PolandCountrySnapshot_March2012

7/31/2019 PolandCountrySnapshot_March2012

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POLITICAL DEVELOPMENTS

The parliamentary elections in October 2011

resulted in the victory of the Civic Platform (PO)

and the second four-year tenure of the coalition

government formed by the Civic Platform (PO)

and the Polish Pheasants Party (PSL). The

Government is led by Prime Minister Donald

Tusk. The Government was elected with a strong

mandate for reform, particularly in the areas of

public finances and business climate. Prime

Minister Tusk's Government is taking the

beginning of his second term in office as a

window of opportunity to launch necessary, but

politically difficult reforms.

In July 2010, after the death of President LechKaczynski Law and Justice Party (PIS) in a

tragic plane crash near Smolensk, Bronisaw

Komorowski (PO) was elected the President of

Poland. The next presidential elections are

expected to take place in 2015.

Polands Presidency in the Council of the

European Union ended on December 31, 2011.

The EU Presidency was seen as a great success of

Poland. It has also strengthened Polands already

significantly strong position in the EuropeanUnion.

RECENT ECONOMIC AND SECTORALDEVELOPMENTS

Growth and External Sector

Poland was the only economy in the EU to avoid

recession during the 2008-09 global financial

crisis. The country's deep economic integration

with Europe and other global markets made itvulnerable to the collapse in capital flows and

trade. Yet in 2009, Poland's GDP grew by 1.6

percent, while the EU's output declined by 4.2

percent. This performance stems from a number

of factors. First, Poland's relatively large and

diversified domestic economy mitigated the

negative effect of the sharp decline in global

demand. Second, the country had limited external

imbalances in the years prior to the crisis. Third,

adequate macroeconomic policies both prior to

and during the crisis helped to support output

growth and protect the financial sector. Monetary

policy was accommodative in the context of thedownturn, and automatic fiscal stabilizers were

allowed to operate. Solid banking regulation and

supervision and relatively moderate credit growth

in the pre-crisis period (compared to the rest of

Central and Eastern Europe) strengthened the

resilience of the financial sector.

Poland's economy rebounded in 2010 and 2011.

Real GDP growth accelerated to close to 4

percent in 2010 on the back of strong domestic

demand, improved labor market conditions, andcredit growth. At the same time, fiscal policy

continued to support the economy as public

demand compensated for faltering private

demand. In 2011, despite a worsening external

environment, financial market volatility and the

launch of fiscal consolidation, GDP growth

remained strong at 4.3 percent. Good

performance in industry and construction, the

absorption of EU funds and spending for the

Euro 2012 soccer championships contributed to

this outcome.

Growth also became more balanced in 2011, with

domestic fixed investments recovering from

moderate declines in 2009 and 2010, and positive

net exports contributing in the second half of the

year. The unemployment rate declined from a

peak of 10.6 percent in the first quarter of 2010 to

9.2 percent in the third quarter of 2011. In late

2011, the unfavorable external environment

started to weigh down Poland's growth. Growthin retail sales eased from 16.3 percent in October

2010 to 2.1 percent in December 2011, and new

orders for industry slid from 16.6 percent to 5.5

percent in the same period. While this did not

translate into weaker GDP growth in the third and

fourth quarter, reduced consumer and business

confidence suggest that consumption, investment

and exports will be impacted by weak EU and


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global demand and increased risk aversion in

capital markets in 2012.

In the current external environment, growth is

projected to slow in 2012. As uncertainty

continued in early 2012, growth in global tradeand industrial production has been slowing in the

region, including in Poland. However, due to its

large and diversified domestic economy, Poland is

expected to be less affected than other economies

in Central and Eastern Europe. With private

demand subdued and public demand tightening

due to fiscal consolidation, growth is expected to

slow to 2.5 percent in 2012. In 2013, growth is

expected to strengthen to around 3.6 percent on

the back of an improved external environment.

Unemployment levels are expected to decline onlyin 2013 once growth accelerates again. However,

there are substantial downside risks, particularly if

external demand declines further and funding

pressures become more acute in capital markets

due to a worsening of the situation in the Euro

area.

