MUNICIPALITY OF KARPOSH

PROJECT APPRAISAL DOCUMENT FOR RECONSTRUCTION OF LOCAL STREETS IN URBAN COMMUNITIES KARPOSH 1 AND KARPOSH 2

Municipal Services Project Improvement Municipal

Skopje February 2021

Table of Content

Summary ...... 8 1 Project description ...... 10 1.1 General Information on the of Karposh ...... 11 1.2 Demographic and economic profile ...... 12 1.2.1 Demographic table ...... 12 1.2.2 Gender and age ...... 13 1.2.3 Minority repartition ...... 15 1.2.4 Economy and employment ...... 15 1.2.5 Relevant extracts of the municipality’s documents about the project ...... 16 1.3 General description of the Project ...... 17 1.3.1 General description ...... 17 1.3.2 Area concerned by the project ...... 17 1.3.3 Current situation ...... 20 1.3.4 Project goals and project beneficiaries...... 22 1.3.5 Knowledge and experience of the municipality of Karposh ...... 23 1.3.6 Conclusions ...... 24 2 Social assessment ...... 25 2.1 Social study ...... 25 2.1.1 Social diversity and gender ...... 26 2.1.2 Institutions, rules, and behavior ...... 27 2.1.3 Stakeholders ...... 27 2.1.4 Citizens engagement ...... 28 2.1.5 Social risks ...... 29 2.2 Other fields of consideration ...... 29 2.3 Resettlement issues ...... 29 2.4 Conclusion on the project potential success and recommendation ...... 29 3 Environmental Impact ...... 31 3.1 LOCATION OF PROJECT SITE ...... 32 3.3 MAIN ENVIRONMENTAL IMPACT AND SENSITIVE RECEPTORS ...... 34 3.4 ENVIRONMENTAL MITIGATION PLAN FOR THE PROJECT: RECONSTRUCTION OF FOUR STREETS IN MUNICIPALITY OF KARPOSH ...... 39

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3.5 ENVIRONMENTAL MONITORING PLAN FOR THE PROJECT: RECONSTRUCTION OF FOUR STREETS IN MUNICIPALITY OF KARPOSH ...... 42 4 Technical solution ...... 46 4.1 Description ...... 47 4.2 Analysis and evaluation ...... 55 4.3 Conclusions and recommendations ...... 55 4.4 Alternative solutions ...... 55 5 Financial analysis ...... 56 5.1 Project cost ...... 57 5.2 Credit capacity ...... 58 5.3 Loan repayment ...... 59 5.4 Review of the municipal account ...... 60 5.5 Analysis of the financial feasibility of the project ...... 63 5.5.1 Time horizon ...... 63 5.5.2 Limitations of the analysis ...... 63 5.5.3 Initial investment ...... 63 5.5.4 Inflation ...... 63 5.5.5 Discount rate ...... 64 5.5.6 Projection of operating cash flows ...... 64 5.6 Costs ...... 64 5.1.1 Sensitivity analysis ...... 67 5.7 Conclusions...... 67 6 Cost-benefit analysis ...... 68 6.1 General information ...... 69 6.1.1 Framework of the analysis ...... 69 6.1.2 Limitations and constraints of the study ...... 69 6.1.3 Scope ...... 69 6.2 Identification of the relevant costs and benefits ...... 69 6.2.1 Project costs ...... 69 6.2.2 Quantifiable benefits ...... 69 6.2.3 Unquantifiable benefits ...... 70 6.3 Valuation of the costs and benefits ...... 71 6.3.1 Economic valuation of the costs ...... 71

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6.4 Other assumptions ...... 72 6.5 Valuation of the costs and benefits ...... 72 6.6 Results from the cost-benefit analysis ...... 72 6.7 sensitivity analysis ...... 73 6.8 Conclusion ...... 74 7 Risk analysis ...... 76 7.1 Technical risks to the municipality ...... 77 7.2 Financial risks to the municipality ...... 77 8 Recommendations ...... 79 9 Annex ...... 81 9.1 Decision of the Municipality of Karposh for loan ...... 82

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List of Tables

Table 1. Basic demographic and economic data about Karposh ...... 12 Table 2. Urban and rural repartition...... 13 Table 3. Age distribution by gender ...... 14 Table 4. Population by ethnic groups in Karposh ...... 15 Table 5. Active business legal entities for 2019 ...... 15 Table 6. Active business legal entities by sector 2019 ...... 15 Table 7. Unemployment by gender (November 2020) ...... 16 Table 8. Detailed information about the local streets ...... 20 Table 9. Implemented investment projects...... 23 Table 10. Estimated values of the generated different waste streams during reconstruction activities ...... 37 Table 11. Administrative numbers of Decisions for approval of the EIA Elaborates for all 4 streets ...... 37 Table 12. Project technical documentation ...... 47 Table 13. Technical details of the local streets according the detail desings ...... 49 Table 14 Estimated project costs ...... 57 Table 15. Operating revenues of the Municipality Karposh for the year 2020 ...... 58 Table 16. Presentation of the loan terms ...... 59 Table 17. Loan amortization plan ...... 59 Table 18. Review of revenues and expenditures ...... 60 Table 19. Accounts payable/receivable ...... 61 Table 20. Long term loans ...... 61 Table 21. Servicing of long-term municipal debts in MKD...... 62 Table 22. Distribution of the repayment of the existing loans of the Municipality of Karposh ...... 62 Table 23. Price for maintenance per 1 m of street ...... 64 Table 24. Price for maintenance of the street planned for reconstruction ...... 64 Table 25. NPV analysis (in MKDMKD) ...... 66 Table 26. Sensitivity analysis ...... 67 Table 27. Number of vehicles owned by the residents ...... 70 Table 28. Economic valuation of the investment outlay (in MKD) ...... 71 Table 29. Summary of comparisons between the “without” and “with the project” scenarios ...... 72 Table 30. Cost-benefit analysis (in MKD) ...... 72 Table 31. Sensitivity analysis ...... 73 Table 32. Technical risks ...... 77

List of Figures

Figure 1. Municipality Karposh within the city of ...... 11 Figure 2. City of Skopje with its ten constituent ...... 11 Figure 3. Chart for population by gender ...... 14 Figure 4. Chart for population by age ...... 14 Figure 5. Street “Gigo Mihajlovski” ...... 17 Figure 6. Street “Shekspire” ...... 18 Figure 7. Street “Ivan Agovski” ...... 18 Figure 8. Street “Mirka Ginova” ...... 19 Figure 9. Photos from existing situation of the local street “Gigo Mihajlovski” ...... 21 Figure 10. Photos from existing situation of the street “Shekspire” ...... 21 Figure 11. Photos from existing situation of the street “Ivan Agovski” ...... 21 Figure 12. Photos from existing situation of the street “Mirka Ginova” ...... 22 Figure 13. Micro and macro location of the sub-projects locations (marked with red) ...... 32

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Figure 14. Transverse section of the local street “Gigo Mihajlovski” and street “Gigo Mihajlovski – section 1” with details ...... 51 Figure 15. Transverse section of the local street “Shekspirova” with details ...... 52 Figure 16. Transverse section of the local street “Ivan Agovski”...... 53 Figure 17. Transverse section of the local street “Mirka Ginova” ...... 54

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Abbreviations CBA Cost and Benefit Analysis EIA Environmental Impact Assessment ENPV Economic Net Present Value ERR Economic Rate of Return ESARNM Employment service agency of Republic of H&S Health and Safety IRR Internal Rate of Return MIRR Modified Internal Rate of Return MKD Macedonian MKDMKD MKS EN Macedonian Standard MSIP Municipal Service Improvement Project NGO Non - Governmental Organizations NPV Net Present Value PAD Project Appraisal Document RNM Republic of North Macedonia SSO State statistical office of Republic of North Macedonia VAT Value Added Tax

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Summary

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This project is about reconstruction of 4 (four) local streets in the urban areas Karposh 1 and Karposh 2. The total estimated amount of the project is 16,646,946.70 MKD (270,682.06 EUR) with included VAT 18 % and will be provided from the Second Municipal Services Improvement Project (MSIP 2) sub-loan. The Decision of the municipal Council for borrowing No. 09-494/27 dated 29.01.2021 is in amount of 16,646,946.70 MKD, so there is no need for co-financing from the municipality of Karposh. The importance of the project comes from the need to improve the quality of life of the citizens of municipality of Karposh. This project will improve the road infrastructure and the quality of life of the citizens and business sector from the municipality which use these local streets, especially the citizens from the urban areas Karposh 1 and Karposh 2.

The Project is in-line with the Strategy plan for Development of Karposh Municipality for 2019 and the new Strategy plan for Development of Karposh Municipality which is in phase of preparation and it will contribute towards achieving the vision of the municipal administration for providing full coverage of transport and communal (utility) infrastructure throughout the municipal territory. The Mayor and the municipal administration strive to achieve full coverage of a transport and other communal (utility) infrastructure throughout the municipal territory. It can be inferred that the implementation of the Project will undoubtedly contribute towards improvement of the quality of life and well-being of the citizens of the Municipality Karposh. Municipality has implemented various similar Projects in the past, some of which in collaboration with international institutions, which implies that is able to implement large construction Projects such as this one.

This project is approved from the municipal Council with the Decision No. 09-5350/21 dated 18.09.2020 for municipality priority for financing projects through borrowing within the framework of the Second Municipal Services Improvement Project (MSIP 2) (IBRD – 8165 MK). The necessity from this project was in accordance with the need for satisfying the public interest in the area of capital projects. On 24.12.2020 the administration of Karposh municipality organized online public hearing about this project, due to the Covid 19 measures which disable the possibility of having a regular meeting. This public hearing confirmed and concluded this project for reconstruction of the local streets to be realizing with the financial sources from the borrowing.

In addition, The Project will cause significant unquantifiable benefits such as increasing the traffic safety and comfort, increasing the traffic capacity and communications, ensuring a feeling of security by pedestrians, enhancing the commercial activities, as well as extending the outdoor social and recreational activities for the residents living on the streets. Additionally, the implementation of the Project is expected to lead towards reduction of the municipal costs for constant repairs of the streets. Once the Project is implemented, the Municipality will spend less money for repairs and reallocate them to other municipal services. Flood control will not only reduce the municipal spending, but also private spending on repairs, thus enabling reallocation of the funds to other more beneficial, i.e. productive use. The implementation of the Project is also expected to increase the property value for houses and other residential or commercial objects on the streets, thus increasing the growth of revenues from property taxes.

Furthermore, it is very difficult to relate the benefits of Projects of this kind with the economic development and poverty levels in a certain Municipality in a short-term. However, taking into account that increasing the quality of the transport infrastructure and increase in productivity is linked with decreasing poverty, the Project will definitely have a wide positive impact on the economic growth and the poverty level, not only in a short term but also in the longer term perspective.

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1 Project description

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1.1 GENERAL INFORMATION ON THE MUNICIPALITY OF KARPOSH Karposh Municipality is one of ten constituent municipalities of the city of Skopje, the capital of the Republic of North Macedonia. The Municipality is situated on the west-central part of the Skopje region (see figure 1), spreading on an area of 35km2 on an average altitude of 362m. Municipality Karposh spreads on a large area of the Mountain located in the southern part of the Municipality and of the Skopje’s valley. The overall wooded area in the Municipality is 235.12ha.

Figure 1. Municipality Karposh within the city of Skopje

In figure 2 presents the location of the Municipality of Karposh (number 8 in the figure) in the City of Skopje.

Figure 2. City of Skopje with its ten constituent municipalities

Municipality Karposh borders with Municipality Saraj and Municipality Gjorce Petrov to the west, with Municipality Cucer-Sandevo to the north, Municipality to the northeast, with Municipality Cair, 11

Municipality Centar, and Municipality Kisela Voda to the east and Municipality Sopiste to the south. The Municipality has 59,666 inhabitants (revised Census data from 2005) and 14 local communities of which, the local communities (districts) of Karposh 1, Karposh 2, Karposh 3, Karposh 4, Taftaligje 1, Taftaligje 2, 1, Vlae 2, Vlado Tasevski, Kuzman Josifovski-Pitu, Peco Bozinovski-Kocho and Zlokukjani are located in the urban area, while the other 2 local communities (Bardovci and Gorno ) are located in the rural area of the municipality. This Project is intended to be implemented in the urban area of the municipality, i.e. in the urban areas Karposh 1 and Karposh 2.

The longest river in the RNM, river (total length 388km) passes through the territory of the Municipality Karposh. River Lepenec (total length of 75km) which is a left side tributary of the River Vardar also passes through Municipality Karposh and is discharging into the River Vardar in the rural district of Bardovci. The average annual minimum temperature is 0.6 C, while the annual maximum temperature is 24.1 C, which classifies the area as hot and dry. The Skopje area is part of the Mediterranean basin and thus, characterized by hot summers, and even at times very hot and dry, while winters are relatively mild to cool, wet winters. It is important to note that the area is characterized by a largest cloudiness in the RNM after the Valley of Polog, with an average of 105.5 cloudy days per year. In addition, the average quantity of rainfalls is 500.7 mm, which are unevenly distributed throughout the year. The months that are classified as the rainiest are January, April, May, June and November with an average of 60% of the average annual amount, while July and August are considered as the least rainy months with an average of only 6% of the average annual amount of rainfalls.

1.2 DEMOGRAPHIC AND ECONOMIC PROFILE 1.2.1 Demographic table Considering the SSO data, the following table shows infrastructure, education and economic indicators for the municipality of Karposh, Skopje Region and the RNM. There are 190 health and social institutions in municipality of Karposh. There are 15 primary schools 10 high schools. Namely, in 2019/2020 there are 6774 pupils attending the primary school. Also, there are 4483 business subjects. Table 1 presents the basic demographic and economic data about municipality of Karposh. Table 1. Basic demographic and economic data about Karposh Municipality Skopje Indicators Unit RNM Karposh Region Demography Area km2 105 1,812 25,713 Total population Number 59,666 578,144 2,022,547 Settlements Number 14 156 1,792 Population density Number 568 319 79 Total dwellings Number 22,849 188,394 698,143 Total households Number 19,680 163,633 564,296 Average households members Number 3.03 3.53 3.58 Education Primary schools Number 15 159 987 High schools Number 10 35 130 Children at age 6-14 that attend Number 6,774 66,103 187,240 school in school year 2019/2020

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Population literacy at age 10 and Number 53,002 488,916 1,693,044 more Infrastructure Local roads km 17 935 9,878 Bridge on local roads Number 1 122 513 Water supply, sewerage and Number 10 77 260 waste management institutions Health and social institutions Number 190 1,084 3,246 Economy Active business subjects Number 4,483 29,652 75,914 GDP per capita MKD N.A. 470,876 331,982 Employment Total unemployed Number 1,513 30,578 155,575 Source: SSO – Makstat data base, Census 2002 and Employment Service Agency of RNM (ESARNM)

According the last data from the Employment Service Agency of RNM (ESARNM) the total unemployed in municipality of Karposh is 1513 i.e. municipality of Karposh is a municipality with the average number of unemployed people compared to other municipalities in the Skopje region. The GDP per capita is calculated on a regional level, since there are no available data on the municipality contribution. The population density is very high in Karposh municipality than the average population density for RNM and Skopje region for 2002 when the last census was conducted. The prevailing population is the urban one, whereby around 96.2% of the total population is settled in the urban area of Municipality Karposh. In the next table are presented details about urban and rural repartition. Table 2. Urban and rural repartition Karposh RNM Repartition Number Percent Number Percent Urban 57,423 96.2 1,169,032 57.8 Rural 2,243 3.8 853,515 42.2 Total 59,666 100 2,022,547 100 Source: SSO – Makstat data base

1.2.2 Gender and age According to the Census in 2002, the total number of inhabitants in the municipality of Karposh is 59,666 inhabitants, living in 19,680 households i.e. 3.02 residents per household. The population density is 568 inhabitants per km2, which makes the municipality one of the most densely populated areas. In the next figure we present population by gender by years (2005; 2017; 2018 and 2019) about Karposh. The statistical data on gender structure in 2005 shows that male are represented with 47.41% and the female are represented with 52.59%. Also, in the next table we presents the age distribution by gender of total population in municipality of Karposh.

