World Bank – Croatia Partnership Country Program Snapshot September 2011 RECENT ECONOMIC 2011. Capital adequacy remains high (at at 19 DEVELOPMENTS percent in June 2011) and continues to safeguard the banking sector soundness. Growth and External Performance 8 The crisis has taken a severe toll on Croatia, 6 in % with the economy contracting by 7.2 percent 4 in 2009-2010. A return to positive but subdued 2 growth was noted in Q2 of 2011 of 0.8 percent. 0 The 2011 growth is projected at below 1 -2 percent. The recovery is based on a modest -4 upturn in exports and consumption spending, if -6 Domestic demand external conditions, improvements in corporate -8 Real GDP credit growth and the recent rise in consumer -10 confidence are sustained. The slow rebound led to 2004 2005 2006 2007 2008 2009 2010 2011e a temporary recovery of labor market conditions reducing the official unemployment rate below 17 A sustainable recovery depends on the percent in July 2011, down from the peak of emergence of a more dynamic private sector almost 20 percent in early 2011. However, the supported by an investment-friendly climate. informal sector remains large misreporting the The private sector’s share of GDP amounts to growth and employment performance. only 70 percent and is low compared to other EU peers. Croatia’s performance in terms of Nevertheless, prospects for economic recovery enterprise restructuring, privatization, and creating remain fragile, suggesting the need to accelerate an enabling investment climate has been mixed. reforms across public administration, social Improving the business environment – such as sectors, and the business environment. The creating efficient government institutions and ongoing spending freeze from mid-2009 helped predictable legal framework, more flexible and stabilize public finances. Significant adjustments skilled labor force, and improved access to finance on the spending side equal to 5 percentage points – would bring many benefits. of GDP had to be undertaken (including a Estonia reduction in public sector wages, suspension of Latvia pension indexation, cuts in categorical social Lithuania Macedonia Doing business 2011 (185 countries) benefits and privileged pensions) to protect Slovakia Slovenia macroeconomic stability with keeping the general Bulgaria government deficit at 5 percent of GDP in 2009 Hungary Romania and 2010. A half-year government deficit in 2011 Montenegro stood at 2.6 percent of GDP. The newly approved Czech … Turkey 2012-2014 Budget Guidelines aim to achieve a Poland Croatia primary balance by 2013 and stem further public Serbia debt growth through one percentage point of BiH EU 10 GDP in spending reduction per year. EU 15 0 20 40 60 80 100 120 140 The current account deficit narrowed to around one percent of GDP in 2010 and 2011 due to a To support recovery and mitigate social fall in imports and exports recovery, down from impacts, the Croatian Government adopted over 6 percent of GDP from the pre-crisis period. the Economic Recovery Program (ERP) in The external debt continued to increase in 2009- April 2010. However, after the launch of reforms 2011 period, although at an increasingly slower across social sectors as well as reforms to improve rate, maintaining external debt to GDP around the investment climate, the reform pace slowed 100 percent. The financial sector remained stable, down as general elections are approaching. In May although the non-performing loans at 11.5 percent 2011 the World Bank supported the of total in March 2011 prevent faster credit implementation of the ERP by approving EUR recovery which remained anemic in 2010 and early 150 million of budget support loan (ERDPL). Earlier the World Bank’s Fiscal, Social, and established under the negotiations, and project Financial Development Policy Loan (DPL), preparation for post-accession funds. By using approved in January 2010, contributed to IPA funds, Croatia is also building its capacities Government efforts to maintain macroeconomic and resources for the absorption of significant stability and protect the most vulnerable groups of Structural and Cohesion Funds that will be made society. Through the Export Financial available upon membership. IPA procedures for Intermediation Loan to the Croatian Bank for selection of projects, tendering and contracting are Reconstruction and Development, the Bank similar to the procedures under the Structural supported access to long-term working capital for Funds – and the use of IPA funds are providing export companies. In terms of analytical and invaluable experiences for the country’s advisory activities, the Bank conducted a 2008 institutions as they prepare for future use of much Public Finance Review and produced Policy Notes on larger post-accession funds. Fiscal Responsibility, Pensions and Labor Market in 2011 to help the authorities in designing reforms The Bank has aligned its program with for structural challenges. The Bank also produced Croatia’s EU accession needs and the 2009 Croatia EU Convergence Report Reaching requirements. Given that IPA funds represent a and Sustaining Higher Rates of Economic Growth and small portion of resources required for the 2010 Social Impact of the Crisis and Building investments to meet acquis requirements, the Resilience report to assess the efficiency of the labor current Bank strategy is centered on supporting market and social safety net programs. Croatia’s pre-accession reforms through projects and analytical and advisory activities that Croatia and the European Union complement the EU accession agenda. The Bank has particularly supported Croatia’s investments in On June 24, 2011, the European Council gave the environment and water sectors and public the green light for Croatia to become the 28th administration reforms. Croatia introduced some member state to join the European Union on key EU legislative and institutional changes with July 1, 2013. The demanding and difficult Bank support, for instance in the agricultural negotiations, which were launched in 2005, were sector. Through investment operations, the Bank officially concluded on June 30, 2011, with the has provided technical assistance for project closing of the four outstanding policy chapters out preparation for IPA-funding, but more so for of a total of 35. Two chapters, in particular, had post-accession funds. Technical assistance is also posed the biggest challenge – Chapter 23 on critical in preparing the institutions for better judiciary and fundamental rights and Chapter 11 absorption of EU funds. In the selection and on competition. The EU accession process design of operations, primary consideration is provided Croatia with a strong incentive to adopt given to how the proposed project supports reforms and harmonize its legislation with the EU Croatia’s EU accession agenda. In the case of acquis communautaire. The European Commission social sectors where there is no EU acquis, will continue to monitor Croatia’s reform progress consideration will also be given to how projects during the ratification process, in particular those complement the EU accession efforts. related to the judiciary and fundamental rights. Poverty and Social Protection Croatia is preparing for future access to the Structural and Cohesion Funds through the The crisis has increased poverty in Croatia to implementation of the Instrument for Pre- over 10 percent. Before the crisis, poverty Accession Assistance (IPA). Croatia has been (defined as HRK 2063 per month for an adult), in using IPA – the EU financing program to support Croatia was below 10 percent. Simulations of the the country’s preparation for membership, since crisis impact indicate that between 2008 and 2010, 2007. More than EUR 1 billion, or about EUR poverty increased by 4 percentage points. Prior to 150 million a year, has been available through IPA the crisis, poverty was mostly associated with for the period 2007-2013. The IPA programs are those without a job for more than three years and closely linked with the accession process, with low-skilled workers. Now the profile of the poor projects addressing specific benchmarks has changed, with economically active, better educated, younger people, living in richer urban Centers of Social Welfare and the introduction of areas being most affected. The fall in employment a unique personal identification number will give coupled with the fall in real wages has pushed social workers access to data from other agencies, many unemployed workers into poverty. The such as the unemployment bureau and the tax policy priority should focus on preventing short- administration, helping them to assess the needs term unemployment turning into long-term of the claimants faster with less administration for unemployment, and temporary poverty into all parties. chronic poverty. The World Bank’s Social Welfare Development Croatia’s social assistance system provides a Project supported the development of an integrated generous safety net to the poor and social welfare MIS, modernization and quality vulnerable, but at a high cost administered improvement of social services, including the through a complex and inefficient system. reduction of institutionalized care and improved Social assistance reaches around 57 percent of the provision of community-based care. A series of poorest 20 percent of the population. However, policy-based loans supported the improved the number of programs on offer, the number of targeting and consolidation of categorical social institutions involved, and the lack of benefits, contributing to the government’s Social harmonization on eligibility criteria lead to a costly Welfare Reform Strategy 2011-2016 and the new system, which is not well targeted and treats May 2011 Social Welfare Act. claimants unequally. Very little of the money spent on social protection is based on the actual Health financial situation of a person (means-tested programs accounted for 8 percent of total Croatia fares well in the provision of health spending in 2010 or less than 0.4 percent of care and healthcare results, but spends 7.8 GDP). Rather, most spending goes to categorical percent of GDP on health, more than programs extending benefits to members of a countries at similar income levels. The particular group, such as aid to the elderly, aid to generosity of health benefits, with almost universal the blind etc. In 2009, excluding spending on war health coverage, has put significant pressure on veterans, Croatia’s spending on social protection public expenditures, and there is a continued was at 2.3 percent of GDP, surpassing that of problem with health arrears. Health expenditures most transition economies. are almost entirely publicly funded (estimated at nearly 85 percent), and health insurance contributions have been the main source of financing (estimated at 91 percent). During 2009, the Government undertook a number of reform steps to address some of the deficiencies of the systems. It focused on better To improve the efficiency of the health system targeting of benefits and simplifying the and provide better health services, health administration, while modernizing and providing sector reforms have focused on legislative, improved services to beneficiaries. By 2012, an financial, and institutional development. New integrated Management Information System in the legislation made it possible to implement changes in health insurance financing, increase private enrollment levels are still below OECD and EU participation in co-payments on supplemental levels. The Croatian National Education Standard health insurance, and among other things, a is replacing out-of-date educational programs and revenue increase from excise tax on tobacco has teaching methods, moving away from teaching been channeled back into the health sector. The factual knowledge towards problem-solving and Government also made progress in reducing project-oriented classroom activities. A model of inefficiencies in the administration of sick leave, external assessment of student learning was set up and reducing spending on pharmaceuticals while at the National Center for External Assessment, increasing the availability of innovative drugs. which also introduced the first uniform State Matura school-leaving exam for secondary school- The need to continue the progress in reducing leavers in 2010. Results of State Matura exams public health debt and health arrears means now serve as criteria for enrollment into higher further administrative measures are planned education giving students from different social to be implemented in 2011. For example, the and educational backgrounds equal opportunities. Government is implementing a national system of e-prescription which will reduce paperwork of patients, doctors, and pharmacists, and increase the capacity of the Croatian Institute for Health Insurance to monitor and control drug expenditures. There are also plans to continue optimizing the hospital network, to cut administrative costs, and standardize operational and treatment costs across hospitals, resulting in improved care for patients. The World Bank has supported the Government’s efforts to rationalize and reduce public spending in the health sector. The Development of the Emergency Medical System and Croatia’s most important challenge is to Investment Planning Project is supporting the Ministry improve the quality and relevance of of Health and Social Welfare in making the education to reduce the skills gap, while provision of emergency medical care more continuing to expand access at secondary and efficient and in improving the distribution of tertiary levels. Croatian vocational education still emergency medical teams across Croatia. The needs to be better aligned with labor market project is also training Ministry staff and related needs, as there is a mismatch between the skills it agencies on how to develop, implement EU produces and those demanded in the labor oriented projects, and access EU funds. market. There is a strong need to improve the completion rates in higher education and increase Education student mobility, as well as to financially and legally integrate the largest universities. In the past decade, Croatia has made major improvements in increasing access to The World Bank’s Education Sector Development education at all levels and modernizing the Project supported the development of a national system and teaching methods. Universal school curriculum framework for pre-school, primary, enrollment has nearly been achieved at the and secondary education; introduction of a primary level, while pre-school enrollment rates centrally-administered secondary school-leaving have increased steadily to 60 percent. A similar exam, ‘State Matura’; and implementation of trend is visible in tertiary education with major school construction and rehabilitation enrollment rates almost doubling to 52 percent. programs which helped reduce the number of Secondary enrollment rates are at 88 percent. pupils attending three-shift schools from 9 While more and more children and youth are percent in 2005 to below 2 percent in 2010, and enrolling in desired programs, Croatia’s quadrupled the number of pupils attending single- shift schools from 12 percent to 48 percent, all establishment of a Rural Network, a condition for