction management company under contract to LGRO.


Block 2: Project Rationale5. CAS objective(s) supported by the project [Document number and date of latest CAS report No. 16484-POL; May 1, 1997]The proposed project would complement the Bank's role in Poland, as outlined in the existing CAS, by (i) sustaining private sectorgrowth, and (ii) managing the transformation of the state in support of the market economy. The first objective will be supported byfostering private sector participation, and catalyzing private sector financing, in this key segment of the marketing infrastructure, interalia a core part of the strategy for successful EU integration. The second objective will be supported directly by the actual creation ofa new market institution that aids in boosting the competitiveness of the agriculture sector by reducing marketing costs and increasingmarket transparency. An additional, in the context of contemporary Poland important, contribution is the creation of an estimated2,000 new places of employment. Moreover, the proposed project will foster the devolution of development responsibilities to localgovernment, through its involvement in providing services infrastructure to the site.

6. Main sector issues and Government strategy: The process of restructuring the Polish economy resulted in the breaking up ofcooperative marketing structures and in a consequent dispersal of trade transactions. The sector is now characterized by a lack oforganization of producers, merchants and consumers. There are few mechanisms for improving product and packaging quality, andthe current state of organization of trade, of which the urban wholesale markets are the focal point, does not favor markettransparency. Some wholesalers have set up activities on the periphery of large cities. The present conditions of these sites and theirassociated infrastructure is poor in both its technical aspects and in the lack of institutional services. The proposed project directlyaddresses these technical and institutional issues in supporting the construction of a modem, efficiently operating market and thecreation of entry points to the wholesale marketing system for producers, along with commercially viable services facilitating marketentry.7. Sector issues to be addressed by the project and strategic choices: Since 1990, the Bank has had a number of operations in theagriculture and forestry sectors in Poland, including an ASAL of $300 million, two agricultural credit projects of $100 million eachand a forestry project of $146 million. Based on this involvement with Polish agriculture and its institutions over the last six years,particularly in the context of the ASAL, the Bank has substantial in-depth knowledge of the sector and of the environment in whichmarketing occurs. A sector-wide study that preceded the formulation of the ASAL had identified early the need to establish andencourage market exchange facilities at the producer/ primary wholesaler and processor levels, recognizing that such activities wouldrequire some public investment at state and local government levels, but would also need to become self-financing.

8. Project alternatives considered and reasons for rejection: Expansion and modernization of an existing network of smallermarkets lacking even the most basic infrastructure such as running water, electricity or hard surface was rejected due to location, costof upgrade and lack of space. The proposed site was chosen on the basis of its location and in general agreement with the surroundingmunicipalities.

9. Major related projects financed by the Bank and/or other development agencies. The Poznan wholesale market wasestablished in 1992 with monetary and technical assistance from a Swiss development related organization. It has exceededexpectations with respect to volume and variety of throughput. Financing for a wholesale market for the city of Gdansk, similar to theone proposed for Lublin, was presented to the board on July 23; the loan agreement is expected to be signed on August 29.

10. Lessons learned and reflected in the project design: From an economic standpoint the Poznan wholesale market has been asuccessful venture since it has significantly contributed to reduction in the search and distribution costs of food stuff, particularlyproduce, in its geographical area while simultaneously allowing more transparency of the market pricing for the producer. A majorproblem has been that due to ownership structure and tenancy agreements, the market has been unable to adjust its fee and rentalschedule in step with inflation, creating a risk of financial failure in the long run.

11. Indications of borrower commitment and ownership: The proposed borrower, the Lublin Wholesale Market Company, and itsshareholders, have demonstrated their commitment by securing and contributing required equity financing for the investment, bycooperation with Bank staff in the processing of the project and by securing pertinent notarized permits, land deed documentationand other required official papers with the local government; and by securing required equity financing for the investment. Localgovernment demonstrated its commitment to the project by appropriating funds for the construction of linking services infrastructureto the site of the proposed market.12. Value added of Bank support: Institutionally, the Bank's involvement in the proposed project would lend considerablecredibility to the formation of a business partnership between public entity shareholders and private sector investors -- a businessventure whose potential risks the weakly developed capital market in Poland would have otherwise not been willing to accept. TheBank's involvement would promote small shareholding, which would help shift the incidence of investment risk in ways that wouldenable local capital markets to respond more flexibly to the financing requirements of privatization and private sector economicgrowth.

Poland: Wholesale Markets Project II Page 4

Block 3: Summary Project Assessments (Detailed assessments are in the project file. See Annex 8)13. Economic Assessment (see Annex 4):

Cost-Benefit Analysis : ERR= 20% ((Represents most likely lower bound for expected market performance.)The proposed project would introduce a number of benefits which are not easily quantifiable. Among them are reductions in search,transaction and transport costs, reductions in product waste, improvements in product choice and quality, improved reliability of suppliesto retailers and consumers, improved market transparency and more competitive trader participation. The cost-benefit analysis of theproject establishes a lower bound for the project's economic rate of return by estimating the reduction in current search and collection coststhat can be achieved with the operation of the market.

Fiscal impact: Positive: at full development (five years from the start of construction) the operation of the wholesale market shouldgenerate annual tax revenues in excess of US$1 million equivalent.

