Document of The World Bank
FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 35702-RO
PROJECT APPRAISAL DOCUMENT
ON A Public Disclosure Authorized
PROPOSED LOAN
IN THE AMOUNT OF US$180.0 MILLION
TO
ROMANIA
FOR A
TRANSPORT SECTOR SUPPORT PROJECT Public Disclosure Authorized
October 6,2006
Sustainable Development Department South Central Europe Country Unit Europe and Central Asia Region
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World
Public Disclosure Authorized Bank authorization. , CURRENCY EQUIVALENTS (Exchange Rate Effective October 5, 2006) Currency Unit = New Romanian Lei (RON) USD 1.00 = RON2.779 RON 1.00 = USD0.360 EUR 1-00 = USD 1.271
FISCAL YEAR January 1 - December 31
ABBREVIATIONS AND ACRONYMS APL Adaptable Program Loan Marfa Romania National Railway Freight AFER Romanian Railway Authority Operations Company Calatori Romania National Railway Passenger MEWM Ministry ofEnvironment and Water Operations Company Management CAS Country Assistance Strategy MPF Ministry of Public Finance CESTRIN Romania Central Laboratory for Transport MTCT Ministry of Transport, Construction and and Road Infrastructure Tourism CFAA Country Financial Accountability MTEF Medium Term Expenditure Framework Assessment PAD Project Appraisal Document CFR Romania National Railway Company PAL Programmatic Adjustment Lending CPS Country Partnership Strategy PHARE Fund for Assistance to Central and Eastern EBRD European Bank for Reconstruction and European Countries Development PPP Public-Private Partnership ECA Europe and Central Asia (World Bank PSC Public Service Contract region) PSO Public Service Obligation EIA Environmental Impact Assessment RNCMNR Romania National Company for Motorways EIB European Investment Bank and National Roads EU European Union RUC Road User Charge GDP Gross Domestic Product SAPARD Special Accession Program for Agriculture GRSP Global Road Safety Partnership and Rural Development HDM Highway Development and Management SBD Standard Bidding Document system SIL Specific Investment Loan IBRD International Bank for Reconstruction and SNCFR National Railway Company ofRomania Development (former) ICB International Competitive Bidding SOE Statement ofExpenditures ICR Implementation Completion Report SWAP Sector Wide Approach IDA International Development Association TRP Transport Restructuring Project IFR Interim Financial Reports TSSP Transport Sector Support Project IRIS Integrated Railway Information System ISPA Instrument for Structural Policies for pre- Accession
Vice President: Shigeo Katsu, ECAVP Country Directormanager: Anand K. Seth/Benoit Blarel, ECCUS Sector Directormanager: Peter D. ThomsodMotoo Konishi, ECSSD Task Team Leader: Henry G. R. Kerali, ECSSD
.. 11 ROMANIA TRANSPORT SECTOR SUPPORT PROJECT
CONTENTS
Page
A . STRATEGIC CONTEXT AND RATIONALE ...... 1 1. Country and sector issues ...... 1 2 . Rationale for Bank involvement ...... 4 3 . Higher level objectives to which the project contributes ...... 5 B. PROJECT DESCRIPTION ...... 6 1. Lending instrument ...... 6 .. 2 . Program Objective and Phases...... 7 3. Project development objective and key indicators ...... 7 4 . Project components ...... 9 5 . Lessons learned and reflected in the project design...... 10 6 . Alternatives considered and reasons for rejection ...... 11 C. IMPLEMENTATION ...... 12 1. Partnership arrangements ...... 12 2 . Institutional and implementation arrangements ...... 12 3 . Monitoring and evaluation ofoutcomeshesults ...... 13 ... 4 . Sustainability...... 13 5 . Critical risks and possible controversial aspects ...... 14 6 . Loadcredit conditions and covenants ...... 15 D. APPRAISAL SUMMARY ...... 16 1. Economic and financial analyses ...... 16 2 . Financial analysis ...... 17 3 . Technical ...... 18 4 . Fiduciary ...... 18 5 . Social...... 20 6 . Environment ...... 21 7 . Safeguard policies ...... 21 8 . Policy Exceptions and Readiness ...... 23
This document has a restricted distribution and may be used by recipients only in the performance of their official duties . Its contents may not be otherwise disclosed without World Bank authorization.
... 111 Annex 1: Country and Sector or Program Background...... 24 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...... 31 Annex 3: Results Framework and Monitoring ...... 34 Annex 4: Detailed Project Description...... 37 Annex 5: Project Costs ...... 41 Annex 6: Implementation Arrangements ...... 42 Annex 7: Financial Management and Disbursement Arrangements ...... 43 Annex 8: Procurement Arrangements ...... 50 Annex 9: Economic and Financial Analysis ...... 54 Annex 10: Safeguard Policy Issues ...... 64 Annex 11: Project Preparation and Supervision ...... 68 Annex 12: Documents in the Project File ...... 69 Annex 13: Statement of Loans and Credits ...... 70 Annex 14: Country at a Glance ...... 72 Annex 15: Maps...... 73
iv ROMANIA
TRANSPORT SECTOR SUPPORT PROJECT
PROJECT APPRAISAL DOCUMENT
EUROPE AND CENTRAL ASIA
ECSSD
Date: October 5, 2006 Team Leader: Henry G. R. Kerali Country Director: Anand K. Seth Sectors: Roads and highways (50%); Sector Director: Peter D. Thomson Railways (50%) Sector Manager: Motoo Konishi Themes: Trade facilitation and market access (P); Infrastructure services for private sector development (P); Regional integration (S); Export development and competitiveness (S); Public expenditure, financial management and procurement (S) Project ID: PO93812 Environmental screening category: Partial Assessment Lending Instrument: Specific Investment Loan
For Loans/Credits/Others: Total Bank financing (US$m.): 180.00
Borrower: Ministry of Public Finance 17 Apolodor St. Bucharest 5,050741 Romania Tel: (40 21) 410 34 00/410 11 89 Fax: (40 21) 312 1630 cabinet .ministru@,mfinante.ro
V Responsible Agencies: National Company for Motorways and National Roads 38 Bd. Dinicu Golescu Romania Tel: +40-21-223-26-06
National Railway Infrastructure Company (CFR) 38 Bd. Dinicu Golescu, Romania Tel: +40-21-223-14-87 Fax: +40-21-222-25-17
Estimated disbursements (Bank FY/US$m) FY 07 08 09 10 11 12 13 14 15 4nnual 58.00 120.00 2.00 0.00 0.00 0.00 0.00 0.00 0.00 Clumulative 58.00 178.00 180.00 0.00 0.00 0.00 0.00 0.00 0.00
The objective ofthe proposed project is to assist the Borrower to reduce transport costs through the improvement ofthe overall quality ofits national roads and railways networks during the first years ofEU accession.
Project description [one-sentence summary of each component] Re$ PAD B.3.4 Technical Annex 4 The development objectives for the roads component will be achieved by: (a) Increasing the percentage ofnational roads in good condition. (b) Providing sustainable funding for road maintenance, rehabilitation, and road safety, through a coherent multi-year rolling program. (c) Improving the capacity within the Romanian road administrations (RNCMNR, and others) to operate efficiently and effectively in managing road maintenance and rehabilitation.
The development objectives for the railways component will be achieved by: (a) Decreasing the number ofhazard locations and the proportion ofsections on the main lines
vi subject to temporary speed restrictions, through repair and rehabilitation oftrack infrastructure and signaling and electrification equipment. (b) Providing sustainable funding for railway infrastructure maintenance, repair and overhaul, through a coherent multi-year rolling program. (c) Improving the capacity within the infrastructure railway company to operate efficiently and effectively in managing railway maintenance and rehabilitation.
Which safeguard policies are triggered, if any? Re$ PAD D.6, Technical Annex 10 As a Sector Investment Loan, the project has been rated as Category B. The loan will support many investments which are appraised on a network rather than case by case basis. In order to ensure that the project will not negatively impact the environment in any way, due diligence was or will be carried out for each subproject. A description ofthe proposed project has been prepared and made available to the public
Significant, non-standard conditions, if any, for: Re$ PAD C.7 Board presentation: None. Loadcredit effectiveness: (i) The RNCMNR Subsidiary Agreement has been executed on behalf ofthe Borrower and RNCMNR. (ii) The CFR Subsidiary Agreement has been executed on behalf ofthe Borrower and CFR. (iii)RNCMNR has submitted to the Bank its audited financial statements for 2004 satisfactory to the Bank. [The audited statements were subsequently submitted to the Bank on June 30, 2006. This condition was therefore met before presentation of this project to the Board.]
Covenants applicable to project implementation: (i) RNCMNR and CFR shall submit to the Bank quarterly progress reports, in a format satisfactory to the Bank, not later than 45 days after the end ofeach quarter outlining the progress made in the implementation ofthe Project, as well as the problems encountered and how they are being addressed. (ii) The project is carried out in conformity with the provisions ofthe Environmental Legislation. (iii)The first three environmental impact assessment reports and the first three environmental permitsAicenses that maybe required for the carrying out ofthe Project shall be sent to the Bank. (iv) The Borrower, through RNCMNR and CFR, shall ensure that all land acquisition under the Project shall be undertaken in accordance with the Land Acquisition Framework, and the Information Brochure shall be sent to all effected persons at the onset thereof along with the notice ofexpropriation.
vii This page has been intentionally left Blank.
... Vlll A. STRATEGIC CONTEXT AND RATIONALE
1. Country and sector issues
EU Accession - Shaping the Agenda for Development
1. Romania expects to join the European Union in 2007, and consequently much of the Government’s social and economic development policies are driven by this goal. Convergence ofRomania’s economy with that ofEU countries is seen as a top priority by the Government and the population at large. EU accession will require wide ranging reforms of the Romanian economy in order to prepare for competition, and to improve the physical infrastructure. While the Government has achieved significant progress in structural and institutional reform of the transport sector with support of the World Bank, the state of Romania’s existing transport infrastructure represents a key challenge for convergence and integration with EU member states. The quality ofroad and rail infrastructure is limited, the efficiency and safety oftransport services are below EU standards, and a large backlog in rehabilitation and maintenance has accumulated mainly because Romania has underinvested in transport infrastructure in the past. There is an urgent need to speed up the improvement of infrastructure quality and to rationalize transport institutions. Substantial investments are needed to raise productivity, sustain growth and to meet specific commitments under the Acquis Communautaires.
2. These issues were identified in the Government’s transport sector strategy for 2003-2010 as well as in the National Development Plan. The Ministry of Transport, Construction and Tourism (MTCT) has developed a comprehensive medium-term investment program for the rail and road sector to prepare for EU integration. The challenge for Romania is prioritizing such investments and securing the necessary funding without compromising the country’s overall fiscal and macroeconomic stability.
3. Romania is pursuing a balanced modernization approach between roads and railways: the two dominant transport modes carrying more than 90 percent of goods and passengers. Unlike many countries in Eastern Europe, the railway sector has successfully kept pace with the changing structure of the Romanian economy and managed to keep a relatively high transport market share. This was the result of a long process of railway reforms that started in the late 1990s and is still continuing. Romania was indeed one of the first countries in the ECA region that radically reformed its railways. The Government’s strategy is therefore to promote productive investments in roads and railways that allow modal competition and enhanced integration with the rest ofthe EU.
Road Transport
4. Roads are now the dominant mode oftransport in Romania providing some ofthe lowest freight rates when compared to EU countries. Road transport has gained market share at the expense of rail, and now carries about two thirds of the combined road, rail, and waterway freight market. This is particularly evident for short distance, high value, and time sensitive cargo where road transport is the preferred mode. In the passenger segment, road transport aggressively competes with rail and now dominates the intercity passenger transport market.
1 5. Romania has an extensive road network of some 78,000 kilometers of public roads with an additional 53,000 kilometers of village and farm or forest roads. However, the main concern for road users is the quality of the road infrastructure. Over 30 percent of Romania’s national roads are in poor condition. This situation is partly due to the lack of adequate maintenance and also partly due to poor construction quality. The road network was designed with bearing capacities well below EU requirements leading to restrictions on axle loads along some roads - a concern for domestic and European truck operators. Road infrastructure capacity is also becoming an issue on some road sections particularly around urban centers and through small towns and villages, where the mix between local and transit traffic impedes the smooth flow of vehicles and is a cause of severe congestion and poor road safety.
6. The Government of Romania recognizes the weaknesses in the road network and its impact on the competitiveness of Romania’s economy. In the EU Accession Treaty, the Government has committed to completing the upgrade ofits main road network to EU standards by 2013, and consequently to remove the restrictions imposed on road freight. It has embarked on an improvement plan for national roads.’ On average, the Government’s plan would amount to some 3.65 percent of GDP over the period 2007-2013, split between expenditures on maintenance at 0.49percent of GDP, and 2.52 percent of GDP for capital investments in motonvays and rehabilitation of national roads. In addition, further funding is required to maintain county, local and urban roads.
7. Funding to increase transport infrastructure capacity and, to a limited extent, network rehabilitation along the Trans-European Corridors is available from EU pre- and post accession grants (ISPA up to 2006, and the Cohesion Fund from 2007 onwards). It is estimated that grants from the Cohesion Fund available for the road sector would amount to around 0.21 percent of GDP per year. Ongoing pre-accession as well as future European Regional Development Fund (ERDF) grants would channel funds equivalent to some 0.08 percent of GDP to the roads sector. These EU grants would require a co-financing of at least 0.05 percent of GDP. The planned investments in roads will require significant strengthening of the planning and implementation capacity ofthe roads administration as well as the capacity ofthe construction industry.
8. Institutional reforms ofthe road sector in Romania have not followed the typical process that other road organizations have gone through in Western Europe and in other developed countries. In 2003, from a “Regie Autonome” (an autonomous public works entity), the national road administrator and manager (NAR) was transformed into a joint-stock compang in one single step. The first audit ofRNCMNR as a commercial entity was carried out for CY2004. The entity audit raised issues relating to the short and long term financial health ofthe company, and internal financial management weaknesses. This is a consequence of the current legal status of RNCMNR, established as a joint stock company subject to commercial company laws, and is also due to the lack of clearly defined long term financing commensurate with the obligations of the RNCMNR. After receiving the CY2004 audit report, the MTCT made a commitment to review and, if necessary, amend the legal status of RNCMNR and the organizational structure. This will also include a review of the financing framework in order to ensure compliance with
‘ Road Strategy for the Development of the Transport Services during the Period 2005-2015. Government of Romania. Emergency Ordinance no.8412003 dated 18 September 2003.
2 EU Directives, to improve the short and long term financial health of the company, and to strengthen internal financial management ~apacity.~The required technical assistance will be financed as part ofthe on-going TRP, which already anticipated the need for such strengthening ofRNCMNR capacity.
Railway Transport
9. Although the railways have been losing market share to road transport, Romania is one of the few countries in Eastern Europe where timely and radical reforms implemented over the last decade in the railway sector have laid the foundation for competitive rail transport, at least for freight. Railway reform process takes time, and the Government is committed to completing the reform agenda so as to make the railways more competitive.
10. Romania’s railway network comprises 10,781 route-km or 20,409 track-km of railway that is now managed by the National Railway Company CFR SA, a state-owned railway infrastructure manager company, There are two state-owned railway operating companies; Marfa that operates freight services, and Calatori operates passenger services. The network density in terms of route-kilometer of railway per inhabitant is slightly above that of the EU-15 and EU-25 member states. However, the traffic density of 2 million traffic unitshoute-km is below 60 percent of the average for EU countries. Passenger services account for over one third oftraffic (and over two thirds oftrain-km). The three railway companies were created as part of the railway restructuring program that commenced in 1996 with significant support from the World Bank. The railway reforms in Romania were designed along the principles set out in EU directives to enforce competition within the enlarged EU. Private rail freight operators have entered the market, and they handled about 17 percent of rail freight in 2005 measured in terms oftrain-km, and 23 percent in terms ofton-km.
11. Further reforms still need to be implemented to transform the railway companies into fully commercial enterprises with minimum budget support. The improvements accomplished over the period 1996-2005 have not offset the reduction in traffic volume over the same period. In 2005, the railways carried less than a half ofthe traffic volume in 1995. The railway network, the operations (particularly passenger services) and the business processes have not yet fully adjusted to the reduced level of traffic demand. The combination of rising track access charges and inadequate payments for Public Service Contracts (PSC) negatively impacted the financial position of Calatori, on which the Government contributions have increasingly been concentrated. Both Calatori and CFR have also accumulated large arrears to the State run social and pension funds.
12. The MTCT has prepared a long-term strategy for the period 2006-20134 to ensure the financial sustainability ofthe railway companies, and to determine efficient levels ofinvestment required to modernize the railway infrastructure. The main components of this strategy aim to: (i)strengthen Public Service Contracts for passenger services and corporate governance in the railway companies; (ii)develop new methodologies to determine Track Access Charges (TAC)
Both financial performance and management issues were identified in the 2004 entity audit report of RNCMNR. Government Decision no. 817/2005 for the approval ofthe Plan for long term strategy ofthe railway sector for re- establishing the financial balance of the infrastructure manager and for the modernization and renewal of the infrastructure.
3 and passenger fares; (iii)increase the market responsiveness of Calatori by dividing the passenger railways into eight regional companies tailored to match market demand, with one national passenger services company to handle long distance and international passenger traffic; (iv) subject Marfa, the state-owned railway freight company, to competition by allowing private operators of freight services; (v) implement an efficiency improvement package consisting of network downsizing and further labor restructuring; (vi) extend the railway network that satisfies EU interoperability standards from 90 km in 2004 to 4,300 km in 2015; and (vii) maintain the market share of freight transport at 25 percent by 2015 and that of passenger transport at 35 percent.
13. Underpinning the Government’s strategy is an expenditure plan that was drawn up by MTCT, comprising four main components: (i) ensuring railway interoperability; (ii) modernization and construction of connection networks to the Trans-European Transport Network (TEN-T); (iii)modernization of IT systems and inter-modality and; (iv) improved railway traffic safety.
The challenge of EU accession for roads and railways
14. EU accession will bring an important source of finance for transport infrastructure. Funding to increase transport infrastructure capacity and, to a limited extent, network rehabilitation along the TEN-T is available from EU pre- and post accession grant funds. In addition, the Government expects to use a part of the grants available to Romania through the ERDF for the transport sector. The Sectoral Operational Program for Transport (SOPT) and the Regional Development Plans, estimate that Cohesion Funds for the transport sector would provide around EUR 2.9 billion over the period 2007-2013, and will require some EUR 508 million co-financing by the Government (based on an average 15 percent of eligible project costs). ERDF would provide some EUR 1.1 billion over the same period requiring some EUR 454 million of Government contribution. It is expected that the road networks would receive one half ofthese funds and the railways one third.
15. While EU accession brings with it an opportunity to close the investment gap in the road and railway sub-sectors, the efficient absorption ofthese funds remains a challenge for Romania. The ongoing ISPA and PHARE programs, for instance, have suffered from severe implementation problems. The two companies, RNCMNR and CFR, need to strengthen their capacity to plan, and manage infrastructure investments. They need to reinforce their skills to rigorously set priorities and to prepare realistic financing plans that fit within the overall medium term expenditure framework (MTEF) defined by the Government.
2. Rationale for Bank involvement
16. The proposed Transport Sector Support Project (TSSP) will help the Government implement the roads and railways investment program through direct support for the roads and railways Infrastructure Maintenance Program. The World Bank has actively supported the transport sector in Romania through three investment operations and advisory services since the mid-1980s (see Annex 2). The most recent Bank operation, the Transport Restructuring Project (TRP) finances new road investments, the construction of selected road bypasses and, for railways, the procurement of railway maintenance equipment to support CFR’s mission as the
4 infrastructure manager. The TRP includes a significant institutional development component to be achieved through a series of technical assistance inputs as well as the provision of management information systems to improve the quality ofdecision making for the management of both the railways and roads. In view of the similarity of the issues relating to financial management capacity previously raised for the RNCMNR in the CY2004 audit reports, the MTCT has decided that the technical assistance on building financial management capacity should also benefit CFR. The project also includes a small component for institutional development ofthe capacity for planning and managing urban passenger transport. It is expected that the technical assistance financed through the TRP will lead to: (i)an agreed policy framework for the transport sector committing the Government to the required reforms; (ii)a sustainable expenditure framework agreed by the Government for the transport sector that is linked to the MTEF; and (iii)steps being taken to build the essential institutional capacity required to implement the Government’s transport infrastructure investment program in the years immediately after EU accession.