part of the Government’s Education Sector closing Chapter 11 (Agriculture) of negotiations. Development Plan 2005-2010. A regional higher Croatia also needs to develop the statistical education technical assistance program supports databases and policy options for interventions in the introduction of a new financing model in support of Less Favored Areas (LFAs) as well as higher education based on performance-based an agri-environment (AE) program which contracts and an independent assessment of the establishes the framework for the protection of University of Zagreb by the European University the environment and nature from adverse Association. agricultural practices. An appropriate institutional, regulatory and enforcement framework for an Agriculture EU-accredited AE program needs to be fully developed, including implementation of the EU Agriculture plays an important part in the Nitrates Directive and Code of Good Agriculture Croatian economy. In 2010, the agriculture Practices (CGAP). sector accounted for around 7 percent of GDP and employed 14 percent of the labor force. With approximately 180,000 registered farmers and 42 percent of the country’s population living in rural areas, agriculture is an important source of livelihood for many people. Land fragmentation and unfavorable structure of agricultural plots with a lot of small family farms (the average farm size is 2.4 ha) remain a constraint. The Government is actively working towards meeting EU requirements and creating a competitive and efficient agriculture sector that also complies with environmental requirements. The Agriculture and Rural Development Chapter is one of the most challenging within the EU accession framework. The World Bank’s Agriculture Acquis Cohesion The Ministry of Agriculture, Fisheries and Rural Project is helping to develop sustainable systems Development (MAFRD) has been working and capacities within the MAFRD to ensure intensively on the harmonization and adoption of timely compliance with EU acquis conditions in a number of regulations in the area of agriculture, the rural sector. The Agriculture Pollution Control food safety, veterinary and phytosanitary policies, Project is helping to increase the use of and fisheries. The New Law on subsidies, which environmentally-friendly agricultural practices by came into effect in January 2011, will closely align farmers living in the Danube River Basin in order Croatian subsidies with the EU Common to reduce nutrient discharge from agricultural Agriculture Policy (CAP). sources to surface and ground water bodies. Further efforts are needed to achieve full Transport and Infrastructure alignment with the EU acquis and to increase the absorption capacity for rural development Croatia has the geopolitical advantage of lying funds. To that effect, a new Rural Development along three Pan-European transport corridors Strategy for 2012-2013, will be adopted to between the European Union and respond to and take up funding under EU rural Southeastern Europe, and the Croatian development axes 2 and 3 (Land Management & authorities have invested heavily in developing the Environment; and Economic Diversity & Quality country’s pan-European transport network. The of Life). In addition, the EU LEADER program, national transport network has been significantly designed to help rural actors consider the long- developed in the last decade, primarily through term potential of their local region will need to be public funding, focusing mainly on established. Another significant step in Croatian roads/motorways and ports. With the rural development will be the forthcoming construction of 670 km of new motorways between 2001 and 2009, the motorway network is motorway network; and (ii) the development of now almost complete and in line with EU public private partnership schemes in the standards. The port sector is currently the focus, transport sector. with investments to upgrade port capacities in the two main international ports of Rijeka and Ploce, as well as in the smaller ports of Dubrovnik, Zadar, and Sibenik. During the last decade, freight volumes have almost doubled, with international transport representing half of total freight traffic. Croatia’s transport sector, especially as an entrepot, has a large potential and room for much further growth. Croatia’s railway sector faces major challenges, with a large backlog of investments in rail infrastructure and inefficient operations in the national carrier. Some funds, including EU funds, The World Bank is helping transform Croatia’s have been used to modernize Croatia’s railways two largest international seaports in Rijeka and network, but the level of investments remains far Ploce as gateways to Central and Eastern Europe. below investments in the road sector. Yet, the The Rijeka Gateway Program has been underway level of subsidies in the railway sector remains since 2003 and the Trade and Transport Integration significantly higher than those in Croatia’s Project is helping to develop the Port of Ploce. neighboring countries (with operating subsidies at These projects are introducing long-term 0.74 percent of GDP in 2009), posing a serious concessions by private investors, and developing budget concern. additional physical capacity in the ports and integrating them in existing and new transport corridors. Environment Croatia is one of the ecologically best preserved parts of Europe, with 47 percent of its territory and 39 percent of its sea designated as special protected areas and special areas of conservation. Croatia boasts 19 National and Nature Parks, with some of them, such as the Plitvice Lakes National Park, designated as UNESCO World Heritage sites. Croatia’s natural beauty draws in millions of Croatia’s transport network is insufficiently tourists each year, with tourism revenues integrated and coordination across the representing around 15 percent of the country’s transport network remains weak. An integrated GDP. Preservation of the environment is high on approach to transport development would bring the country’s development agenda and a significant benefits to the entire sector. Croatia is requirement for European Union membership. starting to offer value-added services through regional logistics centers, while its neighbor, Much has been done during the last decade to Slovenia, is actively optimizing their deliveries to improve the environment. In the area of waste the Central European markets and developing management, progress has been made to enable competitive corridor services. Two other issues disposal and recycling for different waste products that may arise in the future are: (i) the leaving a visible imprint on the environment. Over sustainability of operations and maintenance and 600 illegal dumps were closed. The organized debt servicing for the recently completed waste collection rate is above 95 percent. Both the Appropriate Assessment (a Nature Impact Nevertheless many institutional challenges assessment) and the Environmental Impact remain. The institutions responsible for Assessment are conducted diligently for all environmental issues remain fragmented between investment projects in the country. The different bodies, making decision-making less participation of the public and civil society effective. The Ministry of Environmental organizations in decision-making processes related Protection, Physical Planning, and Construction to the environment has increased. The Fund for covers general environmental protection, waste, Environmental Protection and Energy Efficiency air, and horizontal legislation; the Ministry of has been established and is financing Regional Development, Forestry, and Water environmental (and renewable energy) projects Management covers the water sector and has the from the collected environmental fees. A national largest environment related budget; and the network for air quality monitoring has been Ministry of Culture oversees nature protection. established. Responsibilities for environmental Croatia is also facing difficulty in implementing management are gradually being transferred from the heavy EU directives – primarily the landfill county state administration offices to field-based directive and the urban waters directive, which county administrative departments with more calls for construction of landfills and waste water insight into local circumstances. This transfer is treatment plants. The waste strategy envisages complemented with intensive capacity building of construction of at least 15 regional waste field staff. These improvements were recognized management centers and more than 100 waste by the European Union in December 2010, when water treatment plants, with major budgetary Croatia successfully closed the Environment implications. Chapter 27. Croatia became Party to the Kyoto Protocol in The World Bank’s Coastal Cities Pollution Control 2007, committing to its general objectives as Program is focused on safeguarding the quality of adapted in the 2009 energy strategy. The coastal waters and the environment, both of Energy Strategy sets clear goals regarding strategic importance to Croatia’s tourism industry, renewable energy and energy efficiency, in line local communities’ livelihoods, and marine life. with the EU 20-20-20. The climate and renewable This is being done through the construction or energy policy is designed to reduce carbon dioxide upgrades of wastewater collection, treatment, and emissions by 20 percent, increase the renewable disposal systems along the Adriatic coast. The energy share of the energy mix to 20 percent, and Inland Waters Project is improving water supply, improve energy efficiency by 20 percent, all by collection, and treatment services, as well as flood 2020. In line with the strategy, the Government protection in municipalities in the inlands of has developed mechanisms for low carbon Croatia. The European Union Natura 2000 Integration projects, for promotion of renewable energy Project will help improve nature protection and resources with incentives and is encouraging adjust to EU standards. Through several small energy efficiency projects. energy projects such as the Renewable Energy Resources Project and the Energy Efficiency Project, the Bank supported the energy sector’s early measures and service quality improvements in public to address the overall EU climate agenda. administration and the judiciary. THE WORLD BANK PROGRAM IN Portfolio of Croatia (US$M) – August, 2011 CROATIA Project Loan Board Effective Closing Amount approval date 1 Rijeka Gateway 194.2 07/08/2003 10/10/2003 09/30/2012 Since Croatia joined the World Bank in 1993, Education Sector the Bank has provided financing for 47 2 Develop. 85.0 09/15/2005 03/15/2006 09/30/2011 Agricultural Acquis projects in an amount of US$3.3 billion. As of 3 Cohes. 30.1 02/16/2006 11/21/2006 02/28/2012 August 2011, the portfolio consists of 14 ongoing 4 Trade and Transp. Integr. 142.2 11/14/2006 03/20/2007 12/31/2011 projects totaling US$1,101 million of net 5 Inland Waters 133.4 05/30/2007 01/29/2008 12/31/2012 commitment, of which some 36 percent is 6 Revenue Admin. 34.0 06/28/2007 12/21/2007 06/30/2013 Mod. disbursed. The World Bank’s activities in Croatia Agricultural Pollution 5.0 12/06/2007 07/31/2008 07/31/2012 (GEF) are guided by the Country Partnership Strategy 7 Reg. Neretva & Treb. 2.0 05/29/2008 03/06/2009 12/31/2013 (CPS), agreed with the Government in 2008 and (GEF) Develop. of EMS & 8 28.3 09/30/2008 01/15/2009 06/30/2013 covering the period 2009-2012. The goal of the Invest. CPS is to support the completion of Croatia’s EU 9 Rijeka Gateway II 122.5 12/11/2008 07/14/2009 12/15/2014 accession process and the convergence of its 10 Coastal Cities II 87.5 12/11/2008 06/04/2009 09/30/2014 income level with that of current EU member Coastal Cities (GEF) 6.4 12/11/2008 “ “ “ “ states in a fiscally, socially, and environmentally 11 Export Finance Intermediat. 141.2 08/04/2009 11/25/2009 08/31/2013 sustainable fashion. The CPS foresees annual 12 Justice Sector 36.3 04/06/2010 07/12/2010 06/30/2015 Support investment lending of about US$300 million, with 13 EU Natura 2000 28.8 02/10/2011 05/19/2011 04/30/2016 Integration a provision of additional funds for development 14 Integrated Land 23.8 08/04/2011 - 10/31/2015 policy lending. Administration Total Net 1100.7 - - - Commitment The Bank mobilized a EUR 213 million The Bank’s recent Analytical and Advisory Economic Recovery Development Policy Activities (AAA) support the Government’s Loan (DPL) to support the Government’s efforts to respond to the crisis and address efforts – launched under the Economic selected reforms. The in-country consultations Recovery Program (ERP) – in taking long- on the 2010 Social Impact of the Crisis and Building term structural measures to boost Resilience report, prepared jointly with the United competitiveness. The Bank’s policy lending was Nations Development Program, and the followed by a US$67 million Additional Financing for Government’s Economic Recovery Program, led the ongoing Trade and Transport Integration Project, to the Bank’s intensive engagement in policy which supports development of trade along the advice. Notably, the Bank delivered a series of corridor Vc, one of the Pan-European transport policy notes on reforms in labor market, pension corridors linking Croatia to EU markets. In reform, and social welfare. The Bank has also August 2011, the Bank approved the Integrated provided policy advice on the fiscal responsibility Land Administration System Loan to help the framework, which contributed to recent legislative Government consolidate land administration and reforms under the Government’s economic cadastre data. This is a follow-up on previous Real recovery program. In addition, the Bank’s Regular Property Registration and Cadastre Project which Economic Report, with a specific Croatia supplement successfully closed in June 2010. The largest on macroeconomic developments and key policy proportion of the portfolio is dedicated to issues, are provided three times a year. infrastructure and the environment, with a strong focus on assisting the country’s EU accession Currently, the Bank is focusing on governance efforts. To support the country in reaching EU reforms in the judiciary, public finance income levels, the Bank is helping improve the management, and public administration. The efficiency of the ports sector, and helping Croatia assessment comes as a follow-up to the findings meet EU directives in the water sector. The from the Public Finance Review (2008) and the EU Bank’s portfolio also supports capacity-building Convergence Report (2009), whereby strengthening and accelerating progress in governance reforms would address some of the key bottlenecks for EU integration and faster economic convergence. The Bank is also providing institutional support to the Government through a Justice Sector Public Expenditure and Institutional Review. This work is directly supporting Croatia’s significant justice sector reforms as part of its EU accession alignment. The Bank’s advice is also requested in the areas of higher education and reform of innovation policies and programs, aiming to increase the contribution of R&D and innovation to Croatia’s economic recovery and long-term growth. Since 1999, the World Bank