14. Financial Assessment (see Annex 5)

FRR = 12.1% (real rate of return on total capital for the wholesale market company)Real return on equity = 23.8%

The results of modeling of the expected financial performance of the Lublin wholesale market company are displayed in the cash flows,income statements, balance sheets and tables of financial ratios available in the project file, a summary of which is in Annex 5. Ingeneral, the returns to the company are quite strong under a variety of financing arrangements. Given present expectations of the flow ofrental income that the company will earn from the development of the property, expectations that foresee constant real revenues over theoperational period, the rate of return to the company's investment should compare satisfactorily with other local property development.The returns on investment, although not especially high in real terms in these projections, are of relatively low risk, and would providecomfortable debt service coverage of the Bank loan.

The total cost of the investment is estimated at about US$ 19.36 million (PLN 77.14 in current zloties over three years) including prestartcosts incurred before 1998. The fnancing plan assumed for this document is one where the Bank provides financing of US$ 11.12million as a long-term loan, representing about 57 percent of total costs. Local sources provide the remaining financing, including US$5.44 million of shareholder equity (constituting 28 percent of the total financing required) , US$0.98 from the sale of sites along thehighway running adjacent to the site (about 5% of total financing required) and US$1.98 million (about 10% of total investment costs)from the sale and leaseback of steel frameworks of structures completed in the early phases of construction. Of the total equity amount,approximately US$ 3.6 million was raised prior to March 1998 in cash and the value of donated land.

The Wholesale Market Company has entered into contracts amounting to PLN 16.06 million (approximately US$4.03 million) for the firstphase of construction and a small amount of equipment (valued at about US$0.03 million). The Bank will finance the remainingconstruction works to be undertaken, which amount to PLN 49.16 million (approximately US$11.38), disbursing 80 percent against theseexpenditures for a total of PLN 39.02 (approximately US$9.80 million). The Bank loan will also finance the first three years of interestand fees accruing against the borrowing for construction and equipment, which will amount to PLN 4.70 (about US$1.18 million).

15. Technical Assessment:

The detailed design of the market draws from the technical features of comparable European facilities and incorporates modern featuresthat will anticipate compliance with EU regulations in advance of Poland's accession. Practically, planning for the project has alsobenefited from the operational experiences of the earlier discussed, similar, wholesale market that opened in 1992 in the western city ofPoznan. The design complies with pertinent requirements of Poland's Environmental Law, the Law on Sanitary Inspection and the Lawon Fire Protection. Technically, the present design for the market is sound and will provide flexibility for the addition of future structuralenhancements and market services.

Poland: Wholesale Markets Project It Page 5

16. Institutional Assessment:a. Executing agency:

Lubelska Gielda Rolno Ogrodnicza S.A.(Lublin Wholesale Company, Inc.) The president of the company has managed a successfulagricultural cooperative, before this was disbanded. He is credited with having saved the cooperative financially in the early '90's when asa result of the economic shock applied by the, then, government, many organizations of a similar nature went bankrupt on account ofspiraling debt charges. The president of the wholesale market, when managing director of the cooperative, paid off most debts before thesubstantial interest rate increases that occurred on account of the economic shock therapy applied. The vice president of the company is acivil engineer with a distinguished career in his field. During project preparation company management has shown the aptitude andmanagerial talents that give confidence in their abilities to exercise the considerable responsibilities entailed in construction and operation.

b. Project management: The project will be managed by the executing agency described and summarily evaluated above.

17. Social Assessment: Not Applicable

18. Environmental Assessment: Environmental Category Z A L B E C

The project poses potential problems of traffic congestion and disposal of sewage and may have esthetic consequences for nearbyresidential developments. An Environmental Impact Assessment (EIA) has been made and a summary has been submitted to theExecutive Directors. Mitigation measures recommended in the EIA have been included in the project's costs. In summary, these are: thedevelopment of on-site water treatment and the installation of a sewage system connecting into the system managed by the municipality;and suitable landscaping.

19. Participatory Approach: Identif/cation/Preparation Implementation Operation

Retailers, Producers, Other Market Beneficiaries CON IS COLWholesale Market Company COL COL COL

Lublin Agricultural University CON COL CONMunicipal Government CON COL IS

MAFE CON CON ISCentral Government CON COL IS

Note: IS = information sharing; CON = consultation; COL = collaboration

20. Sustainability: The long-run sustainability of the market company will depend upon the evolving nature of the agricultural marketingenvironment and its ability to position itself strategically in anticipation of events affecting its operations, such as an expansion of WesternEuropean supermarket chains into Poland. A state owned and managed company is less likely to be as flexible and reactive as would beneeded in the potentially turbulent environment ahead than one owned and managed in the private sector.

21. Critical RisksRisk Risk Rating Risk Minimization Measure

Generic Risks An exchange rate realigmnent that low/moderate There are expectations that, given the scalewould increase zloty-denominated of capital inflows into Poland in the mediumrepayments of the Bank loan for the term, the zloty exchange rate will continue tocompany; be relatively high; the impact of this risk will

be lowered by a debt service coverage ratiothat at no time falls below 1.5 soon after thestart of repayment (see financial analysis);the management of the company would alsoseek to have sufficient backing from itsshareholders to maintain rents on par withinflation.


Project components to Delays in obtaining required permits low All required permits have been obtained; theoutputs and in tendering the construction pre-qualification and tendering procedures

contract under Bank guidelines have started.

