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Implementation Completion Report (ICR) Review - Poland Wholesale Markets Project II (Lublin)


  
1. Project Data:   
ES Date Posted:
06/21/2001   
PROJ ID:
P055988
Appraisal
Actual
Project Name:
Poland Wholesale Markets Project II (Lublin)
Project Costs(US $M)
 19.3  22.2
Country:
Poland
Loan/Credit (US $M)
 11.1  10.5
Sector, Major Sect.:
Agro-Industry & Marketing,
Agriculture
Cofinancing (US $M)
 0  0
L/C Number:
L4397      
   
Board Approval (FY)
  99
Partners involved
 
Closing Date
11/30/2002 06/30/2001
         
Prepared by: Reviewed by: Group Manager: Group:  
John R. Heath
Klas B. Ringskog Alain A. Barbu OEDST

2. Project Objectives and Components:

a. Objectives
"The project's primary objective is the construction of a commercially self-sustaining urban wholesale market for the greater Lublin area, complete with associated physical infrastructure". (Project Appraisal Document)

b. Components
There was only one component: "Development of market facilities and site infrastructure": this consisted entirely of construction works, including the building of fruit, vegetable and flower provision halls, and services and roads.

c. Comments on Project Cost, Financing and Dates
Project costs were devoted exclusively to funding the civil works. The project was executed by a joint stock company, LGRO, established in 1996, in which the public sector has a majority holding. LGRO is wholly responsible for recovering the investment cost, based on successful commercial operation of the market. There was a delay of almost three years between delivery of the Project Concept Document and loan approval, partly reflecting the Bank's insistence on conducting a Category A Environmental Impact Assessment.


3. Achievement of Relevant Objectives:

Construction works were satisfactorily completed, with 15% cost overrun. The facilities are of "superior quality" (ICR) and comply fully with the Bank's stringent environmental safeguards.

4. Significant Outcomes/Impacts:

The economic rate of return, based on four scenarios of growth in market throughput, ranges from 19 to 25 percent, compared to the 20 percent that was forecast at appraisal. When the ICR was written, the market had only been in operation for three months. Therefore, the ex-post economic analysis is based on assumed rather than actual throughput, taking the PAD assumption (20 t/m2 per day), and measuring benefits based on estimated growth rates in throughput that vary between 5 and 15 percent per year.

5. Significant Shortcomings (include non-compliance with safeguard features):

The financial rate of return is low: the return on total capital is assumed to be only 1 percent in real terms, compared to 12 percent at appraisal. [A communication from the Region indicates that now--9 months since the marketplace entered operation--LGRO is breaking even and able to cover depreciation and interest charges; but its cash flow is not yet large enough to cover principal payments, although the first of these is not due until March 2004]. Four factors initially reduced the commercial viability of the marketplace. First (and most important), "The competition from European supermarkets expanding in Poland was underrated, competition which is now very substantial" (ICR). Second, the economic growth of the south-east was weaker than expected. Third, import restrictions imposed by Ukraine have substantially depressed market throughput. Fourth, local authorities were slow to enforce laws and regulations designed to contain "primitive" [informal] markets in Lublin, further removing business from the new wholesale market. Since marketplaces of this type combine the aspects of private and public goods it could be argued that, while management of the facility should be private, the investment cost should be borne jointly by private and public agencies. It was probably unreasonable to expect LGRO to be solely responsible for recovering the investment cost. Government has failed to shoulder the investment burden and has helped undermine the commercial viability of LGRO through delays in extending a loan guarantee and in enforcing regulations.
6. Ratings:ICROED ReviewReason for Disagreement/Comments
Outcome:
SatisfactoryModerately SatisfactoryAlthough physical goals were fully achieved, the remaining doubts about the operation's commercial viability suggests that a rating of moderately satisfactory is appropriate.
Institutional Dev.:
SubstantialModestIn the ICR, the section on institutional development impact refers to outputs (seminars and meeting organized), rather than outcomes. It is assumed that the project will provide "impetus towards the formation of farmers' marketing cooperatives"; but this is peripheral. The real test is whether LGRO and wholesale marketing in general have become more efficient as a consequence of the project: there is no evidence of this in the ICR.
Sustainability:
LikelyNon-evaluableToo early to call: the trading environment is not promising but on the other hand the executing agency is energetic and creative and may manage to raise cashflow by enough to begin paying back principal in 2004.
Bank Performance:
SatisfactoryUnsatisfactoryOED rates quality at entry as low, owing to the absence of co-financing of investment costs by private and public sectors. Also, although the failure to forsee the extent of competition from foreign supermarkets may have been plausible when the project was conceived (the PCD was issued in November 1995), it is not clear that this was still the case in September 1998 when the project was approved. In OED's judgment, poor quality at entry outweighs supervision (rated satisfactory by QAG).
Borrower Perf.:
Highly SatisfactorySatisfactoryThe ICR wrongly assumes that the borrower refers only to the executing agency (LGRO), not the government (which is necessarily involved because it guarantees the loan). The government is described in the ICR as being responsible for a delay of 1.5 years in the construction (aggravating the timeliness problem), as well as delaying enforcement of applicable laws and regulations. Therefore, even if LGRO's performance was highly satisfactory, an overall rating of satisfactory is warranted.
Quality of ICR:
Satisfactory

7. Lessons of Broad Applicablity:

(i) In projects like this where timeliness is of the essence, the bank needs to show the resolve to cancel projects when preparation delays undermine the relevance of the operation; (ii) Wholesale marketplaces combine the features of public and private goods and therefore it is not reasonable to expect private firms to be solely responsible for covering the investment cost; (iii) For projects like this, loan agreements should contain commitments by local authorities to close older wholesale marketplaces once the new facilities are ready for operation; (iv) In rapidly-developing economies, such as Poland in the 1990s, current conditions may not be a reliable guide to future developments: market niches may disappear very quickly.

8. Audit Recommended?  No

          Why?  

9. Comments on Quality of ICR:

This was a hard evaluation to make given that the market had only been in operation for three months when the ICR was prepared. The economic analysis is detailed but the ex-post ERR is impossible to substantiate since it is based on PAD assumptions rather than actual data.

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