17. The institutional capacity components supported by the TRP focus on improving the operation and data systems for road and railway infrastructure, and strengthening ofthe financial management capacity ofboth RNCMNR and CFR. This proposed project is designed as a logical complement to the TRP. The main physical component of this project involves periodic maintenance and rehabilitation of existing road and rail networks by RNCMNR and CFR, utilizing the management resources from the TRP.
18. The need for Bank engagement in the transport sector in Romania remains strong. Reforms in both roads and railways sectors have made good progress, albeit slower than planned. The essential framework for improved management and financing of transport infrastructure in Romania is now taking shape, and this project should firmly establish this in the early years of EU membership. This project has been developed to support both the management and financing of transport infrastructure in Romania. It is intended that the project will improve the capacity of MTCT to absorb the significant amounts ofEU grants that will be made available for the transport sector in Romania. It is also intended to complement the activities of other major international agencies active in Romania. The project is designed to substantially reduce the backlog of maintenance and ensure sufficient funding for rehabilitation during a period when a significant portion ofthe Government’s resources will be used to co-finance the EU grants.
3. Higher level objectives to which the project contributes
19. The Bank’s Country Partnership Strategy (CPS) for Romania covering the period 2006 - 2009 notes that “the overarching long term objective ofRomania is to achieve convergence with the EU. With a GDP per capita of around 33 percent ofthe EU-15 average, Romania has a large unfinished development agenda.” Consequently, the Government is committed to improving the competitiveness ofthe economy in order to be fully integrated in the EU open market within the shortest possible timeframe.
20. The CPS also notes that the main issues facing the transport sector are the poor quality of infrastructure, inadequate financing of maintenance and the need to complete the program of railway restructuring. Romania lacks high standard roads along the major trade corridors, and has a road traffic injury rate that is more than three times the EU average. The significant fall in
5 railway freight and passenger volumes requires rationalization of the network and services, as well improvements in labor productivity. Romania also needs a longer term strategy for the railways to ensure the financial viability of the railway companies and to modernize the infrastructure and rolling stock. However, the underlying problem with both the rail and road networks is the large accumulated backlog of maintenance that now requires significant resources to rehabilitate the infrastructure.
B. PROJECT DESCRIPTION
1. Lending instrument
21. The proposed USD 180 million Specific Investment Loan (SIL) will finance a portion of Romania’s 2006 - 2007 transport infrastructure investment program, particularly RNCMNR and CFR’s Infrastructure Maintenance Program. The national roads Infrastructure Maintenance Program was developed by RNCMNR and includes periodic maintenance and current repairs of important national roads in 2006 and 2007. The railways Infrastructure Maintenance Program was developed by CFR and includes maintenance, current and periodic repair and overhaul of interoperable’ railway lines in 2006 and 2007. The project uses a Program-Based Approach (PBA) to promote efficiency. Each year, the Bank and the Government will agree on the specific activities to be financed and included in the program for the following year. The Infkastructure Maintenance Programs for national roads and railways is estimated to cost USD 225 million, including physical and price contingencies, evenly split between roads and railways. This program is part of a long term investment plan aimed at clearing the historical backlog of maintenance of road and railway infrastructure. Implementing this program will improve efficiency, productivity and service to users of roads and railways. The project also includes building capacity in both road and railway administration and management, and targeted technical assistance. This will complement the extensive technical assistance component in the ongoing Bank-supported Transport Restructuring Project.
22. The MTEF prepared by the Government includes planned investments in the transport sector that will increase over the period 2007 - 2013, reflecting the significant commitments made in the Acquis Communautaires. The Government plans to finance this through a combination of EU grants, increased budget allocations, and sovereign debt including this Bank loan. This project has been structured as a SIL that could be followed by one or two SILs in future, depending on the Government’s fiscal policy. This will support the five-year transport infrastructure maintenance, rehabilitation and modernization program that has been designed to improve the quality of transport infrastructure and to address current concerns over inadequate maintenance expenditure as expressed by the EU and other donors.
23. The choice of a Specific Investment Loan, with a possible series of follow-up SILs, was assessed to be the most appropriate for this type of operation. An Adaptable Program Loan (APL) was initially considered, but rejected, although it would have had the advantage of easy linkage with policy reforms under the PAL and could have provided a strong reform incentive
____ Interoperable railway lines are defined by Government Decision No. 27/2004 and refer to Romania’s railway network excluding those lines which are part of the network downsizing plan outlined in the same Government Decision.
6 for the Government. However, the Government did not want to commit to an extended loan at the outset. Consequently, this project has been designed as a SIL operation covering periodic maintenance of roads and maintenance, repair and overhaul of railways in 2006 and 2007, and including technical assistance in 2006, 2007 and 2008, with retroactive financing for expenditures incurred during 2006 before the Loan signing date (subject to limits specified in the Loan Agreement). Future Bank loans could finance the remaining years of the Government’s transport investment program in the 2007 - 2013 period.
2. Program Objective and Phases
24. This project is the first of a possible series of loans aimed at assisting the Government’s effort to improve the overall quality of its national roads and railways networks during the first years after EU accession. The project focuses on the Government’s Infrastructure Maintenance Program, which is part of a larger investment program, and includes measures to strengthen the management capacity of the road and railway infrastructure companies. The project is designed to assist the Government in setting priorities and to foster stable financing for maintenance of existing road and railway infrastructure. As indicated in the Country Partnership Strategy, the World Bank would provide a maximum of USD 750 million over the period 2006 - 2010, including this proposed USD 180 million SIL that will cover 2006 - 2008.
25. The Government’s proposed plan for the period 2007-2013 includes investments in roads and railways infrastructure averaging EUR 2.5 billion and EUR 2 billion per year, respectively. The Government is in the process of revising this investment program to fit within the overall MTEF defined in the budget. The necessity to prioritize the program derives not only from financial constraints, but also from the need for a more balanced expenditure program, which better serves the development of the private sector and which avoids peaks and troughs in the investment program. The balanced program also permits gradual improvement in Romania’s absorptive capacity to utilize EU grants.
3. Project development objective and key indicators
26. The objective of the proposed project is to assist the Borrower to reduce transport costs through the improvement of the overall quality of its national roads and railways networks during the first years ofEU accession. This will be achieved through a number ofactions: (0 For the roads sector: a. Increasing the percentage ofnational roads in good condition. b. Providing sustainable fbnding for road maintenance, rehabilitation, and road safety, through a coherent multi-year rolling program. c. Improving the capacity within the Romanian road administrations (RNCMNR, ‘and others) to operate efficiently and effectively in managing road maintenance and rehabilitation. (ii) For the railways sector: a. Decreasing the number of hazard locations and the proportion of sections on the main lines subject to temporary speed restrictions, through repair
7 and rehabilitation of track infrastructure and signaling and electrification equipment. b. Providing sustainable funding for railway infrastructure maintenance, current and periodic repair and overhaul, through a coherent multi-year rolling program. c. Improving the capacity within the infrastructure railway company to operate efficiently and effectively in managing railway maintenance and rehabilitation.
27. Achievement of the project objective to reduce transport user costs will be confirmed by regular monitoring of road and railway quality indicators, as well as other performance indicators. Two output indicators will be measured to monitor overall progress: (i)the total length of roads receiving periodic maintenance (with a target of 2,400 km receiving surface treatment by end 2006, and 450 km receiving overlay be end 2007), and (ii)progress on the railway network rationalization. The table below specifies the project monitoring indicators, including the results expected at the end ofthe project.
Project End Monitoring Indicators I--- 1 2005Baseline I Endof2008 I Roads Road transport costs reduced on road sections financed 100 percent 60 percent through this project Percentage national roads in good or fair condition 61.5 percent 70.0 percent Funding for periodic road maintenance and current RON 363 million Increased by 30 percent repairs in current terms Implementation and Effective use ofRoad No Yes Management System by RNCMNR Capacity ofthe road administrations (RNCMNR) to Noarea-wide One area-wide manage road maintenance maintenance contracts maintenance contract Road user satisfaction surveys done and published None Onelyear Unit costs ofSummer road maintenance (total national RON 11,836 per Reduced by 9.5 percent road network 15.749 km) kilometer in current terms Railways Train operating speeds increased on rail sections 100 percent 140 percent for freight financed through this project 130 percent for passengers Length ofrailway track generating speed restrictions 630 5 85
Number ofhazard locations on the interoperable lines I 1,060 1,030 Effective development and use ofa rolling medium- No Yes term (5-year) railway infrastructure maintenance planning system* Effective use ofan economic evaluation methodology No Yes acceptable to the Bank for preparing the Annual Infrastructure Maintenance program Train operators satisfaction surveys done and None Onelyear published
8 4. Project components
28. The proposed loan of USD 180 million will contribute to financing a USD 225.0 million Infrastructure Maintenance Program that includes periodic maintenance and current repair of national roads, and maintenance, current and periodic repair and overhaul of interoperable railway lines in 2006 and 2007. This program was developed by RNCMNR, CFR, and MTCT, with the support of the Ministry of Public Finance. The proposed project includes two components for: (i)Road Sector Support; and (ii)Railway Sector Support. For both components, disbursement of loan proceeds initially will be based on statement of expenditures (SOEs), with the possibility of adopting a programmatic approach so that disbursements would based on interim financial reports (LFRs).
29. Component A: Road Sector Support, [ USD 112.5 million, Loan USD 90.0 million]. This component supports RNCMNR’s Infrastructure Maintenance Program which includes periodic maintenance and current repairs works on national roads, as well as technical assistance to RNCMNR. The component covers:
(i) Periodic maintenance and current repairs works on national roads [ USD 109.5 million, Loan USD 87.6 million], This comprises financial support for the RNCMNR’s Infrastructure Maintenance Program planned for 2006 and 2007, which is part of a larger national roads development program that covers the period up to 2013. Supporting this component ensures that there is an appropriate balance between expenditures on maintenance, reconstruction and development within the multi-year road investment program. (ii) Technical assistance for RNCMNR, [USD 3.0 million, Loan USD 2.4 million]. This comprises studies and consulting services to be carried out in 2006,2007 and 2008 aimed at: (a) preparing and implementing a pilot of output-based area-wide multi-year maintenance contracts, with the objective of gradually expanding the coverage to the entire country within four years; (b) hiring a Technical Adviser to improve management and technical capacity within the RNCMNR; (c) conducting a first road user satisfaction survey; (d) training of relevant staff within RNCMNR on the preparation, procurement and technicallfinancial management ofmaintenance activities; and (e) the design ofperiodic maintenance and current repair road works.
30. Component B: Railway Sector Support, [USD 112.5 million, Loan USD 90.0 million]. This component supports CFR’s Infrastructure Maintenance Program which includes maintenance, current and periodic repair and overhaul of interoperable railway lines, and technical assistance to CFR. The component covers:
(i) Maintenance, current and periodic repair, and overhaul works on interoperable lines, and supply ofnecessary goods, [ USD 98.7 million, Loan USD 79.0 million]. This comprises financial support for CFR’s Infrastructure Maintenance Program for interoperable lines planned for 2006-2007. This program is part of CFR’s longer term infrastructure maintenance program spanning 2006-20 10 whose main
9 objective is to eliminate temporary speed restrictions and improve traffic safety. This component is designed to fund three types of maintenance works: (a) overhaul ofpublic infrastructure (i-e., tracks, bridges, tunnels, and embankments), as well as interlocking and signaling electrification systems (45 percent of cost); (b) repair and maintenance ofthe above public infrastructure (35 percent ofcost); and (c) repair and maintenance of interlocking, signaling, and electrification systems (20 percent ofcost). (ii) Technical assistance for CFR, [USD 13.8 million, Loan USD 11.0 million], comprising studies and consulting services to be carried out in 2006, 2007 and 2008 and needed for the implementation of the maintenance program, including (a) the design and inspection of maintenance works; (b) procurement and financial management training; and (c) support to improve railway management practices through the development of updated Business Plans for the periods 2007-201 1 and 2008-2012, that will: (i)follow a structure agreed with the Bank, (ii)in line with the recommendations made by the consultants in the context ofthe TRP technical assistance, and (iii)be consistent with the Government’s Medium- Term Expenditure Framework (MTEF). The development of an immediate and medium-term (5 year) maintenance plan based on the effective use of the IT system and the track geometry car will be carried out through the TRP Technical Assistance for CFR’s maintenance management program.
Project Cost by Component (US0 million) Project Cost By Component and/or Activity Borrower World Total Bank Component A: Road Sector Support 22.5 90.0 112.5 Component A.1: Periodic maintenance works of national roads 21.9 87.6 109.5 Component A.2: Technical assistance for RNCMNR 0.6 2.4 3.0 Total Cost for Roads 22.5 90.0 112.5
Component B: Railway Sector Support 22.5 90.0 112.5 Component B.1: Maintenance, repair and overhaul works of main 19.7 79.0 98.7 lines, and supply of necessary goods Component B.2: Technical assistance for CFR 2.8 11.0 13.8 Tntal Pn4t fnr Railwavc 22.5 90.0 112.5
Total Project Cost 45.0 180.0 225.0
5. Lessons learned and reflected in the project design
31. Preparation of this project has benefited from the lessons learned during previous Bank- financed projects in the transport sector; the Railway Restructuring Project (Loan 3976-R0), the Second Roads Project (Loan 4178-RO); and the ongoing Transport Restructuring Project (Loan 4757-RO). The Railways project, rated ‘highly satisfactory’ by the Borrower in the ICR is an indication of the value attached to the project outcomes. The key lessons learned from these projects are that:
10 0 The rapid growth of the Romanian economy, and the drive to join the EU, has created higher than expected demands on transport facilities. From 2000 and 2004, transport of goods carried by rail, road, or inland waterways has grown in terms of ton-kilometers at an average annual rate of 15 percent, close to three times faster than the growth of the economy which recorded an average annual growth rate in real terms of 5.1 percent. Institutional development and sector financing have lagged behind. The ongoing TRP, and the PAL projects, have substantial institutional restructuring objectives; the current project, while complementing the institutional objectives, focuses on ensuring the investments. Bank supervision needs to help manage the process.
Projects financed by the Bank constitute a small percentage ofthe total investment in the transport sector; less than 10 percent in the case ofRomania in 1996-2003. Although, the Bank’s technical support is invaluable to the Borrower, coordination of the various IFI- financed projects should always remain the responsibility of the Government.
0 Projects need not be planned to the last minutiae. The implementing agencies should have the freedom to manage projects in order to achieve the development objectives within the resources made available to them. The present project seeks to use country systems to foster self reliance.
0 The Romanian implementing agencies are competent in procuring and implementing civil works. Technical cooperation is needed in conceptualizing and implementing new management methods, training both management and staff, prioritizing projects within a hard budget constraint, and in updating standards and regulations.
32. The above lessons guided the project preparation activities, a large part of them being carried out and financed by the Borrower, including the identification of project components, project feasibility and design studies, and safeguards analyses. Investment priorities for the transport sector were defined by the Borrower, and project components were selected from the priority list prepared by Borrower.
33. Finally, it is pertinent to note that the legal framework, several safeguards requirements, and financial management standards now applied in Romania are broadly in line with the Bank’s own requirements and standards. Project preparation was therefore carried out using the Borrower’s laws and requirements for certain safeguards and fiduciary standards. The Bank’s team reviewed Romania’s systems for safeguards at an early stage to identify the areas of key differences with the Bank’s requirements where additional inputs would be necessary for full compliance with the Bank’s own standards and procedures.6
6. Alternatives considered and reasons for rejection
34. The proposed operation has been tailored to respond to the Government’s specific request for Bank support in the transport sector for activities that are not included within the scope ofEU grant funds. Most of the immediate needs are being addressed by loans from the Bank (Loan
Safeguards Diagnostic Review for Piloting the Use of Romanian Systems to Address Environmental and Social Safeguard Issues in the Proposed World Bank-Assisted Romania Municipal Services Project and Transport Sector Support Project. Equivalence and Acceptability Assessment Report. World Bank, Draft January, 2006.
11 4757-RO) and other IFIs (particularly EIB and EBRD), as well as from ISPA and the Cohesion funds. Although the rehabilitation ofboth the road network and the railway network are accorded high priority, these have not received adequate funding. This project addresses road and rail maintenance from three angles: (i)it provides funding for the periodic maintenance ofimportant roads and main railway lines; (ii)it aims at creating a stable funding mechanism for road and railway infrastructure maintenance; and (iii)it seeks to close the remaining technical assistance and management gaps by complementing the ambitious technical assistance program included under the Transport Restructuring Loan and the PALS7
C. IMPLEMENTATION
1. Partnership arrangements
35. The MTCT will have overall responsibility for project oversight and coordination with other IFIs, the EU (ISPA and Cohesion fund programs), bilateral agencies, and the private sector partners. There is an extensive technical assistance component in the Transport Restructuring Project, in addition to those financed by the EU and other IFIs such as EBRD and EIB. These technical assistance services are fully coordinated, and the Bank project team keeps in regular contact with these entities to coordinate and cooperate both in lending and technical assistance.
36. The road and railway components of the project will be managed separately; the RNCMNR will manage all the roads components, whilst the railways infrastructure company, CFR, will manage all the railways components.
2. Institutional and implementation arrangements
37. Project Management. The RNCMNR has well established departments or units that perform specialized functions such as planning and development, road safety, maintenance management, financial management, and a PPP unit. Consequently, the project will utilize established procedures for procurement and financial management. The various departments and units within RNCMNR have previous experience with managing IFI-financed projects (including the World Bank, EIB, EBRD, etc), and therefore the present administrative arrangements within the organization will be maintained. Because of recent management changes, the ongoing TRP project provides technical assistance on reorganizing RNCMNR and managing it more effectively.
38. Management of the railways components will be undertaken by CFR under the supervision of the General Directorate for Railways (GDR) within the MTCT. A Project Management Unit (PMU) was established within GDR and seconded to CFR under the previous Bank-financed project. The PMU has competent staff that has accumulated significant experience with the fiduciary procedures and requirements of IFIs.
’The PAL3 project had two core conditions for the transport sector: removal ofthe non-core railway track segments from the CFR assets, and approval of a revised schedule of road user charges to cover 70% of all road costs (excluding new investment). The latter was further linked to EU road user charge study, which unfortunately, has failed; the result has been termed ‘highly unsatisfactory’ by the EU. It may be necessary to reactivate the Bank road user charge study as initially planned.
12 39. Financial Management. The significant strengths that will provide a basis for reliance on the project’s financial management systems include the experience of the existing project implementation teams. The IF1 projects unit within RNCMNR is currently in charge of the implementation ofthe roads components of the Transport Restructuring Project (TRP), and also successfully implemented the Second Roads Project. The Project Management Unit within the CFR is currently in charge of the implementation of railways components of the TRP, and was also in charge of the successful implementation of the Railway Rehabilitation Project. The financial management capacity ofthe two implementing entities and, in particular their ability to prepare financial statements in accordance with IFRS requirements, will also be strengthened through specific technical assistance provided under the TRP. The existing project implementation teams established within the RNCMNR and the CFR, will be responsible for the financial management aspects of the roads components, and of the railways components, respectively.
40. The Project, to be implemented from 2006 to 2008, will have a Loan closing date of December 31, 2008. Maintenance works will be implemented in 2006 and 2007, whereas technical assistance activities will be carried out from 2006 - 2008. Supervision missions will assess progress made, using performance indicators selected for the project.
3. Monitoring and evaluation of outcomeshesults
41. For the road sector the indicators for the project’s results will come from the road data register that will be implemented under the TRP, which is financing enhancements to the road database, as well as capacity building activities for the RNCMNR staff. The TRP technical assistance also includes the development ofperformance indicators for the road sector.
42. For the railways, the monitoring information is provided by the IRIS, and Oracle Financials, both of which are already in operation with trained personnel and used by the management. The railway maintenance management system being developed under the ongoing TRP will provide another stream of information; the system development includes a training component. In sum the data systems either exist or will be developed under the TRP and permit comprehensive monitoring and evaluation of project outputs in network context. As a backup, should delays occur, the normal engineering supervision will provide project specific monitoring and evaluation.
4. Sustainability
43. The borrower has implemented past projects well and the results have been sustained. Important to future sustainability is, however, the successful implementation of the technical assistance tasks in the ongoing TRP, whose satisfactory implementation progress is a condition to the success ofthe present project. In addition, the project will seek sustainability for the roads component by: (i)developing and carrying out of the 5-year road program for maintenance and rehabilitation as formulated by RNCMNR with the assistance of the road management and road data systems under development within the TRP; (ii)securing a stable and predictable funding mechanism for the road sector under the MTEF approved by both the MPF and MTCT; (iii) reorganizing RNCMNR maintenance functions to improve efficiency in implementing the road sector expenditure program; and supporting a Technical Adviser consultant to advice on
13 implementing institutional restructuring required under this project and in the TRP. For the railways, this will be achieved by: (i)supporting CFR in updating and implementing its 5-year rolling Business Plan inclusive of a 5-year maintenance program and business redesign action plans derived from TRP technical assistance; (ii)providing training on procurement and financial management for relevant staff in CFR; and (iii)improving the overall financial position of CFR through reduced maintenance costs.
