WASHINGTON, April 28, 2017 — The World Bank’s Board of Directors today approved a loan in the amount of €22 million (US$23.32 million) and a proposed guarantee in the amount of €350 (US$370.7 million) million to the Republic of Croatia. The loan and guarantee for the Modernization and Restructuring of the Roads Sector Project are aimed at strengthening the institutional effectiveness, enhancing the operational efficiency and increasing the debt service capacity of Croatia’s road sector.
Carrying more than 75 percent of transport demand, the Croatian road network is the largest infrastructure asset in the country. In recent years, Croatia has undertaken a significant road network expansion with large investments in motorways aimed at fully integrating many regions of the country, spurring industry growth and tourism, and integrating Croatian roads into the broader European network.
Having massively invested in infrastructure in the last 20 years, state-owned companies Hrvatske ceste (HC), Hrvatske autoceste (HAC), and Rijeka Zagreb motorway (ARZ) now have €5.2 billion in debt, all of which is fully guaranteed by the government. The sector also needs to better address challenges related to governance, efficiency and transparency.
The Croatian government currently provides substantial support to the road sector, whose debt today amounts to 11 percent of GDP, and which the road sector state owned enterprises are unable to service and refinance without government guarantees. Inadequate corporate governance, and lack of sound investment and financing decisions, together with overstaffing and inefficient maintenance practices have amplified the problem.
The Modernization and Restructuring of the Roads Sector project aims to provide a comprehensive solution that will cover institutional, operational and financial concerns, by supporting governance, operational restructuring, planning and monitoring reforms that will make road sector state owned enterprises more effective and enable their efficiency. Support will target institutional investment management and company level governance and management arrangements to promote a performance-based culture and ensure that future investments are economically justified.
The project will also address operational practices, making operations more effective to maximize revenues and lower operational costs. These proposed actions are also supported by an existing EBRD loan supporting both refinancing and restructuring of the motorway sector.
“We are very pleased to support Croatia in both operational and financial restructuring of the public roads sector, which will help Croatia embark on a financially sustainable path and reduce the need for state support in this sector. Increasing the motorways companies’ debt service capacity will directly reduce the state debt, while the strengthening of planning and management functions will help rationalize investment,” said Arup Banerji, World Bank Regional Director for the European Union Countries .
“Improvements in road maintenance resulting from operational reforms will primarily benefit road users, as interventions will follow modern management practices focused on quality, further improvement of safety, riding comfort and energy efficiency standards. On the other hand, road sector companies will benefit from certain debt optimization strategies, allowing more resources to be allocated to operations, maintenance and new investments,” concluded Banerji.
The project’s financing will be implemented through a loan of €22 million and a guarantee of up to €350 million to allow the government to raise funds for debt refinancing through loans or bonds, for the benefit of commercial lenders or bond investors. The loan will strengthen governance and operational capacity of the road companies, while the guarantee will provide credit enhancement that enables the companies to optimize their existing debt profile through accessing commercial debt on terms more in line with their operational needs.
The World Bank Group
The World Bank Group's (WBG) mission is to fight poverty and support sustainable development. The World Bank Group comprises five institutions: the World Bank, including the International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA); International Finance Corporation (IFC); Multilateral Investment Guarantee Agency (MIGA); and International Center for Settlement of Investment Disputes (ICSID). Operating in over one hundred countries, the World Bank Group institutions provide financing, policy advice and other support services to help countries solve their most burning development policy issues.
Since joining the World Bank in 1993, Croatia has benefited from financial and technical assistance, policy advice, and analytical services provided by the global development institution. To date, the World Bank has supported 54 operations amounting to around US$3.5 billion. About half of the Bank’s financial engagement focuses on the transport sector, and about a third is focused on the health and social protection sectors. The remaining portfolio is aimed at innovation and venture capital, with a small intervention in the environment.