Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Document of
The World Bank FOR OFFICIAL USE ONLY
Report No: 15955
IMPLEMENTATION COMPLETION REPORT
POLAND
AGROINDUSTRIES EXPORT DEVELOPMENTPROJECT (LOAN 3167-POL)
Public Disclosure Authorized
August 8, 1996
Agriculture and Regional DevelopmentOperationsDivision Central and Southern Europe Departments Europe and Central Asia Region This documenthas a restricted distributionand maybe usedby recipientsonly in the perfornance of their officialduties. Its contentsmay not otherwisebe disclosedwithoutWorldBank authorization.
CURRENCY EQUIVALENTS Currency Unit - Polish Zloty (PLZ) 1988 US$ 1 1989 US$ I 1990 US$ 1 1991 US$ 1 1992 US$ 1 1993 US$ 1 1994 US$ 1 1995 US$ 1
= = = = = = = =
PLZ PLZ PLZ PLZ PLZ PLZ PLZ PLZ
0.0431 0.1439 0.9500 1.0576 1.3626 1.8115 2.2723 2.4250
WEIGHTS AND MEASURES (metric)
FISCAL YEAR January 1 - December 31
ABBREVIATIONS AND ACRONYMS ADP AEDP BGZ CC CMEA EFSAL ERR EU FAO/CP FIDL FRR GDP ICR IEDP LCB MAFE MOF NBP PBs PU RCB SAR SPA
Agricultural Development Project Agroindustries Export Development Project Bank for Food Economy Convertible Currency Council of Mutual Economic Assistance Enterprise and Financial Sector Adjustment Loan Economic Rate of Return European Union Food and Agriculture Organization/Consultative Program Financial Institutions Development Loan Financial Rate of Return Gross Domestic Product Implementation Completion Report Industrial Export Development Project Local Cooperative Bank Ministry of Agriculture and Food Economy Ministry of Finance National Bank of Poland Participating Banks Project Unit Regional Cooperative Bank Staff Appraisal Report State Property Agency
FOROFICIAL USEONLY IMPLEMENTATIONCOMPLETIONREPORT POLAND AGROINDUSTRIES EXPORTDEVELOPMENTPROJECT (Loan3167-POL)
CONTENTS Preface ..........................................................
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Evaluation Summary ................................................
Part 1: Project ImplementationAssessment ............. .. A. Project Objectives ............................................ B. Evaluationof Objectives ........................................ C. Achievementof Project Objectives ................................. D. ImplementationRecordand Major Factors AffectingProjectImplementation ... E. Project Sustainability .......................................... F. Bank Performance ............................................ G. Borrower Performance ......................................... H. Assessmentof Outcome ........................................ I. Future Operation ............................................ J. Key Lessons Learned ..........................................
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Part II: StatisticalAnnexes Table 1: Summaryof Assessments .................................. Table 2: RelatedBank Loans ...................................... Table 3: Project Timetable ....................................... Table 4: Loan Disbursements: CumulativeEstimatedand Actual ............... Table 5: Key Indicatorsfor Project Implementation........................ Table 6: Key Indicatorsfor Project Operation ........................... Table 7: Studies Includedin Project ................................. Table 8A: Project Costs ......................................... Table 8B: Project Financing ...................................... Table 9: EconomicCosts and Benefits ................................ Table 10: Status of Legal Covenants ................................. Table 11: Compliancewith OperationalManual Statements ................... Table 12: Bank Resources: Staff Inputs ............................... Table 13: Bank Resources: Missions ................................. Appendices: A. Aide-Memoireof ICR InitiationMission B. Borrower's Contributionto the ICR C. Map - IBRD No. 27512 documenthas a restricteddistributionand maybe usedby recpientsonlyin the performanceof their dbs oofficial dutics.Its contentsmaynot otherwisebe disclosedwiLboutWorldBank authorization.
1.................. 1 I 2 5 6 6 7 8 8 8 10 11 11 12 12 12 13 13 14 14 15 16 16 17
COMPLETIONREPORT IMPLEMIENTATION POLAND EXPORTDEVELOPMENTPROJECT AGROINDUSTRIES (Loan3167-POL)
PREFACE This is the ImplementationCompletionReport(ICR)for the AgroindustriesExport Development Project (AEDP) in Poland, for which an IBRD loan in the amount of US$100 million equivalent was approvedon February 6, 1990; signed on February 22, 1990; and made effectiveon May 7, 1990. At the Borrower's request, an amount of US$25 millionequivalentwas cancelled in May 1994. The last disbursementfrom the loan accountwas made on December 19, 1994, and the loan was closed on December 31, 1994 as originally scheduled. The final amount utilized was US$71.62 million equivalentand the unutilizedbalanceof US$3.38 million was cancelledwith effect from December 31, 1994. The ICR was preparedin the Agricultureand RegionalDevelopmentOperationsDivision of the Central and SouthernEuropeDepartments(CountryDepartmentsI and II) in the Europeand Central Asia Region. The current Task Manageris KishoreNadkarni;the report was reviewedby Michelede Nevers, Division Chief and Jane Loos, Project Adviser. The Borrower - the NationalBank of Poland (NBP) - provided written contributions. A summary is includedas an Appendixto the ICR. Preparationof the ICR was begunin the last supervisionmission in February 1995,and followed up on during missions in September 1995and January 1996. It is based on materialsin the project files, discussions with relevant NBP and Ministry of Agriculture and Food Economy (MAFE) officials, interviewswith representativesof the participatingbanks, and with selectedagenciesand subborrowers. The Borrower contributedin the preparationof the ICR by: (i) discussingmajor points included in the report; (ii) providinginformationon the credit line component;(iii) coordinatingcollectionof necessary data; and (iv) providing its sectionof the report.
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IMPLEMENTATIONCOMPLETIONREPORT POLAND AGROINDUSTRIESEXPORTDEVELOPMENTPROJECT (Loan3167-POL)
EVALUATIONSUMMARY INTRODUCTION
i. Since Poland rejoined the Bank in 1986, the Bank's strategy of assistance has focussed on supportingthe country's programof macroeconomicand structuraladjustmentto makethe economymore efficient, flexible, market responsiveand competitivein external markets. In the agricultural sector, the AgroindustriesExport DevelopmentProject, approvedin 1990,was the Bank's first operation in the sector. It was followedby the AgriculturalDevelopmentProject (Loan 3343-POL)in 1991 in support of the restructuringof the rural cooperativessector and the creationof an independentcooperativebank system, and the Agricultural Sector Adjustment Loan (Loan 3600-POL) in 1993 in support of the Government'sMedium-TermAdjustmentProgram in the agriculturalsector. PROJECT OBJECTIVES AND COMPONENTS
ii. Objectives:The development objectives of the Agroindustries Export DevelopmentProject (AEDP) were to: (a) remedy the existingconstraintsto rapidlyincreasingPoland's exports of processed agriculturalproductsto convertiblecurrency(CC) countries; (b) assist the lendinginstitutionsassociated with the project and the state-owned enterprises financed under it to operate in a market-oriented environment;(c) promote further involvementof the private sector in food processingactivitiesthat are export-oriented;and (d) help maintain suppliesof livestockto processors,and thus sustain meat exports (para. 1). iii. Components:The main project components were the provision of credit for financing: (a) investment by agroprocessingenterprises, including for preappraised subprojects, and for eligible subprojectsyet to be identifiedunder a line of credit through eligibleparticipatingbanks; and (b) import of proteinfeed to help alleviatea criticalshortageof livestockfeed at the time. In addition, a component for strengtheningthe Bank for Food Economy(BGZ)and other participatingbanks (PBs) was included under the concurrentIndustrialExportDevelopmentProject(IEDP- Loan 3166-POL)that was processed and approvedin the Bank at the sametime as the AEDP (paras. 2 and 3). IMLEMENTATION ExPERiENcEANDRESULTS
iv. Achievementof Objectives:In 1990, when the project was approved,the democraticallyelected Governmentin Polandhad just introducedits EconomicTransformationProgram(ETP) which contained sweepingreforms in initiatingmajor macroeconomicand structuraladjustmentin the economy. As a first generationalinvestmentproject aimedat supportingthe ETP by enhancingexportcompetitivenessin areas of perceivedcomparativeadvantage,the AEDP did not contain any significantsector policy objectives additionalto those pursuedunder the ETP. Institutionaldevelopmentobjectiveswere essentiallylimited