5. Critical risks and possible controversial aspects
44. Risks. In the road sector, the proposed project is a moderate risk operation. RNCMNR has implemented IF1 funded projects and has an annual financing gap for its road maintenance program. The main risk is institutional. There has been a large turnover ofleadership and staff; six Director Generals in five years and recent departure of competent staff. Another risk that is mitigated by the agreement in principle on the MTEF, is the availability of sufficient budgetary funds for road maintenance and rehabilitation, and for counterpart funds for the ISPA projects. Both risk factors will be mitigated through careful and timely assessment of the 5-year road program and the supporting MTEF, together with support from the IFIS,as well as close monitoring of the technical assistance activities, especially the road management and data systems, and reorganization ofthe maintenance function.
Mitigation Measure
Risk Rating: H = High; S = Substantial; M = Modest; N = Negligible or Low
14 45. For the railways the three critical risks are: the lack of management support to continue railway restructuring along the agreed path; modernizing railway track maintenance principles; and, making full use of the management tools developed under the previous projects. The last two issues are addressed through TRP technical assistance. Frequent and effective supervision and cooperation with the management are additional means to mitigate these risks.
46. Controversial Aspects. There are no controversial issues foreseen to arise during the implementation ofthe project. The proposed project is focused on road and railway infrastructure maintenance and rehabilitation, and the environmental and social impacts are overwhelmingly positive. There may be occasional discomfort when railway lines are closed to allow for major overhauls and when more competition is introduced to road maintenance. However, the consequent better railway infrastructure, roads, better traffic safety, and private sector expansion with attendant employment opportunities with higher pay scales will attenuate it. Public participation events where the Government road programs have been presented, normally to well-attended meetings, have recorded widespread public support for modernizing and rehabilitating the road network.
6. Loadcredit conditions and covenants
47. The following conditions need to be satisfied prior to each stage of the project preparation:
Negotiations: 0 Transmission by the RNCMNR and CFR to the Bank of the Program of activities for 2006-2010 for the transport sector of the Borrower designed to improve the road and railway infrastructure. [This condition was met prior to Negotiations.] 0 Submission by RNCMNR and CFR of the annual Infrastructure Maintenance Program for 2006 approved by MTCT. [This condition was met prior to Negotiations.]
Board Presentation : 0 None.
Effectiveness: The RNCMNR Subsidiary Agreement has been executed on behalf of the Borrower and RNCMNR. 0 The CFR Subsidiary Agreement has been executed on behalf of the Borrower and CFR. 0 RNCMNR has submitted to the Bank its audited financial statements for 2004 satisfactory to the Bank. [Since no changes were made to the Loan Agreement after the negotiations in May 2006, it is noted that the 2004 audit reports for the RNCMNR were received on June 30, 2006 and were deemed satisfactory to the Bank. Hence, this condition was met prior to presentation of the project to the Board.]
15 Other covenants: 0 RNCMNR and CFR shall submit to the Bank quarterly Project reports, in a format satisfactory to the Bank, not later than 45 days after the end of each quarter outlining the progress made in the implementation of the Project, as well as the problems encountered and how they are being addressed. 0 The project is carried out in conformity with the provisions of the Environmental Legislation. 0 The first three environmental impact assessment reports and the first three environmental permitsAicenses that maybe required for the carrying out ofthe Project shall be sent to the Bank. 0 The Borrower, through RNCMNR and CFR, shall ensure that all land acquisition under the Project shall be undertaken in accordance with the Land Acquisition Framework, and the Information Brochure shall be sent to all effected persons at the onset thereof along with the notice ofexpropriation.
Financial Management Condition and Covenants: 0 The project implementing entities will each maintain a financial management system acceptable to the Bank. The project’s financial statements, financial reports, withdrawal applications and designated accounts will be audited by independent auditors acceptable to the Bank and on terms of reference acceptable to the Bank. The RNCMNR and CFR entities financial statements will be audited by independent auditors acceptable to the Bank and on terms of reference acceptable to the Bank. The annual audited statements and audit reports will be provided to the Bank within six months ofthe end ofeach fiscal year.
Legal Covenants 0 Standard legal covenants
D. APPRAISAL SUMMARY
1. Economic and financial analyses Roads components
48. RNCMNR has conducted cost-benefit analyses for the periodic maintenance of road sections to be included in the first year ofthe Infrastructure Maintenance Program. This program covers some 2,600 kilometers ofnational roads. The assessment has shown positive Net Present Values (NPV), with a total NPV USD 165 million at a discount rate of 12 percent. The evaluation was done using the Highway Design and Maintenance model (HDM-111), which simulates life cycle conditions and costs and provides economic decision criteria for road construction and maintenance activities.
Railways components
49. CFR’s proposed Infrastructure Maintenance Program to be supported by this project spans over the period 2006-2010. The program focuses on interoperable railway lines that provide EU interoperability on the Romanian railway network. The program includes
16 maintenance, current and periodic repair and overhaul of track, switches and points, bridges, tunnels, culverts, and modernization of electrical and signaling systems. It is expected that implementing this program will improve the current capacity by eliminating speed restrictions.
50. The economic assessment of the program assesses each line separately with economic benefits derived from: (i)direct savings on track maintenance; (ii)removal of speed restrictions leading to time savings for passengers, savings in freight costs due to better utilization of wagons and locomotives, and savings in train crew costs, The result of the economic analysis shows positive Net Present Values for the program of all ofthe lines included in CFR’s program, with a total NPV of USD 173 million at 12 percent discount rate. Further details are provided in Annex 9.
2. Financial analysis Roads component
5 1. RNCMNR transformation into a joint-stock company subject to private company law has brought out issues relating to the short and long term financial health of the company and internal financial management weaknesses.’ In addition to the need to address these issues, it is also expected that EU accession will require some changes in the financing ofthe road sector in Romania. In order to meet these challenges, the Government has developed an action plan aiming to ensure compliance with EU Directive 2006/38/EC on road user charging systems, to improve the short and long term financial health ofthe company and to remedy internal financial management issues. This action plan is supported by technical assistance to be funded under the on-going TW. The proposed loan will finance a portion of RNCMNR’s periodic maintenance program. Historically, RNCMNR has financed administrative expenses, routine and periodic maintenance, and repair works using contributions from the State budget. This was supplemented with proceeds from the Road Fund until 2002, when the Road Fund was abolished and replaced with a system of Rovinieta. However, the transition period from the Road Fund until the full introduction ofRovinieta in 2008 has left RNCMNR with a substantial financing gap. RNCMNR has used short term loans to fill this gap. By 2008, Rovinieta rates will be set at the maximum allowable by the EU bringing annual revenues to around EUR 280 million. Fuel excise taxes, which are the main charge road users pay, are channeled directly to the State budget. In 2004, only EUR 51 million from the budget was spent on national road maintenance and repairs, and the State Budget contribution to national roads in 2004 was EUR 248 million out oftotal national roads expenditures of EUR 721 million. Excise taxes on fuel used in the road sector were estimated at around EUR 810 million in 2004. The average excise tax was EUR 0.26 per liter, which is at the lower end of all EU25 countries. Romania has committed in the Accession Treaty to gradually increase these taxes after EU accession. Annex 9 provides a summary of public expenditures on national roads in Romania.
Railway component
52. The financial profitability of the project for CFR was assessed by discounting the incremental cash-flow generated by the maintenance, repair and overhaul works included under the railway component over the next 20 years at the World Bank loan interest rate, with and
Both financial performance and management issues were identified in the 2004 entity audit report ofRNCMNR.
17 without the project. The implementation ofimproved maintenance practices and planning system was estimated to reduce permanent way maintenance cost by 3 percent and labor costs by 2 percent annually over the period 2008-2009. The financial analysis indicates that the project is financially viable, with a financial internal rate ofreturn of 13 percent and a positive net present value (NPV) of USD 68.6 million at a discount rate of 6 percentg. The details of the financial analysis of the project as well as a detailed analysis of projected financial performance of the railway sector in Romania, including its fiscal impact on the Government budget, are presented in Annex 9.
3. Technical
53. The design standards used for the periodic road maintenance and for the railway infrastructure maintenance, repair, and overhaul to be financed under this project are based on Romanian standards, which are compliant with existing European and international standards. RNCMNR and CFR have good capacity in road and railway engineering and operations respectively. Both RNCMNR and CFR have long experience with the Bank, as they have successhlly implemented several Bank-financed projects during the past decade. There should therefore be no major technical issues for this project, other than to ensure that quality control is adequately administered both at the design and implementation stages.
4. Fiduciary
54. Procurement. The procurement activities for the railways components will be carried out by CFR. This central entity in Bucharest is staffed by very experienced staff with extensive knowledge of IF1 programs as well as Bank procurement procedures. A training program in procurement and other fiduciary and management activities, included in the procurement plan after appraisal, should assist to further strengthen the capacity, including at the regional level where track maintenance contracts could be procured. Procurement ofthe roads components will be undertaken by RNCMNR. A review ofthe procurement capacity at pre-appraisal highlighted the need to strengthen RNCMNR procurement capacity. The prior review thresholds set out in the procurement plan, can be adjusted after a reassessment of the procurement capacity made during supervision missions. Prior review of the first two National Competitive Bidding (NCB) procedures for works (at least one for a CFR contract, one for a RNCMNR contract), and ofthe NCB contracts estimated to cost more than USD 2 million will be used as a learning and training exercise. A training program in procurement and other fiduciary and management activities is also included in the project and should assist to further strengthen the capacity, including at the regional level. With capacity building, the other main goal of the first year of implementation will be the review and harmonization ofNCB procurement procedures and documents acceptable to the Bank, which is required after the passage of the new Romanian Procurement Law. The completion of a mid-term assessment of capacity building in procurement, may allow the revision ofthe thresholds, more particularly for the main components including maintenance and repair works.
55. The key issues and risks concerning procurement for implementation of the project have been identified and include staff turnover resulting from low civil service remuneration, and the
9 Based on VSL with 17 years maturity, 5 years grace, USD LIBOR 6 months + 0.33 percent.
18 general country procurement climate and capacity". The corrective measures that are required have been discussed with MTCT, RNCMNR and CFR. The Bank has been informed that the government has approved changes to the remuneration ofMTCT staff working on IF1projects to align this with those of staff working on EU projects, but this was yet to be implemented at the time ofAppraisal. The implementation ofa training program in Bank-financed procurement and financial management is also included in the ongoing Transport Restructuring Project and will be useful in building capacity in the sub-sector before effectiveness ofthis Loan.
56. Financial Management. The financial management arrangements of the project are acceptable to the Bank. The overall financial management risk for the project is moderate.
57. However, as of the date of this report, the Borrower is not in compliance with the audit covenants for the Second Roads Project (Loan 4178-RO) and for the Transport Restructuring Project (Loan 4757-RO). These covenants require submission to the Bank of the audited CY 2005 Financial Statements for both RNCMNR and CFR, which were due on June 30, 2006, but had not yet been received. According to the action plan agreed with the MTCT, both entities will submit their CY2005 audit reports by May 3 1, 2007. A waiver ofBank Operational Policy OP 10.02 was therefore approved by Bank Management, regarding the delay by RNCMNR and CFR to submit the audited CY 2005 Financial Statements.
58. The first Country Financial Accountability Assessment (CFAA) for Romania was finalized in December 2003 and concluded that the overall fiduciary risk associated with the public financial management and financial accountability arrangements of the Romanian Government administration is considered to be moderate, with the systems for accounting, financial reporting and internal control representing the areas with the higher risks and budgeting, cash management and external audit and Parliamentary oversight representing the lower risks.
59. The implications ofthe CFAA for the project are addressed by the following actions:
0 A detailed review of the systems was performed for each project implementing entity. 0 Each project implementing entity has a distinct project-specific accounting ledger. 0 Project accounting staff has been nominated for each project implementing entity. 0 The format of the Interim Financial Reports (IFRs) was agreed with both project implementing entities. 0 RNCMNR and CFR entities' as well as Transport Sector Support Project financial statements will be audited by an independent auditor annually.
60. The project will rely to the extent possible on several elements of institutional financial management country systems, as follows:
0 Staffing: the project staff will be employees ofRNCMNR and CFR. 0 Internal control: the project will use the existing internal control mechanisms within the project implementing agencies.
loJoint Procurement Assessment Monitoring report. Joint World Bank and EU report (2004).
19 e Flow offunds: the Project will use the Treasury to the extent possible. e Accounting and reporting: the Project will rely on the existing systems within RNCMNR and CFR. e Internal audit: the Project will increasingly rely on internal audit departments. e External audit: the Romanian Supreme Audit Institution, the Court of Accounts will perform an operational review the Project.
61. Disbursement Arrangements. Bank funds will be disbursed either as direct payments, or to the two designated accounts opened by each entity, which will be initially replenished under the transactional disbursement procedures. Subsequently, the Borrower may elect to change to report-based disbursement procedures, which will require withdrawal applications to be accompanied by quarterly un-audited interim financial reports (IFRs). Supporting documentation for all transactions, including completion reports, goods received notes and acceptance certificates, will be retained by the implementing entities and made available to the Bank during project supervision. Retroactive financing of eligible project expenditures from January 1, 2006 until the expected date of signing of the Loan Agreement will be allowed up to an aggregate amount ofUSD 36 million.
62. Reporting and Monitoring. Quarterly interim financial reports (IFRs) will be used initially for project monitoring and supervision and subsequently, once the Borrower elects to change to report based disbursement, IFRs will be used for disbursement purposes and project monitoring and supervision. The project implementing teams in RNCMNR and CFR will produce the project’s IFRs every calendar quarter and the reports will be submitted to the Bank. Formats of IFRs were attached to the minutes ofnegotiations.
5. Social
63. Poverty Category. The loan is not a poverty-focused operation. However, it supports the Government’s road sector policy of broad, evenly distributed benefits and promotion of economic growth, and improved road safety. Improved transport facilities provide access to schools, health and job markets, especially in rural Romania. Road and railway works also generate substantial employment. While this impact may be temporary, the proposed loan will help facilitate stable and sustained funding for the roads, which fosters the development of private sector industries and provides for sustained employment in the sector.
64. Participatory EZements. Preparation ofthe project took place during a time when severe floods had impaired both road and railway services. There was a public debate on the condition ofthe Romanian transport network. The Government has been involved in explaining the sector objectives to the public.
65. Public Information. A successful implementation of the project and the sector restructuring will require public and political support. To this end, the Government is encouraged to establish a broad public information and participation program to inform the public ofthe new transport sector organization, the proposed road and railway program, and to seek comments and feedback from the public on an annual basis.
20 6. Environment
66. The proposed loan will support the rehabilitation and modernization of the railways and the national roads, and their administration, management, and financing. As a Sector Investment Loan, it has been rated a Category B project during the project safeguards consultation meeting. The loan supports investments which are appraised on a network rather than case by case basis. To ensure that the project will not negatively impact the environment, due diligence will be carried out for each subproject. A description of the proposed project has been prepared and made available to the public.
7. Safeguard policies
67. Equivalence and Acceptability Assessments: This project was selected for piloting the use of country systems under the Bank’s OPiBP 4.00. Thus a safeguards diagnostic study was undertaken to assess (a) the equivalence of Romanian systems and World Bank requirements, and (b) the acceptability of implementation practices, track record and capacity of the agencies involved”, The review covered the area of Environmental Assessment, and Involuntary Resettlement. Under the Bank’s policy on Environmental Assessment, the project could be categorized as an environmental category B since the investments will have no significant impact on the environment. The policy area of involuntary resettlement was included to cover the event that land acquisition may be needed.
68. The equivalence and acceptability assessment was carried out by an interdisciplinary team of Bank staff in collaboration with relevant Government staff. The World Bank review included meetings and site visits in cooperation with environmental officials at the local and regional levels. The methodology included desk review of current in force legislation and supporting mandatory guidelines, discussion with Government officials and other relevant environmental authorities, as well as field visits in various parts of Romania. The results of the diagnostic review indicate that the operational principles ofEnvironmental Assessment as stated in Table A1 of OP 4.00 and the Romanian EL4 system have many common features and that there are no gaps in equivalency. With respect to the acceptability, it was also found that Romania’s current approach to EL4 conforms to OP 4.00. With regard to Involuntary Resettlement, the diagnostic review found several differences between Romania’s system pertaining to land expropriation and the operational principles on Involuntary Resettlement as stated in Table A1 of OP 4.00. Consequently, it was later decided not to include Involuntary Resettlement as a pilot for use of country systems and to revert to the World Bank operational policy on Involuntary Resettlement (OPBP 4.12). At the time of appraisal, it became clear that the list of road and rail sections to be financed under this project did not require any land acquisition, and therefore OP 4.12 on Involuntary Resettlement was not triggered.
‘I Safeguards Diagnostic Review for Piloting the Use of Romanian Systems to Address Environmental and Social Safeguard Issues in the Proposed World Bank-Assisted Romania Municipal Services Project and Transport Sector Support Project. Equivalence and Acceptability Assessment Report. World Bank, Drafl January, 2006.
21 69. World Bank supervision on safeguard-related matters will continue throughout the implementation of the proposed project to: (i)ensure compliance with “equivalent and acceptable” Romanian procedures, (ii)ensure compliance with Bank policies if7where they apply in lieu ofRomanian systems, and (iii)more broadly, track results in environmental outcomes.
70. Public Consultation and Disclosure: Staff from the Ministry ofEnvironment and Water Management (MEWM) and the World Bank jointly organized a public consultation workshop to discuss the draft version ofthe Equivalence and Acceptability Report in Bucharest in December 2005. The MEWM had circulated copies ofthe Executive Summary ofthe draft report to a large number individuals and relevant agencies inviting for their participation and comments. Over thirty-five people, representing NGOs, EA consultants, academia, and various Government departments, attended this workshop. Participants expressed their support to the proposal to pilot Romanian Environmental and Social systems in the context of the project and agreed with the findings and gap filling actions proposed to achieve and sustain equivalence and acceptability. The full report including the executive summary discussed during the workshop was disclosed in Romania and in Washington on January 25,2006.
71, Land AcquisitionResettIement Policy Framework. As indicated, at the time of Appraisal it was determined that OP 4.12 on Involuntary Resettlement is not triggered. However, it was recognized that during project implementation, safety concerns may require straightening of some road or rail sections and that such action could require land acquisition an&or involuntary resettlement. Should such a situation arise, the Land Acquisition / Resettlement Policy Framework prepared by RNCMNR, and approved by the Bank for the Transport Restructuring Project (Loan 4757-RO) will be adapted for use in this project. In the event of any land acquisition or involuntary resettlement, an updated version of the Land Acquisition / Resettlement Policy Framework, to be satisfactory to the Bank, will be prepared and disclosed for a minimum of 60 days prior to the start of any land acquisition process. In addition, an Information Brochure for affected land owners will be prepared and made available in advance to potentially affected persons outlining the expropriation process in accordance with OP 4.12 provisions and the applicable Romanian Laws.
72. The safeguards policies triggered by the project are as follows:
22 Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) [I [XI Natural Habitats (OP/BP 4.04) [I [XI Pest Management (OP 4.09) [I [XI Cultural Property (OPN 11.03, being revised as OP 4.11) [I [XI Involuntary Resettlement (OP/BP 4.12) Indigenous Peoples (OP/BP 4.10) Forests (OP/BP 4.36) [I [XI Safety ofDams (OP/BP 4.37) [I [XI Projects in Disputed Areas (OP/BP/GP 7.60)* [I [XI Projects on International Waterways (OP/BP/GP 7.50) [I [XI Piloting the Use ofBorrower Systems to Address Environmental and Social Safeguard Issues in Bank-Supported Projects (OP/BP 4.00) [XI [I
73. The safeguard diagnostic review report was made available at the InfoShop on January 25,2006, and disclosed in the country on January 24,2006.
8. Policy Exceptions and Readiness
74. The project requires one exception to Bank policy regarding submission of audits. The Borrower is not in compliance with the audit covenants for the Second Roads Project (Loan 4178-RO) and for the Transport Restructuring Project (Loan 4757-RO) as previously described in paragraph 57. A waiver of Bank Operational Policy OP 10.02 was approved by Bank Management, regarding the delay by the two implementing entities to submit audited Financial Statements for CY2005.