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Figure 3. Chart for population by gender 54.00% 53.00% 53.03% 53.06% 53.00% 52.59% 52.00% 51.00% 50.00% 49.00% 48.00% 47.00% 47.41% 46.00% 47.00% 46.97% 46.94% 45.00% 44.00% 43.00% 2005 2017 2018 2019

Male Female

Source: SSO – MakStat database

Table 3. Age distribution by gender 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65+ Total 2837 3142 3550 3760 3657 4030 4741 4671 4228 4406 4328 3595 3674 9027 Male 1457 1600 1830 1884 1843 1900 2224 2275 2089 2147 1952 1521 1643 4,088 Female 1380 1542 1720 1876 1814 2130 2517 2396 2139 2259 2376 2074 2031 4,939 Source: SSO - MakStat data base, Census 2002

The following figure represents the age distribution in the total population. The analysis of data shows that municipality of Karposh has a share of population younger less than15 years (15.97%), whereas persons 65 and older have a share of 20.60% in 2019 and 15.13% in 2002. In 2019, the number of population 15-64 is by 3.91 pp. less compare to the population on same age in the RNM.

Figure 4. Chart for population by age 80.00% 68.87% 69.30% 70.00% 65.39%

60.00%

50.00%

40.00%

30.00% 16.21% 20.60% 20.00% 15.97% 14.00% 15.13% 14.48% 10.00%

0.00% 0 - 14 15 - 64 65 + Karposh 2002 Karposh 2019 RNM 2019 Source:SSO - MakStat data base

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1.2.3 Minority repartition Majority of population in the municipality of Karposh are Macedonians with 88.51% from the total population. Serbians with 3.66% are the second population in terms of representation in the municipality of Karposh, are 3.27%, Bosnians are 0.16%, Roma are 1.03%, Turkish are 0.56% and Vlachos are 0.68% from the total population in the municipality of Karposh, while the others are 2.12% which are members of other national groups. Table 4 presents the population of municipality of Karposh by ethnic groups. Table 4. Population by ethnic groups in Karposh Macedonians Albanians Bosnians Turkish Roma Serbians Vlachs Other Number 52,810 1,952 98 334 615 2,184 407 1,266 % 88.51 3.27 0.16 0.56 1.03 3.66 0.68 2.12 Source: SSO - MakStat data base, Census 2002

1.2.4 Economy and employment In the municipality of Karposh there are 4483 active business legal entities, which is 15.12% of the total active business legal entities in Skopje region i.e. is 5.91% of the total active business legal entities in RNM. It is obvious the domination of the micro businesses shares of 68.24% in RNM and also 60.32% in Karposh. Micro and small business legal entities in RNM, Skopje region and in Karposh are 97% of the total active business legal entities. Table 5. Active business legal entities for 2019 Total Micro Small Medium Large RNM 75,914 51,800 22,579 936 599 Skopje region 29,652 18,387 10,379 488 398 Karposh 4,483 2,704 1,650 65 64 Source: SSO - MakStat data base

The number of legal entities by sector in RNM, Skopje region and Karposh is presented in the next table. The companies in Karposh are mostly concentrated in wholesale and retail trade (25.6% of total), professional, scientific and technical activities (15.3% of total) and other service activities (10.1% of total). Table 6. Active business legal entities by sector 2019 RNM Skopje region Karposh Total 75,914 29,652 4,483 Agriculture, forestry and fishing 2,605 317 36 Mining and quarrying 221 76 8 Manufacturing 8,362 2,707 350 Electricity, gas, steam and air conditioning supply 224 141 28 Water supply, sewerage, waste management and remediation activities 260 77 10 Construction 5,270 2152 297 Wholesale and retail trade; repair of motor vehicles and motorcycles 23,140 7941 1,149 Transportation and storage 5,780 2152 175 Accommodation and food service activities 4,777 1461 210 Information and communication 2,041 1383 335 Financial and insurance activities 470 269 27 Real estate activities 645 403 76 Professional, scientific and technical activities 7,636 3994 688 Administrative and support service activities 1,962 1173 204 Public administration and defense; compulsory social security 264 134 10

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Education 1,289 545 96 Human health and social work activities 3,241 1116 190 Arts, entertainment and recreation 1,753 820 141 Other service activities 5,974 2791 453 Source: SSO - MakStat data base

Regarding the limitations of the data for the unemployment in municipality of Karposh, in the next table we present available data about the unemployment by gender for the RNM, Skopje region and Karposh. Table 7. Unemployment by gender (November 2020) Total Male Female RNM 155,575 77,751 77,824 Percentages 49.98% 50.02% Skopje region 30,578 15,066 15,512 Percentages 49.27% 50.73% Karposh 1,513 750 763 Percentages 49.57% 50.43% Source: ESARNM

1.2.5 Relevant extracts of the municipality’s documents about the project The project “Reconstruction of local streets in the urban areas Karposh 1 and Karposh 2" unite the strategic goals of the Strategy plan for local economic development of the municipality of Karposh in the field of infrastructure and local economy, by setting conditions for local economic development of rural areas. This project is accordance with the Strategy plan for development of the Municipality of Karposh. Regarding the above this project under consideration of this PAD was planned to be implemented with sub-loan. On 09-494/27 the municipal Council adopted a Decision for a prioritization of this project for long run borrowing from the World Bank’s MSIP II 02/2018 No. 09-1097/1. The necessity was justified in the Decision with the need for satisfying the public interest in the area of capital projects. The maximal amount for borrowing was decided to be 16,646,946.70 MKD with maturity of 10 years inclusive of the 3- years grace period and an interest rate equal to what the RNM pays to the World Bank already. On 24.12.2020 at 12:00 am the administration of Karposh municipality organized online public hearing about this project. Present were employees in the municipality and representatives from the interested citizens. Responsible for the project from the municipality of Karposh first explained the financial technicalities of the possible borrowing and after explained the technical part of projects. Also the strategic dedication of the municipality for improvement of the infrastructure of Karposh was explained. Citizens started the discussion by pointing the hot spots with the local streets needs in their interest. In total 8 persons were present to the public hearing as presented by the List of attendees. After the public hearing it was concluded and confirmed project “Reconstruction of local streets in the urban communities Karposh 1 and Karposh 2" to be treated with the financial sources from the borrowing.

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1.3 GENERAL DESCRIPTION OF THE PROJECT 1.3.1 General description In general, this project includes reconstruction of existing 4 (four) local streets with total length of 1.104 km (1104 meters) in the urban area Karposh 1 and Karposh 2 in the municipality of Karposh and they are: - Reconstruction of street “Gigo Mihajlovski” and street “Gigo Mihajlovski – section 1. The total length is 160 meters; - Reconstruction of the street “Shekspire” – section from cross road with Boulevard “Partizanski Odredi” to cross road with the street Rudjer Boskovic”. The total length is 360 meters; - Reconstruction of the street “Ivan Agovski” – section from the cross road with the street “Branislav Nusich” to cross road with street “Orce Nikolov”. The total length is 340 meters and - Reconstruction of the street “Mirka Ginova”. The total length is 244 meters.

1.3.2 Area concerned by the project Locations of the streets are presented in the next figures. The streets are part of the Detailed Local Urban Plans (DLUPs) for the local communities, adopted by the municipal council. The DLUPs of the local communities were used as the base for preparation of the technical documentation and the detailed designs. Figure 5. Street “Gigo Mihajlovski”

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Figure 6. Street “Shekspire”

Figure 7. Street “Ivan Agovski”

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Figure 8. Street “Mirka Ginova”

All 4 (four) streets have functionally storm-water drainage i.e. the existing storm-water drainage satisfied the standards for accepting the storm water from the surface of the streets. The atmospheric waters will be transfer through the new designed transverse and longitudinal slopes, and will be accepted into the existing drain gullies which are in function and satisfied the needs for atmospheric drainage. Namely, three streets are located in the urban community Karposh 1 and only one is located in the urban community Karposh 2. In the next table we present detailed information for the 4 (four) streets covered with this project.

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Table 8. Detailed information about the local streets Storm-water Urban Length street Sidewalks Street drainage community (m) (Yes/No) (Yes/No)

Reconstruction of street “Gigo Mihajlovski” and Yes Karposh 1 160 Yes street “Gigo Mihajlovski – section 1

Reconstruction of the street “Shekspire” – section from cross road with Boulevard Karposh 2 360 Yes Yes “Partizanski Odredi” to cross road with the street Rudjer Boskovic”

Reconstruction of the street “Ivan Agovski” – section from the cross road with the street Karposh 1 340 Yes Yes “Branislav Nusich” to cross road with street “Orce Nikolov”

Reconstruction of the Yes Karposh 1 244 No street “Mirka Ginova”

Source: Detailed designs for reconstruction

1.3.3 Current situation All 4 (four) local streets are located in the urban area of Karposh municipality. Regarding the fact that all 4 (four) local streets have not been refurbished more than 15 years, so the roadway and the other elements of the streets are damaged and are in poor condition, the reconstruction of them is necessary. The final asphalt layer is damaged, also there are longitudinal and transverse cracks and big potholes. This damages on the local streets create problem for normal and safety flow of traffic. Namely, this current situation of the local streets also create additional problem on the vehicles which use this road i.e. vehicles has defects which produce costs related to repairs. The reconstruction of the all 4 (four) streets refers on reconstruction of the existing roadway structure and sidewalks. In the following figures we presented the current condition for all 4 (four) local streets.

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Figure 9. Photos from existing situation of the local street “Gigo Mihajlovski”

Figure 10. Photos from existing situation of the street “Shekspire”

Figure 11. Photos from existing situation of the street “Ivan Agovski”

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Figure 12. Photos from existing situation of the street “Mirka Ginova”

1.3.4 Project goals and project beneficiaries This project will improve the living standards of the citizens of urban areas Karposh 1 and Karposh 2 i.e. citizens which live and us the street “Gigo Mihajlovski”, street “Shekspire”, street “Ivan Agovski and street “Mirka Ginova”, and will enable them to fulfill their obligations and needs easier and faster. Namely, all 4 (four) local streets have important role in the normal functioning of the traffic in these urban areas. Nearby every of these 4 (four) local streets have important institutions and facilities who serve a large number of citizens and they are: - Police station “Karposh”; - Public municipal institution kindergarten “Singing Mladost – Karposh 1”; - Public municipal institution kindergarten “Orce Nikolov - Karposh 2”; - School dispenser – Karposh 1; - Municipal High School “Orce Nikolov” - Embassies and - Hypermarkets. Also, with the use of this reconstructed 4 (four) local streets the citizens will get the opportunity for easier access to necessary institutions and facilities. Reconstruction of these streets will improve the traffic safety and will avoid possible accident that can be caused by poor conditions. Implementation of the activities in the project will contribute to improve the quality and safety transport and economic development within the municipality of Karposh. The implementation of the project is also expected to increase the property value of houses and other residential or commercial objects on the streets, thus increasing the growth of revenues from property taxes. The objectives of the technical solution of the project are as follows: - To provide traffic comfort, convenience and safety for the pedestrians and traffic by improving the surface on the streets and sidewalks, as well as their carrying characteristics; - To ease traffic on the local streets, thus improving safety and reliability for the traffic participants and good movement and - To satisfy various social, recreational and others needs of the citizens in the urban communities.

The purpose of this project is to improve the road infrastructure and raise the quality of life of the citizens and the business sector of the municipality of Karposh who use these local streets. Additionally, the implementation of the project is expected to lead towards reduction of the municipal costs for

22 constant repairs of the local streets. Once the Project is implemented, the Municipality will spend less money for repairs and reallocate them to other municipal services. The direct beneficiaries of this project are more than 3.800 citizens which everyday use these local streets for fulfilling their needs and responsibilities, all business located in the urban areas Karposh 1 and Karposh 2 and all children’s, students and teachers from the kindergarten and schools which are located in these urban areas (Karposh 1 and Karposh 2), in vicinity of these streets. Namely, the indirect beneficiaries of this project are the citizens of the other settlements in municipality of Karposh and City of Skopje which use these local streets in their daily functioning and other citizens which have relatives and friend which live in the urban areas Karposh 1 and Karposh 2.

1.3.5 Knowledge and experience of the municipality of Karposh The knowledge and experience needed for successful implementation of the Project are related to project management, technical knowledge, and execution of procurement practices. The Municipality Karposh, the competent authority in this Project, has participated in a wide variety of large construction or other type of Projects with different investors, whereby the Municipality allocated the land and provided the investors with technical services, and gained in return new businesses on its territory or improved housing facilities, schooling facilities, wastewater networks, and treatment. The Municipality has implemented several Projects for improving municipal services supported by the Japanese Government, UNDP, USAID, Swiss Agency for Development and Cooperation and others. It can be inferred that the Municipality is able to contribute with the necessary experience to large construction Projects such as the reconstruction of various streets in the urban districts of the Municipality Karposh. It can be concluded that the municipality is the required knowledge and experience required for implementation of project for reconstruction of local streets in the municipality of Karposh, envisaged to be financed from the World Bank Second MSIP funds to the Government of the RNM. In the next table we present the implemented investments projects from the municipality of Karposh.

