Download ECSIEPolandStrategy

POLAND
STRATEGY FOR ENERGY, TRANSPORT, WATER AND URBAN
DEVELOPMENT
ENERGY
Key Issues of the Polish Energy Sector
Regulation. Through the ongoing ESMAP assistance support, the Bank should continue
its policy dialogue in support of the actual detailed implementation of the new regulatory
framework for electricity, district heating and gas services. A well functioning and
efficient regulatory framework is pre-condition for private sector development.
Pricing. Further pricing reforms are needed to unbundle the accounts and establish costcovering prices for power, district heating, and gas. These reforms should facilitate the
implementation of projects, which provide environmental benefits, are financially viable,
and result in improvements in efficiency.
EU Accession Managements of electricity and gas companies support the opening of
access for all domestic electricity and gas producers/suppliers to final consumers, but are
reluctant to external market opening. However, the Ministry of Economy (responsible for
negotiations with the EU in this area) is committed to liberalize electricity and gas markets
in line with the requirements of the EU directives by the time Poland joins the EU.
Competition. The rules of the competitive electricity market, the integration of the
existing long-term power purchase agreements (stranded costs) into the new competitive
market, and the policy on environmental issues need to be clarified. These issues seriously
affect competition and privatization in the power sector as well as force the regulator not to
liberalize tariffs at generation level.
Privatization. The privatization process should be accelerated. With liberalization of the
European energy markets, further delays in privatization would lower the value and
attractiveness of Polish power companies. Delays with decisions to introduce market
principles and with privatization will only exacerbate the problems associated with the
restructuring of employment, elimination of old and inefficient capacity, and
modernization of the existing capacity.
Restructuring. The restructuring of the gas sector must proceeds on a faster track. The
restructuring of hard coal should continue in accordance with the Government plan, with
emphasis on job creation and mine privatization.
Energy Efficiency. While market-based incentives are increasing (price reforms, tighter
environmental standards, and higher environmental user charges), many serious
institutional barriers and market failures need to be overcome in order to permit tapping the
ECSIE Recommendations for CAS Brainstorming
1
huge end-use energy efficiency potential: consumers must be aware; local banks are
reluctant to finance end-use energy efficiency projects; generally, end-users lack capital
and are not sufficiently creditworthy; and there are few mechanisms currently in place to
help consumers deal effectively with rising energy prices and more stringent
environmental standards. New approaches and financing mechanisms are thus needed to
overcome these barriers, and they must be built on the incentive of end-users to undertake
energy efficiency measures and on the incentive of local banks to finance these measures.
Renewable Energy Resources. Because of high-perceived costs and the failure to
internalize environmental costs into conventional generation investments, in addition to
institutional barriers, renewable energy resources may become the orphans of the energy
sector restructuring and liberalization. Policy as well as financing mechanisms are needed
to create a sustainable market for renewable energy resources, attract private and local
commercial financing, and help Poland meet its obligations under its international protocol
and treaties
Sector Studies for EU Accession Countries
Purpose: Drawing on existing knowledge base and global experience within the Bank,
these studies will: (i) provide an informed assessment of the optimal/appropriate subsector
strategy in EU accession countries, with the view to identify issues and recommend
policies and programs needed to complete the structural reforms, while ensuring social and
environmental protection; (ii) help disseminate knowledge and experience on sector
reforms in other countries; and (iii) define possible role of the Bank.
The proposed gas and power studies, as described below, will present the reforms in the
gas and electricity sector in EU accession countries and the challenges they face to
liberalize the gas and electricity market, establish effective regulation, and attract private
sector participation. A third brief study, as described below, will look at the optimal
structure of fuel taxes.
