The 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, the World Bank said in a press release on Saturday.
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 maximise revenues and lower operational costs. These proposed actions are also supported by an existing European Bank for Reconstruction and Development 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 .
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 EUR 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% 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 project’s financing will be implemented through a loan of EUR 22 million and a guarantee of up to EUR 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 optimise their existing debt profile through accessing commercial debt on terms more in line with their operational needs.