75. The project meets the regional criteria for readiness for implementation.
' By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas
23 Annex 1: Country and Sector or Program Background ROMANIA: TRANSPORT SECTOR SUPPORT PROJECT
The Romanian Economy Romania is classified as a lower middle income country with GNI per capita ofUSD 2,940 and population of some 22 million. It is the second largest country in Central and Eastern Europe, and is larger than 10 ofthe 15 current members ofthe European Union.
The country is in the process of comprehensive restructuring of its economy with a view to joining the EU in 2007. Romania's transition, began in 1990, has not been easy. In order to minimize the social costs of transition, the Government initially hesitated to impose tight fiscal constraints and privatization of large, loss-making State-Owned Enterprises. Attempts to impose macroeconomic stability without restructuring support led to negative economic growth and poverty increased.
Economic growth has returned in the past three, four years, but important challenges remain. Structural reforms are needed to build a competitive market economy for EU integration. Poverty remains widespread with some 25 percent ofthe population living below the poverty line. About 60 percent ofthe poor live in rural areas despite the country's substantial potential in agriculture, forestry and fisheries.
Starting in 2000, the Government implemented macroeconomic policies which were supportive of growth. A disciplined fiscal policy, complemented by a tight monetary policy and augmented with structural reforms, led to improved financial discipline in the enterprise sector and placed public finances and the financial system on a firmer footing.
This resulted in robust GDP growth for two consecutive years: 4.9 in 2003 and 8.3 in 2004. In addition, inflation and interest rates declined, the fiscal deficit was brought under (temporary) control, and the external balance was comfortable. Romania became an attractive destination for international investors with better sovereign ratings and improved access to international capital markets. Change in Government in 2005, and consequent changes in economic policies is bringing-and has brought-a measure of uncertainty. However, it is expected that favorable economic development will continue in Romania.
As a result of the sustained growth, road freight traffic increased markedly. In 200412, roads, railways and inland waterways handled 64, 29 and 7 percent of freight respectively in terms of ton-km.. Truck transportation is expected to grow faster than the economy. Road traffic growth also comes from increased vehicle ownership. There were 4 million registered motor vehicles, including 3.2 million cars in 2004. The average annual growth rate in fleet size is about 4.5 percent. Vehicle ownership is presently 136 cars per 1,000 inhabitants, still much less than most of the EU. It is expected that there will be rapid growth in car ownership and personal travel. Intercity bus travel, an economic and highly competitive mode, will also continue to grow and win market share from rail passenger services. Road traffic has indeed grown rapidly; the
'*Drafi Sectoral Operational Program - Transport (SOPT) 2007-2013. MTCT, April 2006.
24 annual traffic growth has been about 7percent between 2000 and 2005. In 2004, the modal shares passenger-kilometers ofprivate cars, public road transport, and railways were 75, 13, and 12 percent respectively.
The Road Network, Its Administration and Management Romania’s public road network totals about 78,800 km. They are classified in a three-tier system: national (arterial) roads (15,000 km), county (collector) roads (app. 36,000 km), and communal (local) roads (app. 27,800 km). In addition there are some 22,000 km of city streets, and 30,000 km village roads serving farming related activities. The national roads are administered and managed by the Romania National Company for Motorways and National Roads (RNCMNR) - an entity under the Ministry of Transport, Construction and Tourism. The county roads are administered by the County Council and managed by the county’s Technical Department. The communal roads are administered and managed by the community councils aided by the County’s technical office. This administrative framework is shown in table 1.
There are four road sector actors: owner, administrator, manager, and supplier. These are defined as follows for Romania.
Owner: Entity responsible for funding, road policies and the legal framework. In Romania, the state defines the road sector laws and funding arrangements. The MTCT is the owner of the national network. It is financed through the state budget and through user charges such as the Rovinieta. The counties own and fund the county (collector) roads, and the communities own the local roads. They also set the policies for their road networks. The state provides no funding for the county and communal roads.
Administrator: Entity responsible for approving the road program, paying the contractors and ensuring that the performance of the road network meets the political aims of the owner. In Romania, the administrator for the national roads is RNCMNR. The administrator ofthe county roads is the County Technical Department.
Manager: Entity responsible for developing the road program, which meets the objectives and the budget, for approval by the Administrator. Manager specifies the activities to be carried out, supervises them, and approves payments to the contractors. In Romania, for the national (arterial) roads, the manager role is combined with that of the administrator: RNCMNR headquarters manage the construction and all IF1 funded programs on the arterial roads. The RNCMNR regional offices manage the routine maintenance and some periodic maintenance works on the arterial roads. For the other functional classes, the manager in Romania is the County Technical Department, or, in many cases, the county’s (corporatized) construction organization, (SCDP or DJDP).
Supplier: Entity responsible for delivery of design, construction, and maintenance services to the Administrator, selected, supervised and managed by the Manager. In Romania the national network supplier is the private sector, except for routine maintenance. The supplier for the lower class networks is, normally, the county’s corporatized construction organizations, often on sole source basis.
25 Table A1: Road Sector Structure in Romania: Owner, Administrator, Manager, Supplier”
Private Sector
Institutional reforms for the road sector in Romania have not followed the typical process that other road organizations have gone through in Western Europe and in other developed countries (notably Sweden, Finland, UK, Ireland, New Zealand, Australia, South Africa, Chile, etc.). In 2003, from a “Regie Autonome” (Le. an autonomous public works entity), the road administrator and manager was transformed into a joint-stock c~mpany’~in one single step. The transformation of road agencies in other countries involved a five stage process, (i)traditional Roads or Public Works Department within a parent ministry (such as the previous Roads Division in the former Ministry of Transport, Public Works and Housing in Romania), (ii) separation of client and supplier hctions (this phase is now taking place in Romania), (iii) separation of client and supplier organizations, (iv) Corporatizatioflrivatization of the supplier organization (v) Corporatization of the client organization. Romania went straight from Phase 2 into Phase 5, without going through the development and learning processes that are necessary for both the road organization and the parent ministry.
Such leapfrogging has proved unsustainable in Romania. The first audit of RNCMNR as a commercial entity carried out for CY2004, brought out issues relating to the short and long term financial health of the company and internal financial management weaknesses. In order to address these issues, the MTCT has started a fundamental review of the legal status, organizational structure and financial position ofthe RNCMNR, and this will include: (1) Internal review of RNCMNR structure, legal status and financial position, taking into account EU Directive 2006/38/EC and preparation ofviable options for future reform of RNCMNR. (2) Decision on the new structure for RNCMNR, if necessary, to be processed in accordance with Romanian laws and establishment ofthe new organization structure. (3) Implementation of the new organization structure, creation of the new legal entity and financing instruments to ensure long term sustainability.
In addition, the financial management capacity and procedures of the RNCMNR will be strengthened through a Technical Assistance part ofthe on-going TRP.
Road transport services are privatized and offered by numerous buses and trucks operated either by their owners or bus and trucking companies. The issue of road safety has moving inexorably l3Emergency Ordinance no.8412003 dated 18 September 2003.
26 up the policy agenda, reflecting the seriousness and the significance ofthe issue, at both personal and national level. Road traffic accidents fatalities reached 2,301 and 2,491 in 2004 and 2005 respectively, of which some 1,000 are on national roads. A Global Road Safety Partnership (GRSP) program has been active in conjunction of the Bank’s road projects to contribute to the development of all aspects of road traffic safety. Crash reductions in black spot locations improved in the Second Roads project are impressive. The intention is to continue this successful cooperation.
Financing of the main roads is arranged through the state budget, a dedicated vignette, called Rovinieta, and loans and grants. Over the past decade RNCMNR has secured grants (EU-ISPA) and several loans from International Financial Institutions (the World Bank, EIB, EBRD) to upgrade its main road corridors. The Government is actively pursuing new external IF1 financing or Public Private Partnerships to upgrade the main roads. A large part of the RNCMNR multi- year highway program is funded through loans and grants. The county and communal roads are funded, if at all, through their own budgets, although EU-SAPARD and World Bank’s Rural Development Project have begun to provide limited funding for these.14
Road capacity and, especially, the quality of this capacity must be increased to meet the anticipated traffic demand. The old roads in Romania have no functional distinction between serving land access and traffic; most roads have direct access to land, and pass through villages, towns and cities. The rehabilitation of main roads is necessarily a stop-gap measure for the primary arterials (E-Roads and Main National Roads), but relevant for the Secondary National Roads. The by-passes which are funded in current TRP project serve traffic and provide no direct access to land. In this way, the road capacity and its quality are improved. As a by-product, road traffic safety is improved and the urban city-often richly historic-is preserved. Attendant to the physical works, road management is improved through targeted technical assistance.
The Railways
The issues at the railways are more diffused, but the core objective is the same: tailor the capacity to meet market demand, reorganize the railways to take advantage of newly acquired information tools, and retrain the management to manage and run the railways commercially.
The Romanian Railways have achieved significant progress in structural reform under the umbrella ofthe previous World Bank financed Railway Rehabilitation Project (Loan 3976-R0), with co-financing from EBRD and EU-PHARE, in particular regarding labor, organizational, and financial restructuring, and privatization of non-core railway businesses. The railways have: (a) reduced staff and increased staff productivity, despite declining traffic; (b) unbundled the integrated railway system into three separate companies; (c) issued license to private operators; (d) set up appropriate mechanism to relieve the railway of historic debt; (e) provided PSO compensation for uneconomic passenger lines and services; (f) made long-term planning through 5-year Business Plans an integral part ofits business culture; (g) invested in asset modernization
l4The Government issued a Policy Letter for the road sector in 2003 as part ofthe EBRD loan. This includes, inter alia, a study to modernize the road fbnd and road financing in Romania. However, the Government abolished the Road Fund in 2004, with negative consequences on the financing of main roads and practically eliminated all domestic funding ofthe county roads.
27 and rehabilitation plan, which should lead to improved productivity and safety in the coming years; and (h) separated and privatized non-core railway businesses. Recent trends in the key operational and financial indicators are given in Annex 9. While much has been accomplished, much remains to be done to transform the railways into a filly commercial enterprise with minimum budget support. An important part of the transformation is to improve the physical infrastructure: remove speed restrictions and safety hazards on the interoperable network.
The state contribution and the railways’ uncovered financial deficit amount to about 0.6 percent of GDP in 2005. The Government is committed to deeper reforms to continue to improve financial performance of the railways and reduce financial deficit and fiscal burden, deriving from undesirable legacies of the past. All railway systems in Western Europe receive Government financial support ranging from 0.2 percent (UK) to 0.6 percent of GDP (France) by one mechanism or another to sustain their railway networks. The challenge for Romania is to sustain a railway network ofmuch the same density as Western Europe with about 60 percent of the traffic density, about half the labor productivity and with a tenth of the Gross National Incomekapita. The upshot from the numbers is that deeper actions are required to reduce the fiscal burden ofthe railways on the state budget.
Detailed development objectives of the project
The project will continue to support the objectives the Bank has supported in Romania in the past, appropriately adjusted and modified to the current stage of development to be fit for purpose. The project’s development objective is to assist the Borrower to reduce transport costs through the improvement of the overall quality of its national roads and railways networks during the first years of EU accession. This will be achieved through secondary objectives for roads and railways.
The roads sector m:Increase the percentage ofnational roads in good condition. Table 2 shows the condition ofthe national roads administered and managed by MNR. The loan will focus on improving the condition ofthe ‘fair’ and ‘poor’ roads when economically justified.
_____~
Source: RNCMNR, May 2005
28 m:Provide sustainable fimding for road maintenance, rehabilitation, and road safety, through a coherent multi-year rolling program. The project will serve to close the funding gap in road rehabilitation and maintenance of the main roads. At the same time, the Bank will work with the Government to establish a reliable and sustainable funding basis for maintenance, rehabilitation, and safety of the national roads. This effort will rest on two bases: the Road User Charge (RUC) study and the Road Data Register.” The PHARE funded RUC failed to establish a reliable basis for road user charges. m:Improve the capacity within the road administration (RNCMNR) to operate efficiently and effectively in managing road maintenance and rehabilitation. The ongoing TRP project has an ambitious technical cooperation program. The present project will build on that program. Experience and data suggest that road maintenance costs in Romania are higher than in EU countries. For the national roads, the project will focus its technical assistance to assist RNCMNR to move gradually its routine maintenance and periodic maintenance ofrehabilitated roads to output or performance-based, multi-year contracts.
The railways sector
The project aims to assist CFR to reduce transport costs through the improvement ofthe overall quality ofits interoperable network during the first years ofEU accession. This will be achieved through the following secondary objectives. m:Decrease the number of hazard locations and the proportion of sections on the main lines subject to temporary speed restrictions, through repair and rehabilitation of track infrastructure and signaling and electrification equipments. The chronic lack of maintenance works has led to the deterioration of the quality and safety parameters of CFR railway infrastructure. From 1995 to 2005, the length of tracks generating speed restrictions has increased from 386 km to over 630 km16. The number and total length of weakened track segments generating hazard points have increased from 930 and 480 km in 1992 to 1,060 and 550 km in 2005 respectively. Bridges, footbridges and tunnels with expired lifetime are increasingly generating speed restrictions and impose to lower the ranking of lines in terms ofaverage speed.
D02: Provide sustainable funding for railway infrastructure repair and rehabilitation, through a coherent multi-year rolling program. One of the reasons for the lack of maintenance is the insufficient funding and the lack of medium-term maintenance strategy with clear prioritization of maintenance works. The project will serve to close the funding gap in railway rehabilitation and maintenance ofthe interoperable network. At the same time, the Bank will work with CFR to develop multi-year maintenance programs as part ofTRP technical assistance and update CFR multi-year Business Plan.
l5The failed PHARE RUC study is being revised, a failure at the revision will trigger the Bank bdedproject in TRP. The road data register and the road management subsystem will be developed under the TRP. l6Romania SOPT, April 2006.
29 m:Improve the capacity within the infrastructure railway company to operate efficiently and effectively in managing railway maintenance and rehabilitation. Current maintenance practices do not make a full use of available technologies such as IRIS Infrastructure Management module, the track geometry car and Oracle Financials. As a result, they tend to respond to day-to-day urgent needs on the network without monthly and yearly planning. The project will allow the progressive implementation of the new maintenance business model to be designed in TRP.
The ultimate aim of the DOs is improved, competitive and financially sound railway services in Romania. Therefore, continued monitoring and technical advice, together with the activities in the ongoing railway component under the TRP”, will parallel the railway infrastructure and network modernization ofthis project.
17 TRP comprises six key components: (a) reduction of excess staff (about 20%); (b) reduction of excess railway track (3,500 km, or 35% of total network); (c) restructuring of Marfa’s business processes; (d) implementation of track access charge scheme designed to improve Marfa’s competitiveness; (e) involvement of private sector in the operation and management of railways, particular in freight services, and developing international freight traffic on main corridors; (f) refinement of a clear PSC contract between the Government and the operating company to cover only essential and affordable State obligations, and termination ofother services.
30 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ROMANIA: TRANSPORT SECTOR SUPPORT PROJECT
The Bank has been active in Romania’s transport sector for over a decade. Two projects have been completed, the Transport project and the Railway Rehabilitation project; a third, the Second Roads project, will close in six months. There are two ongoing projects, the Transport Restructuring project (TRP), effective since July 2005, and the Rural Development project (RDP), effective since 08/01/2003, which has a significant rural local road component. OED project performance assessment (PPAR and ICR) evaluated the outcome of the completed projects’ outcomes as highly significant and their institutional development as high.
The still ongoing Second Roads project had an ambitious institutional development program to be funded by PHARE, but that fell through and there was no funding for institutional development. These institutional development issues will be addressed anew in the Transport Restructuring project-this time Bank financed. The traffic safety, lead reduction, and the civil works components in the Second Roads project have been executed well. Using the savings in the road works, the project added an urban road rehabilitation and traffic management component-the Baneasa - Otopeni segment ofNational Road 1 (DN1). This heavily trafficked road to the Bucharest airport involves multiple entities-Bucharest, Otopeni municipality, Ilfov county, the utility owners, land owners, and, of course, the Road Administration-has proven most difficult to implement. This project component has experienced significant delays, but it is being undertaken in difficult circumstances in many dimensions. Because traffic issues in and near urban areas, both in the streets and the main roads, are predominant also in the future, the lessons learned in implementing this difficult component will serve well most future road projects, especially the city bypasses in the TRP. 1
Besides the road administration organization, financial management, road management system and associated road and bridge data issues, and their use, which are being addressed in the TRP project, there remains the critical shortage offunding for upgrading and rehabilitation ofthe road network and the entity’s difficulties in hiring and retaining experienced staff, which was accentuated by the recent departure of professional staff. These circumstances apply both to national and rural (collector and local) roads. The proposed project will provide funding for upgrading and rehabilitating important national roads; develop concurrently capacity in road administration and regional road management entities; and to bring about a sustainable road financing system (using project technical assistance, unless the PHAREl funded consultancy, being termed ‘highly unsatisfactory’ by the sponsor, is rectified).
For the railways, the key issues are similar: provide financing to upgrade and rehabilitate key segments of interoperable European Corridors IV and IX; develop management capacity in the railway companies with aim to base it on professional merits and reserve the political guidance to be applied through the companies’ supervisory boards; and, based on the passenger market study, continue work on tailoring the PSC to the passenger traffic demand.
Both components, road and rail, will be consistent with the Government’s medium term expenditure framework for the transport sector.
31 m..... m.
0 0 0
8 8 m8 2 2 3 M M
** **
0
N2 N
N m 0 0 0 0 N r! .- W e 2 W I- 0 O Annex 3: Results Framework and Monitoring ROMANIA: TRANSPORT SECTOR SUPPORT PROJECT
Results Framework
Project Outcome Indicators
The project aims to assist the Delivery ofplanned multi- Continuously updated and Borrower to reduce transport year road program within monitored, budget constrained costs through the improvement budget and time frame, and roads and railways program to ofthe overall quality ofits with economic justification. meet Romania’s needs as national roads and railways Delivery ofplanned multi- future EU member. networks during the first years year railway rehabilitation and Monitor the companies’ ofEU accession. maintenance program within business plans and their budget and time frame, with performance indicators economic justification, and using IRIS, Infrastructure Management System (IMA)
Intermediate Outcomes
Road Component 1: Periodic maintenance of A planned percentage of Review on-time procurement national roads RNCMNR’s maintenance and delivery ofcontracts at program is implemented. app. estimated costs. Improvement in (annual) road Benchmarking ofroad roughness measurements. roughness, and maintenance costs Road Component 2 Technical assistance for Develop RNCMNR road Monitoring ofthe 5-year RNCMNR organizational management processes, rolling plan by RNCMNR; development and maintenance including coherent rolling 5-yr Balanced allocation offunds management, including design program within a predictable between development, ofthe road works. road budget. Introduction of rehabilitation, maintenance, area wide maintenance and traffic safety. Review and contracts in at least one pilot improvement ofemerging region. contracting practices. User satisfaction survey. Training ofrelevant RNCMNR staff on preparation, procurement and technical/financial management ofmaintenance activities.
34 Railway Component 1 Maintenance and rehabilitation Length oftracks generating Review the efficiency of CFR ofinteroperable lines speed restrictions reduced maintenance practices and from 630 km in 2005 to 585 recommend improvements km in 2008 and number of hazard locations reduced from 1,060 in 2005 to 1,030 in 2008. Railway operators satisfaction survey. Implementation ofnew maintenance business model developed in TRP technical assistance. Railway Component 2 Technical assistance for the Updates ofthe Business Plan Monitor railway infrastructure implementation ofthe Effective development and use costs and safety reports; Infrastructure Maintenance ofa rolling medium-tern (5- Monitor productivity and Program, including (a) the year) railway infrastructure financial results ofthe state design ofmaintenance works, maintenance planning system railway companies. (b) training for procurement and Use ofan economic evaluation financial management and (c) methodology for preparing the support to improve railway annual infrastructure management practices through maintenance program. the development ofupdated Business Plans for the periods 2007-201 1 and 2008-2012.
Arrangements for monitoring results
Institutional issues: Monitoring and evaluation of program delivery is a function performed at the RNCMNR and CFR headquarters. This is a new concept for both entities, which is feasible and possible with the agreed MTEF framework for financing road and railway programs.
Data collection: RNCMNR is augmenting and updating its road data bank, which will provide the necessary data for evaluation and monitoring and for updating the rolling 5-year program. CFR has IRIS (Integrated railway Information System) and a track geometry car that provide the necessary information for monitoring and evaluation.
Capacitv: Both entities are on the learning curve in data collection, monitoring and evaluation. The project will provide technical assistance for these functions to become a regular feature of their program management activity.