Regional Gas Market Assessment Study. The study will look at the development of the
gas market in Europe. From a regional perspective, the study will focus on: (i) a brief
review of the gas demand and supply, the necessary pipeline network and storage capacity
to meet demand growth; (ii) the current sources of gas supply and the transit countries; (iii)
the evolution of the liberalized EU market surrounded by non-EU countries’ monopoly
suppliers; and (iv) the aspects of supply security and energy dependency (demand growth,
balance of market power, risk management, reduced price volatility, contractual
arrangements, competition, regulatory climate, diversification of supply routes and
producing countries, sources and transit countries, and further interconnection and
storage). From the perspective of EU accession countries, the study will expand on the
challenges these countries will face with respect to the following: (i) how to evolve from a
current monopoly/monopsony arrangement to one that promotes full competition, without
jeopardizing access to gas at acceptable prices; (ii) how to develop the domestic gas market
in a fashion that also promotes on-going competition; and (iii) how to come into full
compliance with the EU requirements. The study will address generic issues related to
restructuring and private sector participation, drawn from experience and lessons learned
globally and relevant to these countries.
ECSIE Recommendations for CAS Brainstorming
2
Power Market Assessment and Reform Study. The study will first provide a brief outlook
at the electricity market in these countries, including a review of electricity balances,
power exchanges, development plans for meeting demand growth and ensuring energy
security / diversification, and a few benchmarks on sector productivity and efficiency. The
study will present the reform objectives common to EU accession countries, take stock on
how far each country has gone in the reforms, identify any important distortions (such as
stranded costs) that hamper competition, assess the nature and extent of competition in
generation in light of policy on environmental issues, and assess the tariff reforms needed
to address stranded costs and environment issues in order to raise the overall level of
revenue in the industry and to attract private participation. Drawing from relevant
experience worldwide, the study will make the case for the optimal structure of the
electricity market (driven by EU requirements), the benefit of competition in generation
and supply, the role of regulation in monopoly transmission and distribution, and the
necessity to reduce market and regulatory risks to enable significant private buying
interest.
Fuel Taxation Study. This brief study will provide a comparative analysis of the taxes on
the various fuels between EU accession countries and other OECD countries, and identify
prospects for optimizing the fiscal revenues from fuels. The study should be conducted
jointly with PREM. If needed, the brief study could be expanded to review the overall
fiscal impact of the energy sector in terms of subsidies, fuel taxes, corporate taxes, and
profitability.
Rationale for Bank Involvement in the Polish Energy Sector.
To support the Government’s efforts: (i) to manage the energy sector (coal, district heating,
electricity and gas) during critical transition phase to a deregulated and competitive market
and to private ownership; (ii) to provide social and environmental protection during the
implementation of further sector reforms; and (iii) to overcome market barriers to the
implementation of energy efficiency and renewables.
Bank Support





Continue policy dialogue with the Government on sector policy and regulation;
Support to the Government’s Hard Coal Sector Restructuring Program, through a third
SECAL (plus, eventually an Investment Loan for mine privatization and/or microcredit for severance miners);
Through a power/gas SECAL, support continued further policy reforms (pricing,
competition, privatization, and EU accession), provide for social protection during the
implementation of the reforms, and complete the restructuring of the gas sector;
Investment financing support for gas transmission sector to remove transmission
constraints, add storage capacity and create the necessary transmission capacity
required for establishing a competitive market by the time when new gas supply enters
the Polish energy balance; and
Investment financing support for energy efficiency and renewables, together with
Global Environmental Facility and Prototype Carbon Fund.
ECSIE Recommendations for CAS Brainstorming
3
TRANSPORT
Key Issues of the Transport Sector of Poland
1.
The Overall Picture. Poland is a key transit country between East and West (the
Western part of the EU and Russia/CIS) and North and South (Nordic EU members and
Greece and other future members). This is also recognized through the four Pan-European
transport corridors crossing the country.
2.
Transport Policy and Regulatory Framework. Harmonization with the EU
competition policy will require that the prime duty of the Ministry of Transport and
Maritime Economy (MTME) becomes that of setting and maintaining a level playing field
among competing transport modes, and among competing operators within a mode.