Fiscal Sector Performance

Fiscal consolidation is among Polands main

economic policy priorities. Prior to and during thecrisis, Poland adopted fiscal relaxation measures

of about 2 percent of GDP, the largest stimulus

among the EU10 countries. As a result, the

general government deficit more than doubled to

7.9 percent of GDP (2010) from 3.6 percent of

GDP (2008). Public debt according to ESA95

(Eurostat) methodology increased from 50.9

percent of GDP in 2009 to 54.9 percent of GDP

in 2010.

The Government started fiscal consolidation in

2011. The general government deficit declined to

around 5.5 percent of GDP in 2011 through a

combination of revenue and expenditure

measures. On the revenue side, the main measures

were: (i) a change in the pension system that

shifted 5 percentage points of the contribution

from the funded second pillar to the first pillar; (ii)

a 1 percentage point increase in the VAT statutory

rate; (iii) a 4 percentage point increase in excise

duties on tobacco; (iv) the abolition of VAT

exemptions on company cars and fuel as well as

exemptions on excise duties on bio-fuels; and (v) a

freeze in personal income tax thresholds. Inparallel, faster GDP growth and improved

corporate income tax annual settlements aided

revenue growth. On the expenditure side, the

growth in government spending was contained by:

(i) a temporary fiscal rule limiting increases in all

newly enacted and existing discretionary

expenditure items to 1 percentage point over the

rate of inflation (CPI); and (ii) a nominal freeze of

the public sector wage bill.

The Government is set to continue medium-termfiscal consolidation and pursue reforms to

entrench the sustainability of social spending. The

fiscal deficit is projected to decline to around 3

percent of GDP in 2012, consistent with Polands

commitment under the Excessive Deficit

Procedure (EDP). The Government is expected to

pursue further fiscal consolidation to gradually

reduce the structural fiscal deficit to 1 percent of

GDP in line with its medium-term objective. In

2012 and 2013, authorities plan to implement a

wide range of structural reforms in the areas of

pensions, social assistance, and health to secure

the sustainability of the public finances and to

protect fiscal space needed for strategic

infrastructure and human capital investments.

Public debt is projected to remain at sustainable

levels. The strong economic recovery, a steady

appreciation in the exchange rate, fiscal

consolidation, better public sector cash

management, stepped-up privatization, andstrengthened public debt thresholds at the local

level are projected to be sufficient to maintain

public debt below key national and EU thresholds.

Public Financial Management

The Government has taken significant steps to

improve the public financial management system.


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In late 2009, the Parliament enacted the new

Public Finance Act, which significantly

strengthened transparency, efficiency, and quality

of the budgetary process in Poland. The new

legislation introduced, among others, medium-

term fiscal framework and performance-based-budgeting, enhanced debt safety procedures,

strengthened control and internal budget audit,

and increased budget transparency through

consolidation of some budgetary units and

establishing separate budget for the EU funds.

In 2010 and 2011, the Government continued to

strengthen fiscal institutions through temporary

fiscal rule (limiting the growth of expenditures to

CPI+1), better liquidity management and

enhanced public debt safety procedures.Currently the government is finalizing legislation

to introduce permanent expenditure rule to limit

the growth of national government expenditure to

a rate not exceeding the trend growth rate of

GDP and plans to introduce controls on local

government finances in the form of an annual

aggregate deficit ceiling.

The Bank supported the public financial

management agenda in Poland through a

Development Policy Loan (DPL) series (the past

and the current) as well as technical assistance

projects. The main products include: public

expenditure review on public financial

management, public wages and social sectors, an

EU10 fiscal study on performance-based,

medium-term budgeting, a public expenditure

review on the Mazowieckie region, and a technical

assistance project on tax expenditures.

Financial Sector

Along with the rest of the economy, the Polish

financial sector has weathered the global financial

crisis well. Although Polish financial institutions

were not involved in the purchase of toxic

international assets, foreign ownership and close

cross-border linkages with the main European

banking groups made the banking system

vulnerable to the outbreak of the global financial

crisis.

The banking sector has not required public

support and remains well capitalized, liquid, andprofitable. This reflects: (i) solid fundamentals in

the corporate sector; (ii) lack of significant

exposure to toxic assets in both the US and in

the Euro area, and well-managed credit growth in

the years prior the crisis; and (iii) tight supervision,

which has prevented to date international parent

banks to withdraw their support to domestic

subsidiaries. The capital adequacy ratio at the end

of 2011 was 13.1 percent, and the level of non-

performing loans (NPLs) was around 8.3 percent

of assets.