Croatia Office has THE WORLD BANK & PARTNERS been engaging with civil society organizations through the Civil Society Fund (CSF), Throughout its engagement in Croatia, the awarding around US$490,000 to 131 civic World Bank has developed and maintains engagement projects. These small grants have partnerships with key international made a large contribution to local communities institutions active in the country. Key partners and given many vulnerable groups a voice. These include the European Commission, the European funds helped establish the first 24-hour hotline for Bank for Reconstruction and Development victims of domestic violence in Sisak, a town of (EBRD), United Nations agencies, and several economic and social hardship with one of the bilateral donors, who have either co-financed highest rates of domestic abuse in the country. many projects or been involved in preparatory The CSF program also helped in the reconciliation work. Regular discussions are held with efforts in war-affected areas. It brought together representatives of the European Commission usually segregated Vukovar high schools students (EC), on how the World Bank can best support in a project entitled ‘Let’s get to know each other’, Croatia’s preparation for EU membership and which trained them in documentary film-making. align its operations to the vast EU agenda. The The students made four documentaries, which EBRD has co-financed several large infrastructure have recently been featured at the Zagreb projects, and continues to be a partner in International Festival of Documentary Films. development discussions. The United Nations More importantly, the students from different Development Programme (UNDP) has done backgrounds are now in the process of complementary activities in support of several establishing the first ever documentary film club Bank projects and been a partner in preparing the in Vukovar. The Bank has also actively engaged recent Social Impact of the Crisis and Building Resilience and financially supported CSOs through its report. On a yearly basis, together with the other investment projects. The Social and Economic UN agencies in Croatia, the World Bank marks Recovery Project actively engaged civil society UN Day, raising awareness about global issues organizations to participate in activities which such as climate change. The Bank also maintains promoted social inclusion and reconciliation regular dialogue with other stakeholders – among different groups in war-affected areas. The parliamentary committees, academics, private Social Welfare Development Project promoted CSOs sector, entrepreneurs, trade unions, and civil engagement in the provision of innovative society organizations. community-based social services. Croatian Party Structure The Croatian Parliament may have a minimum of 100 and a maximum of 160 members. Currently the Croatian Parliament - Sabor - has 153 members elected on 25 November 2007. Next Parliamentary elections will take place on December 4, 2011. 12 parties are represented in the Parliament. Ivo Josipović President of the Republic of Croatia Composition of Parliament (Sabor) Main Opposition Parties (formed an alliance of Government and Coalition: - together hold 82 center-left parties for next parliamentary election) seats SDP (Social Democratic Party) - 55 HDZ (Croatian Democratic Union) – 65 HNS (Croatian People’s Party – Liberal Democrats) -5 HSS (Croatian Peasant Party) – 6 IDS (Istrian Democratic Assembly) – 3 SDSS (Independent Democratic Serbian Party) – 3 HSU (Croatian Party of Pensioners) – 1 – left govt. Other minorities - 6 coalition in July 2009 Independents – 2 former HSLS members (Croatian Social Liberal Party) – HSLS left the coalition in July 2010 – party MPs still support ruling govt. as independents. HSLS is no longer represented in Parliament Key Government Officials: Jadranka Kosor, Prime Minister Key Economic Cabinet Members: Petar Čobanković, Domagoj Milošević, Martina Dalić, Djuro Popijač, DPM for Economy and DPM for Investments (HDZ) Minister of Finance (HDZ) Minister of Economy, Labor Minister of Agriculture, and Entrepreneurship (HDZ) Fisheries and Rural Development (HDZ) Key Counterparts: Božidar Kalmeta, Dražen Bošnjaković, Radovan Fuchs, Darko Milinović, Božidar Pankretić, Minister of the Sea, Minister of Justice Minister of Science, DPM and Minister of Minister of Regional Transport and (HDZ) Education and Sports Health and Social Development, Forestry Infrastructure (HDZ) (HDZ) Welfare (HDZ) and Water Mngt. (HSS) Davorin Mlakar, Jasen Mesić, Branko Bačić, Gordan Jandroković, Minister of Public Minister of Culture (HDZ) Minister of Environmental DPM and Minister of Foreign Administration (HDZ) Protection, Physical Planning Affairs and European and Development (HDZ) Integration (HDZ) Main Opposition Parties: Coalition of 4 parties (SDP-Social Democratic Party, HNS – Croatian People’s Party, IDS – Istrian Democratic Assembly and HSU – Croatian Party of Pensioners) Leaders of the opposition coalition parties: Zoran Milanović Radimir Čačić Ivan Jakovčić Silvano Hrelja President of SDP President of HNS President of IDS President of HSU The World Bank’s Public Information Center is located at the National and University Library in Zagreb, open to Location: the public. The PIC provides access to the latest National and University Library development information to the widest possible audience. Ulica Hrvatske bratske zajednice 4 The PIC also organizes events to further encourage the p.p. 550 exchange of ideas on key issues facing the country’s development. 10 000 Zagreb WHO CAN USE THE PUBLIC INFORMATION Croatia CENTER? Contact Persons: The PICs are open to the public. No fee is required to use Blaženka-Peradenić Kotur the PIC. Users can access information from the Internet Tel. +385 (1) 616 4001 and thousands of World Bank publications and other e-mail: bkotur@nsk.hr development related materials. Marko Balenović WHAT SERVICES ARE OFFERED? Tel: +385 (1) 2357 271 e-mail: mbalenovic@worldbank.org The Public Information Center's services include: • Online access to World Bank project documents, Vanja Frajtić reports, and publications. Tel: +385 (1) 2357 297 • Access to development and research sites on the e-mail: vfrajtic@worldbank.org Internet. • Access to development-related publications by WORLD BANK DEPOSITORY LIBRARIES IN international institutions, governments, and NGOs. CROATIA: World Bank reports and publications are also available at WHAT REPORTS AND DOCUMENTS ARE two depository libraries in Croatia. AVAILABLE? Location: Among the Reports and Documents available at the Public University Library Rijeka Information Center are: Dolac 1 51000 Rijeka • Project Appraisal Documents (PADs). These contain Tel: +385 (51) 336 911 descriptions of a project and the plan for its www.svkri.hr implementation, including procurement procedures. They are made available to the public after University of Split presentation to the Board. Library at the Faculty of Economics • Economic Sector Reports. These include Matice Hrvatske 31 macroeconomic analysis of Croatia's economy, Visoka analyses of major economic sectors and other reports 21000 Split on specific issues, such as poverty assessments, etc. Tel: +385 (21) 430 621 www.efst.hr Assistance at the PIC is provided during opening hours by the NUL staff. For more information on World Bank in Croatia visit: www.worldbank.hr PIC OPENING HOURS: Monday through Friday: 8:00 to 21:00 Saturday: 8:00 to 15:00 INTEGRATED LAND ADMINISTRATION SYSTEM PROJECT August 2011 Key Dates: Approved: August 4, 2011 Expected Effectiveness: October 31, 2011 Closing: October 31, 2015 Financing in million US dollars: Financier Financing IBRD 23.80 Government of Croatia 2.74 Other (EU IPA financing) 9.79 Total Project Cost 36.33 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed IBRD Loan 23.80 0.0 23.80 Challenge: Improving tenure security and strengthening the land administration system is crucial for accelerating the judicial and public administration reforms, the fight against corruption, and completing the privatization process as Croatia enters the final stage of accession to the European Union. Since 2000 the World Bank and Croatian agencies have been working together through the Real Property Registration and Cadastre project to implement the first phase of the reform of the land registry and cadastre systems, simplifying procedures, improving efficiency of services, reducing backlogs, increasing transparency and access to information, and developing joint procedures and a common land database under the Joint Information System (JIS). This first phase of reforms has brought about remarkable results such as reducing land registry cases backlogs by 84 percent, reducing the national average time for registration of a mortgage from 58 days in 2002 to the current six days, and provision of registry and cadastre information online for free anywhere and anytime. With a second phase of reforms supported by the Integrated Land Administration System project (ILAS), the land administration system, including cadastre and registration, will be further strengthened and better aligned to EU spatial data directives to the benefit of Croatian citizens, government agencies/ministries, and the business community. Project Objective: The Integrated Land Administration System project (ILAS) will further modernize the land administration and management system to improve the efficiency, transparency and cost effectiveness of government services. This will benefit the public, who will have increased access to information and better services with fully integrated digital data, the business community with faster services, and increased access to information and government institutions, which will be able to share and view government spatial data more easily. Expected Results: • Completion of the national roll-out of the Joint Information System, which will provide unified data including land registry and cadastre information in one database, making this information available to citizens and the public and private sectors. • Submission of cadastre and land registry transactions online, thereby reducing costs and further improving services for the public and private sector. • Access to and use of digital information from multiple government stakeholders to streamline and facilitate spatial information sharing, which would reduce duplication of costs and improve the quality of public services. • Adoption of the EU INSPIRE directive, a requirement for all member states. INSPIRE calls for effective sharing of spatial data locally and across borders to the benefit of all EU public authorities and governments. To achieve this, the project will help with the establishment of a National Spatial Data Infrastructure, allowing the implementation of e- government initiatives and effective environmental monitoring. Key Partners: The Bank team works closely with the State Geodetic Administration responsible for the cadastre and the Ministry of Justice responsible for the land registry through the municipal courts. Key Development Partners includes the European Union, which is providing parallel financing through the IPA program. EU NATURA 2000 INTEGRATION PROJECT Updated August, 2011 Key Dates: Approved : February 10, 2011 Effective: May 19, 2011 Closing: April 30, 2016 Financing in million US Dollars*: Financier Financing Disbursed Undisbursed IBRD Loan** 28.8 1.30 28.73 Borrower 3.8 EU Structural Funds 27.6 (expected) Total Project Cost 60.2 *Source Client Connection as of August 29, 2011 ** Original amount is 20.8 million EUR. Note: The PPA of US$ 0.5 approved on December 16, 2008. Challenge: Following successful completion of the Karst Ecosystem Conservation (KEC) Project in December 2007, the Government of Croatia requested continued support from the World Bank to help expand and support Croatia’s preparations for EU integration in the Nature Protection Sector. EU accession requires an expanded ecological network beyond the core National and Nature Parks to be designated and aligned with EU Nature Protection Legislation, and the Birds and Habitats Directives. Based on these Directives, EU members must determine which areas are important for conservation of European endangered species and habitat types. Croatia’s National Ecological Network (NEN), established in October 2007, covers 47 percent of Croatian Territory and 39 percent of territorial sea, and serves as the preliminary basis for defining the future Natura 2000 network in Croatia, a requirement for accession. The EU Natura 2000 Integration Project is designed to support Croatia’s accession in meeting its obligation to implement requirements of the Birds and Habitats Directives and support enhancement of Croatia’s capacity to absorb EU funds, especially after accession. Project Objectives are to: (i) help support Park and County Public Institutions to implement Natura 2000 objectives in investment programs; (ii) strengthen capacity for EU-compliant reporting and biodiversity monitoring; and (iii) introduce programs that involve a wide group of stakeholders in Natura 2000 network management. Expected Results: • Through Protected Area and National Ecological Site Investments, nature institutions will learn to design and implement ecological network investments using requirements similar to those required by future EU structural funds. This will demonstrate how investments, including educational and interpretive materials, can support the goal of maintaining “favorable conservation status” at Natura 2000 sites as defined by the EU Habitat Directives. • Ecological Network Data Systems will help consolidate nature protection data, biological monitoring, and inventory work to respond to EU reporting requirements under the Birds and Habitats Directives. As Natural Resource Data is one of the 17 spatial data themes under the EU INSPIRE ((Infrastructure for Spatial Information in Europe) Directive, the project will support data system compliance with EU INSPIRE Directive requirements. • In addition, the activities under Ecological Network Capacity Building Component will promote inter-sectoral cooperation for (i) agri-environment measures for Natura 2000 sites; (ii) improve protected areas boundary delineation; (iii) introduce a park volunteer program; and (iv) improve the system to track and diversify protected area finance. Key Partners: The Ministry of Culture (MOC), the State Institute for Nature Protection, Croatia’s 19 protected areas and 20 county level nature protection institutions; the Ministry of Agriculture, Fisheries and Rural Development; the State Geodetic Administration; the Ministry of Regional Development, Forestry and Water Management; the Ministry of Environmental Protection, Physical Planning and Construction; and Delegation of the EU in Croatia, providing assistance to Croatia in the process of harmonization with the EU Acquis (environment and agriculture sector in this case). CROATIA JUSTICE SECTOR SUPPORT PROJECT Updated August, 2011 Key Dates: Approved : April 6, 2010 Effective: April 13, 2010 Closing: June 30, 2015 Financing in million US dollars*: Financier Financing IBRD Loan 36.30 Government of Croatia 2.68 Total Project Cost 38.98 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed IBRD Loan 36.48 2.18 35.52 *as of