Construction delays low Will be minimized through the project'sprovision for technical supervision andthrough timely flow of funds.

Delay in municipal provision of moderate Commitments have been obtained in writingconnections to utilities, transport from the pertinent authorities, whileand services infrastructure. company management provides appropriate

liaison with the public works departmentsconcerned

Low market turnover due to un- low Management has been active since companyinformed producers, traders and inception in public relations with respect tocustomers. the virtues and advantages of the services

that will be offered

Market performance suffers from low The present development has been designedinexperienced management. on a moderate scale that will allow for future

expansions in pace with the demand for itsservices and with developed managerialcapacity.

Tenancy of the market suffers as low/moderate The commercial success of the market doescompetition from European not depend on capturing the full share ofsupermarket expansion deviates goods marketing in the region; thecommodity trade away from the implementation of strategic management,wholesale market i.e., the development of the market as a

multi-service food and food product centerwill position the market to compete as acontemporary food handling and distributioncenter.

Overall project risk low/moderaterating

22. Possible Controversial Aspects:Objections from neighbors because of potential nuisance of an operating wholesale market. Although no objections have been voiced sofar, potential market nuisance has been addressed in the Environmental Impact Assessment and proposed mitigation measures are includedin project design.


Block 4: Main Loan Conditions

23. For Negotiations* Copies of all permits obtained.* Company status report, including current list of shareholders, and detailed balance sheet and income statement

24. For Effectiveness* Satisfactory contract with engineering consultants to oversee construction* Construction contract, complete with satisfactory construction timetable and agreed upon monitorable yardsticks of

construction progress to be used to schedule disbursement requests.

25. During Construction* Monthly progress reports

26. When Operating* Annual reports, complete with audited balance sheets, income statements and calculated covenanted ratios

Block 5: Compliance with Bank Policies_y S This project complies with all applicable Bank policies.

[ear Leader: Richard J. Lacroix, ECSSD CountrY


Annex 1

Wholesale Markets Project II

Project Design Summary

Narrative Summary Objectively Verifiable Means of Verification Critical Assumptions and RisksIndicators

CAS Objectives: CAS Objective to Bank Mission

- sustain private sector growth - divisional business plan; project - Board presentation documents, - CAS objectives contribute toportfolio periodic progress reports and the economic growth and reduction of

project ICR. poverty

- assist in managing the state's - number and size of projects that - Board presentation documents - the realization of a sufficienttransformation in support of the support the state's transformation number of projects of scope andmarket economy coverage to make a meaningful

contribution- lending portfolio of projects

- to support private sector whose primary stakeholders are - Board presentation documents - willingness of the Government todevelopment and catalyze private domestic private individuals, extend a sovereign guaranteesector financing and participation businesses and industry,

Project Development Objectives Development Objectives to CASObjectives

- a functioning modern, - profitability of wholesale - audited annual company reports - dominant private sector role incommercially viable urban market company statutory share structure andwholesale market management of the wholesale

market companyProject Outputs: Outputs to Development Objectives

- installation of physical market - fruit, vegetable, flower, - progress reports and site visits - clearly perceived, enduringstructures provision halls and services and financial incentives for wholesalers

road infrastructure built and farmers to use market facilities;according to specification

- low market turn over as a result of- reduction in search costs - trading cost margins - trader survey limited acceptance of services by

uninformed or poorly motivatedtraders, producers and retailers

Activities: Inputs: ctivity to Outputs

- details described in - Bank disbursements consistent - site inspection, supervision - continuation of economicimplementation plan with details of cost tables; share documents, audit documents reforms and protection of property;

capital; local govt. outlays; no serious political interference incompany management; satisfactorymanagement of local financing


Annex 2


Detailed Project Description

L. Wholesale market construction (US$19.36 million total)

* The construction of a multi-purpose fresh produce trading hall, with a single screened top-light central buyer'swalk area with wholesaler's units on either side in 6 meter wide bays, with draught lobbies at each end of thewalk, closed by rubber doors, which would also act as access to public toilets/hand washing facilities.

* Building a dry goods market of identical dimension , layout and construction to that of the fresh produce tradinghall;

* The establishment of individual, medium to large-wholesaler's units in garage-type structure - each unit with itsown roller-shutter door and access ramp available for use of a wide range of activities, -the tenants beingresponsible for fitting-out to meet Polish and EU norms for hygiene and food handling (e.g. enclosed docking,overhead railing, washing/changing facilities, etc.);

* The construction of a hall for the sale of flowers and pot plants, with multiple buyers walks to maximize displayareas and with a high level (>1,000 lux) of artificial (fluorescent) and screened-natural day-lighting. Plentifulsupplies of water, adequate floor drainage and non-slip floor finishes would be provided. Partial humidity andtemperature control (at around 13°C) would be used in the main circulation areas and wholesalers would beexpected to have their own cool stores at the back of their stands for short-term storage;

* The establishment of an open farmers' market, operating from a separate parking area and partially covered by acontinuous walkway at the point of sale, incorporating grower's display stands;

* The construction of semi-wholesalers/retailers booths for smaller traders in a segregated area of the wholesalemarket with its own vehicle access and parking,