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to strengtheningthe operationsof the participatingbanks, to be pursuedunder the concurrent IEDP. The project's objectives, therefore, were largely financial - incremental export earnings to convertible currency (CC) markets; efficiencyimprovementsin participatingenterprises; and promotion of private sector involvementin export-orientedagroprocessingactivities(paras. 4 to 6). Despite some notable successes,the project, overall, has not met its financialobjectives,either in terms of incrementalexport earmingsor efficiencyimprovementsin the subborrowerenterprises. Financial rates of return (FRRs), as estimatedby the subborrowersand PBs, are generallylower than the minimumexpected(15 percent). A significantproportionof the subborrowers,particularlyin the larger subprojects,are facing financial difficulties,leadingto bankruptcyor liquidationproceedingsin many cases. Workoutsor reorganization plans are being worked out with the creditors, includingBGZ and other PBs, in most of the latter types of cases (paras. 11 to 20). v. Successin the institutionalstrengtheningof the PBs has also been limited. Of the four PBs, three of the PBs (accountingfor 10 percent of the funds onlent) have receivedtechnical assistanceunder the IEDP and subsequentother Bank operations;however, importantly, in the case of BGZ, the main PB (with about90 percent of the funds onlent), progresshas been limited. Seriousdelaysby BGZ in living up its commitments of undertaking satisfactory diagnostic and portfolio assessment studies, and in preparing and implementingactionplans for improvement,have led to a progressive deteriorationin its financialsituation. The Government,with the Bank's substantialinvolvement,is currently engaged in undertakinga restructuringof the Polishrural financesystem, includingBGZ and thecooperativebanking system, consistingof over 1,600 local cooperativebanks and a number of regional cooperativebanks (paras. 19 to 20). vi. Major FactorsAffectingthe Project: The main risks to project implementationwere recognized at appraisal - the possible effectson the subsector from the variations in implementationof the overall economictransformationand structural adjustmentprograms, and the potential impactof adverse price changes in world markets. What could not be foreseen was the suddencollapse of the CMEA market juxtaposedwith transitionaldifficultiesin domesticmarkets,and their combinedimpacton the enterprise and bankingsectors. Factors beyond the Government'scontrol includedthe major changesthat occurred in CMEA markets after 1990 which were critical for many Polish exporters who had oriented their production to the increasing trade in convertible currency within CMEA markets, and who were subsequentlyunableto switchtheir productionto the more demandingWesternmarkets; thesedifficulties were further compoundedby the effects of droughts in 1991/92 which severely affected agricultural production, reducingproduct quality and increasingunit costs of productionfor processors (para. 23). Changes ensuing from the Government'simplementationof its economictransformationprogram also had, on balance, the effect of reducing demandon the part of medium to large state-ownedenterprises for undertakinginvestmentsresultingfrom a combinationof factors:uncertaintiesin their status pending restructuringor privatization;perceivedhigh interest costs; and delays in completionof administrative and judicial proceedingsin the case of enterprisesin financialdifficultieswith their creditors (paras. 24 to 25). vii. Bank and Borrower Performance: Bank performance was more satisfactory during the preimplementationphases of the project, including identification,preparation and appraisal; during the implementationphase, while Bank supervisionwas satisfactoryin terms of the frequencyand extent of efforts, including missions in the field, its effectivenessin securing an early and meaningfulimpacton BGZ (the main PB under the project) and on its subborrowers,was limited. In hindsight,perhaps the Bank could have been more forceful in seeking BGZ's compliancewith its undertakings, includingthe examinationof stronger remedies such as suspensionof disbursements. The fact that the AEDP credit line was among the relatively more successfulof the Bank's credit lines in Poland in terms of the pace and extent of disbursement,and the consequentreluctanceto discouragea good performer, may have contributedto the Bank's reluctanceto take a stronger line with BGZ (paras. 28 to 32).
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viii. The Borrower's performancewassatisfactoryduring the identification,preparationand appraisal stages of the project cycle. Performanceduring implementationwas affectedby the continuedmisgivings of the National Bank of Poland (NBP), the apex institutionfor the project, in regard to its role conflict as apexunder the project and its normal functionsas a centralbank. This constrainedNBP from taking a proactive role in project promotion, facilitationand monitoring as the Bank would have expected. Compliancewith covenantswas generallysatisfactorywith the notable exceptionof the serious delays by BGZ in meetingits commitmentsin respectto implementationof an action plan for improvementof its operations. Reporting,while compliedwith, was inadequatein terms of the accuracy and quality of information(paras. 33 to 34). ix. Assessmentof Project Outcome: The overall projectoutcomeis assessedas unsatisfactoryas the project has not met its developmentobjectivesand prospects for the future are uncertain. Without any significantsector policy and institutionalobjectives,the project relied heavily on the achievementof its financial objectives. Despite a few notable successes,the financialobjectivesin respect of incremental exports to CC markets or significantincreasesin operatingefficiencyhave not been met as many of the subborrowers,includingthe larger ones, are facing seriousfinancialproblems, and their futuredepends upon the outcomeof the workoutand restructuringplans being discussedwith their creditors, including BGZand the otherPBs. In regardto BGZ, the outcomedependscruciallyupon the Government'sability to undertakea satisfactoryresolutionunder the ongoingrestructuringprogramfor the Polish rural finance system (para. 35). PROJECTSUSTAINABILIrYAND FUTURE OPERATIONS
x. Sustainability:The sustainabilityof the project is uncertain,and woulddependcriticallyupon the Government'ssuccess in resolvingsatisfactorilythe situationin regard to BGZ, the principal PB under the project. The resolutionof the BGZ issue goes beyondjust BGZ since the fates of severalof BGZ's clients (and subborrowersunder the project)are also linkedcloselywith the eventualoutcomein respect to BGZ. At the Government'srequest,the Bankhas hithertobeenprovidingintensiveassistancethrough participationin the ongoing dialogue in regard to restructuringof the Polish rural finance system, and coordinatingmultilateral/bilateraltechnicalassistancethat is being providedfrom EU and other sources to the Governmentin the design and preparationof the program (para. 27). xi. FutureOperation:The Borrowerhas not prepareda formal operationalplan pendinga decision in regardto the restructuringof the rural financesystem,includingBGZ and the cooperativebanks. The Bank is, however, intensivelyinvolvedin the ongoingdiscussionsin this regard. During this exercise, the Bank intends to stay in close touch in respect to the implications of the outcome for BGZ's subborrowersunder the loan withinthe moregeneralcontextof a resolutionof BGZ's portfolioproblems. NBP has confirmedthat it does not intendto utilize the reflowsfrom the subloan repaymentsfor future lendingfor similar purposes(paras. 36 and 37). KEY LESSONS LEARNED
xii. The main lessons from the project (as summarizedin para. 38), which may also have more general relevancefor other projects, are: (a)
credit lines are inappropriateinstrumentsin the absenceof strong financialintermediaries and in environmentsof significantmonetaryinstabilitycharacterizedby high inflationand interest rates;
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(b)
successfulrestructuringof mediumto large state-ownedenterprisescannotbe accomplished without sweepingreforms that address questionsof enterprise ownershipand governance;
(c)
the need for Bank projects to have strong institutional componentsto complementthe provision of funds; and
(d)
the danger of emphasizingdisbursements,as a measure of performance, as they are not necessarilycorrelatedto results on the ground.