August 29, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: A well-functioning justice system is a prerequisite for a modern, thriving society in which citizens and businesses can fully rely on the efficiency, transparency, independence, and professionalism of critical justice sector entities, such as the courts and the prosecution. The development of an independent, professional, and effective justice system is a key prerequisite for Croatia’s European Union accession, and also for the development of a mature and sustainable democracy creating an atmosphere of trust in the Croatian economy – a necessary precondition for further development. In line with this, the justice system’s continued modernization and reform is a key priority for Croatia. Project Objective: The Justice Sector Support Project seeks to improve the efficiency of Croatia’s justice system. It does this through support for implementation of key reform legislation related to three key elements of Croatia’s justice system – the courts, the prosecution, and the Ministry of Justice. Project activities will improve the efficiency of the court system by consolidating the court network in Split, Karlovac, and Pula, while at the same time modernizing the judiciary’s operational information systems and strengthening case management practices. The State Attorney’s Office will be strengthened so as to speed up prosecution through investments in infrastructure, modernization of operational information systems, and institutional strengthening. In addition, the project will strengthen the management functions of the Ministry of Justice. Intermediate results after first year of implementation: • A baseline survey of users was completed in summer 2010 (and will be repeated at least twice during the project); • Construction works for Pula and Zagreb are well under way; • Major information systems procurements have been initiated and first contracts signed, including for the SAO Case Tracking System; • Aggregate case backlog volume for 74 courts and SAO offices reduced by 8.6 and 13.5 percent, respectively, in June 2011 as compared to end-2009; • Reduced average number of days for service to parties, days between first and final hearings and expert testimonies in three selected courts (Pula, Split, and Karlovac) by 64, 66, and 59 percent, respectively. Key Partners in Croatia: The Bank works closely with (i) the Ministry of Justice of Croatia, which is implementing the project; (ii) Croatia’s Supreme Court and the judiciary; and (iii) Croatia’s State Attorney’s Office and prosecution offices. Key Development Partners: The Kingdom of the Netherlands supported project preparation with a contribution to the Bank of EUR 0.2 million and has contributed EUR 0.6 million for implementation support. Many project activities build on and deepen previous support from the EC and other partners (the Netherlands, and the UK). Continued close coordination will remain central to project implementation and supervision. In addition, a Justice Sector Public Expenditure and Institutional Review (JSPEIR), an analytic work financed by the Bank and a EUR 0.2 million contribution from the Netherlands aim to, in coordination with the Ministry of Finance, provide technical support to the Ministry of Justice to strengthen resource management and – over time – link resource allocation more closely with performance. ECONOMIC RECOVERY DEVELOPMENT POLICY LOAN (ERDPL) Updated on August, 2011 Key Dates: Approved : May 5, 2011 Effective: June 14, 2011 Closed: June 30, 2011 IBRD Financing in million US Dollars: US$213.0 Total amount of US$213.0 disbursed on June 30, 2011. Challenge: The global financial crisis has severely affected the Croatian economy, with GDP contracting over 7 percent from the crisis outbreak at the end of 2008 to end-2010. With high external debt and significant exposure to the exchange rate risk, market confidence in Croatia has deteriorated sharply. Delayed privatization and restructuring of state-owned companies, an investment climate insufficiently supportive of green-field investments and pro-cyclical fiscal spending added to structural problems. As the crisis unfolded, public finances came under substantial strain. Due to declining tax revenues, fiscal policy had to undergo significant adjustments to protect macroeconomic stability and ensure regular debt service. Short-term actions taken at the crisis onset to stabilize public finances needed to be replaced by more sustainable, longer-term measures. As politically challenging measures had to be implemented, the crisis has provided an impetus and a broad consensus for the Government to move ahead with the reform agenda. Project Objective: The reform program supported by the ERDPL, jointly developed with the Government, is built on two pillars critical to support economic recovery in Croatia: (i) enhancement of macroeconomic sustainability through expenditure-based fiscal consolidation; and (ii) fostering private sector growth. The measures supported are in line with the policy actions proposed by the Government’s Economic Recovery Program adopted in April 2010. Results achieved: • The introduction of the temporary fiscal rule, by passing the Law on Fiscal Responsibility, and establishment of the Fiscal Board that will ensure a more credible, transparent and sustainable fiscal policy. • The launch of hospital network rationalization, reduction of drug costs, and streamlining of co-payment exemptions increased efficiency of health spending. • The social welfare system is becoming more efficient through the adoption of the Socials Welfare Strategy and the new Social Welfare Act aimed at consolidating benefits and improving targeting of social benefits so social programs reach those most in need. • Privileged pensions reduced by 10 percent, the retirement age for men and women equalized at 65, and penalties for early retirement increased. • Administrative and regulatory barriers to businesses reduced through speedier enforcement. • Increased labor market flexibility and incentives for active job search by reduced unemployment benefit and duration. • Reduced state involvement in the private sector through privatization/liquidation of 100 minority or majority government stakes and strengthened institutional framework for management of state property. • Established central registry of public sector employees receiving wages from the State Treasury and introduced easier dismissal of unsatisfactory performing staff, flexible one-year fixed-term contracts, and outsourcing of auxiliary and technical services in the public sector. Key Partners: The Bank team worked closely with (i) the Ministry of Finance which was responsible for overall policy setting and coordination and management of implementation activities on a day-to-day basis; and (ii) various line ministries involved in the program. CROATIA EXPORT FINANCE INTERMEDIATION LOAN Updated on August, 2011 Key Dates: Approved: August 4, 2009 Effective: November 25, 2009 Closing: August 31, 2013 Financing in million US dollars*: Financier Financing Disbursed Undisbursed IBRD 141.22** 110.59 34.42 *as of August 29, 2011. ** Original amount is EUR 100 million. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: The global economic recession has affected all of the economies in the region, including Croatia’s. Limited liquidity in global markets has meant restricted access to medium- and long-term financing for many private enterprises, which are an important engine for growth and job creation. It was important to support the Government’s goal of enhancing economic competitiveness by preserving exports and employment, and fostering sustainable growth and recovery during the period of economic downturn. Project Objective: The objective of the project is to support the preservation and growth of exports by providing medium- and long-term working capital and investment finance to exporters and foreign exchange earning companies. The project, through the Croatian Bank for Reconstruction and Development (HBOR) and private commercial banks, is making additional financing available to exporters, so they can continue to invest in their businesses and create employment opportunities, and more importantly ride out the crisis. To address these issues the project focused on improving access to credit to exporters affected by the crisis by offering long-term financing and ensuring the competitiveness of Croatian exporters as Croatia is moving towards EU integration. Key Results: The impact of the project is measured by the export and investment performance of the companies, the amount of medium- and long-term lending extended to exporters in Croatia, and the payment performance of the companies financed by the project.  As of August 2011, EUR 57.8 million was utilized by 45 companies within a range of EUR 34,000 and EUR 10,000,000 for working capital purposes to confront and mitigate the economic downturn.  Most of the financed companies were top-notch companies, ranging from small- and medium-enterprises (SMEs) to large ones, with over two-thirds from the manufacturing sector. Some of the largest loans were provided to companies in the pharmaceutical industry, agri-business, textiles, machinery, and metal production. Also, the project supported companies operating in IT, agriculture, waste management, and tourism.  With the crisis leaving many people jobless, access to favorable medium-term finance enabled most of the companies to preserve the current workforce and even create new jobs.  Companies experienced a large increase of their export revenues, growing by around 20 percent. These achievements are important as these companies represent around 5 percent of the overall trade export of Croatia.  An additional benefit of the project is that it helped HBOR to operate more in line with market principles. HBOR recognized that competitive forces can prevent collusion and high interest rates and used the same lending principle on a similar loan with another financial institution. Another improvement was also seen in monitoring, as they have started to implement economic impact assessments. Key Partners: The Bank team works closely with HBOR responsible for the implementation of the project. In addition, the team is in close coordination with the Central Bank and the Ministry of Finance. Development Partners included the IFC, which contributed substantially at the project preparation through the knowledge and experience with the private sector and banking industry. Other institutions included EBRD and EIB, also at the preparation stage, which were consulted based on their long-term involvement in this area. CROATIA RIJEKA GATEWAY PROJECT II Updated on August, 2011 Key Dates: Approved: December 11, 2008 Effective: July 14, 2009 Closing: December 15, 2014 Financing in million USD: Financier Financing IBRD 122.5 Government of Croatia 5.8 Total Project Cost 128.3 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed IBRD Loan 122.5 0.31 112.51 *as of August 29, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: Rijeka is strategically located as the gateway for the Pan-European Transport Corridor Vb, both as a port and as a destination for business and tourism. The port reestablished its relevance and experienced strong growth in container activities in the five years prior to the project approval. Overall dry cargo traffic grew 107 percent and passenger traffic by 144 percent between 2002 and 2007, with particularly high traffic growth in container traffic. Accordingly, the port of Rijeka now needs to align its capacity with market demand to maintain this positive momentum. Moreover, as most port-cities, Rijeka faces the complex challenge of balancing the demand for additional space for both port and city activities. Free space in Rijeka is scarce, as the city is bordered by a mountain range and the sea. The present layout of the port provides insufficient and inadequate space for modern cargo operations. High urban density and very limited sea access still give Rijeka an industrial image. This reduces its attractiveness as a tourist and business destination. Project Objective: The key goal of the second Rijeka Gateway Project, a part of the comprehensive Rijeka Gateway Program, is to develop the capacity, financial performance, and quality of services in the port of Rijeka to meet growing traffic demand, through public- private partnerships, while facilitating urban renewal by enabling the relocation of port activities. The project supports such an objective by: (i) expanding the development of two port container terminals started under the first Rijeka Gateway project (extension of the existing Brajdica Container Terminal and construction of infrastructure for a 400 meter long Zagreb Container Terminal), the expansion of which is financed through the Rijeka Gateway Program; and (ii) enhancing port services (concessions of terminals, information flow, enhanced environmental response). The port component will enable the conversion of the Delta and port of Baross areas, by making alternative port space available. The concessionaire for each terminal will finance and provide superstructure and equipment. Key Intermediate Results: After two years of project implementation: • The extension of the Brajdica Container Terminal is under construction. • The bidding procedure for awarding the design and build contract for Zagreb Container Terminal is in an advanced stage. • A leading international container operator has been selected to become a majority stakeholder in the concessionaire operating the Brajdica Container Terminal. Key Partners: The Bank is closely working with Port of Rijeka Authority, Luka Rijeka, the City of Rijeka and the Ministry of the Sea, Transport and Infrastructure. CROATIA RIJEKA GATEWAY PROJECT Updated August, 2011 Key Dates: Approved: July 8, 2003 Effective: October 10, 2003 Additional Financing Approved: May 30, 2007 Closing: September 30, 2012 Financing in million USD: Financier Financing IBRD 196.20 Government of Croatia 116.10 Total Project Cost 312.30 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed IBRD Loan 196.20 179.59 48.9 *as of August 29, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: With its physically protected position and natural depth of 25 meters, the port of Rijeka would be capable of handling the largest vessels if provided with suitable infrastructure. However, between 1980 and 1997, the Port of Rijeka lost almost 70 percent of its total throughput in general and bulk cargo. While the total Northern Adriatic market (Rijeka, Koper, Trieste excluding liquid bulk traffic) increased from about 16 million tons in 1990 to 23 million tons in 2001, Rijeka’s share of the market declined from 35 percent to 12 percent. The main reasons for the decline in traffic at Rijeka during that period were the wars in Croatia and Bosnia and Herzegovina, the loss of traffic to/from the former Republic of Yugoslavia, restructuring of the economies of the region resulting in a decline of bulk traffic, inefficient operations and inadequate port facilities in Rijeka, and poor land connections. Moreover, as most port-cities, Rijeka faces the complex challenge of balancing the demand for additional space for both port and city activities. Free space in Rijeka is scarce, as the city