Important responsibilities remain also for planning, financing and managing the provision
and maintenance of infrastructure.
3.
Private Participation in Transport Infrastructure and Services. Priorities are
to: (a) review barriers and disincentives to private investment in transport infrastructure
and services–legal, fiscal, regulatory and financial; and (b) establish permanent
consultative mechanisms for the removal of these barriers and the setting of transparent
rules of the game.
Roads
4.
Taking a Fresh Look at Motorways. Major investments in transport
infrastructure, including motorways, are clearly required as Poland’s economy continues
its rapid growth and as it prepares for accession to the EU. However, the cost of the
planned motorway program will be very high: nearly $1 billion per year (0.7% of GDP)
sustained over some 15 years. Considering the competing demands on the State budget for
financing many other investments in social and physical infrastructure, we recommend that
the Motorway Agency and the Ministry of Transport revisit the timing and phasing of the
motorway program and look at other alternatives which could still meet Poland’s transport
needs in the coming years, but at lower cost.
5.
Road Safety. Road accidents are becoming a leading cause of death. Accident
rates are double those in Western Europe. In response, a national road safety program has
been prepared; now it needs to be implemented. This will require adequate funding and
close co-operation among the Ministry of Transport, the police, and other agencies, under
the guidance of the National Road Safety Council. Further attention should be paid to
analysis of the causes of accidents and the cost-effectiveness of various remedial measures.
6.
Strengthening Roads to Handle EU Heavy Trucks. The EU allows heavier
trucks than Poland. The state investment budget will need to double allocations for road
rehabilitation (from about 0.5 to 1.0 percent of GDP), if main roads are to be strengthened
to accommodate trucks up to the EU weight limits. Priorities for developing policy are to:
(a) refine estimates of the investment required to strengthen the road network to bring it
into line with EU truck weight standards; (b) revise user charges on heavy trucks to make
ECSIE Recommendations for CAS Brainstorming
4
sure they fully cover the “wear and tear” costs they impose on the roads; and (c) review
permits for overweight trucks, prescribed routes, enforcement mechanisms, and penalties.
7.
Road User Charges and Reconciling Road Transport and the Environment.
The growing use of clean automotive fuels and the phasing out of vehicles without
catalytic converters is expected to be accelerated. The pump price of fuels may have to be
further increased due to the need for a substantial increase in taxes to charge for road use
and the social costs of emissions. Priorities for policy development are to: (a) research
and analyze the costs of environmental externalities; (b) review alternative charging
mechanisms; and (c) review policy objectives related to fuel prices, to arrive at a target
level of fuel tax and to set the pace of increase to get from here to there.
Railways
8.
Creating a Competitive Railway System. Since the start of the economic
transformation at the turn of the 1990s, the Ministry of Transport has been addressing the
need to adapt Polish railways to the demands of a market economy. By adopting the new
Railways Law both the Parliament and the Government demonstrated their strengthened
resolve to pursue the downsizing and restructuring of Polish State Railways to cut the
workforce, separate train operations organizationally from infrastructure (track, yards and
signaling), and freight operations from passenger operations. Among other reasons, this is
to allow open access for any operator of freight trains and international passenger trains, a
policy now being required by the EU. Private participation in train operations should be
prepared for and significant capacity development will be needed at the regional and
municipal governments as they become responsible for regional and suburban passenger
services.
Urban Transport
9.
Balancing Public Transport and Car Use in Cities. In urban public transport,
Poland made long strides in the early 1990s by sharply increasing cost recovery from fare
revenues, introducing service agreements between municipal governments and publicowned operators, and preparing the legislative basis for competitive tendering of services
to both public and private-owned operators. The reform has since lost steam, so cost
savings and service improvements linked to competition remain out of reach. The role of
the private sector is minimal. Cost recovery in major cities is still too low to generate
sufficient capital for replacing and modernizing bus and tram fleets. The State has gone
too far in decentralizing all public transport responsibilities to the cities and has not faced
squarely the complicated issues related to urban roads and traffic issues. Poland is to
synchronize its urban public transport policies and practices with those of the EU, the
Ministry of Transport should build its capacity to assist cities in making strategic
decisions, in areas such as competitive tendering, subsidy reform, road and public transport
investment policies, and road use pricing, as well as getting access to capital in the period
before cities reach financial self-sufficiency.