Yet, around 70 percent of the assets in Polands

banking sector are foreign-owned, chiefly by Euro

area banks, and in principle could be subject to

deleveraging. Large share of mortgage loans have

been issued in foreign currency.

Social Assistance

Relative to other branches of the social protectionsystem, Polands spending on social assistance is

low. Out of 16.9 percent of GDP that Poland

spent on social protection in 2010, only 1.3

percentage points was allocated for family and

child allowances. The Czech Republic and

Slovenia, which, like Poland, target family and

child benefits based on income, spend 1.7 and 2.5

percent of GDP, respectively. Furthermore, there

are concerns about coverage and leakage.

According to the 2010 Household Budget Survey

(HBS), only two-thirds of the poor (defined asthose in the poorest quintile based on pre-transfer

per capita consumption) were receiving at least

one social assistance benefit. Coverage of benefits

explicitly targeted at the poor varies between a

relatively good coverage for family benefits, which

cover about half of the poorest quintile, to low

coverage for the minimum income programs,


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which only reach 19 percent of the poor. The

generosity of these benefits is limited, accounting

for just 16.7 and 27.5 percent of the post-transfer

consumption of the poor, respectively. The

Government plans to introduce some targeting to

the child birth allowance program and marginalre-targeting of the Child Tax Credit (CTC) is

planned for 2013 In addition, there is a plan to

introduce income testing to the care givers benefit.

The objective of this change is to improve

targeting by limiting entitlements for families of

disabled individuals with relatively high income,

and use fiscal savings to finance an increase in

minimum-income benefits.

The Bank supported the social protection

agenda in Poland through a Development PolicyLoans (past and current) series as well as technical

assistance projects.

Pensions

In 1999, Poland undertook pension reform to

avoid major fiscal stress to the pension system

related to the rapidly aging society. The traditional

pay-as-you-go system inherited from the socialist

times was replaced with a multi-pillar pensionsystem that included a notional defined

contribution scheme (the first pillar) and a

mandatory fully funded defined contribution

scheme (the second pillar). In March 2011, the

Government decided to reduce the contribution

rate to private Open Pension Funds from 7.3

percent to 2.3 percent of gross wages, and to shift

the 5 percent of gross wages into the notional

individual accounts of the state pension system,

whose returns are linked to nominal GDP growth.

The Government plans to gradually increase thestatutory retirement age for men and women to 67

years old. Currently, retirement ages for women

and men are 60 and 65, respectively. Starting in

2013, the statutory retirement age would increase

by one month every four months (or three

months per year). Following this gradual path,

men will reach the retirement age of 67 by the end

of 2020 and women by the end of 2040. The

Government is also preparing reforms to special

pensions for uniformed services (the military

police, border security, fire-fighting services, and

government security). The reform will institute a

minimum retirement age of 55 for these specialpension groups instead of allowing them to retire

after completing the required years of service,

regardless of age. The mandatory length of

service for these groups will also be increased

from 15 to 25 years.

In addition, there are important medium- and

long-term challenges in the area of pensions:

Unreformed farmers pension scheme KRUS

Unreformed disability benefits threaten to

swamp the system. Currently, more than two-

thirds of pension benefits go to old age

beneficiaries, while only one in seven go to

disability beneficiaries. With the sharp

reduction in old age benefits, an unreformed

disability system with its much higher benefits

than old age benefits could result in a roughly

equal share of spending allocated between old

age benefits and disability benefits.

The Bank supported the pension sector inPoland recently through a series of DPLs which

included the social sectors. Pensions component

is also a cornerstone of the new DPL series (2012-

13). There have been also numerous technical

assistance projects. Most recently, the Bank built

capacity of the Government staff for developing

medium- to long-term simulations for the Polish

pension system. In addition, the Post Accession

Rural Support Project has supported farmers

social insurance reform by enhancing the

efficiency of the KRUS agency, throughstrengthening its administrative and analytic

capacity and improving its management and

decision-making processes.


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Health Development

Polands health outcomes improved considerably

in the nineties. On average, health outcomes in

Poland are comparable to those of countries with

similar level of development, but the performance

in controlling non-communicable diseases and

related risk factors needs to improve dramatically.