IMPLEMENTATION
COMPLETION REPORT
POLAND AGROINDUSTRIES EXPORT DEVELOPMENT PROJECT (LOan 3167-POL)
PART I: PROJECTIMPLEMENTATIONASSESSMENT A. PRojECr OBJECTE
1. The developmentobjectivesof the AgroindustriesExportDevelopmentProject(AEDP) were to: (a) remedy the existing constraints to rapidly increasing Poland's exports of processed agricultural products to convertiblecurrency (CC) countries; (b) assist the lending institutions associatedwith the project and the state-ownedenterprisesfinancedunder it to operate in a market-orientedenvironment; (c) promotefurtherinvolvementof the privatesector in foodprocessingactivitiesthat are export-oriented; and (d) help maintain suppliesof livestockto processors, and thus sustain meat exports. 2. The main project componentswere the provision of credit for financing: (a) investmentsby agroprocessingenterprises,includingfor preappraisedsubprojects,and for eligiblesubprojectsyet to be identifiedunder a line of credit througheligibleparticipatingbanks; and (b) importof proteinfeed to help alleviatea critical shortageof livestockfeed at the time. 3. In addition, a component for strengtheningof the Bank of Food Economy (BGZ) and other participatingbanks (PBs)wasincludedunder theconcurrentIndustrialExportDevelopmentProject(IEDP - Loan 3166-POL)that was processedand approvedin the Bank at the same time as the AEDP. B. EVALUATIONOF OBJECTIVES 4. Poland rejoinedthe Bank in 1986. Preparationof the AEDP and IEDP was startedin early 1987, and both projectswere first appraisedin late 1987. At the time, althoughsocialismwas under strain and the demand for reform was growing, there was no consensusthat radicalchange was the only solution. Bank operationsfocussed,therefore, on securinggains in selectedsubsectors, chosen on the basis of an assessment of their potential comparative advantage, through improvement in the productivity and efficiencyof state-ownedenterprises. Theelectionsof June 1989markeda watershedin Poland's history. The new democratically-electedGovernment, strongly committed to the rapid creation of a market economy,initiatedits EconomicTransformationProgram(ETP) in early 1990with priority on stabilizing the economy and creating effective markets to replace the system of central command. The Bank's assistanceprogramshiftedto helpingthe Governmentcarryout its programof reforms orientedto a more open economyand increased efficiencyin the productive process. In particular, the effort under the AEDP, the Bank's first agriculturalproject in Poland, was to be focussedat achievingincreasedexports to convertiblecurrency markets. 5. Objectives(a), (c) and (d) were well-definedto achievingthe project's primary goal of helping to increase exports of agroprocessedproducts to CC markets. Objective(b) in regard to increasingthe efficiencyand market-orientationof the PBs and the state-ownedenterpriseswas also consistentwith the Bank's strategy of supportingthe ETP towards a market economy. Projectpreparation,includingthe mainappraisal,took place in 1987-88,wellbeforethe initiation 6. of the major reforms of 1989-90. The principalfeatures of the project were defined at this time, but some modificationsto project design were later made in response to the introduction of the ETP.
-2 Reflectingthe relative inexperienceat the time of the NationalBank of Poland (NBP) and other Polish banks in commercialbanking operations, including project appraisal and supervision, the project, as originallydesigned, was expectedto include over thirty preidentified,preappraised subprojects,with a relatively small credit line componentto help finance other eligible subprojectsas would be identified later. With the delay in post-appraisalproject processing and the major changes taking place in the environment(para. 22), the number of preappraisedsubprojectslikely to participatedropped, and the significanceof the credit line componentincreased. In the absenceof any other institutionor agencythat could serve as an apex for onlending of bank funds, NBP and the Bank agreed that, as a special consideration,NBP would undertakethe apex functionthrough a newly createdproject unit to be set up within NBP. Technicalassistancewas to be providedto BGZ and the other PBs under the IEDP to help strengthentheir operations, including a requirementthat the PBs undertaketo prepare action plans for operationalimprovementbased on acceptableauditsof their financialsituation. At the Government's request, a credit componentwas added to enable imports of protein feed to help sustain meat exports. While the importanceof supporting infrastructureand services such as market research and surveys; export promotion campaigns; export market intelligence; and product innovation/pilottesting were recognized, the project design did not includean explicit, institutionalcomponentto addresstheseareas beyond the provision of funds under the credit line to those enterprisesthat wished to undertake such activities. Overall, for both the AEDP and the IEDP, as the Bank's first generationalprojects in Poland, institutionaland policy conditionalitieswere kept to a minimumin recognitionof the striking progress being made in economicreforms under the ETP. 7. The main risks to project implementationwere recognizedat appraisal - the possible effects on the subsectorfrom the variationsin implementationof the overalleconomictransformationand structural reformprograms, and the potentialimpactof adverseprice changesin world markets. The risk of a one to two year delay in project implementationand its impacton project benefits was also identified,and foundacceptable. What couldnot be foreseenwas the suddencollapseof the CMEA marketjuxtaposed with transitionaldifficultiesin domesticmarkets, and the combinedimpacton the enterpriseand banking sectors. In hindsight, the considerablerisk associatedwith the Government'spolitical will and ability to deal effectivelyin a timely manner with BGZ was also not adequatelyrecognized. As describedlater (para. 23), in additionto the transitionaleffectsof the economicand structural 8. reform programs, the project's implementationperiod was marked also by major, unforeseen,external factors, includingthe collapseof the formerCMEAmarketsafter 1990,and seriousdroughtsin 1991/92. To increase the utility of the Bank loan to subborrowersin the changing circumstances,a number of modifications were made to the project during implementationwithout compromising the original objectives. In view of the rapid and wide-spreadliberalizationunder the price and trade regimes, the need for explicitlytargeting support to export-orientedinvestmentsalone was reduced, and in addition to export-orientedprojects, others that resultedin significantefficiencygains were also made eligiblefor support, includingfinancingof permanentworking capital; as prices were largely liberalized, financial rates of return (FRRs) providedan acceptableproxy for the ERRs, and the requirementon the separate calculationof an ERR was relaxed; procurementlimits and procedures were revised to recognizethe increased experienceand capacity of the participatingagencies; and, for consistency, thresholds and conditionswere harmonizedbetweenthe Bank's different credit lines in Poland. C. ACHIEVEMENTOF PROJECT OBJECTIVES
9. Despiteits successin committingand disbursinga substantialpart (about72 percent)of the funds under the Bank loan, the project can be deemed to have had only very limited success in achievingits overall objectives.
-3 Sector Policy Objectives 10. As a first generationalproject being processed concurrentlywith the Government's sweeping ETP, launched in early 1990, the project had no additionalsector policy objectivesover those being addressedunder the ETP. FinancialObjectives 11. Incremental Export Earnings: With the modifications made (para. 8) during project implementationin recognitionof the changed economicenvironmentand newly emerging needs, the project's original exclusivefocuson increasedexport earningsto CC marketswascomplementedby other eligible activities including investmentsand permanentworking capital financingto increase operating efficiency;purchase of equipmentby operating lease companies,etc. With a few notable exceptions, exports were generallysignificantlylower than projected, reflectingthe combinedadverse effect of the collapse of the CMEA market; difficulties in switching to Western markets; and the sponsoring enterprises' financial difficultiesthat affected productionvolume and quality. Data submitted by the subborrowersand PBs are inadequateto assess with any assurancethe incrementin exportearnings, but it is clear that the achievementsare likely to be far short of the US$55 million per year incremental earningsprojectedat appraisal. 12. EfficiencyImprovements: Similarly,the objectiveof improvedefficiencythrough reductionsin unit costs in enterprisesproducing primarily for the domestic market was achievedonly to a limited extent. While the new machineryand equipment, and upgradingof domestic and imported working capital inputs, enabledby the subloansresulted in improvedtechnicalcapability, the efficiencyaspects could only be realized to a limited extent given the excess capacity in the face of weak domestic and externalmarkets. In some cases, eventhough the project was successfullyimplemented,the sponsoring enterprise faced severe problems from other sources, leading, in a number of cases, to institution of bankruptcyor liquidationproceedings. 13. SubprojectPortfolio Characteristics:A total of 32 subloanswas made under the project for an amount of about US$46 million equivalentfor financingof investmentand permanentworking capital; the average loan size was about US$1.25 million within a range of US$0.2 to US$9.5 million. In addition, subloanswere made for a total amountof US$25 millionequivalentunder the livestockprotein feed import component. 14. There were somesignificantdifferencesas comparedto expectationsat appraisal. Out of the over 30 preappraised subprojects, only 6 eventuallyparticipated under the project. This was due to a combinationof factors, all leading to a reduceddemandfor borrowedfunds for investmentpurposes the uncertainties caused in some medium to large state-ownedenterprises in the face of impending transformationor privatization;the abilityof some of the better-performingenterprisesto attract equity funds from foreign investors; high interest rate levels that deterred some enterprisesfrom undertaking investments;weaknessesin major segments of the domestic markets following from changes in real incomesand relativeprices, resultingin alteredand lowerdemand for some food products;the collapse of the CMEA markets; and the difficultiesin penetratingWesternmarketsin the face of quality and other requirements. The subsectoralcompositionof the subloans,however, was similar to expectationsat appraisal, with the fruit and vegetableprocessing(35 percent)and meat processing(20 percent)industries being the largest participantsunder the credit line. 15. Private Sector Promotion: In regard to the objectiveof promoting further involvementof the private sector in export-orientedfood processingactivities, the project was successfulto the extent that it provided funds to 28 private sector subborrowers(for a total amount of about US$23 equivalent or