Table 9. Implemented investment projects Implementation Number Municipality Project name Financing source Budget (Euro) period European Union and Municipality of 1 Karposh Sport adrenaline park - Karposh 2018-2020 780,500.00 Karposh Ministry of LSG and Swiss agency for 2 Karposh Inclusive children's playground 2019 50,000.00 development Reconstruction of the toilets in the elementary school 4 Karposh USAID 2019 20,000.00 "Avram Pisevki" Ministry of Finance - Municipal 5 Karposh Contraction of kindergarten in Bardovci Service Improvement Project (MSIP) 2017-2018 400,000.00 through IPA funds Construction of square and horticultural arrangement in Agency for financial support of 6 Karposh 2015 206,862.00 Bardovci agriculture and rural development Agency for financial support of 7 Karposh Reconstruction and rehabilitation of two streets in Bardovci 2015 71,884.00 agriculture and rural development Replacement of old wooden windows and doors with new 8 Karposh PVC windows and reconstruction of the toilets in the Japanese Liaison Office 2013 63,000.00 kindergarten "", Kozle settlement Replacement of old wooden windows and doors with new Swiss Development Agency and 9 Karposh 2013 130,000.00 PVC windows in the kindergarten "Prolet", Vlae settlement Municipality of Karposh Replacement of old wooden doors and windows with new 10 Karposh PVC, replacement a roof and construction of access ramp in European Union 2010 750,000.00 the primary school Petar Pop Arsov and PS Lazo Trpovski Total 2,472,246.00 Source: Municipality of Karposh 23

1.3.6 Conclusions The project is in line with the strategic priorities of the municipality of Karposh and will contribute to achieving the vision of the municipal administration for improvement the local road infrastructure in all settlements and communities of Karposh municipality. The relevance of this projects results arises from the fact that population in the municipality is affected by damaged road infrastructure. The proposed technical solution for the project is in accordance with the existing standards and regulations for such kind of projects. The project is of high priority to the municipality, the Mayor, the city Council and its citizens. The municipality has the required knowledge and experience for successful implementation and management of the project, has technical knowledge, as well as knowledge and experience for execution of procurement procedures. Municipality of Karposh has implemented a variety of similar projects in the past, in cooperation with international institutions, which means that the municipality is capable to carry out this infrastructural project.

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2 Social assessment

2.1 SOCIAL STUDY The study is based on the World Bank – Five Entry Points One Result methodological framework, incorporating five relevant components in the assessment: social diversity and gender, institutions, rules and behavior, stakeholders, participation, and social risk. 25

The assessment involved a review of relevant data and documents of the municipality of Karposh: socio- demographic profile of the municipality, socio-economic data, key project documents, the municipal strategic documents, results from surveys conducted with citizens of the municipality of Karposh (in the process of preparation of local development plans), as well as the World Bank guidelines for the assessment of the social impact of the project. Due to time constraints and constraints imposed by the COVID-19 pandemic, the evaluation relied to the largest part on secondary data obtained from the Municipality of Karposh and the State Statistical Office.

2.1.1 Social diversity and gender Municipality Karposh is dominantly an urban municipality where according to the data, the majority of the population (96.2%) lives in the urban area of the municipality. According to the revised Census data from 2005, 59,666 citizens are living in the municipality of Karposh 28,460 (47.6 %) male and 31,206 (52.3 %) females. The share of the population of the Municipality in the total population of the country is 2.95%. Concerning the ethnic affiliation of the citizens, the prevailing population in the Municipality Karposh are Macedonians, representing 88.5% of the total population, followed by Serbs with 4%, then Albanians with 3%, Turks, Roma and Vlachs with 1% and other nationalities with 2%. It is important to note that each of the other ethnic communities Albanians, Turks, Roma speak its languages in informal communication. The officially used language in this Municipality is Macedonian with its Cyrillic alphabet. Dominant residents by age group are those between 20-49 years with 25,3655 inhabitants. 5.91% of the total number of active business entities at the national level are located in the Municipality of Karposh. The total unemployed in municipality of Karposh is 1,513 i.e. which is the the average number of unemployed people compared to other municipalities in the Skopje region. The average number of household members in the Municipality is 3.02 persons, which is a number below the national average, which is 3.58. The significance of the project Reconstruction of four streets in the urban settlements Karposh 1 and Karposh 2: Gigo Mihajlovski street, Ivan Agovski street, Shekspirova street, and Mirka Ginova street is evident when taken into regard the specific settlement structure of the municipality. Municipality Karposh borders Municipality Saraj and Municipality Gjorce Petrov to the west, with Municipality Cucer-Sandevo to the north, Municipality Butel to the northeast, with Municipality Cair, Municipality Centar, and Municipality Kisela Voda to the east and Municipality Sopiste to the south. The Municipality has 14 local communities of which, the local communities (districts) of Karposh 1, Karposh 2, Karposh 3, Karposh 4, Taftaligje 1, Taftaligje 2, Vlae 1, Vlae 2, Vlado Tasevski, Kuzman Josifovski-Pitu, Peco Bozinovski-Kocho, and Zlokukjani are located in the urban area, while the other 2 local communities (Bardovci and ) are located in the rural area of the municipality. This Project is intended to be implemented in the urban area of the municipality, i.e. in the Districts of Karposh 1 and Karposh 2. The citizens who live on the Gigo Mihajlovski street, Ivan Agovski street, Shekspirova street, and Mirka Ginova street, are considered as direct beneficiaries of the Project. The citizens of these streets will have improved road safety and improved access within the communities they live in. Taking into regard the present poor condition of the streets the realization of the project will significantly improve street safety and minimize the high cost of repairing damage to cars that pass through these streets daily. The direct beneficiaries of this project are more than 3.800 citizens which everyday use these local streets for fulfilling their needs and responsibilities. Then all business located in the urban areas Karposh 1 and Karposh 2 are also considered as direct beneficiaries. In the Municipality of Karposh there are 15 kindergartens, 15 primary schools, 10 high schools, and 9 faculties. There are important institutions and facilities located nearby these 4 (four) local streets who serve to a large number of citizens and they are: Police station “Karposh”; Public municipal institution kindergarten “Singing Mladost – Karposh 1”; Public municipal institution kindergarten “Orce Nikolov - 26

Karposh 2”; School dispenser – Karposh 1; Municipal High School “Orce Nikolov”; Embassies and Hypermarkets. Therefore, a relevant target group expected to benefit from the project is the children, parents who take their children to kindergarten and youth students living and studying in both targeted districts as well teachers and other employed staff in these institutions The CTCP (construction traffic control plan) plan design for temporary traffic regulation for the streets will be part of the contractor’s obligation and that will be stated in the Bidding documentation, while refurbishment of the permanent traffic signalization signs and markings including the traffic design if required is an obligation of the Municipality of Karposh, and will be performed immediately after the reconstruction of the streets. This information is confirmed by the Karposh Municipality.

The indirect beneficiaries of this project are the citizens of the other settlements in municipality of Karposh and City of Skopje which use these local streets in their daily functioning which implies that the implementation of the project will have a wider indirect benefit on the community living in the Municipality Karposh and City of Skopje. With regards to gender issues, the project is expected to benefit citizens of all genders. There are no specific aspects of the project that could provide unjustified benefit or harm to members of all genders. The implementation of the Project will undoubtedly contribute towards increasing traffic safety and comfort, increasing the traffic capacity and communications, ensuring a feeling of security by pedestrians, enhancing the commercial activities, as well as extending the outdoor social and recreational activities for the residents living on the streets. This in turn will increase the quality of life and well-being of the citizens.

2.1.2 Institutions, rules, and behavior According to the documents provided by the Municipality of Karposh, the citizens identify the development of the municipal road infrastructure as one of the key development priorities. According to Article 22 of the Law on the Units of Self-Government, the building, maintenance, and reconstruction of local roads is the responsibility of the Municipality. Based on previous experience with other development projects, the municipal administration can manage the realization of the project. The Municipality has implemented several Projects for improving municipal services supported by the Japanese Government, UNDP, USAID, SDC, and others. The project's implementation is not expected to cause any resistance or tension between the citizens regarding the fact that four streets and citizens living there will be the direct beneficiaries of the project. The project represents a part of a strategic orientation for development of the municipal infrastructure. Hence, it is an identified priority of the municipality to work on upgrading the street infrastructure for the improvement of the quality of life of the citizens. The project represents a response to identified citizen needs and priorities.

2.1.3 Stakeholders There are several relevant stakeholder groups for the implementation of the project. The first stakeholder group is the local authorities, i.e., the Mayor, the Municipal Council, and the municipal administration of the Municipality of Karposh. The Municipal Council of Karposh has 23 members representing different political parties. The decision for borrowing was supported by 22 members of the Council, which means that a political consensus is achieved on this issue. There is a strong commitment on behalf of the municipal bodies and administration members to the development of the project and continuous upgrading of the infrastructure in the municipality. The citizens of the targeted streets represent another relevant stakeholder group. There are strong interest and support on behalf of this stakeholder group for the realization of the project. The citizens in the urban districts of Karposh 1 and Karposh 2 have frequently submitted their complaints about the

27 current situation in the streets that are subject to this Appraisal, which again implies that the citizens are fully in favor of the Project. On the territory of the Municipality of Karposh are registered several civil society organizations (CSOs) mainly operating on the field of environmental protection and good governance. The emergence of CSOs represents organized responsibility of civil society, especially in those areas where the state does not succeed or failed. These CSOs are having significant engagement in raising public awareness of the issues related to urban planning and protecting the environment; providing expertise and policy analysis, conducting public debates for solutions of local problems. Considering that the principles of participatory democracy have been respected for this project, as well as the importance of improving the living conditions of the citizens, the CSOs are also expected to support the project. Local businesses are also relevant stakeholders, as street reconstruction will mean better and easier access to their services. It can be concluded that this project has the support of all relevant stakeholder groups, without any risks that that support might change with the realization of the project.

2.1.4 Citizens engagement According to the Law on Local Self-Government (Article 25), citizens can participate in the decision-making processes at the local level through citizen initiatives, citizen gatherings, and local referendums. Furthermore, each citizen has the right to suggest proposals to the municipal bodies. According to Article 30 from the Law on Local Self-Government, the Municipality is obliged to consult the citizens (through the organization of public debates, surveys of citizens' opinions, and calls for proposals) in the process of development of local policies and strategic documents. The municipal government also regularly carries out consultations with citizens to prepare annual work programs, municipal budgets, and other relevant policies and activities. The Municipality of Karposh is committed to regular communication of municipal decisions and actions to its citizens. Relevant municipal information, documents and news are published on the Municipality website (www.karpos.gov.mk) and through its Facebook page (https://www.facebook.com/karpos.gov.mk/). The Municipality's Facebook page also represents one channel for informal communication with the citizens. Since 2019, the Municipality of Karposh introduced an interactive digital platform called mCommunity, available at https://m-zaednica.mk/ to empower citizens and local government. MCommunity redefines the concept of civic participation by introducing innovative ways of involvement: m-participation! By going mobile, people experience more ways to participate in terms of time and location, allowing for more participants. The mCommunity platform to date has recorded 700 local actions in response to initiatives by residents, about recycling, infrastructure improvement, or general well-being. According to the latest survey of local development priorities, conducted in December 2020 on a sample of 1,000 respondents the biggest local problems of the citizens of the Municipality of Karposh are Urban planning, air pollution, maintenance of communal hygiene, lack of parking spaces, and stray dogs. The citizens of Karposh express satisfaction with the two-way communication with the municipality and the Mayor. 58% of the respondents are satisfied with the communication on the social networks, over 55% had a positive experience at the municipal counters/offices and e-mail communication, and 60% are satisfied with the telephone communication with a responsible person. All these channels as well as direct contacts with municipal administration were used by the citizens in the urban districts of Karposh 1 and Karposh 2 for submitting their complaints about the current situation in the streets that are subject to this Appraisal and will be used during implementation of the project. On 28 December 2020, the administration of the Municipality of Karposh organized an online public hearing about the project. The public hearing was attended by, two representatives of the Sector for the arrangement of construction land and communal affairs, and interested citizens residents of the streets. The citizens were informed about the financial technicalities of the possible borrowing and after explained the technical part of project. Also was explained the strategic dedication of the municipality for 28 improvement of the local infrastructure. In total 8 participants from the municipal administration and urban communities (out of which 3 women) were present at the on-line public hearing. The citizens on this occasion raised the issue in terms of overspill parking on the sidewalks which creates difficulties for pedestrians. After the public hearing, it was concluded that the project "Reconstruction of four streets in the urban settlements Karposh 1 and Karposh 2" to be treated with the financial sources from the borrowing. The representative from the municipality, Ms. Dance Popovska expressed positive conclusions from the public debate, suggesting that the process does not end here and that the citizens will continue to be most transparently involved in the whole process during the project implementation and their remarks will be considered to find a positive solution of the same. The municipality has implemented many projects for improving municipal services in cooperation with national and international institutions and municipalities. It has experience in managing different foreign- funded projects and programs. It can be concluded that the municipality is the required knowledge and expertise required for the implementation of the project for the Reconstruction of four streets in the urban settlements Karposh 1 and Karposh 2, envisaged to be financed from the Second MSIP funds to the Government of the RNM. The project is expected to positively impact the overall quality of life of the citizens of the municipality and is recognized as such by the citizens.

2.1.5 Social risks The assessment of potential social risks regarding the implementation and the project's impact did not identify significant issues that could jeopardize the project's realization. Urban planning is one of the key issues raised by the citizens, while also emphasizing the necessity of reconstruction of the streets in the urban districts that are subject of this Appraisal in particular. The project enjoys the support from the current Municipal Council and municipal administration, from citizens are not expected to have an impact on the realization of the project, apart from small delays in the execution of activities. The frequent complaints by the citizens of the urban districts about the current state of the streets that are a subject of this Appraisal, implies that the citizens are supporting the initiative for reconstruction. The municipal government is committed to continuously work on developing the municipality infrastructure, which is planned in the annual work programs of the Municipality, local development strategic documents, and action plans. Since the streets that are subject to this Appraisal are set on municipal property, no expropriation issue is expected to be raised.

2.2 OTHER FIELDS OF CONSIDERATION The project is expected to increase the accessibility of municipal services to citizens living in the urban settlements Karposh 1 and Karposh 2. Furthermore, the project is expected to positively impact access to the transport of people and goods.

2.3 RESETTLEMENT ISSUES The project does not involve any resettlement nor land acquisition issues; the project consists of reparation of existing road infrastructure, without any widening or other route alterations.

2.4 CONCLUSION ON THE PROJECT POTENTIAL SUCCESS AND RECOMMENDATION The project is in line with the strategic priorities of the municipality of Karposh and will contribute to achieving the vision of the municipal administration for improvement the local infrastructure in all settlements and communities of Karposh municipality.

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There are no significant social risks for the implementation of the project. The municipal authorities demonstrate a strong commitment to the realization of the project and the continuation of the development of the road infrastructure in the municipality. The project also enjoys the strong support of the citizens of all genders, as indicated by the surveys of public opinion regarding local development priorities. Expected project results are: ▪ Increasing traffic safety and comfort of the citizens, ▪ Increasing the traffic capacity and communications, ensuring a feeling of security by pedestrians; ▪ Extending the outdoor social and recreational activities for the residents living on the streets; ▪ Increase the quality of life and well-being of the citizens.