* Building a two-story market administration office complex, totaling 1,000 m2, including training and MISextension facilities, an environmental health laboratory, broker's offices, a bank, a restaurant, workshops and firstaid/welfare facilities as well as ancillary facilities, including amenity buildings (cafes and toilets), gate houses,and buildings for electrical transformer and sewage pumping;

* Establishment of on-site infrastructure, which would include: on-site earthworks and site preparation works;roads and circulation areas and an extensive area for market users and visitor's parking of around 1,660 places;road signage; pavements and ramps; planting and grassing; boundary fencing and automatically-controlled gates;a water distribution fire/hydrant system, with a pump and 150,000 liter elevated storage tank (providing one fullday's supply); a filtered surface water drainage system, with separated systems for run-off from roads/parkingareas and building roofs, and from an isolated vehicle re-fuelling/solid waste compaction area; a low voltageelectrical supply network, providing communal supplies to building and street/site lighting, and with individualpay meters for market users; a gravity sewerage system going to an on-site pumping station; and connections to atelephone system with a potential for 200 lines;

* The implementation of environmental mitigation measures including: soft landscaping and tree planting adjacentto the site boundaries; soil conservation measures, including terracing, bounding and gully checking; acousticbarriers along the main road; and surface water drainage interceptors for filtering hydrocarbons;

* The connection to off-site infrastructure, including approach roads and grade separated junction to the main road;connection to the mains water supply and to the mains gravity sewer (through a pumping mains); and two highvoltage electrical supply connections from main substations to a 550-630 kVA oil-cooled electrical transformer.

* Pre-startup expenses of the Wholesale Company, amounting to about US$0.58 million.

* Interest and other financial charges during the first three years of project implementation, amounting to aboutUS$1.20 million.


Annex 3


Estimated Project Costs

Project Component Local Foreign Total---------------------- US $ Thousands-----------------------

Lublin Wholesale Market Development 7,622 9,830 17,452Total Baseline Cost 7,622 9,830 17,452

Physical Contingencies 692 979 1,671Price Contingencies' -75 311 237

Total Project Cost 8,240 11,120 19,360

I Negative values reflect the impact of currency devaluation.


Annex 4


Cost Benefit Analysis Summary(US$ million, 1998 start-of-year values)

iPresent Value of Floww Fiscal impact

-- ;----Taxes -: SubsidiesBenefits ii_ax *+, f. . -. ,,S .I i .40* PoSearch Savings 4 0 0 4oitive o-itcostsInvestme,p o 3. ; neutralOpporunityv e f d-

Net enef Its.: 10.0 ,'i positive I

Principal economic benefits include:

-- a reduction in the costs, incurred by retailers and final consumers, for searching and procuring supplies;-- a reduction in the administrative costs of existing small wholesalers who would consolidate operations at the market;-- a reduction in consumer prices or improvement of value of expenditure through an expansion of consumer choiceand/or improvements in the quality of selection;-- an improvement in farmer incomes through production geared to higher quality and trading opportunities; and-- income multiplier effects through an induced expansion of agricultural services for value-added production and trade.

Of these benefits, available data most easily permit an estimation of the first. The magnitude of other potential benefitsare less readily determined without further detailed surveys, prior and subsequent to the development of the market, butan attempt is made to bracket their possible ranges in identifying key parameters on which they depend. The reductionof the transaction costs incurred by purchasers (mainly retailers) searching for supplies is an adequate measure of theproject's profitability.

Main Assumptions:Reduced transaction costs and more regular supplies of cost-effective ranges of goods to retailers are translated intoproducer and consumer surpluses.

A reduction in retailers' search and collection costs of zl 70-80 per ton of produce (zl 75 per ton is the most likely value).Initially affected consumption, measured as market throughput, lies between 190,500 and 317,500 tons (equivalent to amarket throughput of 15-25 t/m2 -- the most likely value corresponds to a base throughput of 20 trm2 ).The effects of rising incomes on consumer demand and market throughput are nil over time.The price elasticity of demand for fruit and vegetables is -0.51.

Improvements in the reliability, range and quality of produce through the market will stimulate an expansion of retailtrade (for the analysis this expansion is restricted to a level that would just compensate for the reduction in revenue thatretailers would realize in passing on the benefits of the search and collection costs to consumers -- due to the inelasticityof demand for market produce).

An opportunity cost of land of zl 407,200/ha (US$135,000/ha) -- this value represents a NPV of 12% and currentexpectations of the speculative ground rents that would be received from areas on the site owned but not developed bythe company.

2 The financial analysis of the project concerns the performance and profitability of the Lublin Wholesale Market Company; refer to Annex 5 for itemsfrom the company's projected cash flow statement, income statement, finding statement, balance sheet and financial ratios.I Project costings assume an average tax content of about 15 percent for the costs of construction materials and services. N.B. The Bank finances at adisbursement rate that excludes taxes.4 The project should help create employment opportunities in the region, reducing the need for income support.


The standard conversion factor (SCF) is 0.9; the period of analysis is 25 years; the opportunity cost of capital (OCC) is12%.

Switching values of critical items:Investment costs: an increase of 30 percent over base estimates.Annual operating costs: an increase of 40 percent over base estirnates.Initial market throughput: 17 tt m2 .Search and collection savings: zl 60/t.Total annual benefits: a decrease of 20 percent below base estimates.