On the health system side, the Semashko-style

system was replaced with universal health

insurance in the late 1990s. The bulk of public

funding for personal care is channeled through

national health fund (NFZ) which contracts with

predominantly private providers for outpatient

care and a vast loosely-defined network of

hospitals. In terms of resources used, Poland

spends relatively less on health than mostEuropean peers, and the public health budgets are

tightly controlled

The system however faces a number of challenges:

the hospital sector needs further reorganizing, the

quality and continuity of care - in particular

through coordination across primary, specialized,

and hospital-based care - need to improve to

adapt to the new epidemiological and ageing

context. In addition, mechanisms need to be

developed to protect the most vulnerable fromhigh out-of-pocket expenditures and the impact of

rationing through waiting list.

In the past few years, through DPL and

technical assistance (TA), the Banks program

has consistently supported incentives for

better economic and medical performance of

health providers. The most recent TA project

(2010) aimed at strengthening the analytical basis

of expenditure policies (through studies carried

out by local experts projecting future health

expenditure and analyzing hospital payments). The

Bank is currently exploring options to support a

few voivodships on a fee-base.

Education

Polands education system has undergone

profound changes during the last two decades,

both in terms of financing and management, with

a view to align the education system to the needs

of a successful market economy. Education

decentralization reform in the 1990s transferred

the tasks of maintaining and managing pre-

schools, primary schools, and finally secondary

schools to local self-governments in gminas and

poviats. In 1999, the Government of Poland

stepped up reforms of secondary education. They

improved the integration of general secondary and

vocational education and delayed the vocational

training track in order to expand students

exposure to general secondary curricula. Thesereforms helped to provide young people with

flexible skills and improved their ability to absorb

and generate new knowledge and technology.

They also led to a remarkable leap forward in

Polands position in international assessments.

Overall, Polands education system is remarkably

efficient and equitable. While the achievements

are impressive, there remain important challenges.

Specifically, the Government should undertake

reforms to (i) further increase the coverage of pre-school education by providing legal framework for

more flexible and effective early child care, (ii)

adjust the pupil/teacher ratio to demographic

trends, and (iii) create more equitable and fiscally

sustainable model of tertiary education financing.

Recently, the World Bank has been active in

supporting the education sector in Poland.

The previous series of DPLs supported

government reforms in the area of pre-school,

primary, and tertiary education. The Government

introduced, among others, mandatory pre-school

education of 5 year-olds and mandatory school

education of 6 year-olds, increased the access to

student loan programs, and made comprehensive

amendments to the higher education legislation

with the goal to further modernize higher

education and connect it more closely to the labor


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market. Apart from lending, the Bank has also

provided technical support through organizing

regional conferences on higher education reform,

providing policy advice on linkages between

science curricular practices and the development

of human capital for research, science andtechnology, and preparing policy notes on

enhancing teacher performance, assessing the

quality of educational services at higher education

institutions and the preparation of teachers for

modern teaching methods, including ICT. The

Bank has provided extensive comments of

different sections of the draft Human Capital

Development Strategy and provided input for the

work on the strategy through a workshop on

Lifelong Learning, drawing upon good

international practice.

Transport

Poland implements one of the largest transport

infrastructure investment programs in the EU. A

continuously growing economy, increasing foreign

trade with neighboring EU partners, as well as

North-South and East-West transit needs require

modern infrastructure and well-organized

transport and logistics services. These needs are

emphasized by the fact that underdevelopeddomestic and international transport infrastructure

was, and to some degree still is, perceived by local

and global investors as one of the key obstacles

hampering competitiveness of the Polish

economy. Priority for modernizing the transport

sector is additionally magnified in the context of

hosting, along with Ukraine, the EURO 2012

Football Championship.

The Government has been completing an

ambitious motorway and expressway development

program. The new transport strategy developed

as part of the National Development Strategy is

expected to address several important policy

challenges related to the sustainability of funding

for increasing maintenance and rehabilitation cost,

the role of railways in the transport system, as well

as creating a favorable regulatory framework

policy that will stimulate fair and sustainable

intermodal competition and optimization of

external costs of transport, including ecological.