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3 Environmental Impact

The project consists of several sub projects with activities on reconstruction of four streets in the urban settlements Karposh1 and Karposh 2 in the Municipality of Karposh in Skopje. The main characteristics of the sub-projects are the following:  Reconstruction of the sidewalks and surface of the streets “Mirka Ginova” (244,02m),“Ivan Agovski” (337,164m), “Shekspirova” (256,023m) and “Gigo Mihajlovski” (155.427 m) with its branch “Gigo Mihajlovski-1” (76,48m);  Partial reconstruction of a storm water network for street “Gigo Mihajlovski”. Due to the poor condition and severe damageof the existing concrete canals, they will be demolished and replaced by new concrete canals that will carry stormwater to the newly designed gutters.

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The existing streets are composed of damaged asphalt (transverse and longitudinal cracks) which impairs the safety of road users, efficient road drainage and increases the possibility of damage to vehicles transiting through the street. Holes also appear in certain places on the streets, which have an impact on the safety and comfort of all traffic participants.

3.1 LOCATION OF PROJECT SITE All streets included in this project are located in the urban settlements of Karposh 1 and Karposh 2. The entire project area is located in urban area in City of Skopje, Municipality of Karposh. In urban settlement of Karposh 1 there are three project locations:  Street “Ivan Angov” is nearby residential buildings, educational institution (primary school Hristijan Todorovski – Karposh), medical facilities (Dispanzer Karposh, Local Branch of Red Cross Karposh, dental office), police station-Karposh, catering facility (Four Angels) and family houses.  Street “Gigo Mihajlovski”with its branch “Gigo Mihajlovski-1”is close to residential buildings and their garages and parking lots, and family houses. No facilities nearby.  Street “Mirka Ginova” is nearby family houses, garages of residential buildings, Embassy of Hungary, educational institution (high school Orce Nikolov) and public scientific institution (IPS) Institute of Spiritual and Cultural Heritage of Albanians - Skopje (ITSHKSH). In urban settlement Karposh 2 there is one project location:  Street Shekspirova is close to residential buildings, business facilities (Agrotehna, DIEM, Tobacco, Sterna, Tinex market), accommodation facility (hotel Karposh), cultural institution (Drama Theater – Skopje), educational institutions (primary school Vera Ciriviri – Trena and Faculty of Electrical Engineering & Information Technologies – Skopje). According to the Green Cadaster of the city of Skopje, along these streets, thereis residential urban greenery (mostly Tillia sp., Robiia pseudoaccacia, Betula pendula, Acer sp. Aesculus hippocastanum, Cupressusssp., Fraxinus sp., Cedrussp. etc), and a hedgerow between neighboring properties. In 2020, the local self-government built several urban green areas (parks, squares etc) among whichare the new neighborhood center on st."Ivan Agovski" between buildings 8 and 10 with a total of 170 ornamental plants, and a new green area near street "Shekspirova", with renewed urban equipment, and installed system for irrigation of the greenery. Project location is presented in following figure 13.

Figure 13. Micro and macro location of the sub-projects locations (marked with red)

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3.2 Main project activities with environmental impact For each sub-project related to reconstruction of the sidewalks and surface of the street and reconstruction of the storm water network there are different project activities (provided in the main design for each project), but mainly the general construction activities are shown in the following tables.

Reconstruction of a local strets in Municipaly of Karposh Planned project Planned project activities Duration Planned project activities during during Construction phase impact during activities during Preparatory work Construction Operational phase phase - Marking the route; - Excavation of the top soil Short term - Traffic on the - Machine removal and removal of the soil within route and scraping of surplusat Municipality of - Maintaining the existing asphalt; - Compression of the ground Karposh alignment in - Removing of existing - Setting of a tampon layer functional and placement of (crushed stone); condition, new kerbstones and - Setting of asphalt layers ( - Timely removal sidewalks on both BN16) of all detected sides of the streets; - Generation and irregularities - - Dust clearing and transportation of defects emulsion spraying. construction waste material to landfill Reconstruction of storm water on street Gigo Mihajlovski in Municipality of Karposh Planned project Planned project activities during Duration impact Planned project activities during Construction phase during activities during Preparatory work Construction Operational phase phase - Removing of - construct of channels Short term Clean up of the existing concrete across the street, which within separation tank at channels would capture the Municipality of the end of storm stormwater and take it Karposh water system along storm sewer the street - Generation and transportation of construction waste material to landfill

The negative impacts that may arise from the above project activities will be of local importance within the Municipality of Karposh and short-term. They are presented and explained in the following chapter.

3.3 MAIN ENVIRONMENTAL IMPACT AND SENSITIVE RECEPTORS The environmental impact from this type of project activities appears during all three phases: 1. Preparatory phase - preparation of the terrain for the construction phase; 2. Construction phase - reconstruction of the streets; 3. Operational phase (the traffic flow and its maintenance).

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The preparatory phase has a short duration with preparation of the terrain for the construction phase. This phase is limited in duration and depends on the dynamic plan for execution of construction activities, and at the same time it depends on weather conditions. Also, during this phase, the initial measures for environmental protection should be undertaken: organizing of movement and work of construction machinery, as well as placing appropriate containers for waste collection and mobile toilets. The expected environmental impact during the construction phase will be local, short term and will not have significant adverse environmental impact. Incompliance with OH&S requirements, increased level of noise, natural damage to the vegetation, improper waste management and possible air and water emissions could be the main environmental and social issues to be taken into consideration. Sensitive receptors are the local population who lives/work nearby the route and employees. The Contractor must provide marking, securing and application of good construction practice in order to minimize the possible risk of injures of workers and local population during construction work. In this line, the Contractor should prepare and imply OH&S Plan, including community safety measures, considering the communicated needs of the local population. Considering the current situation with pandemic COVID- 19 infective disease in the country, in addition to the measures for safety and protection at work, the OH&S plan should also include measures for prevention of COVID 19. The Contractor is required to follow/update and implement the measures that are currently in force and adopted by the Government as binding at national level, as well as the Guideline considerations provided by the World Bank through the MSIP2/PIU. Official site for information related to COVID 19 on national level is www.koronavirus.gov.mk. The citizens should have available public complaint’s Dropbox at the Municipality Karposh with efficient feed-back mechanism.

Another important step is preparation of Traffic Management Plan providing easy access of the local population to their homes, institutions and businesses. The Plan should include the re-routing directions and works time schedule. It shall be developed in prior consultation with the Municipal administration, aiming to propose most adequate solutions for movement of the local business needs, population and access of the construction mechanization to the project sites. Prior to the commencement of the reconstruction activities, the Municipality of Karposh should prepare Information Note/Press to inform the wider public about the planned activities, the date and time of their start. Informing the wider public should be done through a Notice / Announcement that will be published on local media (TV, radio, bulletin board in the municipal building and the website of the municipality (https://karposh.gov.mk/), social media or municipality newspaper (Karposh In), as well as information notices on public places, such as local markets, shops, ambulances, bus stops, etc. This is very important especially prior the asphalting of the streets. In case the Contractor needs to place a camp for keeping and maintaining the mechanization equipment, worker’s facilities for accommodation, catering and bathrooms, etc., it shall ensure that wastewater collection and treatment (communal as well as washout of the mechanization), hazardous materials storage, clearing of soil and vegetation and collecting any waste generated, shall be rehabilitated without any damage to the environment. In the preparatory and construction phase i.e., during the implementation of sub-projects are expected following emissions: Air emissions such as fugitive dust emission from cleaning of the road before emulsion spraying; fugitive dust emissions from construction activities during loading and unloading of the soil material and demolition wastes, removal of the existing asphalt layer, exhaust gases from construction machinery and transport vehicles (CO , NOx, PAH, SO and suspended particulates PM , PM ), fugitive emissions of 2 2 10 2.5 volatile organic compounds from the deposition of the bitumen emulsion and the asphalt mixture. From the above-mentioned influences, the fugitive dust has the greatest meaning. In the reconstruction phase 35 of the roads, sources of air pollution are construction machinery (trucks and excavators), which will be used for supply of raw materials, scrape the asphalt, etc. In order to reduce air emission impact, the Contractor should implement mitigation measures given in the Environmental Mitigation Plan. As result of usage of the heavy construction machinery and equipment in open area, the sensitive receptors that will be exposed on increased level of noise and vibrations. The sensitive receptors of the planned project activities are citizens living and working near the project locations and kids, students, professors, patients in medical facilities. According to the Law on noise sensitive protection (Official Gazette No. 79/07, 120/08, 1/09) all these areas (schools, living area, medical facilities) have been identified in the same noise areas. According to the level of sensitivity prescribed by the Rulebook for locations of the measurement stations and sites (O.G. No.120/2008) and Rulebook on the limit values of noise in the environment (O.G. No.147/2008), the project locations belong in area with II degree of noise protection (noise limit values are 45dBA for night and 55dBA for day and evening). The Contractor’s machinery and equipment (trucks, excavator, loaders) will not exceed level of generated noise higher than 85dB and 102dB respectively, in compliance with the Rulebook on closer types of special noise sources as well as conditions that need to be fulfilled by facilities, equipment, installations and equipment, installations and devices that are used in open space in terms of noise emission and noise protection standards (O.G. No.142/2013) during the working hours from 07 to 19. The Contractor shall submit to the Supervisor for approval a list of intended machinery for use, with data on relevant technical features concerning air and noise emissions in the environment. Preventive measures for noise reduction within the project locations in the settlement are given in the Environmental Mitigation Plan. All project locations are in urban settlements: “Karposh 1” and “Karposh 2”, in the Municipality of Karposh in surrounding of the river Vardar. The vicinity of the river as well its categorization refers to the existing water quality should be taken into account due to potential adverse impacts ofthe sub-projects to water quality (improper waste management – disposal of waste streams along the rivers).The water characterization of the Vardar River at the measurement point in Municipality of Karposh is III and IV class according the Decree for categorization of watercourses, lakes, accumulations and groundwaters ("Official Gazette of RM" No. 18/99). The possible risk of further water pollution can occur if Contractor doesn’t respect the requirements of proper waste management (temporary or final disposal of generated waste near/ in the river basin).According the national water related legislation (Law on waters - Official Gazette No. 87/08, 6/09, 161/09, 83/10, 51/11, 44/12,163/13 and secondary legislation) there is no any categorization of the storm water discharge. These storm waters are not classified as “waste waters” and no any permit required for their discharging. There are precautionary measures proposed by the Public Enterprise (PE) Water Supply and Sewerage – Skopje within the issued “Regulation on the technical and sanitary conditions for discharging the waste waters in the sewage system within City of Skopje” where there is a ban for discharging of urban, industrial wastewaters within the storm waters systems (mixed waters) to avoid pollution within the sewage system of City of Skopje.

During the project activities, different waste streams could be found on the reconstruction sites, mainly waste from excavation of soil, demolition, communal waste generated by the workers, presented in the following table. The generated waste streams should be selected and classified according to the List of types of waste (Official Gazette of the Republic of Macedonia No. 100/05). For proper waste management (according the national waste legislation and good practices), it is essential for the Contractor to prepare and implement the Waste Management Plan (WMP). The Contractor shall be in compliance with the National Law on Waste i.e. to collect, transport and final dispose of inert waste in the Landfill Drisla (about 17 km from the Project location) as well communal waste through the PE Communal Hygiene – Skopje. Keeping records of temporary and final disposal of waste shall be done by the Contractor.

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Table 10. Estimated values of the generated different waste streams during reconstruction activities Soil and Old asphalt Demolitio Concrete Type of waste and Code gravel n waste channels ______(mostly 17 09 04 Street name and Quantities 17 03 02 curbs) 17 05 04 17 09 Ivan Agovski 360 m3 1100m2 1400m Shekspirova 830m3 1810m2 750m GigoMihajlovski and its 215m3 530 m2 100m 200m branch Gigo Mihajlovski-1 50m3 250m2 80m MirkaGinova 332m3 55m2 562m

In case of incidents, such as spill out of oils, lubricants, fuel, other substances that may be considered as hazardous waste, the Contractor shall proceed with authorized entity for handling of such waste of the liston:http://www.moepp.gov.mk/wp-content/uploads/2014/11/Registar-za-Transport-opasen otpad.pdf. At a location where construction activities are planned to be carried out, no endemic species of flora/fauna or protected species of nature have been identified, as well as characteristic natural habitats that would be directly endangered, thus no impact on biodiversity is expected. Vegetation removal is not planned. The environmental impacts are expected on short-term basis - during the reconstruction period and the impacts will be with minor and local significance in the urban settlements Karposh 1 and Karposh 2. The good construction practice and associated measures (mentioned bellow) could prevent and/or mitigate the short-term adverse impacts. The main risks are safety and health for workers and community risks that could appear as a result of very urban area and surrounding of the project sites. The major impact is expected as a result of traffic disturbance during the reconstruction period, improper waste management with different waste streams, noise from the outdoor equipment (especially near schools, embassy, residential objects, family houses and public institutions) and pollution of ambient air. The Environmental Impact Assessment Reports for all sub-projects were prepared. The EIA Elaborate/Reports were approved by the Mayor of the Municipality of Karposh. The details are presented in the following table 12.

Table 11. Administrative numbers of Decisions for approval of the EIA Elaborates for all 4 streets Name of street Consultant Approval number of Decision for EIA Elaborate Ivan Agovski Prima Engineering DOO UP1 No. 08-6033/2 from 18.08.2020 - City of Skopje Shekspirova Prima Engineering DOO UP1 No. 08-6026/2 from 18.08.2020 - City of Skopje Gigo Mihajlovski Prima Engineering DOO UP1 No. 08-6032/2 from 18.08.2020 - City of Skopje Mirka Ginova Evolving DOO UP1 No. 08-6940/2 from 23.09.2020 - City of Skopje

The EIA Elaborates were prepared in accordance with national regulation and contain description of the main project goals, main project activities, photos of the locations where the project activities will be performed and the environmental mitigation measures. The proposed mitigation measures are presented in Tables of Mitigation and Monitoring Plan, which should be implemented by the Contractor. The Supervisor has main obligation of providing monitoring of their implementation.

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3.4 ENVIRONMENTAL MITIGATION PLAN FOR THE PROJECT: RECONSTRUCTION OF FOUR STREETS IN MUNICIPALITY OF KARPOSH

Potential impact Impact scale Proposed mitigation measures Responsibility Project activity: Pre-construction phase - Marking out the route for reconstruction of four streets in Municipality ofKarposh ✓ Preparation, approval and implementation Traffic Management Plan together with the municipal staff prior to the start-up of activities; ✓ Provision of the information via municipality web site (https://karposh.gov.mk/)social media or municipal newspaper (Karposh-in) about the construction activities – start and finish of work and duration of work; • Setting up a Dropbox for complaints and praise in a publicly accessible place in the municipal administrative building of Karposh and introducing a mechanism for feedback and response.