Annex 5


Financial Summary

Years Ending 2001(current US$'000 totals including contingencies)

1999 2001 2001 l TotalProject Costs

Investrnent Costs: zloties 23,593 43,430 10,168 77,191(current US$) (6,408) (10,663) (2,289) (19,360)

Total: zloties 23,593 43,430 10,168 77,191(current US$) (6,408) (10,663) (2,289) (19,360)

Financing Sources (% of total project costs)

IBRD/IDA 45 62 72 58Investors 55 38 28 42Local Govermnent

Total 100 100 100 100


Annex 5


Financial Summary for Lublin Wholesale Market Company

Years Ending: 2002 through 20075(In thousands of Current Zloty)

AverageAnnual

2002 2003 2004 2005 2006 2007 Growth

Inrome Statement haems

Revenues 22,933 25,176 26,969 28,656 30,230 31,763 6.7%

Operating lnrome 16,251 17,966 19,260 20,478 21,616 22,718 6.9%

NatIncome 5,611 6,673 8,249 9,879 10,752 11,618 15.8%

upto 1998 1998 1999 2000 1998-00 Total

Funds Statemrent Itemsn

Cash in Hand 14,332 10,197 2,897 27,426 27,426

Borrowing 10,580 26,896 7,296 44,773 44,773Equity Investments 14,332 6,300 - - 6,300 20,632

Total Sources 14,332 33,790 46,327 10,194 90,312 104,643

Pre-Start up Expenses 1,825 473 - 2,298 2,298

Capital Expendiures 20,478 41,661 7,308 89,446 69,446Interest during construction 1,180 1,296 2,296 4,773 4,773

Working Capital increase (decrease) 110 - 563 673 673Cash carried forward 14.332 10,197 2,897 28 13,120 27,452

2002 2003 2004 2005 2006 2007

CashFlow items

Operating cashflow 9,252 10,505 11,369 12,124 12,983 13,846 8.4%

UsesCapital expenditures - - - -

Loan repayment - 5,962 6,225 6,449 6,634 6,803

Reduction of lease obligation 1,072 1,525 1,439

Total Uses 1,072 7,487 7,665 6,449 6,634 6,803

Surpius(deficit)

Annual 8,180 3,018 3,704 5,675 6,349 7,043 7.1%

Cummulative 27,226 30,244 33,949 39,624 45,973 53,016 14.3%

Cash flow for debt service

Operating profit available 12,166 13,422 14,094 14,615 15,204 15,773 5.4%

Cummulative cash available 30,140 39,123 42,899 48,564 54,828 61,746 15.6%

2002 2003 2004 2005 2006 2007

alance sheet items

Current assets 27,313 30,370 34,083 39,766 46,122 53,173 14.3%

Current liablities 2,826 3,057 3,269 3,469 3,655 3,838 6.3%

Notfixed assets 52,445 50,111 48,189 46,136 50,919 48,866 -1.2%

Net assets under lease 7,162 6,967 6,836 6,836

Total assets 86,920 87,447 89,108 92,738 97,042 102,040 3.3%

Equity 36,357 44,141 53,253 63,132 73,884 85,502 18.7%

Total liabildties and equity 66,920 87,447 89,108 92,738 97,042 102,040 3.3%

2002 2003 2004 2005 2006 2007

Financial Ratins

Operating Incone as % of Revenues 71% 71% 71% 71% 72% 72%

Net Income as % of Revenues 24% 27% 31% 34% 36% 37%

Return on Assets

Debt Service CoverageCurrentRatio 9.67 9.94 10.43 11.46 12.62 13.85

Total Debt as % of Total Capitalization 139% 98% 67% 47% 31% 19%

Loan repayment begins in 2003 and ends in 2012 after five years of grace.


Annex 6


Procurement, Disbursement and Auditing Arrangements

Procurement

For the construction of the market facilities, the single expenditure account for this project, a turn key contract will beissued to a general contractor responsible for (i) construction of the facilities, based on existing detailed designs, and (ii)testing, delivery and installation of equipment and sub-components.

In general, goods and works shall be procured in accordance with the provisions of Section I of the "Guidelines forProcurement under IBRD Loans and IDA Credits" published by the Bank in January 1995 and revised in January andAugust 1996 and September 1997 (the Guidelines). In particular, the following provisions of Section I apply.

International Competitive Bidding (ICB)

Goods and works for construction of market facilities and site infrastructure shall be procured under an ICB Contractawarded in accordance with the provisions of Section II of the Guidelines and paragraph 5 of its Appendix 1. Biddersshall be pre-qualified in accordance with the provisions of paragraphs 2.9 and 2.10. A General Procurement Notice hasalready been published in the Development Business. The Borrower has already prepared the designs and is preparingdraft bidding documents with the help of a consulting firm. The draft bidding documents will be based on the Bank'sStandard Bidding Documents for Major Civil Works. The Borrower will appoint an engineer at his own cost tosupervise project implementation.

The invitation to pre-qualify for bidding has been advertised in accordance with the procedures applicable to largecontracts under paragraph 2.8 of the Guidelines. The pre-qualification process has been concluded.

Prior Review

TIhe pre-qualification and the single ICB contract under the project are subject to Bank's prior review. The Bank hasalready received the pre-qualification evaluation report, as well as draft ICB bidding discounts for its review and "noobjection".

