ANNAPOLIS, NOV. 28 -- A little more than a year ago city and state officials stood in the cavernous remains of a closed oyster packing house here and proclaimed the return of seafood processing to the western shore of the Chesapeake Bay.

Today, their efforts to reopen the 81-year-old McNasby Oyster Co. as a watermen's cooperative won the top economic development prize bestowed by the Maryland chapter of the American Planning Association. But the honor is a bittersweet one because, despite all the fanfare and the commitment of $1.2 million in public funds, McNasby's has yet to fulfill its promise.

Although the 52-member cooperative has been operating a retail fish market at the Eastport site since January, not one Maryland oyster or clam has been shucked there. The reason is that attempts to reopen the packing house -- seen from the beginning as the project's chief source of income -- stalled last spring, when state inspectors announced that the plant needed an unexpected $175,000 in renovations to meet health codes.

"The concept is beautiful. But the award may be a little premature because if things don't get moving forward, it may not be a success story in the end," said Betty Duty, an administrative assistant for the Maryland Watermen's Association.

City officials spent most of the summer and fall trying to beg off some of the mandated improvements, which include a $25,000 sprinkler system and a $14,000 tile floor, and seeking additional state funding. But so far they have been unsuccessful, said Mary Burkholder, a city planner.

Last year, the state provided $700,000 in loans and grants toward the purchase of McNasby's and adjacent land that is to be turned into a park and local history museum. The project became controversial when state Sen. Laurence Levitan (D-Montgomery), whose committee approved a grant that was part of the financing package, was identified as one of the owners of the plant. Levitan was cleared of any wrongdoing in the deal.

With the conveyor belts, crab-picking room and shucking tables at McNasby's still empty, the cooperative has concentrated on establishing a wholesale business, selling local seafood such as crabs and imported products such as shrimp to restaurants and distributors as far away as Canada. During August and September, the cooperative made about $80,000 that way, said manager Andrew J. Kaelin.

Still, he said, operating a seafood enterprise without a processing facility "is like trying to fly a plane with one engine" because whole crabs and oysters do not have nearly the value of their shelled and packed counterparts.

For that reason, the co-op has paid to have some of its products shelled at packing houses across the bay, which has severely cut into its profits. The facility's bank has refused to extend the co-op's credit until the processing arm is running, which has limited the watermen's ability to develop stable markets, including the overseas markets that are believed to be critical, Kaelin said. So far, the cooperative has accumulated a $54,000 deficit, he said.

"It will work if we can keep it together and get the processing going by the next crab season, but if we don't have the processing we are going to have to take a good, long look at what we are doing," Kaelin said.

Bill Boulter, 35, a commercial waterman from Rock Hall, Md., said many of the cooperative's members have been frustrated by the delay and "are getting second thoughts" about the project.

Pointing to a knee-high heap of unshucked oysters in a dark corner of the plant's loading dock, Boulter said, "What we have here is like picking up a bottle from the side of the road that you get 10 cents for. It's a lot of work for not a lot of money."