• Regularly check the mobile application platform M-Zaednica for citizen compliance Possible adverse social and health impact to the ✓ Preparation, approval and implementation of the OH&S Elaborate with community safety population and to the measures, including measures/plan for prevention of COVID -19 for the construction site, employed personnel due ✓ Application of good practice for marking out the construction sites including: • Contractor; Local within the to: • Ensure the appropriate marking out the construction site; • Supervisor settlements: • Non-compliance with • Placement of attention signs especially for limitation of speed driving near the • Municipality Karposh1 and strict OH&S standards staff(Communal Karposh 2 construction sites, where appropriate; and work procedure – Inspector and Short term/minor • Warning tapes and signage need to be provided; Injury near the Environmental • During construction activities access to the family houses, commercial buildings, public construction site Inspector) • Inappropriate public buildings, etc. should be provided; access to households, • Forbidden entrance of unemployed persons within the warning tapes; commercial objects etc. • Health and Safety measures should be applied: a) Security measures like: perimeter fence, life jackets, use of proper protective clothing and equipment by employees, warning signs for the public around the construction site; b) Maintain a good level of personal hygiene-have on site installations for washing, cleaning; c) Health protection, first aid kits and medical service on sites d) Apply the emergency and normal first aid procedure for any injury if such occur through construction work; • The street and around sidewalks/ small roads should be kept clean; • The mobile toilet should be placed on the construction sites; • Machines should be handled only by experienced and trained personnel, thus reducing the risk of accidents;

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Potential impact Impact scale Proposed mitigation measures Responsibility • Constant presence of fire-fighting devices should be ensured in case of fire or other damage; • All workers must be familiar with the fire hazards and fire protection measures and must be trained to handle fire extinguishers, hydrants and other devices used for extinguishing fires; • Larger quantities of flammable liquids should not be kept on the sites along the construction sites. Project activity:Construction phase - Reconstruction of four streets in Municipality of Karposh • Construction materials should be stored in appropriate places covered to minimize dust; • Vehicles and construction machinery will be required to be properly maintained and to Possible emissions by comply with relevant emission standards; transportation vehicles • Use of standardized fuels for the mechanization and switching off engines of the and impact on air mechanization when it is not in work, for reducing gas emissions; quality due to: • Vehicles that perform transport of gravel, grit, soil should be covered or closed; - gases emissions of • Usage of protective masks for the workers if the dust seems to be appeared; dust-suspended • Restriction of the vehicle speed (30-40 km/h) within the construction location; particulates • Use of sprayers that do not contain chemicals and are on a water base – for reduction - emissions by the mobile of the dust; •Contractor sources (vehicles and Local • Reconstruction site, transportation routes and materials handling sites should be water- •Supervisor construction machinery Short term during sprayed on dry and windy days; •Municipal staff of CO , NOx, PAH, SO2) 2 the construction • Usage of protective masks for the workers if the dust appears; (Environmental Minor • Perform regular maintenance of the vehicles and construction machinery in order to Inspector) reduce the leakages of motor oils, emissions and dispersion of pollution; • Planning the transport and the factor of loading and unloading are of great importance to reducing fuel consumption and emissions and fugitive dust emissions; • Stopping work or reducing the amount of construction work if register intense dust emission in order to determine the cause of the issue and to take measures for its elimination; • Information for citizens for the construction activities should be delivered through local radio/ TV and social media, appealing to comply with the new traffic regime during the construction activities at the projected locations; • Burning of debris from ground clearance not permitted.

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Potential impact Impact scale Proposed mitigation measures Responsibility • The level of noise should not exceed the limits of the Rulebook on the limit values of •Contractor Possible noise noise in the environment (O.G. No. 147/2008), for the project locations belonging in disturbance as a result area of II degree of noise protection: 45dBA during the night and 55dBA during the day; •Supervisor of outdoor equipment Local • Use of appropriate and technically functional equipment and mechanization, possessing usage and Short term /major Statement of Compliance for noise generation in open space below 102 dB (A); transportation vehicles •Municipal staff • The construction work should be not permitted during the nights, the operations on site driving to the sites (Environmental shall be restricted to the hours 7.00 -19.00; Inspector) Possible environmental impact on water body • Possible hazardous waste (motor oils, vehicle fuels, lubricants) should be collected could occur due to separately and authorized company should be sub-contracted to transport and finally Local • Contractor ground contamination dispose the hazardous waste; Short • Supervisor from the spillage of • Dismantling of the equipment (fuel reservoirs, boiler) should be done by trained persons in term/Medium • Municipal staff materials such as order to avoid the potential effects of oil spills on soil, which would contaminate the significance (Environmental vehicle fuel, motor oils underground water; Inspector) and lubricants, different • The temporary/final disposal of the waste along the river Vardar is prohibited. waste etc as well turbidity of the water • Identification of the different waste types at the reconstruction site (soil, sand, bottles, Possible adverse food, parts of pipes, paper, broken concrete etc…); • Contractor environmental impact • Classification of waste according the national List of Waste (O.G. No.100/05) • Supervisor and health effects could Local • The main waste would be classified under the Waste Codes: 17 03 02 – old asphalt, 17 • Municipality be occurred as a result Short term /major 05 04 – Excavated soil, other demolition waste -17 09 and small amount of solid staff(Communal of generation of the municipal waste could be found (food, beverages) as well as packaging waste (paper, Inspector) different waste streams. bottles, glass, etc.). • Collection, transportation and final disposal of the inert in the Landfill Drisla and communal waste by the PE Communal Hygiene – Skopje • Municipality • The construction waste (asphalt)to be reused, in accordance with the PUE needs if it is staff(Communal The inappropriate possible; Inspector) waste management and • Transportation and Handover papers shall be kept and provided as proofs; • Mayor of the not in time collection Local • The materials should be covered during the transportation to avoid waste dispersion; Municipality of and transportation of short term/ major • Burning of construction waste should be prohibited; Karposh waste streams • PE Communal • If hazardous waste (motor oils, vehicle fuels) occur it should be collected separately and authorized collector and transporter should be sub-contracted to transport and finally hygiene – Skopje dispose the hazardous waste, from the list on: http://www.moepp.gov.mk/wp- content/uploads/2014/11/Registar-za-Transport-opasen-otpad.pdf

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Potential impact Impact scale Proposed mitigation measures Responsibility • Fulfillment of the Annual Report for non-hazardous waste management by the Mayor of Municipality and reporting to the Ministry of Environment and Physical Planning;

• Good construction practices have to be implemented – including fencing and protection

of construction site; • Contractor • Removal of curbs, gutters, manholes, demolition of fences and buildings and similar Possible impacts on Local/ short • Supervisor obstacles should be done in such a way that it does not affect the aesthetic appearance landscape and visual term/certain to • Communa of the road and the surrounding area; aspects happen, minor l • Full clean-up of the construction site immediately after accomplishment of impact Inspector/Envir reconstruction activities; onmental • Collection of the generated waste on daily basis, selection of waste, transportation and Inspector final disposal on appropriate places

3.5 ENVIRONMENTAL MONITORING PLAN FOR THE PROJECT: RECONSTRUCTION OF FOUR STREETS IN MUNICIPALITY OF KARPOSH Where Responsibility How When What is the Why is the is the parameter to be Parameter is to be parameter to is the parameter to be parameter to monitored (frequency of Construction Operation monitored? be monitored? be monitored? measurement)? monitored? Project activity: Pre-construction phase - Marking out the route for reconstruction of four streets in Municipality of Karposh The safety

protection measures To prevent health and applied for the At the beginning of the safety risks – workers and local Contractor /Supervisor On the pre- construction works mechanical injuries population. Environmental Inspector construction Visual check (first day) focused on the To be in compliance Application of /Inspector for communal site preliminary measures; with national preventive measures work at the Municipality communal health against COVID-19 by regulation and OH&S all workers on the standards site Project activity: Construction phase - Reconstruction of four streets in Municipality of Karposh Safety traffic flow through the To ensure the good Contractor/ Supervisor settlements and During the working day traffic flow through the Environmental inspector provided safe and /or Communal

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Where Responsibility How When What is the Why is the is the parameter to be Parameter is to be parameter to is the parameter to be parameter to monitored (frequency of Construction Operation monitored? be monitored? be monitored? measurement)? monitored? accesses to On the Visual check settlements in Inspector at the households and construction Municipality Karposh Municipality of Karposh commercial objects site Review the noise level To protect the workers technical against Exposure of loud On the commencement specifications exposure to loud noise Contractor /Supervisor noise On the of works; of the used taking into account the Environmental Inspector from vehicles construction for all vehicles and vehicle technical specifications /Inspector for communal machinery and sites equipment mechanization of the equipment and work at the Municipality electric tools and equipment time duration of the for their use work outdoor outdoor Contractor Monitoring of Company authorized to the noise In case there are To monitor if the noise performed environmental On the levels dB (А) complaints from the local level is above/or below noise level measurements construction Noise level with population and in the acceptance noise sub-contracted by the site appropriate accordance with the level for specific type of Contractor Supervisor

monitoring national legislation area Environmental Inspector to devises collect the noise level measurements Review the documentation To separate hazardous Primary selection of On the – identification from the non-hazardous the waste streams as At the beginning of work construction of the waste waste as well as inert Contractor Supervisor they are generated with new material/s site type according from biodegradable at the spot the List of waste waste Review the To improve the waste Collection and On safety Before the transportation Authorized Contractor for transportation management practice transport as well temporary of the hazardous waste collection and list and on municipality and storage of hazardous storage (if there is any) transportation of hazardous conditions at national level/In order 43

Where Responsibility How When What is the Why is the is the parameter to be Parameter is to be parameter to is the parameter to be parameter to monitored (frequency of Construction Operation monitored? be monitored? be monitored? measurement)? monitored? waste (if any occur). the storage to be in line with the waste (if any occurs) It is not expected in facility environmental subcontracted by the high quantities requirements for the Contractor, Environmental (maybe some hazardous waste inspector from Municipality packaging, batteries, management. Not to waste from motor dispose the hazardous oils, etc.) waste on the municipal landfill. Not to leave the waste on the spot (especially Visual not in greenery) to monitoring Contractor who need to sign After the collection and avoid the Collection and reviewing the contract with licensed transportation of the environmental and transportation and the company for collection, On the site solid waste on a regular health impacts to the final disposal of the transportation transportation and disposal basis each day residents to have the solid waste and disposal of the solid waste real data for generated lists from the waste streams and to suppliers improve the waste management Preserved water Near the Visual checks During the project In order to prevent courses project sites of the river activities (once a week) additional pollution of Contractor Vardar the riverbeds Supervision riverbeds, Environmental and /or records for Communal Inspector visual inspections Operation phase: Everyday use of four streets in Municipality of Karposh Clean up of the At the storm Visual check On regular basis and To ensure that the Contractor Mayor of separation tank at water especially after hard rain separators are clean Municipality the end of storm separation when a big quantity of from disposed solid of Karposh in water system along tanks location rainwater could be material as coming from coordination the streets discharged over the storm water swashing with Mayor of streets City of Skopje 44

Where Responsibility How When What is the Why is the is the parameter to be Parameter is to be parameter to is the parameter to be parameter to monitored (frequency of Construction Operation monitored? be monitored? be monitored? measurement)? monitored? on the streets. To avoid and PE Water flooding Supply and Sewerage- Skopje

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4 Technical solution

4.1 DESCRIPTION The 4 (four) local streets are in urban area of Karposh municipality and they are part of the local road network in the municipality of Karposh. All 4 (four) local streets are very important for normal functionality of the traffic in the urban areas Karposh 1 and Karposh 2. In the next table we present the submitted project technical documentation needed for implementation of this project. Table 12. Project technical documentation Name of the street Documentation Reconstruction of street - Geodetic elaborate – updated geodetic substrate; “Gigo Mihajlovski” and - Detail design for Reconstruction of street “Gigo Mihajlovski” and street street “Gigo Mihajlovski – “Gigo Mihajlovski – section 1, with technical number 0308-99- section 1 543/2/2019; - Technical review of the detail design for Reconstruction of street “Gigo Mihajlovski” and street “Gigo Mihajlovski – section 1, with technical number 0308-54-28/2/2019; - Elaborate for environmental protection from January 2020 with Decision for approval UP1 No. 08-6032/2 from 18.08.2020 - City of Skopje and - Certificate UP1 no. 47-405 from 14.08.2020 for approval of detail design for reconstruction of line infrastructure facilities. Reconstruction of the - Geodetic elaborate – updated geodetic substrate; street “Shekspire” – - Detail design for Reconstruction of the street “Shekspire” – section from section from cross road cross road with Boulevard “Partizanski Odredi” to cross road with the with Boulevard street Rudjer Boskovic”, with technical number 0308-06-84/2020; “Partizanski Odredi” to - Technical review of the detail design for Reconstruction of the street cross road with the street “Shekspire” – section from cross road with Boulevard “Partizanski Rudjer Boskovic” Odredi” to cross road with the street Rudjer Boskovic”, with technical number 0308-91-132/2020; - Elaborate for environmental protection from March 2020 with Decision for approval UP1 No. 08-6026/2 from 18.08.2020 - City of Skopje and - Certificate UP1 no. 47-407 from 14.08.2020 for approval of detail design for reconstruction of line infrastructure facilities. Reconstruction of the - Geodetic elaborate – updated geodetic substrate; street “Ivan Agovski” – - Detail design for Reconstruction of the street “Ivan Agovski” – section section from the cross from the cross road with the street “Branislav Nusich” to cross road with road with the street street “Orce Nikolov”, with technical number 0308-99-543/1/2019; “Branislav Nusich” to - Technical review of the detail design for Reconstruction of the street cross road with street “Ivan Agovski” – section from the cross road with the street “Branislav “Orce Nikolov” Nusich” to cross road with street “Orce Nikolov”, with technical number 0308-54-28/1/2020; - Elaborate for environmental protection from January 2020 with Decision for approval UP1 No. 08-6033/2 from 18.08.2020 - City of Skopje and - Certificate UP1 no. 47-406 from 14.08.2020 for approval of detail design for reconstruction of line infrastructure facilities. Reconstruction of the - Geodetic elaborate – updated geodetic substrate; street “Mirka Ginova” - Detail design for Reconstruction of the street “Mirka Ginova, with technical number OP 25/2019; - Technical review of the detail design for Reconstruction of the street “Mirka Ginova, with technical number R-79/2019; - Elaborate for environmental protection from September 2020 with Decision for approval UP1 No. 08-6940/2 from 23.09.2020 - City of Skopje and - Certificate UP1 no. 47-408 from 17.08.2020 for approval of detail design for reconstruction of line infrastructure facilities.