Disbursement

Against independently certified progress reports of physical construction, based on contractually agreed uponmonitorable achievements. Interest and other charges on the Loan accrued on or before September 30, 2000, will befinanced from the proceeds of the Loan.

Proiect Accounts and Audits

Quarterly progress reports on construction activities and annual audited company accounts will be prepared by theBorrower and submitted to the Bank on a regular basis.


Table A: Project Costs by Procurement Arrangements

(in US$ '000 equivalent)

Procurement methodExpenditure Category ICB Other N.B.F. Total

A. Civil Works 16,377 1,059 17,436(9,941) (9,941)

B. Miscellaneous 1,1796 745 1,924B. Miscellaneous _____ 1,1974 1,924

(1,179) (1,179)

Total 16,377 1,179 1,804 19,360(9,941) (1,179) (11,120)

Note: N.B.F. = Not Bank-financed.Figures in parenthesis are the amounts to be financed by the Bank loan.

Works include the construction of the wholesale market, associated infrastructure, design and construction costs, andpre-1998 capital expenditures incurred by the Lublin Wholesale Market Company. Miscellaneous consists of interestand fees during construction.

Table B: Thresholds for Procurement Methods and Prior Review

The Single ICB contract and its pre-qualification process are subject to the Bank's prior review.

Table C: Allocation of Loan Proceeds

Expenditure Category Amount in US$ million Disbursement Percentage1. Turnkey Contract 8.81 80%2. Interest & Fees on Loan during 1.20 amounts pursuant to Section 2.02(b)Construction of the Loan Agreement3. Unallocated 1.11Total 11.12

6 Being the amount of interest during construction financed out of the Bank loan.


Annex 7


Project Processing Budget and Schedule

A. Project Budget (US$000) Planned Actual(At final PCD stage) 439a

B. Project Schedule Planned Actual(At final PCD stage)

Time taken to prepare the project (months) 20First Bank mission (identification) /_/1996Appraisal mission departure 1H1//1996Negotiations 06/08/1998Planned Date of Effectiveness 11../ 1998

Prepared by: Lubelska Gielda Rolno Ogrodnicza S.A.

Preparation assistance: FAO/CP

Bank staff who worked on the project included: Severin KOdderitsch and Piotr Wilczynski

c combined budget for wholesale markets I [Gdansk] and II [Lublin]


Annex 8


Documents in the Project File*

A. Project Implementation Plan

Detailed construction plans on file with wholesale market company;

B. Bank Staff Assessments

Peer reviewer comments and EIA evaluation, on file.

C. Financial and Economic Analyses done during Appraisal

Summaries included in this PAD; details on file.

D. Company Documents

- Statutes- Copies of all permits obtained- List of shareholders and shares held.- breakdown of investments made so far

E. Other

Preparation report done by FAO/CP

*Including electronic files.

Anniiex 9 Page 19

Status of Bank Group Operations in PolandIBRD Loans and IDA Credits in the Operations Portfolio

DifferenceBetween expected

Original Amount in USS Millions and actual Last ARPPLoan or Fiscal disbursements a/ Supervision Rating b/

Project ID Credit Year Borrower PurposeNo. IBRD IDA Cancellations Undisbursed Orig Frm Rev'd Dev Obj Imp Prog

Number of Closed Loans/credits: 23

Active LoansPL-PE-8576 IBRD 33820 1991 DISTRICT HEATING ENTITY HEAT SUPPLY RESTRUCT 100.00 0.00 25.00 17.82 165.32 17.79 S SPL-PE-8576 IBRD 33810 1991 DISTRICT HEATING ENTITY HEAT SUPPLY RESTRUCT 25.00 0.00 0.00 1.15 165.32 17.79 S SPL-PE-8576 IBRD 33790 1991 DISTRICT HEAT1NG ENTITY HEAT SUPPLY RESTRUCT 25.00 0.00 0.00 2.66 165.32 17.79 S S

PL-PE-8576 IBRD 33780 1991 DISTRICT HEATING ENTITY HEAT SUPPLY RESTRUCT 40.00 0.00 0.00 6.25 165.32 17.79 S SPL-PE-8571 IBRD 3342A 1991 REPUBLIC OF POLAND PRIVATIZN S RESTRUCT 66.56 0.00 0.00 66.56 116.06 68.78 S SPL-PE-8585 IBRD 33410 1991 NIN OF FINANCE FIN. INST. DEVELOP. 188.22 0.00 0.00 2.28 14.05 0.00 HS SPL-PE-8585 IBRD 3341A 1991 MIN OF FINANCE FIN. INST. DEVELOP. 11.78 0.00 10.42 1.36 14.05 0.00 HS S

PL-PE-8582 IBRD 33380 1991 REPUBLIC OF POLAND EMPLOYMENT PROMOTION 85.56 0.00 20.00 .60 32.78 12.78 S SPL-PE-8582 IBRD 3338A 1991 REPUBLIC OF POLAND EMPLOYMENT PROMOTION 14.44 0.00 0.00 12.18 32.78 12.78 S S

PL-PE-8590 IBRD 3499A 1992 REPUBLIC OF POLAND HOUSING 15.99 0.00 0.00 15.99 195.99 14.34 S SPL-PE-8587 IBRD 3466A 1992 REPUBLIC OF POLAND HEALTH 43.40 0.00 0.00 43.40 65.34 43.42 S S