-4about 50 percent of the total lendingfor investmentpurposes). However,beyondthe provision of funds, the project's impactin promotingprivate sector exportingactivities was limitedas it did not specifically contain any institutionalcomponentsin regard to trade promotionand assistanceto private exporters. 16. SubprojectPerformance:In regardto performance,only a few of the subprojectsand sponsoring enterprisesappear to be operating at a profit. A significantproportion (40 percent) of the subprojects are facing serious financialdifficultiesdue to a combinationof the effects of weak domestic markets;. loss of CMEAmarkets; and financialand cashflowproblemscompoundedby interenterprisearrears and high interest costs. In 10 cases, involving subloans totalling about US$12 million equivalent, the enterpriseshave, or currently are, engagedin bankruptcyor liquidationproceedingswith their creditors. Workout and reorganizationplans are being developedin most cases. In another six cases involving subloanstotallingUS$12 million(includingthe largest subloan of US$9.5 millionto the KwidzynFruit and VegetableProcessingEnterprise),restructuringprogramshavebeenarrivedat betweenthe enterprises and their creditors. 17. Rates of Return: Actual financial rates of return (FRRs), as and where estimated by the subborrowersand the PBs, are significantlylower thanthe minimumrequired(15 percent)in most cases - let alone the appraisal expectation of an average of around 35 to 40 percent - and even these are suspect in terms of the quality of the computations. The subborrowersand the PBs have not estimated ERRs as the requirement of a separate estimation of ERRs had been dropped during project implementationin recognitionof the Government'sprogramof widespreadprice and trade liberalization. ParticipatingBanks: Althoughseven banks had been clearedas eligibleunder the project, only 18. four eventuallyparticipated. As expected,BGZ (Bank for Food Economy),ownedjointly by the State (51 percent) and the cooperativebanks (49 percent) had the largest share of subloans, accountingfor a total of 28 subloansfor a combinedamount of aboutUS$42millionequivalent(or 90 percent of the total amountonlent for investmentpurposes). The other three PBs betweenthem accountedfor subloansfor a total amountonlent of US$ 5 million equivalent. Perfornance of PBs: Performanceof the PBs has been mixed. The financialposition of BGZ, 19. the principal PB under the project, has progressivelyworsenedto the point where the Governmentis currently engagedin a major restructuringprogram withinthe contextof a comprehensiverestructuring program for the Polish rural finance system, including BGZ as well as the entire cooperativebanking system comprised of over 1,600 local cooperativebanks and a number of regional cooperativebanks. At the Government's request, the Bank has been, and continuesto be, closely involved in the process, primarily as a coordinatorof the multilateraland bilateralassistancebeingprovidedfor the program from EU and other sources. The three other PBs are also participatingunder other ongoing Bank credit lines under whichtheyhavebeen the recipientsof significanttechnicalassistancein improvingtheir operations. 20. Livestock Feed Component: Despite serious initial delays in disbursement,pending a decision by the authoritieson use of counterpartfunds, the amount(US$25 million)earmarked for this purpose was completelydisbursed. The recipientsand the Polish authoritieshave acknowledgedthe benefits of the componentat a time of serious shortagesof feed; however, it is not possibleto assess the eventual impactin helping sustainmeat exports(as intended)due to the indequacyof data from the subborrowers. Instiutional Objectives The project did not have any significantinstitutionaldevelopmentobjectivesother than those that 21. it shared with the concurrent IEDP in respect of the apex functionof the NBP's project unit (PU), and of the PBs, including BGZ. Through its experienceunder the project and other Bank credit lines for which it has a similar function, the PU has built up considerable experience in Bank appraisal,
supervisionand procurementrequirements. It has beenpreventedfrom reaching, and performing, up to its full potential as a proactiveproject unit by NBP's perceivedrole conflict(para. 33), in regard to its normal functionsas a central bank and its apex responsibilitiesunder the project. In respectof the PBs, the common institutionalobjectiveshave been achievedin the case of the smaller PBs, but the notable failure has been in the case of BGZ where the Bank has not as yet been able to secure meaningful improvement. D. IMPLEMENTATIONRECORDANDMAJOR FACTORS AFCNG
PROJECTIMMEMENTATION
Implementation Record The project was appraised in November 1987 but held in abeyance thereafter pending an 22. improvementin the deterioratingmacroeconomicenvironment.Followingan updatingmissionin October 1989, loan negotiationswere held in December 1989; the loan was approved in February 1990; and became effective in May 1990. Disbursementwas slower than expectedat appraisal, initially due to delays by the Polish authorities in finalizing the arrangementsfor the use of the counterpart funds involvedunder the livestock feed component,and later as the effects of the transformationprocess and the impactof exogenousshockscoincided. While severalof the modificationsmade in consultationwith the Borrower to increase the loan's utility in the rapidly changing circumstances(e.g. extending subproject eligibility to efficiency improving investments;financing of permanent working capital; simplificationsto procurementprocedures,and raisingof thresholdsto givegreater flexibilityto the PBs) all helpedincrease loanutilization,an amountof US$25millionequivalent(or 25 percent of the original loan amount)was cancelledat the Borrower's request in May 1994, and a further unutilizedamount of US$3.38 million equivalent at loan closing in December 1994. In seeking these cancellations,the Borrower took into account the fact that funds would continue to be available for financing eligible agroindustriesprojects, if any, under another ongoingBank credit line (Loan 3166-POL). Factors Not GenerallySubject to GovernmentControl Two factorsin particularhad a major impacton project implementation.First, the major changes 23. that occurredafter 1990in the formerCMEA marketswhich were significantfor manyPolish exporters. The effect was even more pronouncedas, encouragedby the increasingtrade in convertiblecurrency amongCMEA participantsprior to 1990, many enterprises,includingsome of the larger subborrowers under the project, had undertaken investmentsaimed primarily at these CMEA convertiblecurrency markets, but which they found difficult to switch from to the more demandingWestern markets. The second was the effect of periods of severe drought, particularly in 1991/92, which seriously affected agricultural production, thereby reducing product quality and increasing unit costs of production for processors. Factors GenerallySubject to Government Control A major economicchange occurred in early 1990as the democraticallyelectedGovernmentin 24. Poland undertookan acceleratedprogramof macroeconomicand structural reform under its ETP. This program differed radicallyfrom earlier efforts in its vision of a Polish market economyfully integrated into WesternEurope. Foreign trade was liberalized; prices were freed; and subsidiesto producers and consumers drastically reduced. Progress was also achieved in reforming the enterprise and financial sectors, includingthe creationof a large numberof private banks, and sale of state-ownedenterprisesto domestic and foreign investors. Changes ensuingfrom theseprograms affected project implementationin various ways, but the 25. combined effect was to reduce the demand for borrowedfunds for undertakinginvestments. Changes