Namely, as basic parameters for the detail design are used all available substrates and data, from which are receiving information for the current situation of the local streets, and they are: o Project scope from the Investor; o Updated geodetic substrate; o Valid legal and technical regulations and 47

o All legal and by legal acts which regulate this kind of projects. According the legal acts, from the institutions requested are information’s does on the current route of all 4 (four) local streets there re existing installations or is planned to construct new installations. The technical documentation for all 4 (four) local streets contain all necessary documents according the Construction law of RNM i.e. the technical documentations are prepared in accordance with the positive legal regulations in the RNM. The current 4 (four) local streets have total length of 1.104 km or 1104 meters and they are in accordance with the Detail Urban Plan (DUP). According the Construction law this streets are objects from the second category and the streets are access streets. Along the streets there are residential buildings, also near the streets there are a lot of business facilities (markets, betting shops, pharmacies and etc.), while along the street “Shakespeare” is located the famous Drama Theater in City of Skopje and hotel Karposh, and near the street Ivan Agovski there is a Police Station. The last reconstruction of the streets had been performed more than 15 years ago, so the reconstruction of this street is required. The final asphalt layer is damaged with visible longitudinal and transversal cracks, and potholes due to its exploitation period and as well as new installations. These damages on the local streets create problem for normal and safety traffic flow for all users pedestrians and vehicle driving. The aim of the project is to reconstruct the roadway structure and the sidewalks of the streets. The data for the underground installations are attached to the technical designs and this will be the contractor’s responsibility to coordinate and accomplish all necessary investigation before commencing the works in order to avoid possible damages of the utilities during the reconstruction of the streets. The CTCP (construction traffic control plan) plan design for temporary traffic regulation for the streets will be part of the contractor’s obligation, while the refurbishment of the permanent traffic signalization signs and markings including the traffic design if required is an obligation of the Municipality of Karposh, and will be performed immediately after the reconstruction of the streets. More detailed technical data for the reconstruction of the each local street is described in the following table.

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Table 13. Technical details of the local streets according the detail desings General information Name of the Length about the Horizontal solution Vertical solution Roadway structure Drainage street (km) reconstruction Reconstruction 0.16 The designed street width is In order to fit the current The longitudinal road level Street: On this street, from the both sides of street “Gigo adopted according the horizontal situation, 2 (two) is designed according the - Compacted road-base layer of the crossroad with the street Mihajlovski” existing width of the street axes are designed, and that: designed axis. The designed of crushed stone 0-63 “Ivan Agovski” to the street “Gigo and street in order the reconstruction - The first axis follow the minimal longitudinal slope (thickness 30 cm) and Mihajlovski – section 1” there are “Gigo of the roadway to be existing axis of the street “Gigo is 0.30%. On the street - Bituminized bearing course existing concrete open storm Mihajlovski – performed between the Mihajlovski” and “Gigo Mihajlovski” designed BNHS 16 A (thickness 7 cm). drainage gutters which are section 1 existing concrete curbs and - The second axis follow the are vertical curves with Sidewalks: damaged. This concrete open to provide entrance to the existing axis of the street “Gigo minimum radius - Compacted road-base layer storm drainage gutters are houses. The width of the Mihajlovski – section 1”. Rmin=1500m and maximum of crushed stone 0-63 planned to be demolished and to street is 3.5 m ( 2 X 1.75 m) On the axis of the street “Gigo radius Rmax=10000 m. On (thickness 20 cm); build new concrete open storm and the sidewalks are 2 X Mihajlovski – section 1” the street “Gigo Mihajlovski - Sand 0-4 (thickness 4 cm) drainage gutters which will 1.80 m. The reconstruction designed are 4 directions and 3 section 1” designed are 2 and transfer the water to the existing of this street refers on circular curves. Minimal (two) vertical curves, while - Concrete interlock tiles street drain gullies. This concrete reconstruction of the designed radius of the circular in the violation designed are (thickness 6 cm). open storm drainage gutters need roadway structure and the curve is 220 m, while the appropriate vertical curves to accept the water from the sidewalks. maximum designed radius is with minimum radius pavement and to transfer to the 500 m. Rmin=250m and maximum street drain gullies. On this section The horizontal and vertical radius Rmax=5000 m. there are 6 (six) existing street elements are designed for road In order to have efficient drain gullies where the distance with level (D) and the designed drainage of roadway on the between them is 25 m. On the speed is 30 km/h.. both streets designed is street “Gigo Mihajlovski – section minimal slope i=0.3% and 1” the drainage of the maximum slope is i=1.73%, atmospheric waters from the while the transverse slope roadway asphalt surfaces will be of the roadway is one-sided performed with the performed and is i=2.0%. longitudinal and transverse slope of the street. The water from the roadway will be accepted in the existing street drain gullies. On this section there are 4 (four) existing street drain gullies where the distance between them is 21 m Reconstruction 0.36 The designed street width is The axis on the street is The longitudinal road level Street: The drainage of the atmospheric of the street adopted according the designed according the existing is designed according the - Compacted road-base layer waters from the roadway asphalt “Shekspire” – existing width of the street route in order to secure the designed axis. The designed of crushed stone 0-63 surfaces will be performed with section from in order the reconstruction existing spatial constraints. minimal longitudinal slope (thickness 30 cm); the performed longitudinal and cross road with of the roadway to be According the detail design is 0.30%. Designed are - Bituminized bearing course transverse slope of the road. The Boulevard performed between the there are 5 direction and 4 vertical curves with BNS 22-C (thickness 7 cm) and water from the roadway will be

“Partizanski existing street curbs. The circular arcs. The horizontal and minimum radius - Final layer with asphalt accepted in the existing street Odredi” to cross width of this street and vertical elements are designed Rmin=1500m and maximum concrete AC 11 (thickness 5 drain gullies. On this street there road with the sidewalks is variable due to for road with level (D) and the radius Rmax=1700 m. cm). are 16 (sixteen) existing street street Rudjer the existing intersections on designed speed is 30 km/h. In order to have efficient Sidewalks: drain gullies where the distance Boskovic” the street. The Minimal designed horizontal drainage of roadway on the - Compacted road-base layer between them is 21 m. reconstruction of this street radius is Rmin=520 m, while the both streets designed is of crushed stone 0-63 refers on reconstruction of maximum designed radius is minimal slope i=0.3% and (thickness 20 cm); the roadway structure and Rmax=500 m. maximum slope is i=1.01%, - Sand 0-4(thickness 4 cm) and the sidewalks. while the transverse slope - Concrete interlock tiles of the roadway is one-sided (thickness 6 cm). and is i=2.5%. Reconstruction 0.34 The designed street width is The axis on the street is The longitudinal road level Street: The drainage of the atmospheric of the street adopted according the designed according the existing is designed according the - Compacted road-base layer waters from the roadway asphalt “Ivan Agovski” – existing width of the street route in order to secure the designed axis. The designed of crushed stone 0-63 surfaces will be performed with section from in order the reconstruction existing spatial constraints. minimal longitudinal slope (thickness 30 cm); the performed longitudinal and the cross road of the roadway to be According the detailed design is 0.25%. Designed are Bituminized bearing course transverse slope of the road. The with the street performed between the there are 4 direction and 3 vertical curves with BNHS 22cA (thickness 7 cm) water from the roadway will be “Branislav existing road shoulders. The circular arcs. The horizontal and minimum radius and accepted in the existing street Nusich” to cross width of the street and vertical elements are designed Rmin=200m and maximum - Final layer with asphalt drain gullies. On this street there road with street sidewalks is variable for road with level (D) and the radius Rmax=15400 m. concrete AC 11 (thickness 5 are 7 (seven) existing street drain “Orce Nikolov” because there are frequent designed speed is 30 km/h. In order to have efficient cm). gullies where the distance intersections on the street. Minimal designed horizontal drainage of roadway on the between them is 35 m. The reconstruction of this radius is Rmin=1000 m, while both streets designed is street refers on the maximum designed radius is minimal slope i=0.25% and reconstruction of the Rmax=6000 m. maximum slope is i=1.55%, roadway structure. while the transverse slope of the roadway is one-sided and is i=2.5%. Reconstruction 0.24 The width of the roadway is The axis on the street is The longitudinal road level Street: The drainage of the atmospheric of the street 4 m, with sidewalks with designed according the existing is designed according the - Compact road-base layer of waters from the roadway asphalt “Mirka Ginova” variable width from the route in order to secure the designed axis. The designed crushed stone 0-63 (thickness surfaces will be performed with both side i.e. the existing existing spatial constraints. longitudinal slope is 0.1%. 20 cm); the performed longitudinal and widths of the street will According the detail design this This show that longitudinal - Bituminized bearing course transverse slope of the road. The remaining the same. The street is designed with two slope is less than the BNS 22 (thickness 7 cm); water from the roadway will be reconstruction of this street horizontal curves. minimum allowed - Final layer with asphalt accepted in the existing street refers on reconstruction of longitudinal slope which is concrete AC 11 (thickness 5 drain gullies. On this street there the roadway structure and 0.35%, but this is due to the cm). are 7 (seven) existing street drain the sidewalks. conditionality of the terrain. Sidewalks: gullies where the distance - Crush stone material 0-63 between them is 35 m. (thickness 20 cm) and - Concrete interlock tiles (thickness 6 cm). Source: Detail designs of streets

In the next figures we present the cross profiles of the all 4 (four) local streets with details: 50

Figure 14. Transverse section of the local street “Gigo Mihajlovski” and street “Gigo Mihajlovski – section 1” with details

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Figure 15. Transverse section of the local street “Shekspirova” with details

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Figure 16. Transverse section of the local street “Ivan Agovski”

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Figure 17. Transverse section of the local street “Mirka Ginova”

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4.2 ANALYSIS AND EVALUATION In the municipality of Karposh there are 17 km asphalted. Thus, this project will contribute to improve the situation with more quality and safety of the network of local streets in Karposh municipality. It is assumed that all construction works will be performed in a period of 5 (five) months.

4.3 CONCLUSIONS AND RECOMMENDATIONS For this project, the potential underground installations and the surrounding facilities should be taken into consideration, as well as the traffic safety, possible reduction of noise emission and taking care of the physical environment during reconstruction, although it is a construction in the urban area. Namely, wherever there are no planned traffic details in the detail design, our recommendation is that a proper horizontal and vertical signalization must be implemented on the local streets. Special attention is recommended as per the detail design during the reconstruction of the local streets to the underground cadaster in order to prevent the risk of cutting the potential underground networks. The detail design contains the technical details of this project as well as all the information on the cost’s calculation.

4.4 ALTERNATIVE SOLUTIONS Municipality of Karposh is obliged to provide safety and comfort traffic for the citizens of the all settlements. Alternative solution is to repair of the damaged parts/potholes of the local road. This alternative solution is simpler and cheaper, but this alternative solution has the following risks: - This solution is short-term related to the quality compared with the solution presented in the detail design; - This solution produces bigger costs for the municipality of Karposh related to the maintenance of the local road; - The vehicles which use this road will have defects which produce costs related to repairs and - This solution will not provide the necessary safety and comfort traffic for the citizens of municipality of Karposh.

5 Financial analysis

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Тo assess the profitability of sub-projects, financial analysis section of the project appraisal document will present the following information:

• PROJECT COST • CREDIT CAPACITY • LOAN REPAYMENT • REVIEW OF THE MUNICIPAL ACCOUNT • FINANCAL ANALYSIS • SENSITIVITY ANALYSIS • COST-BENEFIT ANALYSIS • RISK ANALYSIS

5.1 PROJECT COST The project envisages reconstruction of 5 streets in the Municipality of Karposh in the total length of 1069m and the sidewalks on one of the street of 480m2 with an aim to provide better transportation. The total estimated project cost is 16.646.947MKD (270.682 EURO) including VAT. The streets are as follows: • Street – Ivan Agovski Re-construction of the street length is 337,164m. The value of the works is 5.212.237 MKD. • Street – Sekspirova Re-construction of the street length is 256,023m. The value of the works is 6.262.378MKD. • Street – Gigo Mihajlovski Re-construction of street length is 155,427m. The value of the works is 1.607.160 MKD. • Street – Gigo Mihajlovski (leg 1) Re-construction of street length is 76,480m. The value of the works is 647.230 MKD • Street – Mirka Ginova Re-construction of the street and sidewalks. The length of the street is 244,02 m, and the size of the sidewalks is 479,91m2. The value of the works is 2.917.941 MKD The basic project design presents division of these costs into the following main categories: Preparatory work, Earthworks and Upper layer. The table below is presenting the estimated cost breakdown of 5 sub-projects and total value of the investment.

Table 14 Estimated project costs Gigo Description / Street Gigo Ivan Agovski Sekspirova Mihajlovski Мirka Ginova Тotal name Mihajlovski (leg 1) Street length 337,164m 256,023m 155,427m. 76,480m 244,02m 1069m Preparatory works 288.900 280.300 160.700 100.700 199.870 1.030.470 Earth works 290.000 406.900 99.100 43.000 273.054 1.112.054 Upper layer 3.838.250 4.619.900 1.102.200 404.800 1.999.908 11.965.058 Amount in MKD 4.417.150 5.307.100 1.362.000 548.500 2.472.832 14.107.582 18% VAT 795.087 955.278 245.160 98.730 445.110 2.539.365 Тotal amount in MKD 5.212.237 6.262.378 1.607.160 647.230 2.917.942 16.646.947 Amount in EUR 84.752 101.827 26.133 10.524 47.446 270.682 Source: Projects’ technical documentation

The investment costs breakdown by categories shows that the major part of the investment costs is for replacement of the Upper layer (85%); followed by Earthworks (8%) and preparatory work (7%). According to the decision of the Municipal council number 09 -494/22 dated 29.01.2021, the amount of MKD 16.646.946,70 will be covered by the MSIP 2 loan.

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It is assumed that the procurement activities will take 4-6 weeks and the construction works will last approximately 3-5 months. Therefore, we envisaged that the activities might take place during March – September 2021 which means that all the above-mentioned investment costs will be carried out during 2021.

5.2 CREDIT CAPACITY The maximal credit capacity of the Municipality of Karposh based on 2020 financial data is MKD 185.109.147 (Euro 3.009.905) while the annual debt servicing cannot exceed MKD 55.532.744 (Euro 902.971). Operating revenues and expenditures by accounts are presented in the following table. It is clearly visible that Municipal tax revenue especially Property tax revenues and Transfers from central budget and portion from the VAT compose significant portion in the operating revenues of Municipality of Karposh.