World Bank funding was until 2011

supplementing activities supported by otherexternal funds providers, primarily the EU and the

European Investment Bank (EIB), while ongoing

policy dialogue led to preparation of the Transport

Policy Note: Towards Sustainable Land Transport in

Poland in 2010. The Bank also supports regional

and local level partners in strengthening transport

infrastructure institutions and regional,

metropolitan, and municipal level transport

strategic planning by providing targeted technical

assistance to regional and municipal partners.

Energy

The role of energy security in supporting sustained

economic growth remains a high priority in the

Governments energy strategy. It focuses on

concerns about economic growth and jobs. The

Government is also concerned about "carbon

leakage" (the loss of jobs in energy intensive

industries to higher polluting countries) and the

costs associated with accelerating their

decarbonization program. The Governmentremains committed to meeting its 2020 targets for

Renewable Energy, Energy Efficiency, and GHG

emissions reduction.

Improving energy efficiency is a priority of the

Polish energy policy. As an EU member state,

Poland is subject to EU policies on climate change

mitigation. The EU climate change and energy

package, or the 20-20-20 targets, requires

comprehensive action by EU members to achieve,

by 2020, a 20 percent reduction of greenhouse gas

emissions below 1990 levels; 20 percent of EU

energy consumption to come from renewable

resources; and a 20 percent improvement in

energy efficiency. The 20-20-20 package requires

Polands energy-intensive sectors to contribute to

the EU-wide target while allowing Polands other


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sectors emissions to increase by 14 percent

compared with 2005.

The Bank supports the energy and climate

change agenda in Poland through knowledge

activities and financial support. A US$ 1.1billion DPL was approved in June 2011 to

primarily support the Governments energy

efficiency program and also included support for

the renewable energy agenda. This program has

been followed-up with support through three

technical assistance studies: (1) support for the

establishment of a publicly available database of

building efficiency; (2) development of Home

Area Networks to enable Smart Meters to provide

energy efficiency services to households and small

and medium enterprises; and (3) a macro-economic assessment of an acceleration of the

Governments energy efficiency program. A

follow-up loan for fiscal year (FY) 2013 that

builds on the DPL with an Energy Efficiency

Project is currently considered. The Ministry of

Finance would like this to support their budget

and highlighted the need to ensure that it would

be budget neutral. Early indications are that the

project design can be budget positive, reducing

the need for the Federal and Municipal

Governments to subsidize housing for low

income people that is energy inefficient.

Regional Development

Regional development within Poland is high on

the political agenda. After the decentralization

reforms of the early 1990s, Poland is the most

decentralized country in Central and Eastern

Europe. Following its accession to the EU in

2004 and increased availability of EU structuralfunds, regional development gained even more

importance. Recently, the Government adopted a

newNational Strategy for Regional Development 2010-

2020: Regions, Cities, and Rural Areas to tackle

regional development challenges in line with the

new development model proposed by the EU.

The new model assumes a shift toward support

for endogenous development and the business

environment, building on regional potentials, and

is aimed at fostering innovation-oriented

initiatives.

Despite impressive economic growth over the

past 20 years, and in particular following EUaccession, significant disparities in the level of

development and economic performance between

regions still exist. There are various dimensions of

territorial inequality in Poland: the gap between

the western and the eastern parts of the country,

the privileged position of the capital city, and

rising differences between rural and urban regions.

The World Bank has been actively involved in

the regional development agenda through

working directly with the Ministry of RegionalDevelopment as well as selected local self-

governments. The modalities of the Banks

support are defined in the Subnational Cooperation

Action Plan 2010-2012 and include knowledge-

based activities, as well as the planned financial

support to municipalities.


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THE WORLD BANK PROGRAM INPOLAND

The Country Partnership Strategy (CPS) 2009-

2013 was presented to the Board in June 2009, with

new planned IBRD lending of about US$ 4.5

billion, including a series of three programmatic

DPL totaling up to EUR 3 billion (US$ 4 billion).

This lending program was the largest since Poland

joined the Bank.

The strategic objectives of the CPS are (i) Social and

Spatial Inclusion; (ii) Public Sector Reform; (iii)

Growth and Competitiveness; and (iv) Regional and

Global Public Goods. Key policy areas identified

within these broader themes include social sector

reform, regional development, public finance andfinancial management reform, transport

infrastructure development, deregulation and the

enabling environment for doing business, climate

change (notably focused on the energy sector), and

financial sector stability.