-6in relative prices between outputs and inputs, as well as changes in domestic and foreign markets, financiallysqueezedmanyenterprises,leadingto cashflowproblemsthat snowballedand weretransmitted through interenterprisearrears. Major banks faced liquidityand solvencyproblems. As a result of the large lossesof state-ownedenterprisesand the Governnent's fiscaldeficitfinancedin part through bank credit, bank lendingto the more dynamicsectorsbecameseverelylimited. Severalmediumto large stateowned agroprocessingenterprises were subject to uncertainties in their status pending their eventual restructuring or privatization, and chose to postpone major investments. The initial effects of other reform measureswere also to discourageinvestments, particularlythrough the use of borrowed funds. The new banking laws and regulations introduced since 1990 required banks to increase loan loss provisioningwhich also contributedto the high interest rates during the period by requiringthe banks to charge higher spreads. While the applicationof the new bankruptcyand liquidation regulations since 1991 has contributed to greater financial discipline, enterprises have been caught up in lengthy proceedingsas the courts' and the administrativeagencies' capacitieswere strained. FactorsGeneraly Subjectto ImplementingAgency Control 26. It was recognized,at the outset during project preparation,that the role of the NBP as an apex under the project was in special considerationof the fact that there was, at the time, no suitable alternativeinstitutionor agencythat could undertakethe function,and in view of the urgencyof making funds availableto the exporting enterprisesas early as possible. In this context, NBP did, over time, build up the PU with adequate staffingand facilities. PU managementand staff were professionally dedicatedand commnitted in the performanceof their project dutiesand responsibilities. However,NBP's continuedperceptionas to its role conflictas an apex under the project and its normal functionsas a centralbank constrainedit from undertakinga more proactiverole in project promotion, facilitationand monitoringof progress. Also, in the case of the PBs, includingBGZ, with the autonomousstatus of the banks pursuant to the banking sector reforms, NBP had limited influencein requiring the PBs to take necessary actions to expediteproject implementation,and to comply fully with their commitmentsin respect to performanceand reporting. E. PROJECTSusTAiNABiLY 27. The sustainabilityof the project is uncertain,and would dependcriticallyupon the Government's success in resolving satisfactorilythe situation in regard to BGZ, the principal PB under the project. The resolutionof the BGZ issue goes beyondjust BGZ since the fates of several of BGZ's clients (and subborrowersunder the project) are also linked closelywith the eventual outcome in respect to BGZ. At the Government's request, the Bank has hitherto been providing intensive assistance through participationin the ongoing dialogue in regard to restructuringof the Polish rural finance system, and coordinatingmultilateral/bilateraltechnicalassistancethat is being providedfrom EU and other sources to the Governmentin the design and preparationof the program. F. BANK PERFORMANCE 28. Bank performance was more satisfactory in the pre-implementationphases of the project, including identification, preparation and appraisal; during the implementation phase, while Bank supervisionwas satisfactoryin terms of the frequencyand extent of efforts, includingmissions in the field, its effectivenessin securingan early and meaningfulimpacton BGZ (and on its subborrowers)was limited. 29. The Bank was quickto respondto the Government'srequestto initiateproject identificationand preparation,and was substantiallyinvolvedin assistingthe Borrower in design and developmentof the project. FAO/CP provided valuableassistanceduring this phase, and much of the project preparation
-7was carried out by it staff, includingpreappraisalof subprojects. The Bank was instrumentalin asking for, and securing export market studies for various products with identified export potential; again, FAO/CP staff provided significantcontributionsin this regard. 30. The Bank mounted 10 supervision missions between 1990 and 1995, roughly at six-month intervals. A total of 80 staffweekswere spent on supervision,or an averageof 14 staffweeksper year. Most supervision missions were staffed by financial analysts or economists; agroindustry specialists participated in some of the missions. In regard to subproject portfolio supervision, the Bank was proactive in followingthe problems of the larger subborrowers;in the case of the Kwidzyn Fruit and VegetableProcessing Enterprise, which accountedfor the largest subloan (US$9.5 million) under the project, the Bank was instrumentalin providing expert consultants' advice, funded from Trust Fund sources, to the enterprise to assist it in developingan appropriaterestructuringprogram. 31. In regard to BGZ, the Bank was awarefrom the outset of the doubts in regard to the quality of BGZ's portfolio. Consequently,it monitored regularly the progress in the preparationof satisfactory financial audits and portfolio assessmentsas a basis for BGZ to develop an action plan to improve its performance, as required under the provisions of the project agreements. However, the process was seriously delayed-- first as a result of the inadequacyof the auditscarried out by the chosen firm; and later by delaysby BGZ to agree to undertakediagnosticstudies;appointsuitableconsultants;providethe required support and information;and finally, accept the consultants' findings and recomrnmendations. While regularly urging NBP (as the Borrower)and BGZto meettheir obligations,in hindsight,the Bank could have been more forceful in seeking BGZ's compliance with its commitments, including the examinationof stronger remedies such as suspensionof disbursements. The fact that the AEDP credit line was among the relatively more successfulof the Bank's credit lines in Poland in terms of the pace and extent of disbursement, and the consequentreluctanceto discouragea good performer, may have contributedto the Bank's reluctanceto take a stronger line with BGZ. 32. Finally, the Bank's continuedrating of the project developmentobjectivesas satisfactoryduring the implementationperiod was based on the subprojectperformanceinformationsubmitted at the time by BGZ and the other PBs which substantiallyunderstated the extent of the portfolio problemnsas compared to the informationlater submittedfor the ICR. G. BORROWER PERFORMANCE 33. The Borrower'sperformancewassatisfactoryduring the identification,preparationand appraisal stages of the project cycle. The Ministry of Agricultureand FoodEconomy(MAFE)and local agencies, notablythe Institute for Agricultureand FoodEconomy(IAFE)and the Foreign Trade ResearchInstitute (FTRI)were closelyinvolvedin project preparation,includingthe selectionand appraisalof the candidate subprojects and the carrying out of domestic and export market studies. Performance during the imnplementation phase was affectedby NBP's continuedmisgivingsas to its role as an apex institution under the project. The managementand staff of NBP's project unit were professionallydedicatedand committed to the performance of their functions, and cooperatedwell with Bank staff during project supervision;relationshipsbetweenthe NBP and the Bank remainedcordial and constructiveat all times. However, NBP did not take a proactiverole in projectimplementationas the Bankwould haveexpected, despitethe Bank's regular urgings. This is also reflectedin NBP's steadyreluctanceto engageexternal assistance, as suggestedseveral times by the Bank, for more activeproject promotionand monitoring. 34. Compliancewith covenantswas generallysatisfactorywith the notable exceptionof the failure of BGZ to prepare a satisfactoryaction plan to address its problemsas required under the agreements. Reporting, while compliedwith, was inadequatein terms of the accuracy and quality of information.
-8 H. ASSSSM T OF OUTCOME
35. The overall project outcome is assessed as unsatisfactory as the project has not met its developmentobjectivesand prospectsfor the future are uncertain. Without any significantsector policy and institutional objectives, the project relied heavily on the achievementof its financial objectives. Despitea few notable successes,the financialobjectivesin respectof incrementalexportsto CC markets or significantincreasesin operatingefficiencyhave not been met as manyof the subborrowers,including the larger ones, are facing serious financialproblemsand their future depends upon the outcome of the workout and restructuringplans being discussedwith their creditors, includingBGZ and the other PBs. In regard to BGZ, the outcome depends crucially upon the Government's ability to undertake a satisfactoryresolutionunder the ongoing restructuringprogram for the Polish rural finance system. I.
FUTURE OPERATION
36. The Borrower has not prepared a formal operationalplan pending a decision in regard to the restructuring of the Polish rural finance system, includingBGZ and the cooperativebanks. The Bank is, however, intensivelyinvolvedin the ongoing discussionsin this regard. During this exercise, the Bank intendsto stay in closetouch in regard to the implicationsof the outcomefor BGZ's subborrowers under the loan within the more general contextof a resolutionof BGZ's portfolio problems. 37. NBP has confirmedthat it does not intendto utilizethe reflows from the subloanrepaymentsfor future lending for similar purposes. J.
KEY LESSONSLEARNED
The main lessons from the project, which may also have more general relevance for other 38. projects, are: (i) credit lines are inappropriateinstrumentsin the absenceof strong financial intermediaries and in environmentsof significantmonetaryinstabilitycharacterizedby high inflationand interest rates; (ii) successfulrestructuringof mediumto large state-ownedenterprisescannotbe accomplished without sweepingreforms that addressquestionsof enterpriseownership and governance; (iii) the need for Bank projects to have strong institutionalcomponents to complement the provision of funds; and (iv) the danger of emphasizingdisbursements,as a measure of performance, as they are not necessarilycorrelatedto results on the ground.