35 0> a 0 3: 3 d 9 4
b)> 4 9
e .rE
00 ..c5 0 0 ei E c 2s i In- cU r 6 e b -r 0s ei 5 C P ZE a- Ba t ! L gos C L nz x/ gsa- Annex 4: Detailed Project Description ROMANIA: TRANSPORT SECTOR SUPPORT PROJECT
The proposed loan of USD 180 million will contribute to financing the Infrastructure Maintenance Program of national roads and railways which covers 2006 and 2007. This program is estimated to cost USD 225.0 million, including physical and price contingencies. The program includes periodic maintenance and current repairs for national roads and maintenance, current and periodic repair and overhaul for railway infrastructure. This program was developed by RNCMNR, CFR, and MTCT, with the support of the Ministry of Public Finance. The proposed project includes two components: (i)Road Sector Support; and (ii) Railway Sector Support.
Component A: Road Sector Support, [USD 112.5 million, Loan USD 90.0 million]. This component supports RNCMNR’s Infrastructure Maintenance Program which covers 2006 and 2007 and includes periodic maintenance and current repairs works on national roads, as well as technical assistance to RNCMNR in 2006 - 2008. The Technical Assistance is aimed at modernizing RNCMNR’s maintenance practices. This component is based on projected maintenance needs of the national roads not financed from other sources, and the economic and financial analyses. In the past few years, RNCMNR’s own revenues and contributions from the state budget have fallen far short of the needs to finance RNCMNR’s administrative expenses, routine and periodic maintenance, and repair works. RNCMNR has been using short term commercial loans to finance periodic maintenance and repair works. RNCMNR can no more rely on these expensive short term commercial loans. However, until the introduction of the Rovinieta charge is fully completed in 2008, and these commercial loans are hlly paid off, RNCMNR will need additional funds to fully implement its maintenance program. Furthermore, the PAL conditionality, backed up by a Road User Charges study, will further enhance sustainable financing ofthe road sector. The component covers:
(i) Periodic maintenance and current repairs works on national roads, [USD 109.5 million, Loan USD 87.6 million]. This comprises financial support for the RNCMNR’s Infrastructure Maintenance Program, which covers the period 2006 - 2007 and is part of a larger national roads development Program that covers the period up to 2013. Supporting this component ensures that there is an appropriate balance between expenditures on maintenance, reconstruction and development within the multi-year road investment program. RNCMNR’s periodic maintenance program identifies priority road sections (totaling approximately 2,900 km) based on an economic analysis using HDM model. The program includes both pavement resurfacing of heavily trafficked roads using an asphalt concrete (AC) overlay, and single and double surface treatment of medium traffic roads. AC overlay improves ride quality leading to lower operating costs for road users, guarantees structural soundness of the road for a prolonged period and prevents collapse, leading to lower life-cycle cost for the road asset. Surface treatment is a cost-effective strategy to seal the road surface against ingress of water, arrest deterioration of the road surface, and provide a skid resistant road surface with the resultant benefits ofreduction in accidents.
37 Type of Periodic Estimated cost Estimated length (km) Maintenance (USD million) 2006 2007 Total AC Overlay 120 265 385 76.690 Thin Layer 78 78 2.355 Surface Treatment 2,446 2,446 30.515 Total 2,644 265 2,909 109.500
(ii) Technical assistance for RNCMNR, [USD 3.0 million, Loan USD 2.4 million]. This comprises studies and consulting services to be carried out in 2006 - 2008 aimed at: (a) Preparing and implementing a pilot output-based area-wide multi-year maintenance contracts, with the objective of gradually expanding the coverage to the entire country within four years. The Bank’s recent review ofnational roads maintenance practices in Romania indicated that road maintenance costs are high when compared with other countries in Eastern Europe. It is expected that the combination of this component and the TRP-supported improvements in management and technical capacity within the RNCMNR through the application of modem pavement and bridge management systems will improve RNCMNR’s maintenance efficiency. (b) Hiring a Technical Adviser to improve management and technical capacity within the RNCMNR. The Technical Adviser would support RNCMNR management for a total offour months each year. (c) Conducting a first road user satisfaction survey. (d) Training of relevant staff within RNCMNR on the preparation, procurement and technicaVfinancia1 management of maintenance activities. (e) The design ofperiodic maintenance and current repairs works.
Component B: Railway Sector Support, [USD 112.5 million, Loan USD 90.0 million]. This component supports the Infrastructure Maintenance Program ofrailways which covers 2006 and 2007 and includes maintenance, current and periodic repair and overhaul of interoperable railway lines, and technical assistance to CFR. Interoperable railway lines are defined by Government Decision No. 27/2004 and refer to Romania’s railway network excluding those lines which are part of the network downsizing plan outlined in the same Government Decision. The technical assistance is aimed at modernizing CFR’s infrastructure maintenance practices by taking advantage of available IT systems and the track geometry car. This component is based on projected maintenance needs ofthe main railway lines, and the economic and financial analyses. In the past few years, CFR’s own revenues and contributions from the state budget have fallen far short of the needs to finance the infrastructure maintenance, repair and overhaul. The component covers:
38 (i) Maintenance, current and periodic repair and overhaul works of main lines, and supply of necessary goods, [USD 98.7 million, Loan USD 79.0 million]. This comprises financial support for CFR’s Infrastructure Maintenance Program for interoperable lines which covers 2006 and 2007. This program is part of CFR’s longer term infrastructure maintenance program spanning 2006-201 0 whose main objective is to eliminate temporary speed restrictions and improve the safety of traffic. This component is designed to fund three types ofmaintenance works: (a) overhaul of public infrastructure - tracks, bridges, tunnels, embankments, interlocking and signaling electrification systems (45 percent of cost); (b) repair and maintenance of tracks, bridges, tunnels, and embankments (35 percent of cost); and (c) repair and maintenance of interlocking, signaling, and electrification systems (20 percent ofcost).
CFR’s maintenance and repair program (2006-201 0) (US$ million) 2006 2007 2008 2009 2010 Total Overhaul of Public Infrastructure (track, bridges, tunnels, embankments, interlocking 8.6 42.0 99.5 99.5 99.5 349.1 and signaling, electrification) (45%) Repair and Maintenance of track, bridges, 6.7 32.7 77.4 77.4 77.4 271.6 tunnels, embankments (35%) Repair and Maintenance of interlocking, 3.8 18.7 44.2 44.2 44.2 155.1 signaling and electrification systems (20%) Total 19.1 93.4 221.0 221.0 221.0 775.5
CFR’s program supported by the proposed loan has been identified based on an analysis of track condition and the importance of traffic. The program targets interoperable railway lines providing links between the Romanian railway network and neighboring countries’ railway networks. Nine lines have been already included in the initial list of the program. This list will be adjusted accordingly should more lines need to be included in the 2006-2007 program. The nine initial lines span some 2,193 line-km, representing some 20 percent of the total railway network, and carry 27 percent oftotal train-kilometers. They are:
Line Length Corridor TEN (km) 1 Arad - Timisoara - Craiova - Calafat 49 1 IV South Yes 2 Ungheni - Iasi - Pascani 131 M Yes 3 Halmeu - Oradea - Cluj Coslariu 418 Yes 4 Buzau - Faurei - Galati - Reni 149 Yes 5 Craiova - Videle - Bucuresti 222 M (partly) Yes 6 Videle - giurgiu 63 X Yes 7 Vintu de Jos - Ramnicu Valcea - Pitesti - Bucuresti 278 Yes 8 Oradea - Episcopia Bihor 6 Yes 9 Halmeu - Baia Mare - Dej - Cluj 279
39 At the end of 2005, temporary speed restrictions were imposed on 409 km of these lines, 134 bridges and 165 footbridges. A total of 30 emergency category locations generated 8 railway incidents in 2005, without injuries, because of the condition ofthe railway infrastructure.
The main outputs ofCFR’s program over the period 2006-2007 would be to bring back those priority lines to normal standards of operations with: (a) a decrease in the number of dangerous spots; (b) a reduction of speed restriction sections; and (c) an improvement of traffic safety with the repair and overhaul of signaling systems overdue for maintenance. Over the 2006-2010 period, CFR’s maintenance program on the identified priority lines would allow to remove all current dangerous spots and reduce the length of line generating speed restrictions.
(ii) Technical assistance for CFR, [USD 10.8 million, Loan USD 9.2 million], comprising studies and consulting services to be carried out in 2006 - 2008 for the implementation of the maintenance program, including (a) the design of maintenance works; (b) procurement and financial management trainings; and (c) support to improve CFR railway management practices through the development ofupdated Business Plans for the periods 2007-201 1 and 2008-2012 following (i) a structure agreed with the Bank, (ii)the recommendations made by the consultants in the context ofthe TRP technical assistance, and (iii)consistent with the Government Medium-Term Expenditure Framework. The development of an immediate and a near term (5 year) maintenance plan based on the effective use of the IT system and the track geometry car will be carried out through the TRP Technical Assistance for CFR’s maintenance management program.
40 Annex 5: Project Costs ROMANIA: TRANSPORT SECTOR SUPPORT PROJECT
)reject Cost by Component (US0 million) Project Cost By Component and/or Activity Local Foreign Total World Borrower Bank Component A: Road Sector Support 110.1 2.4 112.5 90.0 22.5 Comvonent A.1: Periodic maintenance works ofnational roads 109.5 0.0 109.5 87.6 21.9 Component A.2: Technical assistance for RNCMNR 0.6 2.4 3.0 2.4 0.6 Total Cost for Roads 110.1 2.4 112.5 90.0 22.5
Component B: Railway Sector Support 96.7 15.8 112.5 90.0 22.5 Component B.l: Maintenance, repair and overhaul works of 83.9 14.8 98.7 79.0 19.7 main lines, and supply-_ - of- necessary goods Component B.2: Technical assistance fo; CFR 12.8 I.0 13.8 11.0 2.8 Total Cost for Railways 96.7 15.8 112.5 90.0 22.5
Total Project Cost 206.8 18.2 225.0 180.0 45.0
Identifiable taxes and duties are USD 37.1 million, and the total project cost, net of taxes, is USD 187.9 million. Therefore, the share ofproject cost net oftaxes is 83.5 percent.
41 Annex 6: Implementation Arrangements ROMANIA: TRANSPORT SECTOR SUPPORT PROJECT
Background
The loan will be channeled through the Ministry ofPublic Finance to the Ministry of Transport, Construction and Tourism. The project will be implemented by RNCMNR and CFR for the national roads and railways, respectively; for the county roads a new management entity will be established as described in this annex, the related consultancy will be managed by RNCMNR. Both RNCMNR and CFR have experience in implementing World Bank projects and will be responsible for all technical aspects ofthe project, including planning, procurement of goods and services, implementation of civil works, institutional strengthening and training. Supervision of civil works will be carried out by the regional offices ofRNCMNR and CFR. Administration of the Dedicated Accounts and project accounting will be done separately by the project management entities. Consolidated accounts and reports to the Bank for all project components will be undertaken by the RNCMNR and CFR.
Project Management
The MTCT will have overall responsibility for project oversight and coordination with other IFIs, the EU (ISPA and Cohesion Fund programs), bilateral agencies, and the private sector partners. Management ofthe project components will be undertaken separately for the roads and railways. The RNCMNR will manage all of the roads components, and the railways infrastructure company, CFR, will manage all ofthe railways components.
For the roads component, RNCMNR has established departments that perform specialized functions such as planning and development, road safety, maintenance management, financial management, and a PPP unit. These departments and units have previous experience with managing Bank financed projects, and therefore the present administrative arrangements and operational procedures within the organization will be maintained while complying with fiduciary, procurement and safeguard requirements ofthe Bank. Because ofrecent management changes, both the ongoing TRP project and this new project will provide technical assistance on reorganizing RNCMNR and managing both the organization and the national roads more effectively.
For the railways component, project management will be undertaken by CFR. A Project Management Unit (PMU) to manage all IF1 funded projects was established within CFR under the previous Bank financed loan. The PMU has well defined operational procedures and competent staff that has accumulated significant experience with the Bank’s fiduciary, procurement and safeguard procedures and requirements.
42 Annex 7: Financial Management and Disbursement Arrangements
ROMANIA: TRANSPORT SECTOR SUPPORT PROJECT
Summary
Country Issues
The first Country Financial Accountability Assessment (CFAA) for Romania was finalized in December 2003 and concluded that the overall fiduciary risk associated with the public financial management and financial accountability arrangements of the Romanian Government administration is considered to be moderate, with the systems for accounting, financial reporting and internal control representing the areas with the higher risks and budgeting, cash management and external audit and Parliamentary oversight representing the lower risks.
The implications ofthe CFAA for the project are addressed by the following actions: - A detailed review ofthe systems was performed for each project implementing entity; - Each project implementing entity has a distinct project-specific accounting ledger; - Project accounting staff has been nominated for each project implementing entity; - The format of the Interim Financial Reports (IFRs) was agreed with both project implementing entities; - RNCMNR and CFR entities’ as well as Transport Sector Support Project financial statements will be audited by an independent auditor annually.
The project will rely to the extent possible on several elements offinancial management country systems, as follows: - staffing: the project staff will be employees ofRNCMNR and CFR; - internal control: the project will use the existing internal control mechanisms within the implementing agencies; - flow offunds: the Project will use the Treasury to the extent possible; - accounting and reporting: the Project will rely on the existing systems within RNCMNR and CFR; - internal audit: the Project will increasingly rely on internal audit departments; - external audit: the Romanian Supreme Audit Institution, the Court of Accounts will perform an operational review the Project.
Risk Assessment and Mitigation Measures
The risk analysis from the Financial Management Questionnaires is as presented below. (Note: The project’s financial management risks are not considered to be significant enough to warrant inclusion in section C.5 ofthe PAD).
43 Risk Comm en tsMitigation measures Rating Inherent Risk Country level: M The mitigation measures focused on the CFAA’s higher risks areas mentioned above. Entity level: M Dedicated project units in charge with the project implementation established within RNCMNR and within CFR. Project level: M Non - complicated project components. Overall Inherent Risk M Control Risk 1. Budget M Project’s budgets updated regularly and included in the budgets of RNCMNR and of CFR.
Strengths and Weaknesses
The significant strengths that will provide a basis of reliance on the project’s financial management systems include the experience of the existing project implementation teams, one within RNCMNR, currently in charge with the implementation of the roads components of the Transport Restructuring Project (Loan 4757-RO), and the Second Roads Project (Loan 4178- RO); and the other one within the CFR, currently in charge with the implementation ofrailways components of the Transport Restructuring Project, and which was also in charge with the implementation ofthe Railway Rehabilitation Project (Loan 3976-RO). Implementing Entities
The existing project implementation teams established within the RNCMNR and the CFR, would be responsible for the financial management aspects of the roads components, and of the railways components, respectively, of the proposed Transport Sector Support Project. Funds Flow
Project fimds will flow in respect of each ofthe sources ofproject financing as follows: (i) the Bank loan, by direct payments or via the two designated accounts, which will be replenished initially based on transactional disbursement procedures and then, once the Borrower elects to change, on report-based disbursement procedures; and (ii) Government counterpart contribution, via dedicated Treasury project accounts.
Two designated accounts will be opened at commercial banks and on terms and conditions acceptable to the Bank. One designated account will be opened for the RNCMNR in respect of its roads components and another designated account will be opened for the CFR in respect of its
44 railways components. Foreign currency amounts will be exchanged as needed in local currency (RON), to cover eligible expenditures payments in local currency to suppliers, from the designated accounts into local currency transfer accounts. Government counterpart contribution payments will be made from separate Treasury project accounts, being sub-accounts of the entities’ main budgetary accounts, and which will be used specifically for the counterpart contributions to the project. These contributions will be received monthly in accordance with normal budget procedures.
A summary flow offunds diagram is presented below:
Funds flow diagram
World Bank
I I 1 I I I I i I I Ministry of Public I
I Finance I I I I I I I I I I 1 I I I Ministry of Transport, I Construction and Tourism
RNCMNR CFR Designated account A Designated account B Treasury account A Treasury account B
1 11 I
Flow of WB loan funds Flow of Government funds __----_------b - Staffing
Each implementing entity is staffed as follows in terms ofproject financial management:
0 RNCMNR has nominated among its existing staff the project financed manager, project disbursement officer and project accountant, all having considerable experience on Bank- financed projects; 0 CFR has nominated among its existing staff the project financed manager, project disbursement officer and project accountant, all having considerable experience on Bank- financed projects.
45 Accounting Policies and Procedures
The project’s accounting books and records at the various agencies will be maintained on an accrual basis and denominated in new Romanian Lei (RON) with the exception ofthe books and records in respect of the designated accounts which will be maintained in the currency of the IBRD Loan.
The RNCMNR and CFR have in place appropriate accounting regulations and internal controls including authorization and segregation ofduties documented in their internal control procedures and regulations.
Audit Arrangements
Internal Audit
Both RNCMNR and CFR have an internal audit department. It is anticipated that these internal audit departments will review the project’s financial management arrangements. The internal audit departments in both implementing entities will include in their annual work program the Transport Sector Support Project, as part oftheir entities’ overall activities.
A number of internal audit reports prepared by the relevant departments of the implementing entities have been reviewed. The various findings reported do not have an impact on the project. External Audit
As of the date of this report, the Borrower is not in compliance with the audit covenants for the Second Roads Project (Loan 4178-RO) and for the Transport Restructuring Project (Loan 4757- RO). These covenants require submission to the Bank of the audited CY 2005 Financial Statements for both RNCMNR and CFR, which were all due on June 30, 2006, but had not yet been received.
The delay in the submission ofCY 2005 audit reports is mainly due to the late submission of CY 2004 audit reports which were submitted at the end ofJune 2006 by RNCMNR, and at the end of April 2006 by CFR. The RNCMNR had agreed a multi-year audit contract with RSMHaarmann Hemmelrath auditors covering the period CY 2004 - 2008, subject to annual review. Following submission of the CY 2004 audit reports, the Bank was informed that RSM Haarmann Hemmelrath had requested a significant fee increase to perform the CY 2005 audit services, and this had not been accepted by RNCMNR. Consequently, RNCMNR decided to issue a new tender for audit services covering the period CY2005 - 2008. In the case ofCFR, the process for procurement of multi-year audit services was started in April 2006, but was subsequently cancelled due to issues related to the Ministerial order appointing the evaluation committee. In addition, a single offer was received to perform audits for the three state owned railway companies. Although a single bid would have been acceptable for CFR under Bank procedures, it was deemed to be unacceptable by the other railway companies under Romanian Procurement Law. As a result, CFR advised the Bank that the single bid received for audit services was rejected and a new tender will be issued requesting audit services only for CFR and its subsidiaries.
46 Both RNCMNR and CFR had re-started the procurement process by the end of September 2006 for the selection of auditors in accordance with Bank guidelines, and have committed to completing the procurement process by December 15, 2006. The new contracts to be issued by RNCMNR and CFR will include deadlines for submitting the final audit reports for CY 2005 by April 30, 2007, and September 30, 2007 for the CY 2006 final audit reports. In order to comply with this schedule, the requests for proposals for audit services had to be issued by RNCMNR and CFR by September 30, 2006 with the deadline for submission ofproposals by November 6, 2006, and contracts to be signed with the selected auditors in December 2006.
A waiver of Bank Operational Policy OP 10.02 was therefore approved by Bank management, regarding the delay by RNCMNR and CFR to submit the above mentioned audit reports for CY2005.
The National Administration of Roads (i.e. RNCMNR’s predecessor entity) had been audited in accordance with ISA since its incorporation in 1998 by independent external auditors. The auditors issued a qualified-exception opinion on NAR’s financial statements for 2000, 2001, 2002 and on RNCMNR’s financial statements for 2003, due to issues relating to the application ofIAS 36 and aspects pertaining to fixed assets. The first audit ofRNCMNR (for CY2004) as a commercial entity highlighted the weak financial position of RNCMNR. This is primarily a consequence ofthe legal status of the RNCMNR established as a joint stock company subject to commercial company laws, and is also due to the absence of a clearly defined long term revenue stream commensurate with the RNCMNR’s financial obligations. The Ministry of Transport is committed to address these financial issues as outlined in Annex 4 through a reform of RNCMNR institutional, legal and financial framework.
The auditors issued a qualified-disclaimer opinion because of the inadequacy of the financial statements prepared by RNCMNR for 2004, particularly regarding the impairment of assets, the valuation ofthe concession rights over the Romanian National road network, the valuation ofthe capital account, and the value of deferred income from Rovinieta. This reveals financial management weaknesses within the RNCMNR which will be addressed through a technical assistance to be funded under the on-going Transport Restructuring Project (Loan 4757-RO) in order to start working on these issues in parallel with the preparation of the pending 2005 audit reports.