In the short-term, particular attention is given to

supporting adequate social safety nets during the

economic downturn, interventions aimed at

supporting private sector credit growth and SME

access to finance, and infrastructure investments,while not losing sight of the reforms needed to

support strong and high-quality growth over the

medium- to long-term. Specific interventions are

selective, guided by the Banks main value-added

relative to other partners (notably the EU and EIB).

It is envisaged that the more traditional business

model with lending to the central government

would gradually trend toward an increased emphasis

on sub-national and fee-for-service business.

The CPS was updated through a Progress Report

(June 2011). The Strategy remains much the same

but with an increased European lens of supporting

Poland in its efforts to make the most of EU

membership and to further develop the two-way

knowledge partnership between Poland and the

World Bank.

Lending Program. The recent lending program

has been anchored around the programmatic DPL

series in support of the Government reforms in

public finance, labor market and social sectors, and

private sector development. The program amounted

to EUR 3 billion (around US$ 4 billion), distributedevenly across three loans, with the third DPL fully

disbursed in July 2010. In June 2011, the World

Bank and the Ministry of Finance of Poland signed

a new EUR 750 million (US$ 1.11 billion) Energy

Efficiency and Renewable Energy Development

Policy Loan. This DPL supported the energy

efficiency and renewable energy components of

Polands implementation of the Energy Policy of

Poland until 2030 program. The Banks FY12-13

financing program is planned for up to US$ 2

billion, proposed for DPLs, sub-national lending,transport or energy operations.

Figure 1. World Bank New Commitments in US$million by Fiscal Years (*FY12 commitment in

pipeline)

Notes: *Commitment in pipeline as of March 12, 2012. Fiscal Yearstarts July 1.

Figure 2. Disbursements in US$ million by FiscalYears

Notes: *As of March 15, 2012. Fiscal Year starts July 1.


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Analytical and Advisory Assistance (AAA)

Program. Over FY10-11, the Bank delivered

several AAA works, including work related to the

DPL series, work related to the development of the

sub-national business line, core diagnostics, and

innovative studies that could pave the way forfuture business expansion. The DPL-related work

covered a Public Expenditure Review, AAA on

performance-based budgeting and revenue

administration, and AAA on education, health, and

pensions. Sub-national work included selected

Public Expenditure Reviews for the Mazowieckie

region and key policy studies related to the Warsaw

City transport operation. Other diagnostics included

a national transport policy review, an innovative

study on transitioning to a low emissions economy,

tax expenditure report, financial sector TA focusedon diagnostic of credit unions in Poland, improving

the regulatory environment (Fee based service [FBS]

jointly with the International Finance Corporation

[IFC] within the Doing Business agenda), ROSC

Financial Sector Assessment, and training for

Supreme Audit Institution (SAI).

The FY12 ongoing AAA program covers both the

sub-national level, such as support for the Regional

Development Strategy for Lubelskie FBS cost

sharing, and the central government level, including

financial sector technical assistance in banking area,

public pay review, innovation, knowledge and

competitiveness and technical assistance on: health,

lifelong learning, and an EU regional pension policy

review, Poland as an international partner, and

financial reporting technical assistance (FRTAP)

funded by the Swiss Confederation and managed by

the World Bank Centre for Financial Reporting

Reform.

Further AAAs in the pipeline include potential FBSs

on: shale gas, compliance with environmental

regulations, carbon fund, enforcement and

insolvency within Doing Business, innovation, sub-

national Doing Business, PPP, reforms of courts,

bank resolution framework, e-government; and TAs

on public wages, agriculture taxation, sub-national

debt, human capital development, and activation

strategies.

The Current Portfolio consists of one investment

project on flood protection on the Odra River.

There are also one Global Environment Facility(GEF) project, Green Investment Scheme, and

three Prototype Carbon Fund (PCF) renewable

energy projects. Total commitment of the active

investment portfolio amounts to US$ 195 million,

out of which US$ 160.1 million is undisbursed. The

total disbursement in FY12 amounts to US$ 1.1

billion (including a US$ 1.08 billion Energy

Efficiency DPL fully disbursed in July 2011 and

US$ 19 million related to investment projects).