ECSIE Recommendations for CAS Brainstorming
5
Ports
10. Modernizing Poland’s Ports to Serve Globalized Industry. With the nature and
directions of Polish trade evolving rapidly from year to year, investing in ports has been a
risky business. International road transport, railways and pipelines are competing for the
same traffic as the Polish ports. There is also strong competition among alternative routes
for cargo between major hub ports (Rotterdam, Hamburg) and eastern Baltic destinations.
New port infrastructure –breakwaters, channels, and land access-- is lumpy, fixed and
costly; the State can ill afford the large minimum investments needed without assurance
that the new capacity will be well used.
The Ministry of Transport and Maritime Economy should therefore:
(a) Monitor implementation by the autonomous port authorities of the provisions of the
1996 Ports Law, to ensure appropriate separation of functions between them and
the commercially independent port operating companies, with a view to promoting
competitive provision of services more responsive to users’ needs.
(b) Strengthen the capacity of the Ministry and the regional maritime offices to analyze
traffic trends and the economics of competing routes; plan infrastructure
investments accordingly on an integrated basis, bringing together the several links
needed: port infrastructure, city access roads and land use changes, and interurban
highway and rail links; and provide strategic leadership and guidance to the
regional and municipal governments who need to be partners in such planning.
(c) Foster facilitation of trade transactions in ports by furthering implementation of
electronic data interchange and document harmonization among government
agencies, consistent with the border-crossing agenda cited below (para.12).
The Bank’s supervision of the two on-going port projects gives us the access needed for
continuing dialogue with MTME on these issues.
Air Transportation
11. Civil Aviation: Partly Open Skies. The Union’s policy of open skies among
member states has already brought more foreign airlines into Poland, encourage the startup of private Polish carriers, and put pressure on LOT to lower fares. Demand will grow
for investment in regional airports, making it easier for traffic to bypass Warsaw. Policy
priorities are to: (a) renegotiate the bilateral air traffic rights to exploit the opportunities
created by EU Stage 4 liberalization; (b) pursue privatization of LOT; (c) remove any
barriers to exit from loss-making routes and (d) maintain an effective air safety over-sight
by the authorities .
Trade Facilitation
12. Border crossing conditions between Poland and Belarus are among the worst in
Europe. Lack of holistic and regional approach to the improvement of border crossing
conditions made the Polish borders infamous for delays and rent-seeking. Policy priorities
ECSIE Recommendations for CAS Brainstorming
6
are to (a) accelerate customs reforms; (b) strengthen cooperation with Belarus and
harmonize the reform programs; (c) improve inter-agency cooperation at the borders and
(d) introduce e-clearance procedures.
PROPOSALS FOR FY02
Railways Staff Reduction Workshop
13. A railways workshop to discuss staff reduction strategies, the applied social safety
net and the relationship between staff retrenchment and railways reforms was planned for
FY01. As the preparation of the PKP project needed more funding, we had an agreement
with Basil Kavalsky, the Country Director for Poland at that time that we use the
workshop budget to complete project preparation and postpone the workshop by a year so
that it could get adequate funding.
14. We plan to hold the workshop in March, 2002 in Zakopane with the participation of
railways, trade unions, and government representatives not only from Poland, but also
from other EU candidate countries and some selected ECA countries, that have already
decided on efficiency improvement. This way we could help the dissemination of
experience with the PKP labor redundancy and also use the project as demonstration for
other ECA countries.
15.