CFR has been audited in accordance with ISA since its incorporation in 1998 by independent external auditors. The auditors issued a qualified-disclaimer opinion on CFR’s financial statements for 2001, 2002, 2003, and 2004 due to issues relating to the inventories, accounts receivable and other receivables. These issues will also be addressed through the Technical Assistance financed under the TRP.
The Second Roads Project Financial Statements and Railway Rehabilitation Project Financial Statements received always clean audit opinions over their implementation life. The Transport Restructuring Project audit reports were due on June 30, 2006, as it became effective in mid 2005. However, since neither RNCMNR nor CFR have yet finalized the appointment of the auditors, the FY 2005 entity audit reports have not yet been prepared.
47 The Transport Sector Support Project will be audited annually both by an audit firm and on terms ofreference acceptable to the Bank. The terms ofreference for the audit have been agreed upon and are attached to the minutes ofnegotiations. The audit scope will include the project’s books and records as maintained by each implementing entity, all quarterly interim financial reports, all withdrawal applications and the designated accounts. The audited project financial statements together with the auditor’s opinion thereon will be provided to the Bank within six months ofthe end of the reporting period, being the fiscal year. The audit contract will be financed by the Loan 4757-RO (Transport Restructuring Project) and be awarded to an audit firm for the life of the project, subject to satisfactory performance.
The RNCMNR and CFR entities financial statements will be audited annually, both by audit firms and on terms of reference acceptable to the Bank. The terms of reference for the audit have been agreed upon at negotiations. The costs of these audits will be also covered by the Loan 4757-R0. In addition, the Romanian Court of Accounts (CoA), the country’s supreme audit institution, will continue to perform ad hoc external audits of the implementing entities, including of this project. The CoA will also perform an operational review of the Transport Sector Support Project.
The latest audit report prepared by the CoA for the MTCT, which covered also the RNCMNR and CFR, as subordinated entities of MTCT has been reviewed. The CoA has granted the ‘discharge of responsibility’, being a process of whereby the CoA confirms that a budget holder has discharged its obligations in respect of the execution and reporting of the budget, to the above mentioned budgetary holders. Disbursement Arrangements
Bank funds will be disbursed either as direct payments, or to the two designated accounts opened by each entity, which will be initially replenished under the transactional disbursement procedures. Subsequently, the Borrower may elect to change to report-based disbursement procedures. Withdrawal applications for the replenishments of the designated accounts will be sent to the Bank directly by each responsible project implementing entity quarterly, together with the relevant documents required for transactional disbursement procedures. Once the Borrower elects to change to report-based disbursement, withdrawal applications will be accompanied by the quarterly un-audited interim financial reports, Supporting documentation for all transactions, including completion reports, goods received notes and acceptance certificates, will be retained by the implementing entities and made available to the Bank during project supervision. Reporting and Monitoring
Quarterly interim financial reports (IFRs) will be used initially used for project monitoring and supervision and subsequently, once the Borrower elects to change to report-based disbursement, IFRs will be used for disbursement purposes and project monitoring and supervision. The project implementing teams in RNCh4NR and CFR will produce the project’s IFRs every calendar quarter and the reports will be submitted to the Bank within 45 days after the calendar quarter-end. Formats ofIFRs have been agreed and are attached to the minutes ofnegotiations.
48 Information Systems
Each entity already has access to an accounting software system on which it has created and will maintain proj ect-specific accounting ledgers, as follows:
RNCMNR - a project-specific accounting ledger created within its existing entity accounting software system to record the operations of the project, using the existing chart of accounts; CFR - a project-specific accounting ledger created within its existing entity accounting software system to record the operations of the project, using the existing chart of accounts.
Action Plan (Agreed with Borrower)
RNCMNR to submit acceptable FY 2004 entity audit reports by June 30, 2006. Subsequent to the negotiations, the 2004 audit reports were received on June 30, 2006, and were deemed satisfactory by the Bank. 0 The MTCT has agreed to a remedial action plan18to address the issues raised in the 2004 entity audit report for RNCMNR. The MTCT action plan includes a commitment to review and remedy the legal and financial position of the RNCMNR. The action plan includes reviewing and amending the RNCMNR legal status, and the financing framework and organizational structure in order to ensure compliance with EU Directives, to improve the short and long term financial health of the company, and to strengthen internal financial management capacity through technical assistance to be funded under the on-going Transport Restructuring Project (Loan 4757-RO) (TRP).” 0 In view of the similarity of the issues relating to IFRS implementation and financial reporting previously raised for the Romania National Railway Company (CFR) in previous audit reports, the MTCT has decided that this technical assistance should benefit both RNCMNR and CFR. This technical assistance will be financed under the on-going TRP. Supervision Plan
During project implementation, the Bank will supervise the project’s financial management arrangements in two main ways: (i)review the project’s quarterly interim financial reports (IFRs) as well as the entities’ and project’s annual audited financial statements and auditor’s management letter; and (ii)during the Bank’s supervision missions, review the project’s financial management and disbursement arrangements (including a review of a sample of withdrawal applications, supporting documentation for transactions and movements on the designated accounts) to ensure compliance with the Bank’s financial management requirements.
18 Letter from the Minister of Transport dated September 22,2006. l9 Both frnancial performance and management issues were identified in the 2004 entity audit report of RNCMNR.
49 Annex 8: Procurement Arrangements ROMANIA: TRANSPORT SECTOR SUPPORT PROJECT
General
Procurement for the proposed project would be carried out in accordance with the World Bank’s “Guidelines: Procurement Under IBRD Loans and IDA Credits” dated May 2004; and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated May 2004, in addition to the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least twice a year or as required to reflect the actual project implementation needs and improvements in institutional capacity.
Procurement of Works: Works procured under this project would include, for the major part, periodic maintenance and current repairs works of roads and maintenance, current and periodic repair and overhaul of railway infrastructure. The procurement will be done using the Bank’s Standard Bidding Documents (SBD) for all ICB and National SBD agreed with or satisfactory to the Bank, such as the ECA Regional Sample Document for Works under National Competitive Bidding (NCB) procedure for Works contracts estimated to cost less than USD 5 millions or equivalent, (the latter Document has already been translated into Romanian language for the needs of a former Bank-financed project, Hazard Risk Mitigation & Emergency Preparedness Project). Advanced procurement (and the use of retroactive financing clause with bank’s review of procurement procedures) is envisaged mostly for road maintenance works. The Shopping procedure may be used for minor works oflow value (less than USD 100,000 or equivalent).
Procurement of Goods: Goods procured under this project would include maintenance materials and equipment mostly for the railways component, and more particularly for the purchase of rails, sleepers, fastening and signaling equipment for CFR maintenance, repair and overhaul works. The procurement will be done using the Bank’s SBD for all ICB, and National SBD agreed with or satisfactory to the Bank for goods contracts estimated to cost less than USD 500,000 or equivalent, and awarded under National Competitive Bidding (NCB) procedure. For very small goods contracts (less than USD 100,000 or equivalent), to purchase readily available off-the-shelf goods (including hardware and software) or standard specification commodities, the Shopping procedure would be used.
Procurement of non-consulting services: Services related to goods and works contracts, such as transportation, insurance, installation, commissioning, training and initial maintenance, as well as survey, geotechnical boring and data gathering, topographic and mapping services may be procured under procedures compatible with the Bank’s procurement guidelines for works, goods and services contracted on the basis ofa measurable physical output.
50 Selection of Consultants: (QCBS is the selection method unless otherwise specified) Consulting services would include technical assistance to RNCMNR for maintenance and repairs works design and maintenance contracting, as well as technical assistance for improvement of maintenance management, and for roads management (including road user survey), consultancy for the pilot output-based area-wide roads maintenance project; and technical assistance to CFR for railways maintenance works (including design and inspection ), as well as a larger consultancy for capacity building in CFR Management (including new business plan) and Procurement. Consulting services for design and inspection to RNCMNR and CFR, the road user surveys and audit services may be procured under Least Cost Selection method (or selection based on Consultant’s Qualifications, which may also be used for any consultant services estimated to cost less than USD 200,000 or equivalent). Short lists of consultants for services estimated to cost less than USD 200,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. Available, “ready made” training programs from International Institutions such as ILO, for example, may be single sourced for very small amounts (less than USD 25,000 Dollars per contract), or selected after comparison of three or more different programs. Individual consultants may be selected on the basis of comparison of qualifications for the training of RNCMNR staff.
The procurement procedures to be used for each procurement method, as well as initial prior review thresholds for works, goods and services contracts to be procured, are presented in the Procurement Plan and its preamble, which may be updated with the concurrence ofthe Bank.
Assessment of the project implementing entities’ capacity to implement procurement
Procurement activities will be carried out by CFR for the railways. CFR is staffed by a very experienced director for IFIs programs who knows well Bank procurement procedures for many years and managed several Bank-hded projects, and the procurement function is also staffed by two procurement specialists and a procurement analyst.
The RNCMNR has well established departments or units that perform specialized functions such as planning and development, road safety, maintenance management, financial management, and a PPP unit. Consequently, the project will utilize established procedures for procurement and financial management. The various departments and units within RNCMNR have previous experience with managing Bank-financed projects, and therefore the present administrative arrangements within the organization will be maintained. Because of recent management changes, the ongoing TRP project provides technical assistance on reorganizing RNCMNR and managing it more effectively.
A short assessment of the capacity of the Project Implementing Entities to implement procurement actions for the project has been carried out by the Bank Team’s procurement specialist during pre-appraisal mission. The assessment reviewed the available staff, the organizational structure for implementing the project and the interaction between the project’s staff responsible for procurement, the Ministry, and the National Public Procurement Agency ANRMAP. The two project implementing entities decided after appraisal mission to include in their procurement plan a training (Consultancy services) line with a significant cost estimate to
51 provide procurement capacity building at central national and regional levels. These procurement training contracts are to be launched immediately after effectiveness.
The overall project risk for procurement is high and will therefore require mitigating measures.
The key issues and risks concerning procurement for implementation of the project have been identified and include the turnover resulting from low civil servant salaries, and the general country procurement climate and capacity (see the Joint Bank - EU PAM report conclusions). The corrective measures which are required have been discussed with MTCT and the two project implementing entities. The Bank has been informed that the Government has approved the principle of changes to the remuneration of MTCT staff working on IF1 projects to align this with those of staff working on EU projects, however, this had not yet been effected. The implementation of a training program on Bank-financed procurement and fiduciary matters is included in the procurement plan ofthe Project for both implementing entities.
Procurement Plan
The Borrower, at appraisal, developed a procurement plan for project implementation which provides the basis for the procurement methods. This plan has been agreed between the Borrower and the Project Team on May 26, 2006 and is available at the two project implementing entities offices (RNCMNR and CFR). It will also be available in the project’s database and in the Bank’s external website, without the estimated cost column. The Procurement Plan will be updated in agreement with the Bank Project Team at least twice each year or as required to reflect the actual project implementation needs and improvements in institutional capacity.
Frequency of Procurement Supervision
In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the two Project Implementing Entities has recommended three supervision missions per year to visit the field to carry out post review ofprocurement actions.
Details of the Procurement Arrangements Involving International Competition
Goods, Works, and Non Consulting Services
(a) List of contract packages to be procured following ICB and direct contracting: See the attached procurement plan (annexed as Attachment F to the minutes ofnegotiation).
(b) All ICB contracts, and at the start of the project (prior review thresholds are set in the preamble to the procurement plan, and may be reviewed after a supervision mission) Works NCB estimated to cost above USD 2 million or equivalent per contract, the first two Goods NCB contracts, and Goods contracts estimated to cost above USD 500,000 or equivalent per contract, and all direct contracting will be subject to prior review by the Bank.
52 Consulting Services
(a) List ofconsulting assignments with short-list ofinternational firms: see attached procurement plan.
(b) At the start of the project, Consultancy services estimated to cost above USD 100,000 for Firms, and above USD 50,000 for Individuals per contract and single source selection of consultants (firms) will be subject to prior review by the Bank.
(c) Short lists composed entirely of national consultants: Short lists of consultants for services estimated to cost less than USD 200,000 equivalent per contract, may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines.
53 Annex 9: Economic and Financial Analysis ROMANIA: TRANSPORT SECTOR SUPPORT PROJECT
This annex presents the economic and financial analysis of the project. It comprises four main sections: (i)economic analysis of the roads component; (ii)economic analysis of the railways component; (iii)financial analysis of the roads component; and (iv) financial analysis of the railways component.
Economic analysis of the roads component
RNCMNR performed an economic evaluation of periodic road maintenance and rehabilitation included in the first year of the program. The evaluation was done using the Highway Design and Maintenance model (HDM-111), which simulates life cycle conditions and costs and provides economic decision criteria for road construction and maintenance activities. HDM was used for estimating the net benefits of each project in terms of reductions in vehicle operating costs, passenger travel time, and road maintenance expenditures.
RNCMNR’s proposed national roads periodic maintenance would improve ride quality leading to lower operating costs for road users, guarantee structural soundness of the road for a prolonged period and prevent collapse, leading to lower life-cycle cost for the road asset. The program also includes surface treatment, which is a cost-effective strategy to seal the road surface against ingress of water, arrest deterioration of the road surface, and provide a skid resistant road surface with the resultant benefits ofreduction in accidents.
The road rehabilitation projects included in the first year of the program yield a Net Present Value, at 12 percent discount rate, ofUSD 165 million.
RNCMNR used traffic data from the recently conducted national traffic counts in 2005. The traffic growth rates were based on several studies. Between 2000 and 2004, freight transport by road recorded a growth rate of over 27 percent per year. In passenger transport, intercity bus travel, as an economic and highly competitive mode, has also grown and will continue to do so. Private car traffic is also growing fast as car ownership will grow with growing per capita income.
Inputs for vehicle operating costs are based on current prices, adjusted to economic prices, of vehicles, spare parts, fuel as well as current operating conditions in Romania.
The value of time for car passengers and for bus passengers are updated based on recent traffic interview surveys and the estimated average gross wage rate in Romania.
Economic analysis of the railways component
The proposed project will support CFR’s infrastructure maintenance, current and periodic repair, and overhaul program for interoperable lines during 2006-2007. It is designed to fund three types of maintenance and rehabilitation works: (a) overhaul of public railway infrastructure (45 percent of cost); (b) repair and maintenance of track 35 percent of cost); and (c) repair and
54 maintenance (20 percent ofcost). The main objective is to eliminate temporary speed restrictions and improve the safety oftraffic.
The program targets the main lines ofthe interoperable network. Because regular maintenance has been curtailed, and in some cases poor quality materials were used in previous rehabilitation work, a number ofrestrictions have been necessary.
From 1995 to 2005, the length of tracks generating speed restrictions increased from 386 km to over 630 km2’. The number and total length of weakened track segments generating hazard points increased from 930 and 480 km in 1992, to 1 060 and 550 km in 2005, respectively. Bridges, footbridges and tunnels with expired lifetime are increasingly generating speed restrictions and impose to lower the ranking oflines in terms ofaverage speed.
Characteristics ofthe first set ofnine lines that are candidates for CFR’s 2006-2007 program are listed in the table below.
Temporary speed restrictions by cause Number of Lengthkm restrictions Switches Bridges Tunnels Track 1 had- Timisoara- Craiova- Calafat 49 1 24 3 17 4 2 Ungheni- Iasi- Pascani 131 4 4 3 Halmeu -0radea- Cluj- Coslariu 418 28 3 17 8 4 Buzau- Faurei- Galati- Reni 149 5 2 2 1 5 Craiova- Videle-Bucuresti 222 42 3 35 8 6 Videle- Giurgiu 63 6 5 1 Vintu de Jos -Rm.Valcea-Pitesti - 7 Bucuresti 267 36 1 27 8 8 Oradea- Ep.Bihorului 9 9 Halmeu - Baia Mare- Dej - Cluj 276 23 2 22 1
Restoring the track to its normal operating condition would result benefits from: (i)removal ofspeed restrictions; (ii)reduced overhaul and maintenance costs, including future maintenance costs; (iii)reduced maintenance cost oftraction and rolling stock; and (iv) reduced incidence ofderailments.
The economic evaluation was carried out for a first set of nine lines, which are part of CFR’s maintenance program, This evaluation assessed separately for every line. The following benefits were assessed: (i)direct savings on track maintenance; (ii)removal of speed restrictions leading to time savings for passengers, savings in freight costs due to better utilization of wagons and locomotives, and savings in both passenger and freight train crew costs (time). Time savings on high value and perishable cargo are not considered. The evaluation period is taken as 20 years.
2o Romania SOPT, April 2006.
55 The “do-minimum” scenario is the deferred rehabilitation alternative which corresponds to delaying the needed investments by five years and spreading them over a longer period of ten years. It is assumed that 2003-2004 traffic levels will be sustained.
Removal of speed restrictions is assumed to produce an increase of the average commercial speed at the end ofthe investment program by 30 percent for passenger trains and by 40 percent for freight trains. In the case of the “do-minimum” scenario, the average commercial speed is assumed to decrease until the fifth year, afterwards, the implementation of the deferred investment program over a 10-year period would bring the speeds back to those reached under the “do-something” scenario.
A summary ofthe results ofthis analysis is presented in the table below. It was agreed that should CFR include new lines in the program, these new lines will be subjected to the same economic test.
Economic appraisal ofinvestments for nine priority lines NPV @ 12% (USD millions) ElRR in % 1 had- Timisoara- Craiova- Calafat 65.8 38.4 2 Ungheni- Iasi- Pascani 1.3 13.6 3 Halmeu -0radea- Cluj - Coslariu 53.1 36.8 4 Buzau- Faurei- Galati- Reni 1.1 12.8 5 Craiova- Videle-Bucuresti 19.7 41.9 6 Videle- Giurgiu 0.2 12.8 Vintu de Jos -Rm.Valcea-Pitesti - 7 Bucuresti 13.4 18.0 8 Oradea- Ep.Bihorului 0.1 15.6 9 Halmeu - Baia Mare- Dej - Cluj 17.9 20.9
Financial analysis of the roads component
Road sector revenues In addition to vehicle registration fees which are collected by local authorities and are not used for national roads, the two main charges road users pay are excise taxes on fuel and Rovinieta. The Rovinieta is a charge introduced in 2003 for using the road network and is levied on both domestic and foreign vehicles in a similar way, based on the length oftime that vehicles use the roads. After a transition period, the Rovinieta rates will be set at the maximum allowable by the EU in 2008 bringing annual revenues to around EUR 280 million.
Fuel excise taxes are the main charge road users pay. This excise tax is channeled directly to the general budget. Excise taxes on fuel used in the road transport sector were estimated around EUR 81021 million in 2004. The average excise tax was EUR 0.26 per liter. The level of fuel excise taxes in Romania is at the lower end ofall EU25 countries.
*’2005 EUR 876 million.
56 In practice, little of the revenues from fuel excise taxes are spent on road maintenance (only EUR 51 million from the budget was spent on national road maintenance and repairs in 2004). The General State Budget’s total contribution to national roads in 2004 was EUR 248 million out oftotal national roads expenditures ofEUR 721 million.
An increase in fuel excise tax rates would provide additional revenues for the Government and allow additional State budget contribution to fund the road sector. In the Accession Treaty, Romania has obtained derogation from Article 7 of Directive 2003/96/EC, and it may apply transitional periods: (i)until 1 January 201 1 to adjust the national level of taxation on unleaded petrol used as propellant to the minimum level of EUR 359 per 1,000 liters. The effective tax rate applied to unleaded petrol used as propellant shall not be less than EUR323 (currently EUR 272) per 1,000 liters as from 1 January 2008; and (ii)until 1 January 2013 to adjust the national level of taxation on gas oil used as propellant to the minimum level of EUR 330 per 1,000 liters. The effective tax rate applied to gas oil used as propellant shall not be less than EUR 274 per 1,000 liters as from 1 January 2008 (currently EUR 207) and EUR 302 per 1,000 liters as from 1 January 201 1.
Past sector spending and finan cing
In the past five years, funding for the road sector in Romania has been less than required to keep an efficient road network, The total spending on roads in Romania over the period 2000-2004 was on average about 1.01 percent ofGDP. Maintenance spending in 2000-2002 was particularly low at 0.27 percent ofGDP.