PL-PE-8599 IBRD 3564A 1993 REPUBLIC OF POLAND ROADS 20.28 0.00 0.00 13.92 .92 0.00 HS SPL-PE-8610 IBRD 3641A 1994 GOVT. OF POLAND FORESTRY DEVELOPMENT 1.97 0.00 0.00 1.97 -2.47 -1.04 s sPL-PE-8614 IBRD 38090 1995 KATOWICE DISTRICT HEATING KATOWICE HEAT SUPPLY 45.00 0.00 0.00 29.62 25.41 0.00 S S

PL-PE-8595 IBRD 40321 1996 BIELSKO-BIALA AQUA S.A. BIELSKO-BIALA WATER 9.50 0.00 0.00 5.91 8.30 0.00 S SPL-PE-8595 IBRD 40320 1996 BIELSKO-BIALA AQUA S.A. BIELSKO-BIALA WATER 12.00 0.00 0.00 9.02 8.30 0.00 S S

PL-PE-8604 IBRD 3959S 1996 POLISH POWER GRID CO POWER TRANSMISSION 21.10 0.00 . 0.00 2.24 34.75 0.00 HS SPL-PE-8604 IBRD 3959A 1996 POLISH POWER GRID CO POWER TRANSMISSION 138.90 0.00 0.00 117.47 34.75 0.00 HS SPL-PE-36061 IBRD 40801 1997 GOVERNMENT OF POLAND PORT ACCESS & MGMT. 33.50 0.00 0.00 27.14 3.09 0.00 HS HSPL-PE-36061 IBRD 40800 1997 GOVERNMENT OF POLAND PORT ACCESS & MGMT. 33.50 0.00 0.00 32.47 3.09 0.00 HS HSPL-PE-53796 IBRD 42640 1998 GOVT. OF POLAND FLOOD EMERGENCY 200.00 0.00 0.00 185.00 -15.00 0.00PL-PE-8593 IBRD 42361 1998 MINISTRY OF TRANSPORT ROADS II 150.00 0.00 0.00 152.51 2.00 0.00 S SPL-PE-8593 IBRD 42360 1998 MINISTRY OF TRANSPORT ROADS II 150.00 0.00 0.00 150.00 2.00 0.00 S SPL-PE-35082 IBRD 42091 1998 BISE AND PBK MUNICIPAL FINANCE 7.00 0.00 0.00 6.77 3.42 0.00 S UPL-PE-35082 IBRD 42090 1998 BISE AND PBK MUNICIPAL FINANCE 8.00 0.00 0.00 8.00 3.42 0.00 S U

PL-PE-35082 IBRD 42081 1998 BISE AND PBK MUNICIPAL FINANCE 3.00 0.00 0.00 2.65 3.42 0.00 S UPL-PE-35082 IBRD 42080 1998 BISE AND PBK MUNICIPAL FINANCE 4.00 0.00 0.00 3.70 3.42 0.00 S U

PL-PE-8616 IBRD 43770 1999 GOVT. OF POLAND WHLSLE MARKETS PRJ 1 15.90 0.00 0.00 15.79 0.00 0.00

Total 1,469.60 0.00 55.42 934.43 1,251.15 222.22

Active Loans Closed Loans TotalTotal Disbursed (IBRD and IDA): 468.48 2,266.99 2,735.47

of which has been repaid: 78.68 402.87 481.55Total now held by IBRD and IDA: 1,335.50 1,875.55 3,211.05Amount sold : 0.00 0.00 0.00

of which repaid : 0.00 0.00 0.00Total Undisbursed 934.43 11.44 945.87

a. Intended disbursements to date minus actual disbursements to date as projected at appraisal.

b. Following the FY94 Annual Review of Portfolio performance (ARPP), a letter based system was introduced (HS highly Satisfactory, S = satisfactory, U = unsatisfactory,

HU - highly unsatisfactory): see proposed Improvements in Project and Portfolio Performance Rating Methodology (SecM94-901), August 23, 1994.

Note:Disbursement data is updated at the end of the first week of the month.

Annex 10

Poland at a glance 8128197Europe & Upper-

POVERTY and SOCIAL Central middle-Poland Asia Income Development diamond

Population mid-1996 (millns) 38.7 479 479GNP per capita 1996 (US$) 3,220 2,180 4,540 Life expectancyGNP 1996 (billions US$) 124.6 1,043 2,173

Average annual growth, 1990-96

Population (%) 0.2 0 3 1.5 GNP GrossLabor force (%) -0.5 0.5 1.8 per primary

Moat recent estimate (latest year available since 1989) capRia enrollment

Poverty: headcount Index (r of,populafion) 15Urban population (% of total population) 65 65 73Life expectancy at birth (years) 70 68 69Infant mortality (per 1,000 Dive births) 14 26 35 Access to safe waterChild malnutrition (% of chiklden under 5)Access to safe water (% of population) 100 86lltiteracy (X of population age 15+) 13 oa13

Gross primary enrollment (X of school-age populafion) 99 97 107 PolndMale 98 97 Upper-middle-income groupFemale 97 97

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1975 1985 1996 1996Economic ratis

