Document of
          The World Bank


                                      Report No: 55463 v1




       RESTRUCTURING PAPER

               ON A

 PROPOSED PROJECT RESTRUCTURING

                 OF

CROATIA - ENERGY EFFICIENCY PROJECT

          November 10, 2003

              TO THE

       REPUBLIC OF CROATIA


            June 24, 2010
           Vice President:       Philippe Le Houerou
         Country Director:       Peter C. Harrold
         Country Manager         Andras Horvai
Sector Manager / Director:       Ranjit J. Lamech
        Task Team Leader         Peter Johansen




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                                  ANNEX 2:
                           Reallocation of Proceeds

                        CROATIA - ENERGY EFFICIENCY PROJECT
                                      71980 - HR
                                   Restructuring Paper

1.     Proceeds for CROATIA - ENERGY EFFICIENCY PROJECT, Loan No. 71980 -
HR, will be reallocated as follows:

     Category of
                                Allocation (EUR)                    % of Financing
     Expenditure
       Current               Current         Revised                      Current
                                                             100% of foreign expenditures,
                                                               100% of local expenditures
 1       Goods               700,000.00      502,802.72           (ex-factory cost) and
                                                              85% of local expenditures for
                                                               other items procured locally
                                                              100% of foreign expenditures
 2       Works                      0.00         74,537.96
                                                             and 85% of local expenditures
                                                             100% of foreign expenditures,
                                                               100% of local expenditures
         Supply and
 3                         3,000,000.00    3,778,659.32           (ex-factory cost) and
         Installation
                                                              85% of local expenditures for
                                                               other items procured locally
                                                             Amount due under Section 2.04
 4       Fee                  44,000.00          44,000.00
                                                                    of this Agreement
    Premia for
    Interest Rate
                                                             Amount due under Section 2.09
 5 Caps and
                                                                (c) of this Agreement
    Interest Rate
    Collars
 6 Unallocated               656,000.00            0.00
TOTAL                      4,400,000.00    4,400,000.00

Please find the clarification for the reallocated amounts per category as follows:

     ·    Reallocation of EUR 74,537.96 from Category (1) Goods, to Category (2) Works;
     ·    Reallocation of EUR 122,659.32 from Category (1) Goods, to Category (3)
          Supply and Installation; and
     ·    Reallocation of EUR 656,000.00 from Category (6) Unallocated, to Category (3)
          Supply and Installation.


2.        Briefly summarize project implementation progress.

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At start-up of the Energy Efficiency Project, the activities focused on institutional and
capacity building of the newly created Energy Service Company ­ HEP ESCO. This task
was successfully accomplished, as reflected by HEP ESCO receiving the EC 2007 award
for the best European ESCO. Initial disbursements were lower than expected as HEP
ESCO sales were lower than anticipated in the first two years of the project. The project
also required important promotional efforts to increase consumer-driven demand and
convince potential beneficiaries to invest funds into retrofitting existing energy capacities
to generate savings. In the third and fourth years of project implementation HEP ESCO
sales picked up significantly. HEP ESCO has already financed project investments worth
over USD 25 million. By end-2009, HEP ESCO has a pipeline of 9 potential projects
with medium or high likelihood to be financed representing a potential to add another
USD 20 million of investments to the total bringing it up to about USD 45 million. The
project has thus successfully created a market demand. As of today, the disbursement
rate of the EUR 4.4 million IBRD Loan is 97.4%.

As the project is coming to its closure on June 30, 2010, the unallocated funds are needed
for works and installation, which will be finalized by the end of the project. Furthermore,
additional funds for Category (2) Works and Category (3) Supply and Installation of
Equipment, have been necessitated by the final project mix, which could not have been
foreseen at the time of the latest reallocation. If the reallocation is made all funds under
the                 project                would                   be               utilized.




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