Portfolio Performance. The Odra river project isnow moving slowly forward with procurement for

works to start in 2012/2013 covering about three-

quarters of the project volume; the application of

the land acquisition and environmental safeguards

will still require close monitoring. The GEF energy

efficiency project was successfully implemented in

more than 20 schools in Krakow, but the guarantee

component was not successful and the project has

been restructured. After reallocation the remaining

funds were used for existing Thermo-modernization

Fund projects. A road maintenance and

rehabilitation project (99.1 percent loan disbursed)

and rural development project (100 percent loan

disbursed) were closed in second half of 2011 and

implementation completion reports (ICRs) will be

prepared in FY12.

The Bank carried out a safeguards assessment of the

country systems in preparation for potential new

operations. The procurement assessment concluded

that due to several differences between the PolishPublic Procurement System and the Bank's

requirements for application of Use of Country

Systems, further work on the piloting program will

not been continued.


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ODRA RIVER FLOOD PROTECTION PROJECT (ORFPP)Project No. 086768

Key Dates:

Approved : March 21, 2007

Effective:July 9, 2007

Closing: November 30, 2014

Financing in million Euro:

Financier Financing Disbursed Undisbursed

Government of PolandWorld Bank

Council of Europe Dev.Bank

European Union

30.0140.1

204.9

130.0

6.018.6

13.0

0.0

24.0121.5

191.9

130.0

Total Project Cost 505.0 37.6 467.4

*As of February 29, 2012.

The Odra River Flood Protection Project (ORFPP) will ensure better protection to the population insouth-eastern Poland (Silesia), and in particular the economically crucial city of Wroclaw, from loss oflife and damage to property caused by severe flooding. These areas are heavily affected by recurrentdevastating floods, lately in 1997. As the final total cost is likely to be close to US$ 0.75 billion, this project isamong the Banks larger engagements in Europe.The project has three main components:

Rehabilitation and modernization of dikes and river embankments, as well as widening of bridges andweirs, dredging of waterways and improvement of the floodwater by-passing capacity;

Construction of a flood retention dry polder (reservoir) near Raciborz upstream of Wroclaw; and

Improving flood forecasting and flood management capabilities.

The project is being implemented in three phases. First, the implementation structure was established and staff

trained; the implementation involves several ministries (notably the Ministries of Administration and

Environment) and four project implementation units (PIUs) inside the four regional Implementing Agencies. The

project is co-financed by the CEB and three EU Cohesion grants. The teams of experts have been recruited to

assist these Agencies. This first phase was completed at the end of 2009. In the second, current phase, the land is

being acquired, especially for the construction of the 22km long dikes for the dry polder in Raciborz. The area to

be acquired to obtain the construction permit for the dry polder is 1,260 ha. Land acquisition and associatedresettlement necessitated by the project activities are being carried out according to the World Bank standards.

Environmentally significant values, such as Natura 2000 sites, receive protection or are compensated.

All designs are being updated and works procured through ICB. The preparatory activities so far did not absorbmuch funds, however, in the third and final phase, starting 2012, the works implementation will start exhaustingthe funds. The Banks finance, eventually, is expected to have leveraged about 5-6 times more funds.

Expected Results:(i) Improved protection for about 2.5 million people in the Wroclaw area, as well as other urban centers and

towns upstream of Wroclaw against severe flood episodes, such as the 1997 flood.

(ii) Improved flood forecasting, to allow better prevention of flood damage and minimize damages.

Key Partners:

The main partners are the Ministries of Administration and Environment; Water Management Boards; theInstitute of Meteorology and Water Management (IMGW), and Voievod and local governments. In addition,financial partners are the European Commission (EC) and the Council of Europe Development Bank (CEB).


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ENERGY EFFICIENCY PROJECTProject No. P070246

Key Dates:Approved : October 14, 2004

Effective: March 18, 2005Closing:June 30, 2012Financing in million US Dollars*:

Financier Financing Disbursed Undisbursed

GEF GrantPrivate Sector

11.0053.50

10.409.80

0.643.70

Total Project Cost 64.50 19.36 45.14

* World Bank disbursement as of March 15, 2012.Note: Disbursements may differ from financing due to exchange rate fluctuations at the timeof disbursement.