is bordered by a mountain range and the sea. The present layout of the port provides insufficient and inadequate space for modern cargo operations. High urban density and very limited sea access still give Rijeka an industrial image. This reduces its attractiveness as a tourist and business destination. Project Objective: The key goal of the project is to increase Croatia’s trade competitiveness by improving the international transport chain through the Rijeka Gateway for both freight and passenger traffic through a modernization of the port and of road network connections, by privatizing port operations and by preparing to redevelop part of the port for urban purposes. The project supports such an objective through an integrated set of components which include (a) port restructuring and modernization; (b) port/city interface redevelopment; and (c) international road improvements. Key Results: Over the past six years, the Rijeka Gateway Program has generated new momentum in port development, city life quality, and connectivity in the third largest city in Croatia. Some significant results achieved by the port and other stakeholders include: • Sharp growth of over 800 percent in container traffic from 2002 to 2010. • Sharp improvement in the financial situation of the port authority. • Rehabilitation of an existing cargo berth and provision of modern handling equipment. • Opening of a section of the Rijeka Bypass improving traffic flows around the city. • Opening of part of the Road D404 in May 2011 provided direct road access between the main motorway and the Brajdica container terminal and reduced heavy truck traffic within the city. • Rehabilitation of the small and large arch of the Krk Bridge connecting the large island of Krk to the mainland. • Opening of the new passenger terminal in 2009, reopening a large part of the waterfront to the citizens of Rijeka. Key Partners: The Bank is closely working with Port of Rijeka Authority, Croatian Motorways Company, Croatian Roads Company, Luka Rijeka, the City of Rijeka and the Ministry of the Sea, Transport and Infrastructure. CROATIA COASTAL CITIES POLLUTION CONTROL PROGRAM (Phase 2) Updated August, 2011 Key Dates: Approved : December 11, 2008 Effective: June 4, 2009 Closing: September 30, 2014 Financing in million US Dollars*: Financier Financing Government of Croatia 87.50 IBRD 87.50 Global Env. Facility 6.40 Total Project Cost 181.40 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed IBRD Loan 87.50 9.91 77.10 Global Env. Facility 6.40 0.29 6.11 *as of August 29, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: The Adriatic coastline is one of Croatia’s most valuable economic and natural assets. In 2009, Croatia had 11 million tourist arrivals resulting in tourist revenue of Euro 6.38 billion. Environmental protection of the Adriatic Sea is a key element in the Government’s tourism strategy to position Croatia as a quality destination with the slogan: “the Mediterranean as it once was”. The coverage and quality of wastewater services in Croatia are lower than recent EU member countries, and poor wastewater services have a significant impact on tourism. Sewerage coverage is about 44 percent and about 25 percent of the wastewater collected is treated. Significant investment in the sector is needed to meet EU environmental directives. Between 2009 and 2023, investments needed in the sector are estimated at EUR 3.2 billion, of which half is needed for wastewater. Program Objective: The second phase of the Coastal Cities Pollution Control Project supports the Government’s comprehensive program to improve the provision of efficient and sustainable wastewater services in Croatia’s coastal cities and thus improve coastal water quality along the Adriatic Coast. The cost of the program is EUR 280 million over 10 years, of which the Bank may finance EUR 140 million in three phases (EUR 40 million, EUR 60 million and EUR 40 million). Phase 2 of the Program, is being scaled up from 11 to 21 municipalities. Results: • 21 coastal municipalities are participating in the project, with construction activities in the majority of sites • Preparation of a model to monitor and benchmark the performance of utility companies participating in the project is ongoing Key Partners: The Bank team works closely with (i) Croatian Waters, which was responsible for overall policy setting as well as for the Management Contract and the Ministries of Regional Development, Forestry and Water Management and Environmental Protection, Physical Planning and Construction. CROATIA COASTAL CITIES POLLUTION CONTROL PROGRAM (Phase One) Updated August, 2011 Key Dates: Approved : June 1, 2004 Effective: December 17, 2004 Closed: November 30, 2009 Financing in million US Dollars*: Financier Financing IBRD Loan 47.54 Government of Croatia 47.51 Co-financ. Dutch Gov. 2.46 Total Project Cost 97.51 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed IBRD Loan 47.54 46.59 0.00 *as of March 15, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: The Adriatic coastline is one of Croatia’s most valuable economic and natural assets. Tourist revenues in 2009 represented 15 percent of GDP and environmental protection of the coast is a key element in the Government’s tourism strategy to position Croatia as "the Mediterranean as it once was." Disposal of untreated wastewater has a significant impact on the quality of seawater and is a constraint to tourism development. However, only 44 percent of the population has adequate wastewater collection, and only 25 percent of the collected wastewater is treated. In addition, as part of Croatia’s EU accession agreement; the Government intends to meet EU environmental directives, which require a much higher level of wastewater service. Project Objective: To address this challenge, the Government of Croatia started the Coastal Cities Pollution Control Program (also known as the Adriatic Program) in 2004 to find a long-term solution to wastewater on the coast. The Program is partially supported by Bank financing that sets out to improve wastewater services on the coast, improve the financial viability of the multiple municipal water and sewerage companies and thus improve the quality of the Adriatic Sea. The Program is estimated to cost EUR 280 million, of which the Bank would finance EUR 140 million in three phases over 10 years. The first phase of the program was implemented in 11 towns on the coast and supported by a loan of EUR 40 million and closed in November 2009. The second phase, which started in early 2009 scales up the program to a further 21 coastal cities supported by a loan of EUR 60 million and a GEF grant of US$6.4 million. Key Results: The first phase of the Coastal Cities Pollution Control Program focused on the reconstruction and expansion of the sewerage network, main collectors, and pump stations, and the construction and rehabilitation of wastewater treatment plants and submarine outfalls. • 170km of sewerage collectors have been constructed with 40 pumping stations • Three submarine outfalls have been constructed • Seven wastewater treatment plants have been commissioned • Percentage of the population that is able to connect to a wastewater collection system has increased from 56 to 68 percent, with some 30,000 people able to connect to the sewerage network • Quantity of wastewater treated in the service area increased from 6 percent to 45 percent, serving a population equivalent of around 350,000. Key Partners: The Bank team worked closely with (i) the Ministry of Regional Development, Forestry and Water Management and the Ministry of Environmental Protection Physical Planning and Construction which were responsible for overall policy setting as well as for the Management Contract; (ii) Croatian Waters, ultimate recipient of credit resources through on-lending arrangement, and implementer of the Project. Key Development Partners included the Dutch Government which financially contributed to the project. CROATIA DEVELOPMENT OF THE EMERGENCY MEDICAL SYSTEM AND INVESTMENT PLANNING PROJECT Updated August, 2011 Key Dates: Approved: September 30, 2008 Effective: January 15, 2009 Closing: June 30, 2013 Financing in million US dollars*: Financier Financing IBRD 28.30 Government of Croatia 104.47 Total Project Cost 132.77 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed IBRD Loan 28.30 0.79 25.46 *as of August 29, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: Croatia has achieved positive health outcomes at or above the average of new EU member states. However, some observations suggest that additional health outcomes could be improved. Notably, the gap with the more developed EU economies is still large (e.g. standardize death rates associated with motor vehicle accidents is 30 percent higher). Emergency Medical Services (EMS) are unequally distributed across the territory of Croatia, with teams facing multiple demands, both emergency and non-emergency situations. As no uniform guidelines exist, EMS teams are unevenly distributed across the territory of Croatia with some counties having more than twenty teams per 100,000 population and others less than five. One of the main problems with EMS services is that in addition to pre-hospital emergency calls, the EMS service also handles a large volume of in-home visits, which are mostly out-of-hours non-emergency primary health care services, and operates EMS clinics providing out-patient services to both the general population and patients brought in by ambulances. Project Objective: The Project objective is to improve the efficiency and outcomes of the Emergency Medical Services system and to strengthen the capacity of the Ministry of Health and Social Welfare to develop and implement strategic EU-oriented projects. Key Results: Since the project became effective in January 2009, substantial progress was achieved in enacting the legal and regulatory changes necessary to support the reform of the EMS system, initiating investments in the delivery of EMS services as well as developing capacity for accessing EU funds for further investments in the health system. Specifically: • The Croatian Institute for EMS – responsible for national standards of EMS service delivery – has been established and is functioning. County level institutes for EMS are in the process of being established in cooperation with the counties (to be completed by end-2011). • The specialization in Emergency Medicine has been established at the Medical Faculty. Emergency Medicine Technicians have been recognized as medical first responders to address critical staffing needs. Rulebooks on the education and skills necessary for EMS workers have been adopted. • Investments have been initiated – development of standard protocols and guidelines for better delivery of EMS services, establishment of a comprehensive training plan, purchase of 128 ambulance vehicles and medical equipment of ambulance responders -- are under way and will eventually effect the service delivery on the ground. • Staff members of the Ministry of Health and related agencies are being trained in accessing EU funds for investments in the health system. Five priority project proposals, consistent with the sector strategy, are under development as part of the capacity building activity for use of EU funds. Key Partners: The Bank team works closely with the Ministry of Health and Social Welfare, which is responsible for the implementation of the project. The project is designed to support the convergence of the health system with the outcome and service standards of the EU following accession. CROATIA NERETVA AND TREBISNJICA MANAGEMENT PROJECT Updated August, 2011 Key Dates: Approved : May 29, 2008 Effective: March 6, 2009 Closing: December 31, 2013 Financing in million US Dollars*: Financier Financing Disbursed Undisbursed Global Env. Facility 8.00 4.04 3.96 Recipients (Croatia 8.45 and Bosnia and Herzegovina) 3.92 Bilateral Agencies Total Project Cost 21.27 *as of August 29, 2011. Challenge: Improved water resources management and biodiversity conservation have been identified by Croatia and Bosnia and Herzegovina (BH) as key environmental issues in their National Environmental Action Plans. The Neretva and Trebisnjica River Basins (NTRB) water resources, and the ecosystems dependent upon them, play an important part in the economies of both countries and the livelihoods of over 430,000 people. The Neretva River (220 km) originates in BH, and flows through Croatia for its final 20 kilometers, before entering the Adriatic Sea at Mali Ston Bay. The Trebisnjica river (99 km) is located entirely in the Republika Srpska in BH and is hydraulically linked to the Neretva. Taken together, these two rivers comprise most of the Adriatic watershed of BH and Croatia. Both rivers are crucial for energy production, recreation, fisheries, drinking water, and irrigation. They carry the (generally untreated) wastewater of the municipalities and many industries in the basins. The approach to improve the water resources management and biodiversity of the Neretva and Trebisnjica River Basins called for a joint effort of the two countries, resulting in the regional, transboundary project the Neretva and Trebisnjica Management Project (NTMP), supported by the Global Environmental Fund through a US$8 million grant, out of which US$2 million has been granted to Croatia and US$6 million to BH. Project Objective: The project aims to provide a mechanism for efficient and equitable water allocation among the users of NTRB at the transboundary level, and for enhancing the basin ecosystem and biodiversity through improved water resources management, through; (i)Improved transboundary water resource management – strengthening the management of the NTRB’s water resources and environment through institution and capacity building; measurement, monitoring and information management and preparation of a river basin management planning; ii) Improved management and use of wetlands ecosystems and biodiversity – maintaining and conserving water dependent ecosystems in the NTRB, according to requirements of the European Union (EU) Water Framework Directive (WFD) through improved operation of reservoirs, hydropower plants and dams and rehabilitation of small scale water management infrastructure; iii) High-priority investments for water pollution – reducing water pollution to the NTRB through high priority investments in low cost, wastewater technology improvements in five municipalities (Bileca, Konjic, Ljubuski, Nevesinje and Trebinje) and two industrial sector investments (Konjic) in BH through municipal wastewater treatment improvements, industrial pollution control and strengthening of water quality monitoring laboratories; and iv) Public Participation and Management of Project Implementation – increasing civil society participation in the decision making process for water resource management and establishing an incentive mechanism for responsible, local level resource management. Expected Results: • Increased interstate cooperation and capacity for transboundary water resources management, and application of Integrated Water Resources Management (IWRM) principles; and • reduction of nutrients and other pollution from municipal and industrial sources in the selected municipalities; • improved maintenance of