-9 -
IMPLEMENTATION COMPLETION REPORT POLAND AGROINDUSTRIES EXPORT DEVELOPMENT PROJECT (Loan 3167-POL)
PART II. STATISTICALANNEXES
Table 1: Table 2: Table 3: Table 4: Table 5: Table 6: Table 7: Table 8A: Table 8B: Table 9: Table 10: Table 11: Table 12: Table 13:
Summary of Assessments Related Bank Loans Project Timetable Loan Disbursements: Cumulative Estimated and Actual Key Indicators for Project Implementation Key Indicators for Project Operation Studies Included Under the Project Project Costs Project Financing Economic Costs and Benefits Status of Legal Covenants Compliance with Operational Manual Statements Bank Resources: Staff Inputs Bank Resources: Missions
- 10-
Table 1: Summary of Assessments A. Achievementof objectives
Substantial
Partial
Negligible
Not Applicable
03
Macro policies
El
Sector policies
Ol
O
E E
Financial objectives
E
0
O
E
Institutionaldevelopment
O
O
0
0
Physical objectives
E El E
0 E E
E
E 0 0
Poverty reduction Gender issues
El
Other social objectives
Private sector development
El El El
Other (specify)
El
Environmentalobjectives Public sector management
B. Project sustainability
El E E El
Likely
El1 C. Bank performance
Highly Satisfactory
E 0E E
0
Unlikey
Uncertain
El
0
Satisfactory
Deficient
E
0
E
Preparationassistance
O
0
E
Appraisal
E E
I
0
E E
Highly Satisfactory
Satisfactory
Deficient
Preparation
O
0
El
Implementation
E
E
0
Covenantcompliance
Cl
Operation (if applicable)
O
0 El
E E
Identification
Supervision D. Borrowerperformance
E. Assessmentof outcome
Highly SatisfactorySatisfactory UnsatisfactoryHighly Unsatisfactory
El
El
0
El
-
11
-
Table 2: Related Bank Loans Year of Approval
Status
Supportto enterprises for expanding industrialexports to convertible currency markets.
1990
Ongoing
AgriculturalDevelopment Project (Loan 3343-POL)
Supportto private farmers, and promotionof other private sector activitiesin rural areas.
1991
Closed
AgriculturalSector AdjustmentLoan (Loan 3600-POL)
Supportto Poland's Medium-Term Sector AdjustmentProgramthrough selective sectoral policies, urgent structuralreforms, and institutional reforms and institution-building measuresin the agriculturalsector.
1993
Ongoing
Loan Preceding Operations
Purpose
None
Concurrent Operaions Industrial Export Development Project (Loan 3166-POL)
Following Operations
Table 3: Project TImetable Steps in Project Cycle
Date Planned
Date Actual
Identification
6/87
6/87
Preparation
8/87
8/87
11/87
11/87
Negotiations
4/88
12/89
Board presentation
5/88
2/90
Signing
6/88
2/90
Effectiveness
8/88
5/90
Project completion
6/94
12/94
12/94
12/94
Appraisal
Loan closing
- 12 -
Table 4: Loan Disbursements: Cumulative Estimated and Actual (US$ thousands) FY90
FY91
FY92
FY93
FY94
FY95
AppraisalEstimate
30.0
50.0
70.0
85.0
95.0
100.0
Actual
9.9
16.9
43.6
65.1
71.4
71.6
Actual as % of Estimate
33%
34%
62%
77%
75%
72%
Date of Final Disbursement: 12/19/94
Table 5: Key Indicators for Project Implementation Estimated
Actual
1. Number of preappraised subprojectsexpected to participate under the project.
30
6
2. Demand for investmentcredit from unidentified subprojects.
At least US$15 mn.
US$30 mn.
Key implementation indicators in SAR
*
No fbrmalimplementationplan was agreed under dte project.
Table 6: Key Indicators for Project Operation* Estimated
Actual
1. Subprojectsto have acceptableeconomic rates of return
Ranging from 20% to 70% with an average of 35%
Not available
2. Aggregatepresent value (PV) of earnings
US$55 million per year
Not available
3. Incrementalemployment
1,500
Not available
Key Operating Indicators In SAR
* No formal operationalplan was agreedunder the project.
- 13 Table 7: Studies Included in Project Purposeas Ddined at Appraisal/Redeflned
Study
Status
Impact of Study
No studies were includedunder the project.
Table 8A: Project Costs (US$ million) AppraisalEstimate
Local
ForeipgLca
Costs
AeroindustriesInvestments (a) Preappraisedsubprojects (b) Credit line (c) Marketing activities
Actual/Estimated
Coreign
Total
Costs
Foreign Costs
Total
41.4 5.5 1.4
55.4 15.1 0.5
96.8 20.6 1.9
28.0 25.7 /
16.0 30.6
44.0 56.3 "I
Total Agroindustries LivestockFeed
48.3
71.0
119.3
53.7
46.6
100.3
-
25.0
25.0
-
25.0
25.0
Total Project Cost Interest During Construction
48.3 6.0
96.0 4.0
144.3 10.0
53.7
71.6 "
125.3
Total Financing Required
54.3
100.0
154.3
53.7
71.6
125.3
I/ Included under (a) and (b), not availableseparately.
1/
- 14 -
Table 8B: ProjectFinancing (US$ million)
Appraisal
Actual\Estimated
Local
Foreign
Total
-
100.0
100.0
-
71.6
71.6
BFE and other PBs
42.4
0
42.4
32.7
0
32.8
Subborrowers
11.9
0
11.9
21.0
-
21.0
Total
54.3
100.0
154.3
53.7
71.6
125.3
PercentageShare
35
65
100
World Bank
Local Foreign
43
Total
57
Table 9: EconomicCosts and Benefits At appraisal, the project as a whole was estimatedto account for: (i) net foreign exchangeearnings of about US$55 million per year from incrementalexports to convertiblecurrencycountries; and (ii) incrementaljob creation for about 1,500 persons. Reliable ex-post data on project benefits are not available; partial data provided by the enterprises indicate incremental exports of aboutUS$8.5 million per year.
100
-
15 -
Table 10: Status of Legal Covenants Overall Project Rating: 3
Agreement
Section
Original Covenant Status Fulfillment Type Date
Descriptionof Covenmnt
Comments
LA
3.01(b)
M
C
Borrower is to make avaDableto Participatin Banks funds under SubsidiaryFinancingAgreementson terms and conditions approvedby the Bank.
Comnplied
LA
3.01(c)
M
C
Borrower to exercise its rights under Subsidiary Financing Agreementsto accomplishthe purposesof the loan.
Complied
LA
3.02(a)
M
C
Borrower to coordinateand monitor overall executionof the Project and carrying out by the ParticipatingBanks of their obligadonsunder the SubsidiaryFinancingAgreements.
Complied
LA
3.02(b)
P
C
Procurementto be governedby Schedule4 to the LA.
Complied
LA
3.02(c)
M
C
Borrower to maintain a Project Appraisaland Implementration Divisionwith staffing,facilites and resourcessadsfactoryto the Bank.
Complied
LA
4.01(a)
F
C
Borrower to maintain satisfactory records and accounts in accordancewithsound accountingpractices.
Complied
LA
4.01(b)
F
C
Borrowerto have records and accounts,includingthose for the Special Account,audited not later than six months after the close of the fiscalyear.
Complied
LA
Sch. 6
M
CP
Participatingbanks to develop and implementaction pans for strengtheningof their organizationand operations.
Seriousdelaysby BGZ in preparing satisfactoryaction plan.
LA
Annex to Sch. 6
F
C
Pardcipatingbanks to make subloans only to enterprisesthat meet the stipulatedcriteria.
Complied
LA
Annexto Sch. 6
F
CP
Subborrowers to supply such information as the Bank or Borrower may reasonablyrequest in regard to their financial conditionor the benefitsto be derivedfrom the subprojects.
Complied partially; quality of informationoften inadequate.
Covenant type: M - Managerial
F- Financial T - Technical
P - Procurement E - Economic
Status: C -Complied CP - PartiallyComplied
- 16 -
Table 11: Compliance with Operational Manual Statements
Basically, there was compliance with the applicable Bank Operational Manual Statements.
Table 12: Bank Resources: Staff Inputs (Staff-Weeks) Stage of Project Cyde
Planned
Revised
Actual
Through Appraisal
n.a.
n.a.
34.0
Appraisal-Board
n.a.
n.a.
35.0
Board-Effectiveness
3.0
Supervision
69.0
Completion
11.0
TOTAL
152.0
- 17 Table 13: Bank Resources: Missions Performance
Stage of Project Cycle Through Appraisal
No. of Days in Mondt/Year Persons Field
Rating2 Types of Development Pmplementtdon
Specialization
status
objectives
6187
1
5
F
n.a.
n.a.
n.a.
6/76*
4
10
E, F, A, M
n.a.
n.a.
n.a.
8/87* 10/87* 11/87
3 3 5
21 7 21
E, F, A E, A, M E, F, A, M
n.a.
n.a.
n.a.
n.a. n.a.
n.a. n.a.
n.a. n.a.
1/88
1
7
F
n.a.
n.a.
n.a.
9/88
2
14
E, F
n.a.
n.a.
n.a.