The need to improve Energy Efficiency (EE) and to safeguard the environment has been a cornerstone ofPolands energy and environmental policy since 1990. Although substantial success in supply-side EE programshas already been achieved nationwide, it is widely acknowledged that substantial additional improvements in end-use energy efficiency and in air quality can still be achieved. Within this context, the building sector has been anunderserved market for efficiency investments for a variety of reasons, and successful efforts to increasepenetration rates of EE technologies and practices would yield significant long-term economic and environmentalbenefits for building owners and the economy at large.

The Project Development Objective aims to increase public and private sector investments in energy efficiencyin buildings.

The Project addressed a range of interconnected sector issues by: (i) overcoming the risk barriers in the financialmarkets inhibiting commercial bank participation in energy efficiency project financing; (ii) demonstrating thefeasibility of packaged investments in higher-cost energy efficiency measures in buildings and increasingacceptance of energy performance contracting mechanisms (ESCO) in Poland; and (iii) stimulating the demandfor energy efficiency services in the building sector and increasing awareness and capacity of commercial banks tooriginate and implement loan transactions for EE investments.

Results achieved:The Project successfully demonstrated the commercial viability of bundling high-cost measures with lower costmeasures by partially financing the greater up-front costs of measures such as efficient windows and insulationthrough a US$ 2 million capital grant. As a result, total investments of over US$ 9 million for energy efficiency

improvements in schools, health care facilities, and other public buildings have been facilitated using an EnergyService Company (ESCO) model.

The Project has supported the national Thermo-Modernization Program the Project including through acontribution of US$ 5.8 million that has leveraged 390 retrofits of residential buildings with a total investment

value of nearly US$ 43 million.

Finally, the Project has financed key studies and technical assistance addressing barriers for energy efficiency suchas a macro-economic assessment of energy efficient policies, an analysis of Home Area Networks within smartgrids and a national Registry of Energy Performance Certificates for buildings.

Key Partners:The Bank team worked closely with the Ministry of Economy, Bank Gospodarstwa Krajowego (BGK), and POEESCO (energy service company in the Malopolskie region).


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ENERGY EFFICIENCY AND RENEWABLE ENERGY DPLProject No. P115426

Key Dates:Approved :June 6, 2011

Effective:July 5, 2011

Closing: March 31, 2012Financing in million Euro*:Financier Financing Disbursed Undisbursed

IBRD 750 750 0

* World Bank disbursement as of March 15, 2012.

This DPL is to support the energy efficiency and renewable energy components of Poland's implementation oftheEnergy Policy of Poland Until 2030 program. The program and the policies are expected to help to:

reduce the cost of "greening" energy services, thereby supporting sustainable economic growth;

create "green jobs" through significant energy efficiency and renewable energy investments; and

reduce air pollution, diminishing its impacts on human health.

The Project Development Objective is to support the Governments program to: (i) decrease actual finalenergy consumption by 9 percent by 2016 and reach a 20 percent reduction target by 2020 compared to businessas usual; and (ii) increase the share of renewable energy in final energy consumption to 15 percent by 2020.These targets are part of Polands commitment towards the EU in the context of the latters energy and climatechange package. Against the backdrop of tight fiscal constraints and the need to maintain economic growth andalleviate poverty, energy efficiency measures have been identified as the highest priority and least cost way todecrease airborne emissions. Because of its large energy savings potential, the building sector will be the primaryfocus of measures to reduce energy use. Biomass and wind power are expected to be the main sources of newrenewable energy through 2020.

Results achieved:The Act on Energy Efficiency was approved by the Parliament on April 15, 2011, and promulgated by thePresident on April 29, 2011, thereby establishing the Borrowers White Certificates Program as a mechanism tomeet its energy efficiency targets.

The Government provided incentives to increase the share of cogeneration by allowing cogenerators to pricetheir bulk heat up to the average price of heat produced by heat-only boilers.

The Energy Regulatory Office issued a draft Regulatory Statement which covers all the key areas ofimplementation of Smart Meters, and, through the State-owned enterprise Energa, has initiated saidimplementation.

Government allocated PLN 200 million for financing the Thermo-Modernization and Renovation Fund in fiscalyear 2011.

Electronic Tolling System charges for heavy vehicles on major national roads sections implemented.

The Government submitted its National Renewable Energy Action Plan to the European Commission, therebydetailing its commitment of at least 15 percent of renewable energy use by 2020.

PolandCountrySnapshot_March2012

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