GDP (billons US$) 71.1 117.7 133.5Gross domestic investment/GOP 27.6 18.3 20.6 Openness of ecnomyExports of goods and services/GDP 18.2 24.9 23. Gross domestic savingsaGDP 29.0 18.5 16.7Gross natlonal savingsaGDP 26.5 18.0 16.6

Current account balance/GDP -1 7 4.6 -1 0Interest paymentsWGDP 2.1 15 1.2 Savings InvestmentTotal debtWGDP 46.9 35.9 30.3Totaldebtservice/exports 17.1 11.7 74Present value of debt/GDP 30.4Present value of debttexports 102.6 Indebtedness

197W5 1986-96 1995 1996 199745(awverage annual growth) PolandGDP 0.7 1.1 7.0 6.0 5.0 Upper-iddi-n-0 g-pGNP per capita -0.1 4.6 8.3 6.3 4.8Exports of goods and services 3.6 8.1 18.4 9.7 9.0

STRUCTURE of the ECONOMY1975 1985 1995 1996

(X1 of GDP) Growth rates of output and Investment (%)Agriculture ,, 14.5 6.6 0 30Industry 51.0 34.1 20

Manufacturing , , 21.0 0 -Services 34.4 59.3 u10 93 r4 rv 9e

'20Private consumption 61.8 63.7 66.0 -30General govemmentconsumpton 9.2 17.8 17.3 0GDI GOPImports of goods and services 16.9 24.8 27.4

197545 1986-96 1995 1996(average annual growth) Growth rates of exports and Imports (%)Agriculture ,, , 11.6 2.5 30 6Industry 0.4 9.5 6.8

Manufactudng 12.6 9.9 20Services 2.2 4.4 4.7 10

Privateconsumption -1. 1.5 4.5 8.2 oGeneral govemment consumption 2.5 2.5 2.9 2.0 / 91 n 93 94 95 goGros domestic investment -1.3 1.6 27.6 21.6 10Imports of goods and services -2.7 10.3 22.7 25.2 E)wft e lsGros national product 0.8 1.5 8.4 6.4

Note: 1996 date are preliminary estimates. Figures in Italics are for years other than those specified.

The diamonds show four key indicatom in the country (In bold) compared with its income-group average. If data are missing, the dimond willbe Incomplete.

Poland

PRICES and GOVERNMENT FINANCE1975 1985 1995 1996

Domestc prices Inflnton I%)(X change) sooConsumer prices 2.3 11.8 27.8 19.9 400Implicit GDP deflator .. 15.8 27.0 20.0 300 -

Government finance 100(% of GDP)0Current revenue .. .. 46.6 45.2 91 n2 93 94 95 96Current budget balance .. .. 0.0 -1.2 - GDP def. -O--CPIOverall surplus/deficit .. .. -1.9 -2.8

TRADE1975 1986 1996 1996

(miNons US$) Export and Import levels (mill. US$)Total exports (fob) .. .. 22,895 24,440 40 roo

Ccal, lignite and peat 1,231 ... 3s r00Cooper exd. cement cooper 1,006 30.000Manufactures .. ., 15,913 17,404 25,000

Total imports (cif) .. .. 29,050 37,137 20,OO0Food255 339Fuel and energy420 513Capital goods . . 8,687 12,261 s

Exportpnceindex(1990=100) .. ,. 116 113 90 91 92 93 94 95 96Importpriceindex(1990=100) .. .. 105 105 oExports almportsTerms of trade (1990=100) .. .. 110 108

BALANCE of PAYMENTS1975 1986 1995 1996

(millons US$) Currant account balance to GDP ratio (%)Exports of goods and services1 .. 11,778 33,822 34,956 6Imports of goods and services .. 11,209 27,745 36,166Resource balance .. 569 6,077 -1,210 4

Net income .. -2,557 -628 -366Net current transfers .. 778 6 224 2

Current account balance. 0Lbeforeofficialeapitaltransfers .. -1,210 5,455 -1,352 90 g1 92 92 9s

Financing itms (net) .. 974 4,170 5,268Changes in net reserves .. 236 -9,625 -3,916 -4

Memo:Reserves including gold (mill. US$) .. 1,025 14,963 18,033Conversion rate (localJUS$) 0.0004 0.01 2.4 2.7

EXTERNAL DEBT and RESOURCE FLOWS1975 1985 1996 1996

(millons USS) ComposIton of total debt, 1996 (mill. USS)Total debt outstanding and disbursed .. 33,307 42,291 40,889

IBRD .. 0 2,067 2,175 G AIDA .. 0 0 0 F 206 2087

Total debt service .. 2,045 4,069 3,783 9853IBRD .. 0 152 344IDA .. 0 0 0

Composition of net resource flowsOfficial grants .. 0 3,402Offical creditors .. 693 -84 -760Private creditors .. -193 478 113 EForeign direct investment .. 15 3,659 .. 30165Portfolio equity .. 0 921

World Bank programCommitments ,, 0 0 248 A - IBRD E - BilateralDisburmements .. 0 210 464 | -IDA D- Other multilateral F - PrivatePrindpal repayments .. 0 19 197 C-IMF G-Short-teamNotfiows .. 0 191 266 _ 1Intrest payments .. 0 133 147Nottransfers .. 0 58 119

Development Economics 8/28/97

Note: Government finance represents general govemment accounts.BoP exports of goods and servIces indude net unreeorded trade (approximately US$7.0 billion).