5/89
4
18
E, F, A, M
n.a.
n.a.
n.a.
10189
2
7
E, F
n.a.
n.a.
n.a.
12/89
1
7
F
n.a.
n.a.
n.a.
Board ApprovalEffectiveness
2/90
3
10
E, F, A
n.a.
n.a.
n.a.
SupervisionI Supervision I
11/90 6/91
2 1
10 7
F, A
2
1
M
F
2
1
M
SupervisionHI
9/91
3
10
F, A, E
2
1
M
SupervisionIV SupervisionV
6192 11/92
2 2
8 7
F, A F, E
2 2
1 1
M M
SupervisionVI
5/93
1
7
F
2
1
M, F
SupervisionVU
10/93
2
8
F, C
2
1
M, F
SupervisionVm
3/94
3
7
F, E, C
2
1
M, F
SupervisionIX
7/94
2
7
F, A
2
1
M, F
Completion
2/95
1
8
F
2
1
M, F
Follow up
9/95
1
3
F
Follow up
4/96
1
3
F
Appraisal- Board Approval
1 - Specialization A = AgroindustrySpecialist C = CooperativeBankingSpecialist E = Economist F = Financial Analyst H = Horticulturist
L = Livestock Feed Specialist M = MarketingSpecialist N = Engineer R = Forester
*FAO/CPmission.
2 - Performance Rating
I - Minor problems 2 = ModerateProblems 3 = Major Problems
3 - Types of Problems
F - Financial T = Technical M - Managerial
APPENDIXA Page 1 of 5 POLAND AGROINDUSTRIESEXPORT DEVELOPMENT PROJECT (LOAN NO. 3167-POL) AIDE MEMOIREOF IMPLEMENTATION COMPLETION REPoRT MiSON
1. A World BankMission(WB)missionvisited Polandbetween February 11 to 17, 1995to initiate work on the ImplementationCompletionReport(ICR)for the AgroindustriesExportDevelopmentProject (AEDP). The mission met with representativesof the Borrower(The NationalBank of Poland - NBP), the Ministry of Agriculture and Food Economy (MAFE), the main participatingbanks, and visited selected subprojects. The mission would like to thank the various Polish counterparts for all the cooperationand courtesies extendedto it. The mission's views expressed in this Aide Memoire are subject to confirmationby WB managementon the mission's return to Washington. PROJECTOBJECTIVES
2. The Borrower and MAFE confirmedthat the project objectivesas expressedin para. 4.02 of the Staff Appraisal Report(SAR)l remain generallyrelevant. However,major changeshave takenplace in the project's environmentsince it was first appraisedin 1987, which have had extensiveimpact on the project's implementationand execution. These include: * e v
*
the major political changessince 1990; the new government'seconomictransformationprogram; the collapse of the CMEA marketssince 1990; Poland's AssociationAgreementwith the EU; new laws on banking, and on bankruptcy/liquidationof enterprises.
3. The combinedeffect of these factors has been that, while some of the subprojectsfinancedhave been successfullyimplemented,many others have faced various degrees of difficulties. OPERATIONAL PLAN 4. The WB's revisedguidelines(April 1994)on preparationof ICRs requiresthe preparationof an operationalplan by the Borrower and the implementingagencies,indicatingactions and measuresto be taken by the Borrower,the relevantGovernmentagencies,and the project entities, to ensure satisfactory future implementationand operationsunder the project, and the achievementof the project's objectives. The mission welcomedvery muchthe assurancesof the Borrowerand theproject agenciesas to providing their best efforts to meet the revisedrequirements. The draft operationalplan should include: * *
the Government'sviews on the continuedrelevanceof the project objectives; actions and measures to be taken to ensure sustainabilityand continued satisfactory operation of institutionsand technicalassistanceprograms under the project; and
ReportNo. 7112-POLdatedFebruary5, 1990.
APPENDIXA Page 2 of 5 actions and measures to be taken to resolve the situation in case of subprojectsand subborrowersfacing financialdifficulties,includingenterprisesthat continueto be under state ownership.
*
The operationalplan should be supportedby a table that indicatesclearly, for each major item under the the following: policy, institutional,technicalassistance,and credit comnponents, * * * *
major issues/problems; major actions/measuresalready taken, being taken or to be taken; scheduleand timing of each major action/measure;and the main Governmentand/or project agenciesresponsiblefor the actions/measures.
OF PROJCT IMPLEMENTATION BORROWER'SEVALUATION
The mission drew the attentionof NBP and the project entitiesto the Borrower's responsibilities 5. in the preparationof the ICR as indicatedin the WB's OperationalManualStatementand Good Practices for ICR Preparation(GP 13.55 of April 1994,paras 4 and 5). Copies of the WB's bp 13.55 and relevant parts of GP 13.55 were left with NBP. As indicated in BP 13.55 and GP 13.55, the Borrower's ICR should include a summary not 6. exceeding10 pages, together with the support report and annexes. PLAN PROJECTCOSTANDFINANCING
To enable a comparison of appraised and actual project costs and fmnancingplan, the 7. Borrowerand the project agenciesshouldupdatethe relevanttables (Tables3 and 4) on pages 29 and 30 of the Staff AppraisalReportNo. 7112-POLof January 5, 1990. INFORMATION TO BE SENTTOTMEWORLDBANK
To enable the WB to completethe draft of Part I of the ICR, it was agreed that the Borrower 8. would ensure that the informationindicated in Annex 1 is sent to the WB together with the updated project costs and financingtable (para. 7). The proforma in Annex 1 should be used for all large subprojects(those with subloans over 9. US$300,000). For smaller projects, a less detailedproformacould be used, for example, excludingthe sections on subprojectfinancial rate of return, procurement,and investorfinancialrates of return from Part II, and excluding Parts m to V. However, financial rates of return should be calculatedfor a representativesample of the smaller subprojects. COORDINAnONOF ICR PREPARATION
The following persons would coordinate the preparation of the Borrower's and the WB's 10. preparationof the ICR. For the Borrower:
Ms. Maria Celarska (NationalBank of Poland)
For the WB:
Mr. KishoreNadkarni(Central Europe Department)
AnnexA
APPENDIXA Page 3 of 5 SubprojectInformationSummarato be Submitted for Each LIre Subloan/Subproject (for each subloanover US$300,000equivalent) PART1. BackgroundInformation
Name of InvestingEnterprise: Location: Type of OwnershiD:majority state-owned/cooperative/majority private-owned Type of Organization: state enterprise,joint stock company,limited liability company,etc. Main Activitiesof InvestingEnterprise: ShortDescriptionof Subprojects: e.g. new facility/expansion/diversification for productionof (name of product) of which .... percent aimed at exports to convertiblecurrencymarkets (if applicable). SubloanInformation: name of participatingbank date of subloanapproval by participatingbank - amount of subloan(US$ equivalent) * maturities, grace period - interest rate charged by participatingbank o date of first repaymentof subloanprincipal o are interest/principalpaymentscurrent -- indicateextent of arrears, defaults, rescheduling, etc., if applicable * *
Subnr_oectCompletion/ExuectedComDletionDate: month/year PART II. PerformanceSummnar SubDrojectPerformance: Appraisal Actual/CurrentEstimate (in US$) * incrementalsales * incrementalexports to CC markets * incrementalemployment(in nos.) Actual (in PLZ)
ADpraisal
* * * *
civil works machinery& equipment incrementalworking capital other Total subprojectcost
ApDraisal Actual (in US$ equivalent)
APPENDIXA Page 4 of 5
Annex A
SubproiectFinancine: Anpraisal
Actual
(in PLZ) * * * *
investors' own funds local loans World bank subloan other foreign loans Total subprojectfinancing
SubprojectFinancialRate of Return:
Appraisal
Current Estimate
Subproject Procurement:
No. of Contracts
Value
* InternationalCompetitiveBidding * InternationalShopping * Direct Contracting * Other (Specify) Total Investin Enterpise Performance: (in PLZ or ratios, as relevant) 1993 *
total sales
* net profit/loss * net worth * current ratio Note:
net worth = assets minus liabilitiesowed to others current ratio = current assets/currentliabilities
1994
Annex A
APPENDIXA Page 5 of 5 PART III: MajorIssues/Problems(in orderof imnortance)
For example, *
excess capacitydue to lack of domestic/foreignma - s
* * * *
difficult financial situation due to organizational and management weaknesses such as high costs of production due to low/negative profitability due to
PART IV: Actions/MeasuresTaken or To be Taken to Addressthe AboveIssues/Problems For example, * voluntary restructuringby enterprise is under way * involuntaryrestructuring/bankruptcy/liquidation proceedingsare under way * privatization/restructuringof enterpriseis activelyunder way * enterprise is being restructuredunder consolidationprogram Adequateinformationshould be providedto give a clear indicationof the actions/measures taken or to be taken, with an indicationof their timing, and the agency or agencies responsiblefor implementationor enforcement. PARTV: ExuectedOutcomeand Timing An indicationshouldbe provided of the expectedoutcome of the actions/measuresbeing taken and the timing/expectedtiming of the outcome.