Table 15. Operating revenues of the Municipality Karposh for the year 2020 Account Description Amount 71 Tax revenues 312.314.752 713 Property tax revenues (part of the tax revenues) 177.772.744 72 Non-tax revenues 5.456.176 731 Sale of assets 0 733 Land sales and non-material investments 9.915.656 741.115 Earmarked donations from VAT revenues 17.578.992 Total operating revenues (MKD) 345.265.576 Total operation revenues (Euro) 5. 614.074 45 Repayment of annual interest (MKD) 28.079.440 49 Principal Debt (MKD) 132.076.989 Тotal Debt 160.156.429 Тotal Debt (EURO) 2.604.170 Total Operating revenues – Debt (MKD) 185.109.147 Total operating revenues – Debt (Euro) 3.009.905 Max debt service (30% of total operating revenues - debt) 55.532.744 MKD Max debt service (30% of total operating revenues - debt) 902.971 Euro Source: Municipality of Karposh

Currently, Municipality of Karposh have two outstanding long-term debts as follows: • Loan from Komercijalna Banka in the amount of MKD 160,000,000 and interest in the amount of MKD 48,346,618 with a repayment period of 10 years with an interest rate of 6.2%, for the period from 25.02.2015 to 25.02.2025. The remaining credit - principal is in the amount of 98,384,566 MKDs. • A loan from the MSIP World Bank in the amount of 45,798,638 MKDs for 10 years. The installment is payable two times a year (each 6 months), the instalment amounts 2,421,242 MKDs. The remaining debt is 33,692,423 MKDs. The loan starts on 15.02.2018 and last instalment is on 15.02.2027.

Total annual annuities for these two loans are in the amount of 28.079.440 MKD. In 2020 the Municipality have requested postponement of the repayment of the debt due to the COVID-19 measures offered by the bank and only replayed 7,487,907 MKD. In January 2021 according to the information received from the municipality the total remaining debts for the two loans amounts 132.076.989 MKD. The loan for the project amounts to MKD 16.646.947 including VAT, which is below the municipality credit capacity as presented above. It can be inferred that the municipality has the financial capacity to repay the loan.

5.3 LOAN REPAYMENT According to the municipal decision number 09 -494/22 dated 29.01.2021 the loan from MSIP 2, is expected to be carried for 10 years, with a grace period of 3 years (2021 – 2024) and the repayment will start in Q3 2024. The interest rate1 is fixed at 3%, and the payment is semi-annually. The assumed date of disbursement of the loan is 15 March 2021. The annual payment has been calculated to MKD 1.849.660 (Euro 30.076) (see table 16 below).

Table 16. Presentation of the loan terms Loan repayment Unit Values Amount of loan MKD 16.646.947 Interest rate % 3 Duration of loan Year 12 Grace period Year 3 Annual payment MKD 1.849.660 Source: Own presentation based on the data received by the Municipality

During the 3-year grace period, the Municipality will only repay the interests in an amount of 499.408 MKD. The following table 17 presents the loan amortization plan. Table 17. Loan amortization plan Principal & LOAN INTEREST PRINCIPAL Interest Period with grace 12 16.646.947 499.408 499.408 1 Interest rate 3% 16.646.947 499.408 499.408 2 Amount 16.646.947 16.646.947 499.408 499.408 3 Period w/o grace 9 16.646.947 499.408 1.849.660 2.349.069 4 14.797.286 443.919 1.849.660 2.293.579 5 15.Mar.21 12.947.625 388.429 1.849.660 2.238.090 6 15.Mar.33 11.097.964 332.939 1.849.660 2.182.600 7 9.248.304 277.449 1.849.660 2.127.110 8 7.398.643 221.959 1.849.660 2.071.620 9 5.548.982 166.469 1.849.660 2.016.130 10 3.699.321 110.980 1.849.660 1.960.640 11 1.849.661 55.490 1.849.660 1.905.151 12 3.995.267 16.646.947 20.642.214 Source: Own calculations based on the data received by the Municipality

1The realistic interest calculated for the loan will be EURIBOR 6 months+1. On 27th of December 2020 EURIBOR 6 months was -0.508%1. Thus, 6-month EURIBOR+1=0.492%

5.4 REVIEW OF THE MUNICIPAL ACCOUNT Based on the analysis of the municipal data for the realized revenues and expenditures over the last three years (2018-2020), the operational costs for the Municipality as a whole are financed from the operational revenues and part of the net surplus supplements financing of the municipal capital expenditures. This means that the Municipality is able to settle its operational costs and thereby provide consistent operation and maintenance of the municipal infrastructure. As presented earlier the Municipality have two loans with remaining debt of 076.989 MKD. Majority of the debts will be repaid in 2025. In addition, the Municipality has high accounts payable. However, with their appropriate financial policies they decreased these obligations from -513 million in 2018 to -158 million in 2020 (please see table 19). Also, due to the CORONA-19 crisis the year 2020 incomes were below the average.

The below table presents the revenues and expenditures for the last 3 years, as per finance department report of the Municipality.

Table 18. Review of revenues and expenditures Municipality Karposh 2018 2019 2020 Average 71 TAX REVENUES 358.642.882 321.226.791 312.314.752 330.728.142 72 NON-TAX REVENUES 14.700.297 7.541.553 5.456.176 9.232.675 74 TRANSFERS AND DONATIONS 27.868.624 278.550.492 31.406.878 112.608.665 TOTAL OPERATING REVENUE 401.211.803 607.318.836 349.177.806 452.569.482 40 SALARIES AND ALLOWANCES 76.518.096 72.051.760 77.350.973 75.306.943 42 GOODS AND SERVICES 159.899.449 217.779.009 162.530.893 180.069.784 46 SUBSIDIES AND TRANSFERS 28.420.142 39.007.110 33.525.323 33.650.858 (expenditure) TOTAL OPERATING 264.837.687 328.837.879 273.407.189 289.027.585 EXPENDITURE OPERATING SURPLUS 136.374.116 278.480.957 75.770.617 163.541.897 73 CAPITAL REVENUES 13.450.863 10.499.506 9.916.998 11.289.122 48 CAPITAL EXPENDITURES 115.354.280 250.616.955 71.283.550 145.751.595 NET CAPITAL DEFICIT -101.903.417 -240.117.449 -61.366.552 -134.462.473 45 INTEREST 8.110.538 7.240.555 3.277.747 6.209.613 49 REPAYMENT OF PRINCIPAL 17.693.215 18.743.075 2.421.247 12.952.512 DEBT SERVICE (Interest and 25.803.753 25.983.630 5.698.994 19.162.126 Principal repayment) NET OPERATING SURPLUS 60.274.452 64.347.138 20.103.059 48.241.550 Source: Municipality Karposh, Finance department and own calculations

It is to be concluded that operating revenues of the Municipality are bigger than the operating expenditures, and the expenditures are completely financed by the revenues. Also, it is visible that revenues and expenditures are stable in the analyzed period 2018 – 2020. Except in 2020 due to the COVID-19 crisis the revenues are below the average. In respond to

the crisis the bank has offered to postpone repayment of the principal to the loan. The municipality accepted this offer and repaid only the interest to the bank loan.

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The Municipality’s accounting system is cash based and for the purpose of this analysis in defining the operational flow the short-term and long-term municipal receivables are taken into account and an appropriate adjustment of the operational flow have been corrected.

Table 19. Accounts payable/receivable Average 2018 2019 2020 (2018-2020) Accounts Payable 691.707.063 493.115.203 305.038.038 496.620.101 Accounts Receivable 178.296.514 132.020.212 147.231.570 152.516.099 Net Accounts Payable -513.410.549 -361.094.991 -157.806.468 -344.104.003 (Payable - Receivable) Source: Municipality Karposh, Finance department

Based on the received municipal data for the period 2018-2020 it is visible that they have decreased more than one half of the accounts payable. This demonstrates the policy of strict control and decreased expenditures. At the same time the Accounts Receivable demonstrate stable trend and the Net accounts payable at beginning of 2021 are decreased to - 157.806.468MKD. This trend will continue in the coming years.

Table 20. Long term loans Komercijalna banka (25.02.2015 to 25.02.2025) 160,000,000

Outstanding amount in MKD 98,384,566

Interest rate 6.2%, Monthly installment 2.471.683 Total instalments per annum 29.660.19 World Bank (15.02.2015- 15.02.2027) 45,798,638 Outstanding amount in MKD 33,692,423 Interest rate 2 % Installment 2,421,242 Total instalments per annum 4.842.484 Source: Financial information from Municipality of Karposh

Alongside the borrowing considered in this PAD, Municipality of Karposh has outstanding long-term debt based on two loans. Loan to Komercijalna Banka in the amount of MKD 160,000,000 and interest in the amount of MKD 48,346,618 with a repayment period of 10 years with an interest rate of 6.2%, for the period from 25.02.2015 to 25.02.2025. The monthly annuity in the amount of 2.471.683MKDs. The remaining credit - principal for surcharge in the amount of 98,384,566 MKDs. A loan from the World Bank of 45,798,638 MKDs for 10 years and three years of grace period with 2% interest rate. The installment is payable two times a year (each 6 months), each instalment amounts 2,421,242 MKDs. The remaining debt another 33,692,423 MKDs. The repayment of the loan started on 15.02.2018 and last instalment is due on 15.02.2030.

Thus, the net operating surplus after deducting net accounts payable and debt obligation as per these two loans is negative and in amount of almost -137.644.358MKD as illustrated in the next table. Consequently, if we only assess based on the above information the general conclusion could be that the financial performance of the Municipality to regular service its long- term debts can be “at risk”.

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Table 21. Servicing of long-term municipal debts in MKD Average operating surplus for period 2018-2020 (net operating surplus) 48.241.550 Annual Debt Repayment Obligations for period 2018-2020 -28.079.440 Net accounts payable for2021 -157.806.468 Net operating deficit after deducting net accounts payable and debt obligation -137.644.358 Assessment “At risk” Source: Own calculation based on municipality data

With the new programme for urban planning2 the municipality expects increased incomes by 20% from issued building permits. This is due to the municipal long-term strategy and new urban plan adopted for the northern part of the municipality and expressed interests of the investors. In the previous years the municipality was reviewing and has canceled some urban plans and by that the number of issued building permits was lower than the average from previous years and the lower than the interest of the investors. Therefor the municipality expects increase incomes that will be used partly to cover the outstanding debts and liabilities. This will secure increased incomes to the municipal budget and secure stable financing in the coming years and by that secure sufficient funds for regular repayment of the loan. As an example, in 2019 the Municipality planned to collect 360 and collected only 77 million MKD from communal taxes. These obstacles have been overcome so in 2021 the municipality expects and plans to collect 380 million MKD from issued building permits.

The property taxation is managed by the City of Skopje and the Municipality of Karposh have little influence over the collection, and valuation of the properties. In the last years the tax collection is very high and have increasing trends. The Government announcement for amendment of the legislation to allow increased property taxation will also provide additional increasement of the gross amount of collected property taxes.

The last instalment from the loan from Komercijalna banka is due on 25.02.2025. Each monthly instalment of this loan of 2.471.683MKD is higher than the annual instalments calculated with this new potential loan which is calculated to 1.664.695 MKD. The following table presents the distribution of instalments and the plan of the Municipality to repay the existing loans and to start the repayment of this potential loan.

Table 22. Distribution of the repayment of the existing loans of the Municipality of Karposh Komercijalna Potential Total loan banka WB1 loanWB2 instalments 2015 23.236.956 2016 23.236.956 2017 23.236.956 2018 23.236.956 4.842.484 2019 23.236.956 4.842.484 2020 23.236.956 4.842.484 2021 29.660.196 4.842.484 34.502.680 2022 29.660.196 4.842.484 499.408 34.995.350 2023 29.660.196 4.842.484 499.408 34.995.350 2024 29.660.196 4.842.484 499.408 34.995.350

2https://karpos.gov.mk/wp-content/uploads/2017/08/%D0%9F%D1%80%D0%BE%D0%B3%D1%80%D0%B0%D0%BC%D0%B0- %D0%B7%D0%B0-%D0%B3%D1%80%D0%B0%D0%B4%D0%B5%D0%B6%D0%BD%D0%BE- %D0%B7%D0%B5%D0%BC%D1%98%D0%B8%D1%88%D1%82%D0%B5-%D0%B7%D0%B0-2021.pdf accessed on 26 january 2021

2025 4.842.484 2.349.069 6.999.849 2026 4.842.484 2.293.579 6.950.582 2027 4.842.484 2.238.090 6.901.315 2028 2.182.600 2.009.564 2029 2.127.110 1.960.297 2030 2.071.620 1.911.030 2031 2.016.130 1.861.763 Source: own calculation on the basis of information received from Municipality Karposh

From the table it is to be seen that the Municipality of Karposh will finish repayment of the bit long term loan from Komercijalna banka in 02. 2025 and at that year will start repayment of this potential loan. From this it is to be concluded that in 2025, the overall financial condition of the Municipality will improve and the account payables will decrease for significant portion, from 35 to 7 million MKD per year, thus the Municipality will be in better financial position to service its liabilities.

5.5 ANALYSIS OF THE FINANCIAL FEASIBILITY OF THE PROJECT The overall financial analysis is based on additional savings generated by the potential projects. The analysis is focused on the benefits to the local population by the sub-projects and, rather than on the borrowing entity, i.e. Municipality of Karposh. The Internal Rate of Return and the Net Present Value are calculated. In general, a project is considered as acceptable if: • IRR> 5% • NPV>0

5.5.1 TIME HORIZON For this kind of an infrastructure project, time horizon is 30 years. The time horizon for the loan is 10 years with 3 years of grace period included, with interest rate of 3%.

5.5.2 LIMITATIONS OF THE ANALYSIS Main limitation of this analysis is the fact that for this kind of projects some of the benefits can’t be expressed in monetary terms. First, the nature of the project is such that it is difficult to quantify direct financial benefits of the project. Second, it is difficult to differentiate the bearer of the impacts in some cases. Namely, the pecuniary benefits from the project will be felt by the citizens, the loan will be repaid by the Municipality and the currency risk will be taken by the Government.

5.5.3 INITIAL INVESTMENT The amount of the initial investment outlay has been estimated at MKD 16.646.946,70 including VAT. The basic project design presents division of these costs into the following categories: Preparatory work, Earth works and Upper layer. Therefore, the investment cost to the Municipality is equal to the discounted value of the future debt payments.

5.5.4 INFLATION Due to the de facto fixed exchange regime and the legal obligation of the National Bank of the Republic of North Macedonia to maintain the price stability in the country, the inflation rate is assumed to remain stable at 2% on an annual level. This is taken into consideration when calculating the NPV.

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5.5.5 DISCOUNT RATE The projected cash flows will be discounted using the cost of capital. For most of the projects, the only source of financing will be the loan from the World Bank. For this analysis the discount rate of 5% is adopted.

5.5.6 PROJECTION OF OPERATING CASH FLOWS According to the technical documentation this project refers to reconstruction of 5 streets. Therefore, the main monetary benefit generated by the implementation of the project is savings in costs for street maintenance and eventually reparation of the vehicles damaged by the current poor street conditions.

5.6 COSTS Investment cost The amount of the initial investment outlay as mentioned above has been estimated at MKD 16.646.946,70 including VAT.

Recurrent Costs Municipality Karposh informed us that most of the streets have been recently reconstructed. Therefor the portion of recurrent costs aimed for the maintenance of the streets will remain very low. The expenditures for winter maintenance of the streets will not be affected.