environmental flows and improved ecosystem health and biodiversity; and • reduction of saltwater intrusion as a result of implementation of pilot program in the Neretva Delta. Key Partners: The main partners are, in BH, the Ministry of Agriculture, Water Management and Forestry in the Federation of BH, and the Ministry of Agriculture, Forestry and Water Management in Republika Srpska, under the coordination of the Ministry of Foreign Trade and Economic Relations of BH; and, in Croatia, the Ministry of Regional Development, Forestry and Water Management through Croatian Waters (HV). Key donors include the EC, and the Governments of Spain and the Netherlands. Other important partners are the five participating municipalities in BH. CROATIA REVENUE ADMINISTRATION MODERNIZATION PROJECT Updated August, 2011 Key Dates: Approved : June 28, 2007 Effective: December 21, 2007 Closing: June 30, 2013 Financing in million US Dollars: Financier Financing IBRD Loan 68.00 Republic of Croatia 58.10 Total Project Cost 126.10 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed IBRD Loan 68.00** 8.42 27.83 * as of August 29, 2011. ** Cancelled USD 34 million effective as of June 30, 2010 Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: Fiscal reforms are vital to the Government of Croatia’s program of structural and institutional modernization that is intended to contribute to successful EU accession. EU accession discussions relating to Croatian Tax Administration (CTA) centered on three main issues: (i) legislative harmonization; (ii) building institutional capacity; and (iii) strengthening its information systems and data exchange capabilities. Project Objective: The Croatia Revenue Administration Modernization Project aims to strengthen the fiscal management system and public sector governance through increased efficiency, transparency, and accountability of the CTA. This is expected to be achieved by enhancing voluntary taxpayer compliance, strengthening institutional and human capacity, and promoting professional ethics, equity, and fairness. The project will consolidate the database structure and facilitate information sharing with various social insurance agencies, which will help the social welfare system become better able to provide for those that need social benefits the most, enhance the business climate by improving client services and reducing the taxpayer compliance burden, as well as meet Croatia’s EU accession obligations. Key Results: Quality and Integrity of the Croatian Tax • The new Legal and Physical Personal Identification Numbers Administration were created and mailed nationwide. PIN is fully operational (perception of tax payers, scale 1min-5max) and the work on the personal asset and income reports connecting data from various administrative registries is underway. This aims to improve the fight against tax evasion, but also, through the exchange of relevant information with other government institutions, securing that various social benefits and rights do reach those in needs. • The Business Process Analysis Tools and Training were obtained and detailed business process redesign has been completed leading to improved efficiency of tax administration and reduced compliance cost to tax payers. • The design for the construction of the Disaster Recovery-Back- Up Center has started, which will ensure high safety standards Tax Tax Tax Tax Overall System Premises Officials Forms for tax data systems. Source: Deloitte for the Croatian tax Administration • The institutional effectiveness tax compliance rate survey observed an improvement from 86 (2006) to 89 percent (2010), while the tax administration employees report a satisfaction rate at 3 (compared to a maximum of 5). Key Partners: Ministry of Finance, Croatian Tax Administration. CROATIA INLAND WATERS PROJECT Updated August, 2011 Key Dates: Approved : May 30,2007 Effective: January 29, 2008 Closing: December 31, 2012 Financing in million US Dollars*: Financier Financing IBRD 133.41 Republic of Croatia 6.67 Total Project Cost 140.08 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed IBRD Loan 133.41 57.89 87.13 *as of August 29, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: Following the launch of Croatia’s negotiations for EU membership in October 2005, Croatia started to work on meeting the EU directives related to the water sector, more specifically planning for and making improvements in water supply, wastewater treatment and flood protection. The Ministry of Regional Development, Forestry and Water Management (MoRDFWM) – through its agency for water management, Croatian Waters/Hrvatske vode (HV) – developed a Water Management Strategy, which includes water safety and flood protection-activities that are supported through the Inland Waters project. Project Objective: The project aims to improve water supply and water collection and treatment services, as well as flood protection measures in municipalities in the inland part of Croatia. The project will directly benefit the local population by protecting their health through the provision of safe drinking water and collection and treatment of wastewater. Project activities will also ensure the safety of the population and protect the property through the implementation of adequate flood protection measures. The project area covers the Sava, Drava, and Danube river basins. The proposed investments will help to improve service standards in multiple small municipalities, and assist Croatia in meeting EU water directives and strengthening the institutions responsible for water management. The project should assist the Government to increase the public water supply to an additional 65,000 people while wastewater treatment will be extended to additional 31,000 residents in the project area. Key results: • 12 municipalities are participating in the project, with ongoing construction activities in each. • Constructions and upgrades of wastewater systems, which are already under way, will nearly double sewerage coverage in four municipalities (Ogulin, Virovitica, Našice and Southern Baranja) from 36 percent to 62 percent (the end target being 76 percent). • Construction/upgrade of sewerage network in three municipalities completed (Ogulin, Nasice, Virovitica; amounting to a total of 88km of network). • 13km of dykes have been rehabilitated in the Lonjsko Polje area. • The Technical Assistance (TA) component is helping prepare projects that would help the country to absorb EU funds, as preparation of wastewater projects in Krapina-Zagorje county (EUR 1.3 million) Key Partners: The Bank team works closely with (i) the Ministry of Regional Development, Forestry and Water Management which is responsible for overall policy setting (ii) Croatian Waters/Hrvatske vode (HV), ultimate recipient of the loan, and implementer of the Project. CROATIA TRADE AND TRANSPORT INTEGRATION PROJECT Updated August, 2011 Key Dates: Approved : November 14, 2006 Effective: March 20, 2007 Additional Financing Approved: August 4, 2011 Closing: December 31, 2011, Financing from all co-financiers, million US Dollars: Financier Financing IBRD 142.22 Government of Croatia 26.94 Other Lenders (EBRD) 14.38 Total Project Cost 183.54 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed IBRD Loan 142.22 51.37 106.41 *as of August 29, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: In 2003 and 2004, traffic along the Southern part of Pan-European Transport Corridor Vc started to experience strong growth. This corridor connects heavy industrial centers in the Southeast European Region to the Adriatic coast through the port of Ploče, the second largest international port in Croatia. New private investments in those heavy industrial centers indicated a likely further increase in traffic. The port facilities did not have the capacity to accommodate the foreseen increase, as it had received only limited upgrades in the previous decade. The development of the port is at the core of the government economic development policy since the port plays a major role in the economy of Southern Croatia both as an employer and as a strategic infrastructure. Project Objective: The Trade and Transport Integration Project is working to develop trade along Corridor Vc by improving the capacity, efficiency and quality of services on the southern end of Corridor Vc with particular focus on the port of Ploče and on coordination aspects among all corridor participants. The Project includes investments to: (i) increase port infrastructure capacity (construction of a new container terminal and a new bulk cargo terminal); and (ii) introduce a modern electronic port community system. It also supports: (i) strengthened corridor dialogue among corridor participants; (ii) establishment of cost recovery based concession arrangements; and (iii) increased private sector involvement to address these priorities, reduce commercial risks, and secure financing for port cargo handling equipment. Additional Financing was approved by the World Bank on August 4, 2011 in the amount of US$66.92 million. Key Results: • Major long term concession agreements were signed in 2009 and 2010 for the new bulk and container terminals providing a new framework for public private partnership to develop the port, with incentives for commercial investments in the port and cost recovery fees for the port authority. In August 2010, the new container terminal was inaugurated, providing the first dedicated terminal of this type in this part of Croatia, constructed by a Croatian company. • Preparatory works for the bulk terminal are at an advanced stage of implementation with over 1.5 m m3 of stone use for preloading the new terminal. • The development of a modern port community system is underway to improve the exchange of information among all stakeholders, building on Dutch experience. • Active dialogue among railway operators to improve their cooperation. • Luka Ploče, the main concessionaire of Ploče port, has increased its capital through IPO in 2011, securing private capital for purchase of equipment, and becoming a company with majority private ownership. Key Partners: (i) the Ministry of Sea, Transport and Infrastructure; (ii) the Port of Ploče Authority; (iii) Luka Ploče dd; (iv) participants along Corridor Vc (such as railway companies and Croatian Customs); and (v) EBRD. CROATIA AGRICULTURAL ACQUIS COHESION PROJECT Updated August, 2011 Key Dates: Approved : February 16, 2006 Effective: November 21, 2006 Closing: February 28, 2012 Financing disbursements in million US Dollars*: Financier Financing Disbursed Undisbursed IBRD Loan** 30.14 26.93 10.05 Global Env. Facility 5.00 1.67 3.30 Dutch Grant 4.75 3.78 .97 Government of Croatia 13.62 Total Project Cost 37.27 *as of August 29, 2011. ** Original amount is 25.5 million EUR. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: Croatia’s European Union (EU) accession was launched in October 2005, with the Croatian government embarking on the huge task of complying with EU requirements and obligations as laid down in the acquis communautaire. One of the most challenging areas is agriculture and rural development calling on the Croatian agriculture sector to, among others (i) prepare a Rural Development Plan, (ii) strengthen institutional capacity, (iii) reinforce statistical data collection, (iv) establish an EU compliant farm registration and animal identification systems, (v) modernize meat and dairy plants to meet EU food safety standards, and (vi) establish a Payment Agency. The Croatia Agricultural Acquis Cohesion Project is designed to support this agenda. Project Objective: The project seeks to develop sustainable systems and capacities within the Ministry of Agriculture, Fisheries and Rural Development (MAFRD) – to ensure timely compliance with EU acquis conditions in the rural sector and to increase the use of environmentally friendly agricultural practices by farmers in Croatia’s Pannonian plain – reducing nutrient discharge from agricultural sources to surface and ground water bodies, the latter supported through a Global Environment Facility Agricultural Pollution Control Grant. Key Results: • An EU compliant payment system for the agricultural and rural development sector has been established. The Special accession programme for agriculture and rural development (SAPARD) Managing Authority, Monitoring Committee, and Payment Agency have been established, supported by the project with technical assistance, equipment, furniture, and vehicles. • Management Information Systems Capacity of the MAFRD has been strengthened. Veterinary and Phytosanitary information systems have been developed compliant to EU standards. • Technical capacity of MAFRD has been upgraded. Several Ministry staff has acquired European Computer Driver License and many of them attended English language training courses financed by the project associated Dutch grant. Ministry staff have participated in technical study tours, and received academic scholarships. • An EU compliant Land Parcel Information System has been established. • Croatian Food Agency has been supported to conduct “Safety Assessment of Food Additives” and “Manifestation of Mycotoxins in Forage and Compound Feed in Croatia” studies. • Capacity and standards of existing line institutions has been reinforced. Plant Protection Institute building is under renovation and expansion. The capacity of four National Veterinary Institutes has been improved by renovation and reequipping. • 80,000 copies of the user-friendly Code of Good Agriculture Practices (CGAP) brochures disseminated to farmers to help them understand and implement the relevant provision of the Code. Ongoing water and soil monitoring through installation of piezometers at 100, 250, and 750 cm deep to measure water quality. • Ongoing training and demonstration program to educate the livestock community (extension workers, farmers, enterprises) in sustainable, cost-effective manure management on 700 ha in 87 representative farms in the project area. Key Partners: The Ministry of Agriculture, Fisheries and Rural Development (MAFRD), responsible for overall policy setting and Project implementation; Delegation of the European Union in Croatia, providing assistance in the process of harmonization with the EU Acquis (agriculture, environment); Netherlands Embassy providing a technical assistance grant in the area of capacity building in MAFRD; and Global Environmental Facility, which financially contributed to the project. CROATIA EDUCATION SECTOR DEVELOPMENT PROJECT Updated August, 2011 Key Dates: Approved: September 15, 2005 Effective: March 15, 2006 Closing: September 31, 2011 Financing in million US Dollars: Financier Financing IBRD 85.00 Government of Croatia 170.00 Total Project Cost 225.00 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed IBRD Loan 85.00 89.19 9.14 *as of August 29, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: Despite the progress Croatia achieved in modernizing its education system throughout the transition, there is still a mismatch between skills produced by the education system and those demanded by the market. Enrollment and completion rates at all levels, are on the rise but still behind those of EU countries. Primary school compulsory instructional time was significantly below that of EU15 and EU8 students, while