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APPENDIX B
Page 1 of 4 BORROWER'S CONTRIBUTION TO THE ICR (Prepared by the National Bank of Poland)
1.
INTRODUCTION
1.01 In 1986, after Poland's admissionto the IMF and the World Bank (WB), the Government of Poland requested assistance from the WB to support the objectives of the Polish economic reform programwhich aimed at improvingthe foreigntrade balanceof the country. The AgroindustriesExport DevelopmentProject (AEDP) was identifiedas a result of the World Bank's works in the agroindustries sector which took place in years 1987-1989. The project waspreparedjointly with different institutions in Poland. Thirty-twoinvestmentsubprojects,in 10agroindustriessubsectors,were selectedfor financing under the AEDP. 1.02 The NationalBank of Poland(NBP) as the Borrowerwasresponsiblefor the overall coordination of the project. The proceedsof the loan were channelledthrough NBP to four participatingbanks. The principalparticipatingbank, as assumed, was the Bank for Food Economy. 1.03 The loan was signed in February 1990,when the economicchangesin Poland were introduced. This had a significantinfluenceon further implementationof the project. 2.
OBJECTIVES OF TME PROJECT
2.01 The main objectivesof the project were: (i) to remedyexistingconstraintsto increasingPoland's exports of processed agriculturalproductsto convertiblecurrencycountries;(ii) to assiststate enterprises financed under the project to operate in a market-orientedsystem; (iii) to promote further involvement of the private sector in the food processing activities which were export-oriented;and (iv) to assist in cushioning the transition to a market economy by helping to maintain supplies of livestock to agroprocessors. 2.02 The project wasdesignedto be implementedover a four-year periodand consistedof (i) a credit component,and (ii) livestock feed component.
3.
(a)
under the credit component, long term funds were provided for the rehabilitation, modernizationand expansionof existingagro-processingindustriesin order to generate convertiblecurrencyexport earnings.
b)
the livestock feed componentallowed to finance imports of oilseed meals for state and private farmers.
COURSE OF THE PROJECT IMPLEMENTATION
3.01 The Loan Agreementbecame effectivein May 1990, after signing two Subsidiary Financing Agreementswith two participatingbanks, with other five banks in Augustand September 1990. Only one, from the preselectedsubprojectwas financedin 1990. Either the banks or the enterpriseswere not prepared to lend and to borrow financialmeans.
APPENDIXB Page 2 of 4 3.02 In the year 1991, the interest in taking credits from the proceedsof the loan increased,although the beneficiariesof the credits were small, private enterprises. In 1992, 13 subloanswere grantedby the NBP, 7 subloans in 1993 and only 1 subloan in 1994. 3.03 Althoughseven bankswere qualifiedas participatingbanks, during the periodof implementation, only four banks applied for the funds of the AEDP. 3.04 The World Bank and the NBP analyzedall eventswhichmight have had impacton the utilization of the loan. Based on the discussion with the Polish partners, the WB (i) abandoned the strict requirement of export orientation, (ii) increased the ceiling of IS procurement from US$200,000 to US$500,000, (iii) increasedthe ceiling of IS procurementfor private enterprisesfrom US$200,000 to US$2,000,000, (iv) allowedfinancingof permanentworking capitalfor conmmencement or expansionof operations, and (v) allowed making of subloans for purchase of equipment by operating leasing companies. 3.05 Above-mentionedchangesto the Loan Agreementdid not result in increased demandfrom the participatingbanks. Therefore, in May 1994 the NBP requestedand the WB agreed to cancel US$25 millionequivalentfrom the originalloan amount. The loan wasclosedon December31, 1994,according to the original schedule, disbursed in 72%. 4.
ACHIEVEMENTS OF OBJECTIVES
4.01 Under the credit component,the objectiveswere not achieved. The loan funds were not used for financingof preselectedsubsectorsand subprojectsas wellas for financingof export-orientedsubprojects. 4.02 In the year 1990, when the economic reform was introduced, the lack of the convertible currenciesdiscontinuedto be an essential obstacle in the implementationof investments,and the means of the AEDP were not the only availablesource of hard currencyin Poland. 4.03 Under livestock feed component,the assumptionswere fully implementedand the total amount was utilized. The financialmeans were includedinto the foreign reserves of the state. 4.04 The participatingbanks did not use technical assistancemeans which were available under the Industrial Export DevelopmentLoan made to the NBP by the WB at the same time. However, financial assistancewas provided to the banks because Poland received several grants for these purposes from different donors. 5.
MAJOR FACTORS AFFECTING THE PROJECT
5.01 The followingfactorshad negativeimpacton the implementationof the credit componentof the project, however, they were of a different nature in different periods: (a)
financialsituationof severalpreselectedstatecompaniesdeteriorated;therefore, they did not meet the financialcriteria of the subprojects;
(b)
a lot of significant parts of potential beneficiaries were not able to meet collateral requirementsof the participatingbanks;
(c)
companiesimplementingnon-exportorientedsubprojectswere not eligible for financing;
APPENDIXB Page 3 of 4 (d)
the procurementprocedures, especiallybidding requirements,even after modification, have reducedthe number of potentialprivate beneficiaries;
(e)
high foreign exchangerisk for the producers for domestic market;
(f)
a lack of possibilityto finance second-handequipmentas well as civil and construction works;
(g)
high risk for the banks and for investorsin long-term financingof the projects;
(h)
competitivenessof preferential sources of financing for agriculture and agroindustry providedby the Government,and foreign financialinstitutionsand organizations;
(i)
the availabilityof funds from foreign companieswithout any collateral; and
(j)
a lack of sufficientcapital,whichforcedborrowersto take expensivesupplementaryzloty credits.
5.02 Due to a change in ownership and privatization, the number of small and medium-sized companiesincreasedsignificantlyin the food industry subsectors. Thesecompanies,however, were not sufficientlyexperiencedin marketingand financialmanagement. Quiteoftenthey undertookinvestments in sectors where they lacked experience. 6.
BANK PERFORMANCE
6.01 The NBP should highlightthe importanceof efficiencyof a continuousdialoguebetweenthe WB and the Polish counterparts in improving loan utilization and project implementation. The Bank demonstratedgreat flexibilityin adaptingthe LoanAgreement'sprovisionsto the changedconditionsof the project's implementation.This positionresultedin the modificationof the Loan Agreement,although it seems today that the changeswere introducedtoo late. 6.02 The relationship between the WB and the NBP was good throughout the preparation and implementationof the project. 6.03 Polish institutions received valuable assistance from the WB staff: its active participationin preparation and evaluation of the investmentsubprojects as well as advice and directions. A good example of the WB's help were several workshopson financialanalysesprovided for the participating banks and the NBP staff. 6.04 In some cases the WB and the NBP had differentviews, undoubtedlyon the questionof hiring by the NBP of an externalconsultantto assist the banks in identification,preparationand evaluationof the subprojects. The NBP was always ready to help the banks in this way, but the decision was dependenton the demand for credits from the banks, which, unfortunately,was still decreasing. 7.
FUTURE OPERATIONS
7.01 The NBP will monitor the repaymentsfrom the participatingbanks, but will not be involvedin supervisingthe particular subprojects,becausethe credit risks are taken by the banks.
APPENDIXB Page 4 of 4 7.02 The NBP is involved in the restructuring of the Bank for Food Economy which has already started. Sincethe process is complex,the NBP is going to be involvedin it for a longer period of time. 8.
KEY LESSONSLEARNED
The overall economicsituation in the period of 1990-1994was not conduciveto investing. Due to high inflation, long-term lending and borrowing carried too much risk both for the banks and the enterprises. Under these circumstances,credit lines made availableto the banks by intermediarieswere not the right solution.
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