Past Roads Expenditures (2000-2005 - in 2005 Euro, millions) 2005 2000 2001 2002 2003 2004 Average (Estimates) Current Expenditures - Maintenance(’) 127 153 141 342 279 208 367 %GDP 0.25% 0.29% 0.25% 0.59% 0.44% 0.37% 0.55% Capital Expenditures - Rehabilitation & New Construction 220 277 233 288 409 286 542 %GDP 0.44% 0.53% 0.42% 0.49% 0.65% 0.51% 0.82% Debt Service 54 57 73 89 92 73 96 %GDP 0.11% 0.11% 0.13% 0.15% 0.15% 0.13% 0.14% Repayment of Principal n/a n/a n/a 53 55 45 Interests and Fees n/a n/a n/a 36 37 51 Total Expenditures on Roads 401 487 447 719 180 567 1,005 %GDP 0.80% 0.92% 0.81% 1.23% 1.23% 1.01% 1.51% (1) In addition to actual maintenance expenditures, RNCMNR includes in this expenditure category: administrative expenses and repayment of short term commercial loans incurred in previous years to finance periodic maintenance.
During the period 2000-2005, sources of hds to finance expenditures on national roads included: (i)Road Fund revenues until 2002; (ii)contributions from the general State budget; (iii)RNCMNR’s own revenues such as Rovinieta since 2003; (iv) sovereign borrowing from IFIs; (v) sovereign commercial loans; and (vi) short term commerqial loans by RNCMNR.
During the period 2000-2002, 65 percent ofRoad Fund revenues were channeled to the national roads (the other 35 percent were used for county roads). This source of funding provided the national roads with 24 percent oftheir total sources of funding. The Road Fund income covered
57 the administrative expenses of the national road administration, routine maintenance, and the costs of limited rehabilitation works of the national roads. The Road Fund was replaced in 2003 and levies that previously went to the Road Fund go now channeled to the State budget.
Sovereign borrowing from IFIs includes loans from EIB, EBRD, IBRD, and JBIC, mainly to finance the roads rehabilitation program, by-passes, and some sections of the motonvay program. During the period 2000-2002, loans from IFIs represented 33 percent of all sources of funds.
EU grants, PHARFi and ISPA funds, contributed in 2000-2002 period 3.7 percent of all sources. This share increased sharply in 2004 and 2005 to cover close to 15 percent of all sources of road funding.
Planned sector spending and sources of funds
The Government is reviewing the 2005 Roads Sector Strategy in view of accommodating new sources of revenues from EU Grants. The 2005 strategy implies significant spending in the roads sector. In a scenario where the Government scales down proposed investments in the strategy, total spending on national roads would amount to an average 2.36 percent of GDP over the 2007- 2013 period. In this case, state budget would contribute with 32 percent of needed funds, RNCMNR’s own revenues with 11 percent, IF1 loans with 37 percent, EU grants with 13 percent, and sovereign commercial loans and the private sector with 7 percent.
Financing of national roads maintenance
In the past few years, RNCMNR has been using short term commercial loans to finance periodic maintenance and repair works. However, until the introduction of Rovinieta charge is fully completed in 2008, and these commercial loans are fully paid off, RNCMNR will need additional funds to fully implement its maintenance program (Table).
National Roads Current Expenditures Forecast (EUR 2005, millions) I 2006 I 2007 1 2008 1 2009 I 2010 I Total I I 1 I I
Source: World Bank estimates
58 Financial analysis of the railway component
Financial appraisal of the project
The financial profitability of the project for CFR Infrastructure is assessed by discounting the incremental cost generated by the maintenance and rehabilitation works included in the railway component over the next 20 years. The project incremental cost is the difference between the project’s investment program and the maintenance expenses deferred by 5 years, spread over 10 years that CFR would incur without the project. The elimination of speed restriction would increase the capacity of the lines targeted by the project. It is assumed, however, that demand would not increase nor would CFR be able to sell additional capacity to train operators. The implementation of improved maintenance practices would reduce permanent way maintenance cost by 3 percent and labor by 2 percent annually over the period 2008-2009.
The financial costs, benefits and overall appraisal of the project are summarized in the table below. The financial analysis indicates that the project is financially viable, returning a financial internal rate ofreturn of 13 percent and a positive net present value (NPV) ofUSD 68.6 million at a discount rate of6 percent22.
Financial Appraisal of the Project I 2006 2007 2008 2009 2010 2011 2012 ... 2022 2023 2024 2025 Costs ($ M) Project investment 45.5 60 Deferred maintenance - 0.0 0.0 0.0 0.0 0.0 10.6 10.6 ... 0.0 0.0 0.0 0.0 without project Incremental cost 45.5 60.0 0.0 0.0 0.0 -10.6 -10.6 ... 0.0 0.0 0.0 0.0
Revenues ($ M) Saving in labor 0.0 0.0 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 costs ... Saving in 0.0 0.0 0.9 7.1 7.1 7.1 7.1 ... 7.1 7.1 7.1 7.1 maintenance costs Incremental net 0.0 0.0 5.0 11.2 11.2 11.2 11.2 11.2 11.2 11.2 11.2 revenues ...
Net incremental -45.5 -60.0 5.0 11.2 11.2 21.8 21.8 ... 11.2 11.2 11.2 11.2 cash-flow Discount rate: 6% NFV ($ M): $68.6
Recent financial performance of CFR and Government’s contribution
CFR profitability has improved over the last five years, but its liquidity situation has seriously deteriorated. Until 2004, CFR profitability improved due to an increase in profit margin without subsidies, which was mostly due to the increase in Calatori’s access charges in 2004 from EUR 1.3 to EUR 2.4 per train-km. However, this increase did not materialize in cash. Calatori’s
22 VSL 17 years maturity, 5 years grace, USD LIBOR 6 months + 0.33%.
59 inability to fully pay for the track access charge led to the deterioration of both CFR working capital and liquidity ratios. CFR funded this cash shortfall through increased State and local supplier payables.
The combination of the Track Access charge increase and growing debt service payments has driven the State contribution to the railways from US$82 million in 1997 or 0.2 percent of GDP to US$621 million in 2005 or 0.6percent of GDP. The overall allocation of Government contributions has increasingly been concentrated on Calatori, from 73 percent to 83 percent of the total State support to the sector from 1998 to 2005. Excess of rail passenger services also contributed to building up Calatori and CFR arrears to the State social and pension funds which peaked at 0.53 percent of GDP in 2005.
Assumptions for the projection of CFR financial performance
CFR future financial situation was projected on the basis of the Government’s strategy approved in August 2005. Detailed assumptions are as follows:
Operating expenditures
(i) Efficiency package: The network downsizing exercise will be completed by 2008 and generate about 3 percent of operating cost savings from 2006 to 2008. (ii) Maintenance expenditures: The implementation of improved maintenance business models and practices will yield annual reductions of 3 percent for maintenance costs and 2 percent for labor from 2007 to 2010.
Capital expenditures
The railway investment and maintenance program is derived from CFR investment program from 2006-2010, the Government’s strategy for the period 2006-2013 and the SOPT for the period 2007-2013.
CFR’s own bds
It is assumed that, between 2006 and 2013, passenger traffic would stabilize at 8.5 billions passenger-km and freight traffic would grow from 14 billion ton-km to 18.5 billion ton-km. These traffic projections are more conservative than the targets set out by the Government, which assume the passenger and freight traffic demand to reach 9.3 billions passenger-km and 19.7 billions ton-km in 2013. Although the Government has planned to increase Calatori’s fares and track access charge, it is assumed that Calatori and Marfa track access charges will remain respectively at EUR 2.3 and EUR 3.6 per train-km.
External financing sources:
EU grants are those prepared by MTCT and CFR in the April 2006 draft SOPT. IFIs co-financing loans are taken into account for the projects included in the SOPT. The Government contribution to the sector is derived from (i)the State’s obligations in
60 terms of EU grants co-financing and IFIs debt service payment as well as (ii)the financial equilibrium constraints of CFR (net income and change in cash equal to zero).
CFR projected financial performance
The implementation of this investment program will drive a significant increase of CFR investment costs. Whereas annual average investment costs ranged from 0.2 percent to 0.7 percent of GDP from 2003 to 2005, CFR capital investments will amount to an annual average ofEUR 672 million or 1 percent of2005 GDP over the period 2006-2013. Following the implementation ofthe improved maintenance program, CFR recurrent expenditures are expected to decrease by 2 percent per year from EUR 364 million in 2007 to EUR 337 million in 2013.
Over the period 2006-2013, the availability ofEU grants will significantly change CFR financing strategy. Until 2005, external borrowing funded about 60 percent of CFR new investments. Starting in 2007, borrowing would be reduced to 38percent. Coverage of operating costs by operating revenues would improve.
The set of reforms intended by the Government for the 2006-2013 period and supported by the project would lead to the gradual improvement of CFR financial performance. Gains from the efficiency package and improved maintenance practices would strengthen CFR profitability. Starting in 2006, the working ratio without subsidies would be below loopercent. However, CFR profit margin without subsidies would remain weak because of the rise in depreciation charges over the period. CFR financial viability would be robust with debt coverage ratios above the required threshold both for loans to be repaid by CFR and the State. The relative underperformance in 2006 would mainly come from maintenance expenditures which would not yet be offset by significant efficiency gains.
These projections suggest that this project will help CFR meet the financial performance targets set in the current World Bank Transport Restructuring Project: working ratio of 115 percent in 2006 and 100 percent in 2009.
Projected Government contributions
Over the 2006-2013 period, total public expenditures from the Government’s strategy are estimated to overtake past historical levels of State aid to the railways by 0.1 percent to 0.3 percent of GDP. Government contributions are projected to increase from EUR 420 million in in 2005, and peak at EUR 749 millions or 0.93 percent of GDP in 2009. This upward trend is driven by CFR investment program, which increases it share from 16 percent to 43 percent ofthe total State support to the sector over 2006 -2013.
Maintaining the Government contributions to CFR to affordable levels will require better planning and prioritizations of CFR investments. The implementation of CFR maintenance efficiency package is critical to containing the State support to CFR. Should the expected cost savings from this project and the network downsizing be delayed, this would translate into an additional State support of0.2 percent of2005 GDP over the period 2006-2013.
61 2002* 2003* 2004 2005 Levers of financial performance: Return on equity** 48% 7% -9% Accumulated losses (Billion Lei) (78,220) (79,566) (79,537) (79,530) Profit margin - Without subsidies - 126% -48% 1% -5% Profit margin - Including subsidies -1 13% -18% 8% 2 % Asset turnover 5.5 1.1 1.o Financial leverage (AsseVEquity) (1.0) (1.4) (14.1) Margin analvsis Return on asset (EBIT-Taxes)/Assetswithout subsidies -57.5% -28.0% 0.8% Return on asset - with subsidies -52.3% -20.3% 1.4% Gross margin - without subsidies -136% -104% 25% 16% Gross margin - with subsidies -123% -75% 32% 23% Financial structure analvsis Debt-to-assets ratio 48% 44% 8% Taxes and Social Security Payables - YOof assets 50% 47% 90% Coverage ratios Interest expenses - % of OPEX 0.0% 0.2% 0.7% 1.3% EBITDNInterest expenses - without subsidies (1449) (192) 26 2 EBITDNInterest expenses - with subsidies 1383 296 182 80 ADSCR - without subsidies (69) (46) 1 0 ADSCR - with subsidies (62) (29) 2 1 Liquidity ratios Current ratio 1.1 1.1 0.1
* Audited accounts, **with subsidies
2005 2006 2007 2008 2009 2010 2011 2012 2013 Margin analvsis Profit margin * -5% -24% -5% -14% -20% -25% -30% -31% -33% Profit margin ** 2% 0% 0% 0% 0% 0% 0% 0% 0% Gross margin * 16% -4% 19% 15% 16% 17% 19% 21% 22% Working ratio * 98% 109% 89% 93% 92% 91% 89% 88% 87% Coverage ratios - Interest and principal to be covered by CFR own resources Interest expenses - % of OPEX 1.3% 0.7% 0.7% 0.6% 1.3% 1.2% 1.1% 1.1% 1.1% EBITDNInterest expenses * 2 (13) 17 13 6 9 10 12 14 ADSCR ** 8 (3) 12 8 6 5 5 6 7 Coverage ratio - Interest and principal to be covered bv CFR and State resoprces ADSCR ** 1.0 1.8 2.2 2.4 2.4 2.4 2.3 1.9 2.0 * without subsidies, ** with subsidies.
62 2005 2006 2007 2008 2009 2010 2011 2012 2013 Operating Revenue 364 361 428 413 410 410 410 410 410 Total Government Contribution 68 195 253 303 354 345 225 226 233 CFR budget support as Yo of GDP 0.1% 0.3% 0.3% 0.4% 0.4% 0.4% 0.3% 0.2% 0.2% Total EU Grants 31 103 187 275 307 258 174 174 180 Total Available Funds 595 812 1085 1283 1474 1383 1036 1028 1040 percent of GDP 0.90% 1.16% 1.48% 1.67% 1.83% 1.63% 1.16% 1.10% 1.06% Total Recurrent Expenditures 323 3 77 371 377 377 377 370 364 358 Debt service payments 43 58 59 61 76 89 110 164 160 Total investments 214 427 659 849 1025 920 508 495 495 Total Infrastructure Expenditures 641 856 1085 1283 1474 1383 985 1021 1011 percent of GDP 0.97% 1.23% 1.48% 1.67% 1.83% 1.63% 1.11% 1.09% 1.03% Financing Gap -47 -44 0 0 0 0 51 7 29
Financial monitoring indicators
In the recent past, CFR cash position has worsened mainly because of payment delays from Calatori. The project implementation will monitor this dimension of CFR’s financial performance, specifically with regard to the following indicators. This will complement the working ratio indicator used in TRP:
Acid ratio” 0.8 2.0 Payment delays from clients 8 months24 2 months I Pavment delavs to sumliers 1 6 months I 2months I
23 (Account receivables + Cash)/Account payables 24 In 2004.
63 Annex 10: Safeguard Policy Issues ROMANIA: TRANSPORT SECTOR SUPPORT PROJECT
Safeguards Diagnostic Review for Piloting the Use of Romanian Systems for Environmental and Social Safeguard Issues
Introduction
Following extensive global notification and consultations, in March 2005, the World Bank Board approved a pilot program to test the use of borrower or “country” systems for meeting the objectives of World Bank environmental and social safeguard policies. This led to the issuance of World Bank Operational Policy (OP) 4.0025, which lays out specific criteria for advancing pilot projects. It was recognized in the background paper for Board consideration that sector- specific Bank operations in new member states and candidates for EU accession hold particular promise as pilots.
Two operations proposed for Romania were considered for piloting under OP 4.00 and were the subject of review in the Report: “Safeguards Diagnostic Review for Piloting the Use of Romanian Systems for Environmental and Social Safeguard Issues”. The two operations are the Municipal Services Project (MSP) and this proposed Transport Sector Support Project (TSSP). The Municipal Services project will support the rehabilitation and improvement of wastewater, stormwater and drinking water systems to reduce pollution, improve public health, and assist Romania in meeting environmental requirements for European Union accession. The TSSP will provide funds to rehabilitate and improve major road and rail infrastructure.
In cooperation with Romanian officials, and with the support ofthe European Commission staff, the World Bank has compared the Romanian systems (including those which stem from EU directives) against the Operational Principles laid out in OP 4.00-Table A1 for key safeguards that would normally apply to these two Bank-assisted projects. This assessment included a legal and technical review; both on paper and through field interviews and site visits. Report conclusions were discussed at a public meeting in Bucharest on December 12, 2005, following disclosure in Romania ofa draft Executive Summary.
Principal Observations - Environmental Assessment (EA) and Cultural Property
The World Bank examined the acceptability of the EA process along two lines: EA approval procedures, and compliance monitoring during construction and operation. The Bank is pleased to note that there is a well defined process in place for screening, review, public consultation, disclosure, and approval of EA documents. Regarding screening (i.e. determination of the appropriate EA category), projects falling on Romania’s Annex Ilist26 would typically fall in the World Bank’s EA Category A. These mandatory EAs require a level of attention to assessing risk, alternatives and mitigatiodmonitoring (Le. scoping) which is comparable to World Bank requirements for Category A projects. Both the Municipal Services and Transport Sector
*’http://wbln0018.worldbank.org/Institutional/Manuals/Op9CEDl645FB433885256FCDOO776Bl9?0penDocument 26 Annex Ito GD 918/2002; projects subject to mandatory EA; based on EU Directive 85/337/EEC as amended
64 Support projects are currently categorized, however, as Category B for Environmental Assessment under the World Bank system, so if sub-projects fall under Annex Iof the Romanian system, they would receive more thorough due diligence for EA than they would under a stand- alone World Bank project.
The approach to EA for projects on Romania’s Annex I1 list was also examined. The vast majority of these projects correspond to World Bank Category B though through the formal Romanian EA process, the few that would correspond to Category A of the World Bank would receive an Annex Ilevel ofpreparation and review. All sub-project categories being considered under the Municipal Services and Transport Sector Support projects will likely, therefore, be subjected under the Romanian system to at least an equivalent approach to EA screening, scoping and analysis as set forth in World Bank OP 4.00.
While the EA documents are prepared by project proponents, an independent Technical Committee is established by Government to review each project. The committee include representatives of local and regional environmental agencies, local officials, representatives of the Health services, the National Environmental Guard (inspection service), the Romanian Water Company (‘Apele Romane”), research institutes, etc.. Public participation during the EA process includes at least one public consultation, and as many as three public announcements in local newspapers or on the local environment agency website. This approach should achieve comparable outcomes as envisaged by the Bank under OP 4.00. Environmental sections of standard bidding documents for roads and rail projects were examined and found comparable to the core mitigation and monitoring aspects of stand-alone Environmental Management Plans normally included as a requirement ofWorld Bank safeguard policies.
Regarding implementation, a successful project application results in the issuance of two documents which are comparable in aim to the Environmental Management Plan required for Bank projects. Following the acceptance of the EA, an Environmental License to Construct (called the “environmental agreement”) is issued for all projects with civil works. After construction, the project proponent is required by law to apply for the Environmental Permit to Operate (sometimes called “environmental authorization”), which is issued only after a review by local or regional environmental authorities. The Environmental License would have measures/conditions to mitigate adverse impacts during construction and is issued by the competent environmental authority based on the information obtained during the environmental impact assessment procedure. Based on the “environmental agreement” the City Hall issues the License to Construct. The Environmental Permit includes measures to be implemented during operation and is issued only by the local EPA. The permitting process includes setting wastewater discharge limits (by Apele Romane). Discharge standards and wastewater management programs (e.g. receiving water quality) set by Romanian authorities are aligning with comparable EU directives on wastewater and watershed management (as transposed into Romanian law), and are quite consistent with the Bank’s narrative descriptions of good water quality management programs in the Pollution Prevention and Abatement Handbook (Part 11).
The World Bank review included meetings and site reviews in cooperation with environmental officials at the local and regional levels. In Romania all key environmental responsibilities fall under the Ministry of Environment and Water Management (MEW). Preparation for EU
65 accession has led and will likely continue to lead to considerable increases in staff at both the policy and field levels. A core group of environmental specialists are also on staff in key regional offices responsible for rails and roads; a very important element in practical implementation ofenvironmental requirements.
Regarding compliance monitoring, an independent agency under the MEW - the National Environment Guard (NEG) - is tasked to carry out this responsibility. The NEG is being staffed up and responsibilities strengthened through passing of bylaws and establishment of good working procedures. An ambitious training program is also being implemented. If violations in licenses or permits are found, the NEG has a range of administrative orders and penalties to issue at its disposal. There seems to be serious commitment at the senior management level to improve the overall compliance level. The trend is positive, with reportedly increased fines for violations, more transparency, and reduced ambiguity in setting the fines (thereby helping reduce corruption). It should be noted, however, that a fully staffed NEG will not be in place for about a year, so effectiveness cannot yet be fully documented.
In the area of Environmental Assessment, the review concludes that there are no gaps regarding the equivalence of Romanian systems that would inhibit piloting. Differences in process or application of policies (for example continuing consultation during relatively higher risk sub- projects) are not pertinent to the types of sub-projects expected to be carried out under the pilots. Strengthening of the EA system has been accomplished recently as part of the EU accession process and further strengthening would be helpful more broadly for environmental performance improvement, but is not necessary to meet the due diligence requirements for the Municipal Services and Transport Sector Support Projects. It should also be noted that the Bank’s proposed Environmental Management Loan (slated for delivery in FY07) is expected to provide considerable capacity building which will directly and positively improve Romanian systems at both the policy and field levels.
Regarding cultural property, the Bank believes that Romanian systems are appropriate for application to both operations. If either operation would require construction or rehabilitation near to historic buildings or other physical cultural resources, or if “chance finds” are encountered, we believe that Romanian systems are at least as effective as those outlined in OPBP 4.00 on such points. Inventories of buildings and sites of cultural significance are available, and are consulted to assess whether proposed investment projects might cause impact. Local experts on archeology, architecture and other relevant fields are brought in for assessments before construction decisions are made, and after if “chance finds” are encountered during construction.