Croatia’s adult illiteracy rate was higher than in the EU8 countries. Croatia’s working age population had lower average years of schooling compared to EU8 countries. Croatia had only half the OECD share of tertiary completers, drop-out rates continued to be high and institutional reform on the tertiary level needed further reform impetus. The system of continuous professional development for teachers and school principals was outdated. As Croatia’s advanced towards the EU, a strong consensus has been reached among policymakers and stakeholders that the education system in Croatia requires significant changes in order to be able to respond to the needs of society and economy. Project Objective: The development objective of the ESDP is improved student learning and system performance. The medium-term goal is that teachers and students will use a wider range of appropriate methods in teaching and learning, and that system management is strengthened. The project’s primary purpose has been to help the Ministry of Science, Education and Sports (MoSES) reflect this demand for change by developing and implementing a comprehensive education strategy that will lead to results on the ground, while helping the management and administration of the education system to monitor and implement the necessary changes. Key Results: ESDP has supported implementation of the Government’s Education Sector Development Plan 2005-2010 by co-financing a set of MoSES’s annual education developmental activities and monitoring progress in the development of the overall education sector in Croatia. Some of the key project achievements and sector results are as follows: • Development of new Croatian National Educational Standards (CNES) for primary education introducing new learning outcomes and teaching methodologies, followed by a development of National Curriculum Framework for Preschool, Primary and Secondary Education; • Establishment of an External Assessment Center and successful preparation and introduction of an externally administrated school leaving examination (State Matura) in 2010. Introduction of national exams at various levels allowing the External Assessment Center as well as students and teachers to gain experience with the new format of centrally administered nation-wide exams; • Through the construction or renovation of schools throughout Croatia – with 30 completed, eight ongoing and another six schools slated for construction the project has been helping eliminate three-shift schools, improving the quality of education. As a result, the share of primary pupils attending three shift schools dropped from 8.9 in 2006 to 1.9 percent in 2010, and the share of primary pupils attending single shift schools increased from 12 to 48 percent. • Opening of 100 new preschools in underdeveloped municipalities that did not have any kindergartens before giving 5,116 children the opportunity to enroll in the preschool programs. Key Partners: The Bank works closely with the MoSES which is responsible for the implementation of the project, and three key education agencies, National External Assessment Center, Education and Teacher Training Agency and Agency for VET and Adult Education. Delegation of the European Union is regularly consulted on project implementation. CROATIA SCIENCE & TECHNOLOGY PROJECT Updated August, 2011 Key Dates: Approved : July 7, 2005 Effective: May 11, 2006 Closed: May 31, 2011 Financing in million US Dollars*: Financier Financing IBRD 40.00 Government of Croatia 7.40 Total Project Cost 47.40 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed IBRD Loan 40.00 43.28* 0.22 *as of August 29, 2011. ** Cancelled USD 1.3 million effective as of June 19, 2009. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: Inadequate science, technology, and innovation policies hampered the development of knowledge-based sectors and also limited the economic benefits that could come with Croatia’s accession to the European Union. Further, R&D expenditures are dominated by the public sector (65 percent of total R&D investments in 2006), the cooperation between enterprises and knowledge institutions is marginal, and the economy is characterized by limited R&D commercialization (e.g. in 2002, there were only 48.8 patent applications to the European Patent Office per one million employees, which is low per European standards, hence the Science and Technology Policy envisages an annual increase of 5 percent). Project Objective: The project is geared towards enabling research and development institutions to commercialize research outputs; and increase the ability of enterprises, particularly small- and medium-sized enterprises (SMEs), to invest in research and development activities. The project is conceived as the backbone of Croatia’s innovation policy, and supports: (i) creation of technology transfer offices and orientation to contract-based research in key public research organizations and universities (Rudjer Boskovic Institute, University of Zagreb and University of Rijeka); (ii) subsidized R&D by SME sector and their collaboration with public research organizations (Business Innovation Center of Croatia - BICRO); and (iii) cooperation of local researchers and industry with Croatian scientific diaspora, through Unity through Knowledge Fund (UKF), to increase the mobility of highly qualified experts and knowledge transfer with direct impacts on development. Key Results: The project helped improve commercialization of public research results, increased the number of research contracts with the industry, and improved the ability of SMEs to invest in R&D:  Brodarski Institute concluded 41 new contracts with industry of EUR 9.0 million (two contracts of EUR0 .3 million in 2006), and increased its share of revenue from private sector to 45 percent in 2011 (22 percent in 2006);  UKF concluded 28 contracts with industry of EUR 1.9 million;  Rudjer Innovations, a technology transfer office of Rudjer Boskovic Institute, achieved solid commercialization results among which: 12 licensing agreements (EUR 753,000), including with Massachusetts Institute of Technology and Brown University; five patents and over 60 patent applications; and five spin-off (science-based) companies.  More private R&D funds are mobilized with R&D investments of about EUR 13.7 million by the companies supported through BICRO and UKF programs. From 2006 to 2008, the share of Croatian SMEs that have new or significantly improved products new to the market raised from 7.2 percent to 10.8 percent.  About 290 jobs are created through BICRO’s program of technology centers, and over 700 companies assisted;  With more than 500 researchers (153 from abroad), about 240 public research organizations (over 120 from abroad) and over 50 partners from industry participating in the UKF program, Croatia improved collaboration and technology transfer between local researchers and industry and Diaspora researchers. Key Partners: The Bank team works closely with the Ministry of Science, Education and Sports, which is responsible for overall policy and project management, and project beneficiaries/counterparts: Brodarski Institute, Business Innovation Center of Croatia – BICRO, Rudjer Boskovic Institute and Rudjer Innovations, Unity through Knowledge Fund, University of Zagreb, and University of Rijeka, as implementing agencies and recipients of loan resources. CROATIA SOCIAL WELFARE DEVELOPMENT PROJECT Updated August, 2011 Key Dates: Approved: June 14, 2005 Effective: January 30, 2006 Closed: March 31, 2011 Financing in million US Dollars*: Financier Financing IBRD 40.00 SIDA 2.00 Government of Croatia 18.30 Total Project Cost 60.30 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed IBRD Loan 40.00 44.96 0.00 *as of August, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: Although the goal of Croatia’s social welfare development at the turn of the past decade was to create a system that is client- centered, focused on results and user friendly, the social welfare system, heavily relying on traditional administration mechanisms and the past legacy of institutionalization of social services, was not fully reaching those objectives. It was important to support the Government’s goal to modernize the social welfare system by improving social service delivery (including increasing alternative, community-based social services provision), strengthening of the social welfare management and information system, and upgrading existing facilities. Project Objective: The objective of the project is to strengthen the quality of social services and improve administration, planning, and policy making of the social welfare system. The project does it through: (i) strengthening the capacity of the Ministry of Health and Social Welfare (MHSW) and social welfare institutions to manage the social welfare system and improve policy planning and decision making; (ii) improving service delivery by developing a number of social policy tools and programs ranging from prevention to community reintegration; and (iii) upgrading centers for social welfare and improving living conditions in residential institutions. Key Results: The project has helped develop and implement several new modern tools for improving social services delivery, financed start-up costs for innovative social services projects, initiated and advanced the development of a first social welfare management information system, and improved living and working conditions in a number of social welfare residential institutions and centers for social welfare. In particular: • New social planning methodology has been developed, with social plans so far prepared for 10 out of 21 counties, which enables better coordinated and more efficient implementation of social safety nets and empowers counties for expected further decentralization in this area; • Quality standards in social service provision have been developed and implemented centers for social welfare and state- run social welfare institutions throughout the country; • 34 innovative community-based social services projects have been financed through Innovation and Learning Program which provide some form of social care for 8,620 persons; • Software for new social welfare Management Information System has been developed and piloted. Living conditions have been improved in 45 residential social welfare institutions. • Now, 73 percent as opposed to 30 percent at the start of the project, public social welfare residential institutions for children and adults meet public health standard. • New organization of business processes in centers for social welfare based on one-stop-office principle has been developed and implemented in all institutions; 14 centers for social welfare have been reconstructed or newly constructed. Key Partners: The Bank works closely with the MHSW, which is responsible for the implementation of the project. Sida provided grant co-financing of the project. The European Commission and European Delegation have been regularly consulted on project implementation. UNDP has been involved in supporting the development of social services master plans for several counties based on the new social planning methodology. CROATIA SOCIAL AND ECONOMIC RECOVERY PROJECT (CSERP) Updated on August, 2011 Key Dates: Approved : March 29, 2005 Effective: September 30, 2005 Closed: December 31, 2010 Financing in million US Dollars*: Financier Financing **IBRD 45.68 Government of Croatia 32.62 Total Project Cost 78.30 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed IBRD Loan 45.68 43.81 0.00 *as of March, 2011. ** Original amount is EUR 35 million. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: Still today, underdeveloped and war-affected areas are struggling to catch up with the more developed parts of Croatia. In particular, war-affected areas are still suffering from destroyed and underdeveloped infrastructure, loss of traditional markets, lack of business support services, insufficient access to information and lack of needed products and services. Employment opportunities are slim and people, especially young are looking for employment in bigger cities. Returnees are in need of making a living and reintegrating into their communities. Large parts of war-affected areas are still contaminated with landmines, hindering possible economic activity. Project Objective: The project’s objective is to support the economic and social revitalization of disadvantaged and war-affected areas as a way to increase social inclusion and since 2005, the CSERP has been helping in finding ways to strengthen social and economic cohesion and promote the healing process and build trust among different groups through activities that foster social inclusion, improvements in small community infrastructure, demining and the revitalization of economic activity, and creation of employment in the depressed areas. Key Results: • lives of over 84,000 beneficiaries which include war-affected groups, small business owners, civil society organizations as well as vulnerable members of the society, such as youth, children, elderly, unemployed and people with disabilities have been improved through various project activities focusing on social inclusion, small community infrastructure and support to small- and medium-enterprises (SMEs), crafts, and cooperatives. In total, 427 sub-projects were competed. • 1,341 jobs (127 percent of the target) have been created • SMEs financially supported by the project have generated EUR 11 million in additional revenue • 12.2 km2 of agricultural land was demined and is ready for cultivation. Farmers can safely use their land without fearing for their lives. • Institutional capacity at national/regional and local level has been increased through training and capacity building activities. Some 5,000 national and local officials and civil society representatives have been trained in strategic regional planning; cost management, project management etc. • Regional Operational Programs (ROPs) were developed for four counties. ROPs are standard planning instruments for identifying development vision and public investment priorities in a given regional unit and are prepared in line with the principles of EU structural funds. Additionally, project operational manuals were revised to meet the requirements for the EU pre-accession grant funds. Key Partners: The Bank team worked closely with the Ministry Regional Development, Forestry and Water Management which was responsible for overall policy setting as well as for implementing the project. CROATIA REAL PROPERTY REGISTRATION & CADASTRE PROJECT Updated August, 2011 Key Dates: Approved: August 29, 2002 Effective: February 20, 2003 Closed: June 30, 2010 Financing in million US dollars: Financier Financing IBRD 25.70 Government of Croatia 6.60 Other (EU) 11.40 Total Project Cost 44.00 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed IBRD Loan 25.70 25.22 0.04 *as of March 15, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: As many other countries of Central and Eastern Europe, property registration and cadastre systems were not well maintained in Croatia up until 1996, with a great need to avoid problems caused by unreliable real property registration and cadastre systems. Croatia also needed to become more attractive to foreign investors