We estimate that the cost of organizing the workshop is around $50,000.
Road financing AAA
16. Road financing has been an issue in Poland for a while. The problems with the
motorway program and the EU accession requirements to strengthen the road network have
particularly underlined the need for a clear road investment strategy, including the political
decision on the priority to road maintenance and the plan for an affordable program of new
construction, that is already justified by the traffic volume. It should also give the
guidelines for reforming the road user charges system as the main source of revenues,
establishing a more transparent link between them and their use in the road sector,
restructuring the national road administration and the motorway agency etc. The
sustainable improvement of the whole road system however lies in the road financing
mechanisms.
17. We estimate that the study could be delivered in 6-8 weeks and it would cost around
$50,000.
Potential Lending for Road Mortality Reduction
18. The Polish government has asked the Bank to support its comprehensive and very
large-scale highways investment program by a new loan. A "comprehensive" or big bang
ECSIE Recommendations for CAS Brainstorming
7
road development program is justified by the extensive needs to catch up with the EU
countries and meet the acquis requirements. The benefits from a piece-meal and gradualist
approach may be much less. Such an investment program may be a key element in
improving Poland's currently uncertain growth prospects and, while this should not be an
end in itself, may also be helpful in employment generation. The financing requirements of
such an program will be very large (in excess of $1 billion a year), and, as recent
experience shows, it is unrealistic to expect any significant share to come from the private
sector, at least for a while. While EIB financing could be substantial, they will not be
enough. ISPA grants are available only through an IFI co-financing. In current
circumstances, where budget management looks more problematic by the day, this means
very tough decisions by the Government on expenditure priorities within the budget, and
on ways to raise additional revenue (further increase in road user charges, to contribute to
the cost.
19. Road safety is an issue as European integration proceeds and other donors are not
positioned as well as the World Bank for a comprehensive road-health-education-insurance
program. Though considerable improvement has already been achieved partly through our
policy dialogue and funding through the road projects (in the last two years 8% decrease in
the total number of accidents, and 7% decrease in number of casualties thanks to better
institutions, the establishment of an inter-ministerial National Road Safety Council, black
spot elimination, improved law enforcement by better equipped Police, training, media
campaigns, etc.), road safety situation in Poland still remains not only twice as bad as the
EU countries, but it also stays behind the other EU candidate countries. The economic cost
of road accidents in Poland still amounts to about 7 percent of the state budget, or about 2
percent of its GDP (about US$2.5 billion). To address this issue in a more comprehensive
fashion, a joint transport-health-education operation, with the objective to establish a
robust institutional framework and on a buoyant financing system is proposed.
20. A “jumbo loan for road development would have the grounds to ensure the
coherence of the overall environment for road investment - meaning, amongst other things,
(i) proper investment planning and selection (ii) a sensible overall financing package,
including budget reallocations/additional revenue measures (iii) a massive road mortality
and injury reduction program through holistic approach (iv) implementation of the whole
program, not just selected components (iv) proper implementation arrangements and
structures
PROPOSALS FOR FY03 AND BEYOND
ITS Application
21. Application of information technologies and the development of Intelligent
Transport Systems is gaining pace at a high speed. However, this happens in an ad hoc
way creating compatibility and inter-connection problems for the future, as governments
are not prepared to deal with it. To establish the right regulatory framework, that attracts
strategic investors and discourage the development of technological monopoly and
dependence is a government responsibility. A review of the different ITS models and the
ECSIE Recommendations for CAS Brainstorming
8
analysis of the development needs of the Polish transport system through the prism of
smart technologies would help Poland to draw up a program that would be affordable and
still set the stages for ITS development. Through its demonstration effect and a workshop
to discuss the findings, other EU accession countries would also benefit from this study.
We estimate that the study and the workshop would cost around $100,000.