With respect to EA implementation practices (the core of the “acceptability analyses”) the Bank finds the current approach and direction ofRomanian institutions in carrying out sub-sector laws and policies (including compliance and enforcement) to conform with the goals of OP 4.00. While several areas would benefit from strengthening (as part of the country’s overall improvement in environmental management and implementation of sectoral policies), strengthening is not required for approving the Municipal Services or Transport Sector Support Projects as pilots. Capacity-building under European Union programs, as well as the proposed World Bank Environmental Management Loan, will also be very supportive.
66 Principal Observations - Involuntary Resettlement
Initially it was thought that the two pilot projects might involve small-scale land acquisition. No physical relocation ofhouseholds or businesses was expected. Consequently, a legal analysis was commissioned of expropriation and related legislation, and the Bank met with officials in national and local Governments who deal with expropriation, property assessors, and people whose land had been expropriated.
The analysis focused on the principles of OP 4.00 that are applicable to expropriation and land acquisition. Equivalence was found in several key areas, but in other areas Romanian expropriation laws and procedures were not considered equivalent to principles in OPBP 4.00, notably with regard to informing affected people oftheir rights and monitoring or assessment of the impacts of expropriation. Regarding acceptability, it was found that that the expropriation process in Romania is implemented according to the law and is markedly consistent with OPBP 4.00. However, some weaknesses would have had to be addressed to enable piloting under OP4.00 of this policy, that were largely related to lack of transparency in the valuation and negotiation process, and little track record with regards to dealing with more complicated issues such as impacts on livelihoods and illegal occupation.
Principal Observations - Other Issues
There is no information at this stage to indicate that other safeguard-related policy areas that fall within the scope of OP 4.00 will be triggered by the proposed MSP and Transport projects. Accordingly, no other safeguard policy areas are considered for piloting.
Conclusions
The Bank believes that the Romanian system oflaws, regulations and practices in the sub-sectors to be supported by the proposed Transport Sector Support project can be considered equivalent to those ofthe World Bank, and acceptable in practice, and support piloting under OPBP 4.00 in two safeguards-related areas. These areas are environmental assessment and cultural property, and require no gap-filling.
World Bank supervision on safeguard-related matters will continue throughout the implementation of the two proposed projects to: (i)ensure compliance with “equivalent and acceptable” Romanian procedures, (ii)assess implementation ofgap-filling measures, (iii)ensure compliance with Bank policies if7where they apply in lieu ofRomanian systems, and (iv) looking more broadly, track results in terms of environmental and social development outcomes. This will include review ofmonitoring reports as agreed with the borrower.
67 Annex 11: Project Preparation and Supervision ROMANIA: TRANSPORT SECTOR SUPPORT PROJECT
Planned Actual PCN review 24 May 2005 24 May 2005 Initial PID to PIC 1 June2005 1 June2005 Initial ISDS to PIC 1 June 2005 1 June 2005 Appraisal 26 April 2006 26 April 2006 Negotiations 17 May 2006 22 May 2006 BoardRVP approval 2 November 2006 Planned date of effectiveness 15 December 2006 Planned closing date 31 December 2008
Key institutions responsible for preparation of the project: - Romania National Company for Motorways and National Roads (RNCMNR) - National Railway Company CFR SA - Ministry of Transport, Construction and Tourism (MTCT)
Bank staff and consultants who worked on the project included:
Name Title Unit Henry G. R. Kerali Lead Transport Specialist/Team Leader ECSIE Mohammed Dalil Essakali Infrastructure Economist ECSIE Gaetane Tracz Financial Analyst ECSIE Salim Benouniche Senior Procurement Specialist ECSPS Bogdan Constantinescu Senior Financial Management Specialist ECSPS Stan Peabody Lead Social Specialist ECSSD Miroslav Ruzica Senior Social Specialist ECSSD Doina Visa Operations Officer ECSIE Antti Talvitie Consultant (Transport Infrastructure) ECSIE Sunja Kim Consultant (Financial Analyst) ECSIE Ruxandra Floroiu Consultant (Environmental Specialist) ECSSD Otilia Nutu Consultant (Economist) ECSIE Allan Pozniak Consultant (Railways) ECSIE Juderica Dias Team Assistant ECSlE
Bank funds expended to date on project preparation: 1. Bank resources: US$245,000 2. Trust funds: 3. Total: US$245,000
Estimated Approval and Supervision costs: 1, Remaining costs to approval: 2. Estimated annual supervision cost: us$90,000
68 Annex 12: Documents in the Project File ROMANIA: TRANSPORT SECTOR SUPPORT PROJECT
1. Safeguards Diagnostic Review for Piloting the Use of Romanian Systems to Address Environmental and Social Safeguard Issues in the Proposed World Bank-Assisted Romania Municipal Services Project and Transport S WAp Project. Equivalence and Acceptability Assessment Report. Draft January 2006. World Bank.
2. CFR SA 5-Year Business Plan (2004-2008). CFR SA.
3. Road Strategy for the Development of the Transport Services during the Period 2005- 2015. November 3,2005. Government of Romania. MTCT.
4. Report of HDM-I11 economic analysis of RNCMNR 2006 program (10 volumes). April 2006. RNCMNR.
5. Sectoral Operational Programme - Transport (SOPT) 2007 - 2013. April 2006. Government of Romania. MTCT.
69 Annex 13: Statement of Loans and Credits ROMANIA: TRANSPORT SECTOR SUPPORT PROJECT
Difference between expected and actual Original Amount in USD Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d PO87807 2005 MINE CLOSURE. ENV & SOCIO-ECO 120.00 0.00 0.00 0.00 0.00 120.00 1.67 0.00 REG (CRL) PO86949 2005 MOD AGRIC SUPPT SERVS (MAKIS) 50.00 0.00 0.00 0.00 0.00 49.93 4.50 0.00 (CW PO86694 2005 ECSEE APL #1 (CRL) 84.30 0.00 0.00 0.00 0.00 79.10 1.30 0.00 PO83620 2005 TRANSPORT RESTRUCTURING 225.00 0.00 0.00 0.00 0.00 225.00 38.33 0.00 PO78971 2005 HEALTH SEC REF 2 (APL #2) (CRL) 80.00 0.00 0.00 0.00 0.00 77.91 8.10 0.00 PO75 163 2004 HA2 MITIG 150.00 0.00 0.00 0.00 0.00 147.64 6.3 1 0.00 PO81950 2004 HAZARD MITIGATION (GEF) 0.00 0.00 0.00 7.00 0.00 6.54 1.15 0.00 PO43881 2004 IRRIG REHAB 80.00 0.00 0.00 0.00 0.00 78.93 10.53 0.00 PO81406 2003 ELEC MARKET 82.00 0.00 0.00 0.00 0.00 68.71 31.40 0.00 PO73967 2003 RURAL EDUC 60.00 0.00 0.00 0.00 0.00 45.35 2.99 4.08 PO69679 2003 PPIBL 18.60 0.00 0.00 0.00 0.00 15.75 15.75 0.00 PO67367 2003 FOREST DEVT 25.00 0.00 0.00 0.00 0.00 23.67 5.98 0.00 PO68062 2003 ENERGY EFF (GEF) 0.00 0.00 0.00 10.00 0.00 5.86 9.40 0.00 PO57960 2002 RURAL DEV (APL #1) 40.00 0.00 0.00 0.00 0.00 26.20 12.70 0.00 PO66065 2002 AG POLLUTION CONTROL (GEF) 0.00 0.00 0.00 5.15 0.00 1.13 0.17 0.00 PO68808 2002 SDF 2 (APL #2) 20.00 0.00 0.00 0.00 0.00 4.08 -0.59 0.51 PO56891 2001 RURAL FIN (APL #1) 80.00 0.00 0.00 0.00 0.00 39.57 39.57 -13.43 PO08783 2001 SOC SECT DEV (SSD) 50.00 0.00 0.00 0.00 0.00 38.04 38.04 0.00 PO56337 2000 MINE CLOSURE 44.50 0.00 0.00 0.00 0.00 12.50 12.50 3.16 PO43882 2000 AGR SUPPORT SERVS 11.00 0.00 0.00 0.00 0.00 0.72 0.72 0.12 PO44176 1999 BIODIV CONSV MGMT (GEF) 0.00 0.00 0.00 5.50 0.00 1.30 1.30 1.oo PO34213 1998 GENL CADASTRE 25.50 0.00 0.00 0.00 0.00 11.89 11.89 11.89 PO39250 1997 ROADS 2 150.00 0.00 0.00 0.00 0.00 13.36 13.36 0.00 Total: 1,395.90 0.00 0.00 27.65 0.00 1,093.18 267.07 7.33
70 ROMANIA STATEMENT OF IFC’s Held and Disbursed Portfolio In Millions ofUS Dollars
Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 1999 Ambro 1.48 0.00 0.00 0.00 1.48 0.00 0.00 0.00 2003 Arctic 11.07 0.00 0.00 0.00 11.07 0.00 0.00 0.00 2002 Banc Post 0.00 8.00 0.00 0.00 0.00 8.00 0.00 0.00 2003 Banca Comerciala 67.50 0.00 0.00 0.00 67.50 0.00 0.00 0.00 2004 Banca Comerciala 0.00 111.00 0.00 0.00 0.00 111.00 0.00 0.00 2005 Banca Tiriac 28.15 0.00 0.00 0.00 26.10 0.00 0.00 0.00 2005 DistrigazSud 0.00 49.19 0.00 0.00 0.00 0.00 0.00 0.00 2001 ICME 9.02 0.00 0.00 0.00 9.02 0.00 0.00 0.00 2004 Mindbank 0.00 0.00 7.00 0.00 0.00 0.00 7.00 0.00 2002 ProcreditRomania 0.00 1.56 0.00 0.00 0.00 1.56 0.00 0.00 2003 ProCreditRomania 0.00 0.41 0.00 0.00 0.00 0.41 0.00 0.00 2004 ProCreditRomania 5.00 0.00 0.00 0.00 5.00 0.00 0.00 0.00 2004 RZB Romania 10.00 0.00 0.00 30.00 10.00 0.00 0.00 30.00 2003 Ro-Fin 5.05 0.00 0.00 0.00 3.46 0.00 0.00 0.00 2004 Romanian-Amer... 3.00 0.00 0.00 0.00 3 .OO 0.00 0.00 0.00 1994 Romlease 0.16 0.00 0.00 0.00 0.16 0.00 0.00 0.00 2001 Romlease 1.33 0.00 0.00 0.00 1.33 0.00 0.00 0.00 2004 Transilvaniabank 24.53 0.00 0.00 0.00 24.77 0.00 0.00 0.00 2005 Transilvaniabank 24.60 0.00 20.00 0.00 9.22 0.00 0.00 0.00 2005 Unicredito 9.22 0.00 0.00 0.00 9.22 0.00 0.00 0.00 Total portfolio: 200.11 170.16 27.00 30.00 181.33 120.97 7.00 30.00
Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic. 2005 Banat 0.05 0.00 0.02 0.04 2005 Banvit Romania 0.02 0.00 0.00 0.00 2005 Dobrogea 0.05 0.00 0.01 0.05 2005 Petrotel-Lukoil 0.04 0.00 0.00 0.05 2003 Ro-Fin Mortgage 0.00 0.00 0.00 0.00 2006 TTS 0.02 0.00 0.00 0.00 Total pending commitment: 0.1 8 0.00 0.03 0.14
71 Annex 14: Country at a Glance ROMANIA: TRANSPORT SECTOR SUPPORT PROJECT Romania
PRICES and GOVERNMENT FINANCE 1684 1994 2003 2004 Inflation (Oh) Domestic prices (%change) T Consumer prices Q6.7 15.3 P.5 I Implicit GDP deflator 0.3 08.9 8.2 lS.6 Government finance (%of GDP, includes current grants) Current revenue 311 29.9 27.1 I 99 00 01 02 03 Current budget balance 3.5 12 0.4 041 -GDP deflator -CPI Overall surplus/deficit -2.2 -2.3 -2.4
TRADE 1984 1994 2003 2004 Export and import levels (US$ mill.) (US$ millions) Totalexports (fob) 'tZ,646 6,151 77,6B 20,983 30,000 Basic metals and articles 1065 2262 Mineral products 7# 1,482 20,000 Manufactures 6,543 3,754 e534 15232 Total imports (cif) 0,334 7,D9 23,963 27,931 Food 661 1737 10.000 Fuel and energy 1,906 2,615 Capital goods 1540 1782 7.077 7,726 0 98 99 00 01 02 03 04 Export price index (20OO=rOO) 99 99 Import price index(2000=WO) 98 DO hports Im)orts Terms of trade (2000=WO) DO 99 I
BALANCE of PAYMENTS - 1684 1664 2003 2004 C rrent account balance to GDP (%) (US$ millions) Exports of goods and services 0,466 7,85 20,646 24,563 0 Imports of goods and services 11D8 7,777 25.11) 29224 Resource balance 2,376 -582 -4,467 -4,660 -2 Net income -659 -P9 -705 -999 Net current transfers 0 283 1861 18D -4 Current account balance 1,78 -428 -3,311 -3,849 -6 Financing items (net) -1591 1046 4,445 5,48 1
Changes in net reserves -P6 -6 B -104 -1,633 -8 Memo: Reserves including gold (US$ mi//ions) 1596 9,364 owa Conversion rate (DEC, /ocaVUS$) 1655.1 33200.1 32,636.6
EXTERNAL DEBT and RESOURCE FLOWS 1994 2003 2004 1984 IComposition of 2004 debt (US$ mill. (US$ millions) Total debt outstanding and disbursed 6,983 8,454 24267 21739 IB RD 1836 1009 2,370 2,265 G: 1,361 A: 2.265 IDA 0 0 0 0 I Total debt service $981 4,565 5,530 5,2D IB RD 365 63 377 32 1 IDA 0 0 0 0 Composition of net resource flows Official grants 0 D4 0 Official creditors 0 745 173 -27 Private creditors -352 306 -1973 -2,325 Foreign direct investment (net inflows) 0 263 0 Portfolio equity(net inflows) 0 0 0 World Bank program Commitments 0 475 0 0 A - IBRD E-Bilataal Disbursements 9 228 74 131 6 -IDA D - Other mltilatsal F- Rivate Principal repayments 200 0 226 236 C-IMF G- Short-ta
72 MAP SECTION
ROMANIA TRANSPORT SECTOR SUPPORT PROJECT CORRIDOR IV ToTo CORRIDOR IX NATIONALUzhhorod ROADS NETWORK TEN NETWORK
22°E24°E26°E 28°E SELECTED CITIES AND TOWNS TToo UKRAINE Ivano-Frankivs'k COUNTY (JUDET) CAPITALS ROMANIA 48°N Halmeu NATIONAL CAPITAL Siret To Balti˘ Siret RIVERS Satu Botosani Mare MAIN ROADS Baia Mare C Suceava ToT o Prut INTERNATIONAL BOUNDARIES Budapest s a M e TToo r Chisinau om p o S a l Iasi Bistrita t Tod Bors Zalau Oradea Dej h Balti˘ a Bistrita TToo i Piatra- 30°E v Chisinau a Neamt HUNGARYHUNGARY Roman i ToTo res n Subotica u a M Albita M MOLDOVA Cluj- Gheorgheni Vaslui Napoca t Tîrgu s Husi Turda Mures . Bacau Crisul Alb Miercurea- Cuic Siret Gheorghe Nadlac˘ Arad Gheorghiu-Dej Medias Birlad Brad Alba N Mures Lulia 46° ToTo Novi Sad Deva Sebes UKRAINE Timisoara Sfîntu Tecuci Gheorghe Hunedoara Sibiu B Lugoj T Moldoveanu i m Focsani is (2,544 m ) Brasov a Galati Petrosani i a n n v a n Resita y l A a s l p s BuzauBraila Moravita a n Novi Sad t r Tulcea T Rimnicu Buzau Targu Jiu Vilcea To Targoviste TNiso˘ Pitesti Ploiesti a Ji Orsova u D Drobeta- j anube Walachia Turmu Sererin Ialomita u Black Arges Slobozia BUCHAREST Fetesti r Slatina SERBIA Navodari Nis˘ b Sea Craiova Olt Calarasi Medgidia nube o 0 25 50 75 100 Kilometers Da Constanta 44°N 44°N Caracal D
0 25 50 75 Miles Calafat To Alexandria Giurgiu Sofiya Mangalia OCTOBER 2006 Turnu Magurele IBRD 34589 This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any To endorsement or acceptance of such boundaries. TToo To 24°E BULGARIA VVelikoeliko TTurnovo Shumen 30°E ˘urnovo Shumen To Varna To Sofiya
To Shumen To Shumen To Varna
OCTOBER 2006 OCTOBER
Budapest Budapest
Novi Sad Novi Sad
Budapest Budapest
44
HUNGARYHUNGAR
T To
This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information endorsement or acceptance of such boundaries. shown on this map do not imply, of The World on the part Bank Group, any judgment on the legal status of territory, or any
o
T To
T To
o
°
o N 0 0 25 25
Y
Nis Nis
To T
Nadlac
o
50
˘ ˘ Moravita B B ˘
a
a ROMANIA
n 75 n SERBIA
T Timisoara
50 imisoara
a a Arad Arad 100 Kilometers Ipiscopia
Bihor
t t
D D
a a
M M
n n
75 Miles
u u
u u
C C
b b
r r
r r
e e
e e
Resita i i
s s s s
u Lugoj u
l l
Oradea Oradea
A A
T
Orsova T Orsova
22
i i
l l m m b b
i i s s ° E24 Hunedoara Hunedoara
TRANSPORT SECTOR SUPPORT PROJECT MEHEDINTI Turmu Sererin T ur Drobeta- Drobeta-
mu Sererin
T T To Uzhhorod o Uzhhorod Targu Jiu T Brad Brad
argu Jiu r NATIONAL RAILWAYS NETWORK Calafat Calafat Mare Satu
Mare Satu
Deva
Sofiya Sofiya a
Vintu de Jos
To T
Alba Lulia Alba Lulia o
J J Halmeu
Zalau i i u u n Petrosani Petrosani S Napoca Napoca oommes Coslariu Craiova Craiova s Cluj- Cluj-
y T Turda
urda
W Walachia Sebes Baia Mare Baia Mare
l alachia
v 24 Dej Dej Caracal Caracal ° E
a Medias Medias ° E26 T Turnu Magurele ur
Sibiu Sibiu
n Mures Mures nu Magurele Slatina Slatina
Tîrgu ROMANIA
Olt
Olt i i UKRAINE UKRAINE Vilcea Rimnicu V Rimnicu BULGARIA BULGARIA
ilcea
Ivano-Frankivs'k
a
Bistrita Bistrita
n n
To
(2,544 m ) Moldoveanu (2,544 m ) M u Pitesti r
e
s
Alexandria Alexandria
A A
Miercurea- Miercurea- T Targoviste
Videle
argoviste
C C
Cuic Cuic
l l
a a
r r
Arges Arges
Bistrita Bistrita p p
Giurgiu Giurgiu
Ivano-Frankivs'k Ivano-Frankivs'k
Gheorgheni Gheorgheni p
Brasov p
Ploiesti
a a
s
Gheorghe Sfîntu
t t T To
o
h
h ° Suceava Suceava
E
i
i Siret
a a Siret Siret
n
n Neamt Neamt BUCHAREST Piatra- Gheorghiu-Dej Gheorghiu-Dej
M
Gheorghe M Gheorghe Pascani
t t
s
s Botosani Botosani . . Roman Roman
D Focsani
M a M
Buzau
n
u Bacau
o
Shumen o Shumen Siret
b Siret
l
e l
To T Calarasi d o d
a
Slobozia a Slobozia
v v
Prut Prut
i i
a Faurei a
Buzau Iasi T Tecuci
ecuci
Shumen Shumen Ialomita
Vaslui V
To T
Braila
Birlad Birlad
o aslui
Chisinau Chisinau 28 Galati Ungheni
48
T To
Albita o ° ° E N Fetesti Fetesti Medgidia Medgidia Husi Husi
D MOLDOVA
o Reni Chisinau
b Chisinau
To r T u o j Mangalia Navodari a Constanta INTERNATIONAL BOUNDARIES RAILWAYS RIVERS NATIONAL CAPITAL COUNTY (JUDET) CAPITALS SELECTED CITIES AND TOWNS TEN NETWORK CORRIDOR IX CORRIDOR IV Tulcea T ulcea
UKRAINE
Black Sea 30 ° E
44 46 30
° °
°
N N E IBRD 34590 IBRD