to boost economic growth and adjust its administrative and legal procedures to those of the European Union. It also needed to speed up the process of ascertaining ownership of property rights, acquiring land and registering it. The mismatches between the cadastre and land books data also needed to be addressed as more and more property was being bought and privatized, and outdated land registration and cadastre systems were making ownership rights unclear. Many real properties in Croatia were not on the cadastre and many houses did not have building permits. These unreliable systems increased the time and uncertainty of transactions when property was sold or used as collateral and prevented the expansion of real estate markets. In 2003, there were around 340,000 unresolved land registry cases with registration backlogs in municipal courts ranging from one month in the smaller cities to three to four years in the two major cities of Zagreb and Split. Project Objective: The Real Property registration and Cadastre Project sought to build an efficient land administration system with the purpose of contributing to the development of effective real property markets by improving service in both the land registry offices (LRO) and cadastre local offices, harmonizing data between the cadastre and real property registration systems, improving customer relations and service provision, as well as organizing awareness campaigns among stakeholders, aimed at supporting professionals, financial institutions and real property holders. Key Results: • The backlog has been reduced by 84 percent, from its highest level of 339,412 in 2003. • Approximately one-third of land registry offices register transactions within seven days, and the national average for registration of a change of ownership reduced to 52 days in mid-2010 from 100+ days in 2003. • The national average time for registration of a mortgage has been reduced from 58 days in 2002 to six days. • The number of mortgages increased from 5,350 in 2002 to almost 9,000 in 2006, 8,000 in 2007 and 7,400 in 2008 before dropping somewhat due to the global financial crises. • Loan amounts more than doubled between 2002 and 2007, from HRK 4.13 billion to HRK10.01 billion before dropping off in 2009. • Land registry and cadastre information is available online for free and can be checked via the internet anywhere and anytime. Queries are running at 20 million annually over the last two years. A customer can check the status of his application online at any time. • The alphanumeric data from the cadastre has been online since 2005 (www.katastar.hr) and so far more than 25 million queries have been made. • Finally, the Joint Information System has a common database of all cadastre and land registry data and integrated business processes which will mean faster and better services to customers. Key Partners: The Bank team worked closely with the State Geodetic Administration responsible for the cadastre and the Ministry of Justice responsible for the land registry through the municipal courts. Key Development Partners included the European Union which contributed substantially to the Project financing through the CARDS program. Other bilateral donors included Sweden, Norway, Germany and the Netherlands. CROATIA ENERGY EFFICIENCY PROJECT Updated on August, 2011 Key Dates: Approved: October 7, 2003 Effective: April 8, 2004 Closed : June 30, 2010 Financing in million US Dollars: Financier Financing Government of Croatia 7.00 IBRD 5.00 Global Env. Facility 7.00 Commercial 20.08 Total Project Cost 39.80 World Bank Disbursements, million US Dollars *: Disbursed Undisbursed IBRD Loan 5.87 0.00 Global Env. Facility 6.78 0.22 *as of March 15, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: During the last decade, Croatia faced increased energy imports and supply costs. To address these pressures, a national energy strategy was developed, which identified lack of energy efficiency products and services as a barrier for more efficient use of energy. Despite the huge potential for savings, no significant private or public entity was actually developing and implementing energy efficiency projects in Croatia. Project Objective: The Energy Efficiency Project aimed to increase the demand for and supply of energy efficiency projects and services. The project focused on overcoming three major barriers to energy efficiency market development and financing, i.e. lack of: (i) capacity and know-how; (ii) development and project financing; and (iii) consumer demand. The project: (i) helped HEP ESCO, a newly established developer of energy efficiency projects, to develop, finance and implement energy efficiency projects on a commercial, for-profit basis, using local businesses as key delivery agents; (ii) provided a framework for other emerging energy service providers to tap into new energy efficiency business opportunities. Project Status: The project closed in June 2010. Key Results: The success of the project was measured by: (i) market response and consumer acceptance o f the HEP ESCO offerings, (ii) number of firms actively engaged in the provision of energy efficiency services, (iii) number of local banks engaged in energy efficiency financing and lending activity, (iv) track record of performance of commercially viable energy efficiency projects. • During the six years of project implementation, HEP ESCO has become a leading energy service company in the region, receiving the European Commission’s 2007 European Energy Service Award for the best European ESCO. • Over the lifetime of the project, more than 100 companies participated in projects financed by HEP ESCO and the total value of EE investments exceeded US$25 million. • By project closure, HEP ESCO had a strong project pipeline representing a potential to add another US$20 million of investments. The project has thus successfully created a market demand for EE services. • A Guarantee Component was implemented to support commercial banks financing EE investments, however, with limited success as only $900,000 of guarantees were issued. Key Partners: The World Bank worked closely with Hrvatska Elektroprivreda d.d (HEP) and their daughter company HEP ESCO, which was responsible for implementation of the ESCO component. The Croatian Bank for Reconstruction and Development (HBOR) acted as a trustee of the Global Environment Facility funds under the Guarantee Component. CROATIA RENEWABLE ENERGY RESOURCE PROJECT Updated on August, 2011 Key Dates: Approved : June 23, 2005 Effective: November 24, 2005 Closed : May 31, 2010 Financing from all co-financiers, million US Dollars: Financier Financing Global Env. Facility 5.50 Government of Croatia 3.00 Total Project Cost 8.50 World Bank Disbursements, million US Dollars *: Disbursed Undisbursed Global Env. Facility 4.34 1.16 *as of March 15, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: The project was aimed at addressing the objectives of the Government’s 2001 Energy Strategy which called for post-war recovery and transition toward energy security. The strategy and later legislation has supported the development of renewable energy resources (RER), including setting a target for a minimum share of total energy supply of 5.8 percent and establishing a framework for financial incentives through feed-in tariffs, a regulated selling price, for various renewable energy technologies. Project Objective: The objective of the project was to help develop an economically and environmentally sustainable market for RER in Croatia. Development of this market would support Croatia in its EU accession efforts. In addition, the project would help make Croatia’s economy less reliant on imported electricity and fossil fuels, reduce overall emissions, lead to a higher degree of local equipment manufacturing, create an attractive climate for private investment in renewable energy, and generate local industry and employment. The project also had an environmental objective to reduce greenhouse gas emissions on a continuous basis by overcoming barriers to implementation of renewable energy. Key Results: The project had a significant impact on the development of the RER market in Croatia though provision of incentives through secondary energy regulations for RER-based power and heat production. The financial support tool was a Contingent Loan Facility (CLF), which supported project preparation through loans that need only be paid back when and if a project reaches financial closure for investment. A summary of the project results: • More than 15 studies were prepared in support of renewable energy regulatory framework and to reduce administrative bottlenecks; • The CLF financed 13 projects of biomass, biogas, wind power and small hydro, of which four are expected to reach financial closure for investment and building the facility, by the end of 2010. These 13 projects are projected to add a total of 104 MW of RER capacity; • In 2010 the project contributed to a reduction of 75,651 tCO2 equivalent; and • The total increased share of new RE in national energy supply in 2010 is 1.52 percent. Key Partners: The World Bank team worked closely with (i) the implementing agency, the Croatian Bank for Reconstruction and Development (HBOR); (ii) the Environmental Protection and Energy Efficiency Fund, which co-financed pre-investment activities mainly through support to a Renewable Energy Advisory Facility and which participated in the Contingent Loan Facility; and (iii) the Ministry of Economy, Labor and Entrepreneurship which was the key beneficiary for the technical assistance. CROATIA DISTRICT HEATING PROJECT Updated August, 2011 Key Dates: Approved: June 20, 2006 Effective: September 3, 2007 Closed : June 30, 2010 Financing in million US Dollars: Financier Financing IBRD 29.80 HEP 14.48 Total Project Cost 44.28 World Bank Disbursements, million US Dollars *: Disbursed Undisbursed IBRD Loan 33.30 0.00 *as of March 15, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: The District Heating companies in Croatia face aging infrastructure problem as networks were not maintained and replaced in a timely manner mostly due to financial constraints. The tariffs did not reflect changes in the international gas and oil prices and did not cover depreciation. In addition, the customers were not able to control their consumption and their bills were based on the surface area of the apartments and not actual consumption. The District Heating project tried to face these three barriers. Project Objective: The project objective was to promote efficient operations by HEP T (district heating company) by (i) reducing energy and water losses through the rehabilitation of the network and the closure of non economic local boilers in Osijek; (ii) increasing the profitability of HEP T by promoting the use of cost recovery tariffs; and(iii) increasing the level of customer satisfaction Project Status: The project closed in June 2010. Key Results: The project, which closed in June 2010, achieved most of its intended objectives: • Energy losses reduced more than planned, in Zagreb losses were reduced by 23 percent (planned 15 percent) and in Osijek by 38 percent (planned 10 percent) • 20 km of hot water pipelines were rehabilitated in Zagreb and in Osijek 7.2 km rehabilitated and 2.6 km of new pipelines constructed. • 17 new indirect substations were built in Osijek. • In early 2009, the Government approved an average tariff increase of about 17.1 percent, helping HEP T reduce financial losses, but financial sustainability remains a challenge in the absence of additional tariff increases. • Two consumer satisfaction surveys were carried out showing that consumers were to a large extent pleased with the services provided by HEP T. • Heat cost allocators were installed in 11 buildings in Zagreb and in 1 building in Osijek, resulting in energy savings of around 10-20 percent per building. Key Partners: The World Bank team worked closely with HEP (Hrvatska Elektroprivreda), the guarantor and HEP T (Toplinarstvo), a District Heating company responsible for project implementation. CROATIA FISCAL, SOCIAL AND FINANCIAL SECTOR DEVELOPMENT POLICY LOAN Updated on August, 2011 Key Dates: Approved : January 12, 2010 Effective: February 17, 2010 Closed: April 30, 2010 IBRD Financing in million US Dollars: US$271.2 Total amount of US$271.2 disbursed on February 23, 2010. Challenge: The appropriate mix of proactive policies has mitigated relatively well, although not negated, the strong impact of the global crisis in Croatia. Growth, which averaged over 4 percent before the crisis, sharply declined in 2009 by almost 6 percent. The recession has also worsened the situation on the labor market and reversed some of the achieved gains in living standard before the breakout of the crisis. To protect macroeconomic stability, fiscal policy had to go through significant adjustments. Politically-challenging measures on both revenue and spending side had to be taken, while protecting the most vulnerable. Some of these measures, e.g., reduction of wages, suspension of pension indexation or the introduction of a solidarity tax, focused on the short term gains in order to maintain macroeconomic stability. However, the crisis has also provided an incentive to tackle certain aspects of the country’s medium-term agenda: fiscal policy now operates under a three year rolling budget, the public procurement system is being strengthened, and the much needed health financing reform began. The authorities have also taken necessary measures to protect financial intermediation. Project Objective: The loan aimed to support the authorities’ efforts in addressing the adverse impact of the global crisis. The project addressed measures to: (i) strengthen public finance, including through the reduction of the wage bill, social transfers and investments, and improvements in the budgeting and strategic planning process; (ii) strengthen the resilience and targeting of the social sector; and (iii) enhance the efficiency and stability of the financial sector. Results achieved: • While reducing the waiting list for health services and reducing the copayment exemptions for non-vulnerable groups, total health sector arrears were reduced by 0.4 percentage points of GDP in 2009 and early-2010. • Privileged pensions were reduced, while old-age pensions were regularly paid out. • Adequate funds for unemployment benefits and means-tested social support allowance, amounting to 0.5 percent of GDP, were maintained in 2009 and 2010 budgets. • The three year rolling budget has become mandatory and for the Parliament approval. • The legislative alignment and strengthening of administrative capacity of the procurement system have been completed assisting in successful closing of EU accession Chapter 5 on public procurement. • Interagency coordination on financial crisis preparedness and management has been established in the financial sector. • Legislation for financial institutions was aligned with the Basel II framework and the capital adequacy was maintained well above the regulatory minimum. Key Partners: The Bank team worked closely with (i) the Ministry of Finance which was responsible for overall policy setting and coordination and management of implementation activities on a day-to-day basis.; and (ii) Croatian National Bank.