Rationale for Bank Involvement in the Polish Transport Sector
While the Polish government enjoys access to financing for major transport infrastructure
from EIB, EBRD and EU (ISPA), important parts of the above agenda for policy and
institutional reform and capacity building are not covered by their mandates, or not in the
depth that we offer. The EIB funds only construction of transport links of international
importance, while EBRD focuses on private sector development. ISPA funds are allocated
only to projects supported by one or other IFI. Thus maintenance and rehabilitation of
roads, together with road safety, are recognized as areas where the World Bank has a
strong advantage and track record. The Bank is likewise well placed to advise the
Government on further steps in the restructuring and privatization of the railways. The
role of the national government in strengthening the capacity of sub-national entities is also
an area where the World Bank has experience and a mandate to offer but which is unlikely
to interest the other IFIs. In principle we are also well positioned to help the Government
integrate across sectors, such as the health and education dimensions of road safety.
ECSIE Recommendations for CAS Brainstorming
9
URBAN
This part will be sent as soon as Margret can respond.
ECSIE Recommendations for CAS Brainstorming
10
WATER
Poland has made enormous strides in improving water supply service coverage and quality.
It has also been quite successful in promoting private involvement in the provision of these
services and sector performance has improved since the start of the transition. Given the
presence of other bilateral and multi lateral agencies, most notably EBRD, EIB, ISPA, and
with the private sector eager and ready to provide advice and finance, there is no need for
more traditional Bank lending in Poland's urban WSS sector.
While today large cities tend to be served fairly well, much work remains to be done to
improve service provision in smaller towns and rural communities. We would regard Bank
involvement in these smaller towns as a low priority activity in the present CAS context,
but we should keep it in mind in case the next Government seeks our involvement in the
sector.
There is also still a challenge to further increase the efficiency of service provision by
improving the regulatory framework and making utility management and operations more
efficient. As regards support on regulatory issues for the water sector, as of now we
propose to be responsive rather than proactive and to be open to include it in the WPA if
requested by the Government, possibly in the context of a multi sector approach to
regulatory issues.
The biggest medium term challenge, from our perspective, is to help Poland to meet EU
standards for wastewater treatment. EU accession requirements for wastewater treatment
are projected to require annualized investments and operating costs of about $ 2.5 billion,
equivalent to about 1% of GDP (these numbers are very rough, and would require some
additional work to firm them up). Poland is receiving grants from the EU of about $ 150
million/year to help address environmental issues, primarily wastewater treatment, but it
evident that this falls very short of the amounts needed, so both the time schedule to
achieve EU standards and funding the huge investment needs that will arise will become a
major issue once accession negotiations start.
Our experience suggests that there are important issues to address in the wastewater sector,
including uncompetitive procurement procedures, over design of treatment plants,
construction of empty plants without sewerage collectors, unclear subsidy policies, and
weak coordination among all agencies involved. In view of this, and since the amounts
involved are so large as to have a significant macroeconomic impact, we believe that there
is a strong justification for Bank involvement in waste water treatment issues. However, it
must be noted that we have been trying to establish a dialogue on these issues since 1992
or thereabouts, without success.
The approach that we propose is to conduct an assessment of the institutional and policy
issues that would need to be addressed to develop a sound and sustainable response to the
wastewater challenge jointly with Jane's unit in SD, complemented by a review of the
validity of previous investment needs assessments, and then put together a short issues
paper for discussion with Government that would outline an agenda for action. If a meeting
ECSIE Recommendations for CAS Brainstorming
11
of the minds can be reached on what needs to be done, we could follow up with
programmatic lending or guarantees for investments in wastewater treatment plants,
possibly together with EBRD, EIB and the EU.
We estimate that the study could be carried out over a period of 8-10 weeks, at a cost of $
50,000.
ECSIE Recommendations for CAS Brainstorming
12
WB172824
Q:\Archive_3-8-01\Personal\POLAND\strategy\ECSIEPolandStrategy.DOC
August 30, 2001 9:17 AM
ECSIE Recommendations for CAS Brainstorming
13