Costs for the reparation of the streets subject to this appraisal

Reconstruction of remaining parts of these streets in the urban area will be finalized in the coming year.

The program for reconstruction of streets of the Municipality Karposh3 is budgeted to 5.238.000 MKD received as an income from the Agency for State Roads. Disbursement of these funds is planned as follows: 50% (2.619.000 MKD) for building new streets; 30% (1.571.000 MKD) for maintenance and reparation of the existing streets; and 20% (1.048.000 MKD) for winter maintenance and cleaning of the streets.

In period 2015-2020 the Municipality has refurbished 147 streets which comprise 90% of the streets. The length of the streets in the Municipality of Karposh presented in the LEAP 2 20194 (page 38) is calculated to 37.430m.

For the purpose of this exercise, we calculated the costs of 1.720 MKD for the reconstruction of 1m2 of street upper layer. We took the prices from the technical documentation presented for the proposed projects. The calculation is presented in the Table 23.

Table 23. Price for maintenance per 1 m of street Description MKD Preparatory cutting m2 120 Connecting old and new layer m2 150 Asphalt filling 10cm m2 1200 Transport costs m2 250 Total per 1m2 m2 1720 Source: own calculation following the prices presented in the technical documentation of the offers

Table 24. Price for maintenance of the street planned for reconstruction

3https://karpos.gov.mk/wp-content/uploads/2017/08/RT32-Programa-ulici-2021.pdf 4https://www.karpos.gov.mk/Upload/Documents/LEAP%20FINALNA%202019-2024_16jan%202019_%20finalna%20verzija%20(2)- ilovepdf-compressed.pdf, page 38 Infrastructure (accessed on 10 January 2021). 64

Length of streets to be Reconstruction of Total calculated reconstructed by this 20% damaged upper Cost for maintenance per maintenance costs for project in meters layer 1m in MKD 2021 1.069 m 214 m2 1.720 MKD 368.080 MKD Source: Own calculation based on data from Municipality Karposh

However, if we take into consideration that according to the Municipality and their previous investments 90% of the streets have been already renovated, we will get similar calculation. If we calculate that the budget allocated for street maintenance of 1.571.000 MKD has been used only for the old streets which is 3.743 m then the maintenance costs for the mentioned 1.069 m will amount to 419.717 MKD. These available funds correspond to the previous simulation and calculation. This calculation also demonstrates availability of funds for small interventions to the newly refurbished streets as well. (419.717- 368.080=51.637MKD)

Savings in the reparation costs Reconstruction of the streets will reduce costs for reparation and it will decrease expenditures of the citizen and the municipality. Less money will be spent on street repairs and possible car damages. Estimation of the yearly costs for reparation of the street is:

The annual savings in 2021 on maintenance costs for the streets that will be reconstructed with this loan is estimated to 368.080 MKD. The calculation is presented in the table 24, the length of the streets is 1.069m. We estimate that 20% i.e 214 m2 of the streets will need refurbishment multiply by 1.720 MKD per 1m2 as calculated in table 23.

These savings are based on the municipality budget planned for reparation of streets and by the offers in the technical specifications presented to the municipality. For the following years the savings are adjusted by calculating 2% inflation rate on annual level.

Other assumptions In this particular case, we used Modified Internal Rate of Return (MIRR). In theory and in practice, MIRR is known to be better decision-making tool when measuring the investment attractiveness of a certain project rather than IRR, thus we used MIRR in order to show the desirability of the investment. Additionally, MIRR more accurately reflects the cost and profitability of a project. There are several problems with the IRR, MIRR resolves two of them. First, IRR assumes that interim positive cash flows are reinvested at the same rate of return as that of the project that generated them. MIRR finds only one value, while more than one IRR can be found for projects with alternating positive and negative cash flows, which leads to confusion and ambiguity.

In our analysis, while calculating NPV (see Table 25), there are cash flows with alternating signs (negative cash flows followed by positive cash flows), so the IRR can generate multiple rates of return that will make the NPV equal to zero. This is unhelpful when trying to evaluate the project. Thus, we use MIRR because it gives more realistic evaluation of the project. In our case, the calculations showed that the MIRR is negative value, adding to a conclusion that the project is commercially non-viable.

Results of the financial analysis The financial appraisal based on the above assumptions and by using a 5% discount rate gives negative NPV of MKD - 7.403.783or Euro -120.387and negative MIRR of -2,42% presented in table 25.

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The results imply that the project is commercially non-viable.

However, implementation of the project will bring other benefits for the citizens. This will contribute to decreasing of vehicle operating costs and will increase the quality of life and satisfaction of the citizens as well will contribute to increase the value of the property in this part of the municipality. Indirectly these improvements will bring added value back to budget of the municipality.

Quantification, calculation and monetary presentation of these values will be possible if the Municipality possess valid statistical data. Moreover, the decision-makers should take into consideration that the implementation of the project brings substantial immeasurable benefits and social benefits. Most of all in situation when majority (90%) of streets have been already reconstructed will help that these citizens does not feel being deprived.

Table 25. NPV analysis (in MKDMKD) Nominal Capital Saving in year Interest repayment Total Cost maintenance Cash flow 1 2021 499.408 499.408 368.080 -131.328 2 2022 499.408 499.408 375.442 -123.967 3 2023 499.408 499.408 382.950 -116.458 4 2024 499.408 1.849.661 2.349.069 390.609 -1.958.460 5 2025 443.919 1.849.661 2.293.579 398.422 -1.895.158 6 2026 388.429 1.849.661 2.238.090 406.390 -1.831.699 7 2027 332.939 1.849.661 2.182.600 414.518 -1.768.082 8 2028 277.449 1.849.661 2.127.110 422.808 -1.704.302 9 2029 221.959 1.849.661 2.071.620 431.264 -1.640.356 10 2030 166.469 1.849.661 2.016.130 439.890 -1.576.241 11 2031 110.980 1.849.661 1.960.640 448.687 -1.511.953 12 2032 55.490 1.849.661 1.905.151 457.661 -1.447.489 13 2033 466.814 466.814 14 2034 476.151 476.151 15 2035 485.674 485.674 16 2036 495.387 495.387 17 2037 505.295 505.295 18 2038 515.401 515.401 19 2039 525.709 525.709 20 2040 536.223 536.223 21 2041 546.948 546.948 22 2042 557.886 557.886 23 2043 569.044 569.044 24 2044 580.425 580.425 25 2045 592.034 592.034 26 2046 603.874 603.874 27 2047 615.952 615.952 28 2048 628.271 628.271

29 2049 640.836 640.836 30 2050 653.653 653.653 NPV MKDMKD using 5% -7.403.783 NPV Euro using 5% -120.387 BCR 0,72 MIRR using 5% -2,42%

Source: Own calculations based on the data received by the Municipality

5.1.1 Sensitivity analysis The sensitivity analysis was performed using variations of 10% for both costs and benefits. This does not influence significant change in NPV, i.e., the NPV remains negative, but the NPV is more sensitive to change in costs. Sensitivity analysis results are shown in the table below.

Table 26. Sensitivity analysis Baseline Benefits Costs -10,00% 10,00% -10,00% 10,00% NPV -7.403.783 -8.116.498 -6.691.067 -7.086.381 -7.721.184 Еuro NPV -120.387 -131.976 -108.798 -115.226 -125.548 Source: Own calculations based on the data received by the Municipality

5.7 CONCLUSIONS The total value of the project is MKD 16.646.950 including VAT and the assumption is that the project’s costs will be fully covered with this loan. According to the existing regulation, the project’s cost is lower than the borrowing capacity of the Municipality.

The analysis of the financial feasibility of the project showed that NPV is negative implying that the project is financially non- feasible. However, implementation of the project brings substantial immeasurable benefits such as: ensuring safety movement of the residents especially children, students, elderly people and those with special needs, lowers potential spending on repairs of damaged vehicles by streets in poor condition, etc. Increases the value of the property being connected with new streets and by that indirectly contributes to increased tax incomes to the municipal budget. Most importantly it improves the quality of life and puts all citizens in municipality in equal position while the rest (90%) of the streets in the municipality recently have already been reconstructed. Also, this is a good example of justified borrowing while the citizens will get improved infrastructure earlier, while municipality expects increased cash flow in the coming years and improved financial conditions.

The implementation of the project is expected to lead towards reduction of the municipal costs for constant repairs of the streets. Once the project is implemented, the Municipality will spend less money for repairs. Moreover, the estimated savings for annual maintenance and repairs are sufficient to cover the interest of the loan and the planned budget for building new streets is sufficient to cover the annual instalments of this loan5. Additional benefits will be considered in the analysis presented in the cost benefit analysis chapter.

5Calculation presented on pg. 65 67

6 Cost-benefit analysis

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6.1 GENERAL INFORMATION

6.1.1 Framework of the analysis

The initial step in testing the economic viability of a project is to identify, quantify and value the economic costs and benefits. We expect that this study, together with the financial appraisal, will provide sufficient basis for the decision-makers to decide on the acceptability of the project.

The main principles to be used in the appraisal are the following: - Loan costs (interests) are omitted; - The benefits and costs are presented in constant value, i.e. increases of prices are excluded in the analysis; - Taxes are excluded from the investment value; - Discount rate of 5% is applied.

6.1.2 Limitations and constraints of the study

The reconstruction of the streets brings many benefits to the local population. This is mostly related to savings in vehicles operating costs (VOCs), but also to benefits that cannot be estimated in the analysis and refer to the improved quality of life for the citizens, increased road safety, accessibility for persons with disabilities and elderly. Additionally, improved infrastructure will eventually influence increased valuation of the surrounding properties and by that secure long term increased incomes to the Municipal budgets.

6.1.3 Scope

At the beginning, it is necessary to define the scope of the cost-benefit study. Since this is a municipal project and taking into account that the subject of the project the reconstruction of the streets in Karposh it is the municipality which acts as a borrower, we find it most appropriate that the point of view of the municipality will be taken. This means that the positive and negative impacts of the project only within the municipality will be taken into consideration.

6.2 IDENTIFICATION OF THE RELEVANT COSTS AND BENEFITS

6.2.1 Project costs

The costs of the project were elaborated in the previous chapter and consist of the investment outlay and the recurrent i.e., operations and maintenance costs. In addition, VAT of the investment is not considered economic cost and therefore is not included in the cost-benefit analysis.

6.2.2 Quantifiable benefits

The main monetary benefits generated by the implementation of this project are savings in the repairing costs of the streets as well as savings in vehicle operating costs (VOCs).

1) Savings in the municipal recurrent costs The monetary benefit in the form of savings in the repairing costs was elaborated in the previous chapter. Mainly, if the project is implemented the expectation is that it will lead towards reduction of the current repairing costs, thus the expectation is that they will amount to MKD 311.932 without VAT.

2) Savings in the vehicle operating costs (VOCs) According to the information from municipality Karposh, the residents in these streets possess 1.769 light vehicles registered in the municipality (both commercial and private). The average age of the vehicles is around 10-15 years. According to the estimation made by the municipality, the average daily traffic (ADT) on the local road that are subject to this appraisal is

69 estimated at around 5.000 vehicles on average including residents and vehicles in transit (traffic count done by the municipality). Table 27. Number of vehicles owned by the residents Street Number of vehicles Shekspirova 446 Mirka Ginova 38 Ivan Agovski 535 Gigo Mihajlovski 750 Total number of vehicles 1.769 Source: calculations done by municipality Karposh

In order to approach the calculations methodologically it is important to say the following: The econometric results within the Study Local Road Surfacing Criteria from June 2004 prepared by Applied Pavement Technology, Inc. for the US Department of transportation, shows the relation between the VOCs per a mile within 20 years period with the average daily traffic (ADT). Thus, for 1,000 ADT the VOCs are around US$900,000 for 20 years period per a mile.

Given that one mile is 1609 meters follow that: The road length, under this project, is 1.069 m which is a 0.66 mile thus, in one year the VOCs for 1,000 vehicles for crossing these 0.66 miles local streets daily would be about: US$900,000/20 years*0.66= 29.700 or US$ 52.539 for 1,769 vehicles. The implementation of this project is expected to improve the local infrastructure and we can expect around 4% of the costs to be lowered due to better road conditions thus, the economic benefit with this project would be around US$52.539*0.04 = US$2.101 annually. (MKD 100,000. Exchange rate, date 04.02.2021 1US$ - 50.6 MKD). The savings from VOCs are estimated to 100.000 MKD with no VAT.

6.2.3 Unquantifiable benefits

Besides the major quantifiable benefits, there are also some important immeasurable benefits that are expected to result from the implementation of the project and that need to be taken into consideration. Some of these immeasurable benefits refer to:

1) Increasing traffic safety and comfort for the street users The main danger of transport infrastructure which is poor in quality is the likelihood of a traffic collision. Such danger practices. The implementation of the project is expected to maximize the technical life of the surface, thus increasing the traffic comfort by improving the surface on the streets as well as their carrying characteristics can be reduced by providing transport infrastructure in alignment with competent traffic engineering.

2) Increasing the traffic capacity and communications The implementation of the project is expected to have positive impact on the improved flow of traffic and improved transportation system and on the communications in the same municipality. Poor quality of the transport infrastructure causes additional costs on fuel consumption in traffic congestions and fall of productivity.

3) Public goodwill of the municipal administration The implementation of the project is expected to increase the population’s perception and confidence due to fewer complaints as a result of the improved street infrastructure. At the same time, the reconstructed streets. Citizens will not feel deprived because 90% of other streets have been refurbished then these ones.

4) Municipal benefits The implementation of the project is expected to improve local public finances. Once the road infrastructure is improved, the municipality will spend less money for repairs and will be able to reallocate these funds to other municipal services. Some of the possibilities might be improved road marking, placing road signs, etc. that will contribute to improved traffic.

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5) Socio - economic impact The principal socio-economic benefit of the implementation of the project is the increase in the value of properties. If the road infrastructure is improved, increase in the value of the property are basically inevitable. Improved utility services of the properties can significantly increase the land value to the benefit of the owners and also to the local community due to the ability of the municipal authorities to increase the valuation of the property tax base within the municipality. Given that the property will increase in value, households will have the incentive to invest further in their housing − so improvements in sanitation and garbage collection soon follow street infrastructure improvements.

6.3 VALUATION OF THE COSTS AND BENEFITS

Public infrastructure projects, especially street construction or reconstruction, have direct and indirect benefits. The importance of the street, its need and impact on local development and provides an opportunity to raise the quality of life of the local population, but also opportunities for improved hygiene of the streets. This view is justified and it can be said that when calculating cost-benefit analyzes have financial benefits, but also future social development components. The CBA will be built upon the financial appraisal of the project. The items previously valued at market prices will be estimated using their economic values if relevant. The main principles to be used in the appraisal of some specific items are given below.

6.3.1 Economic valuation of the costs

The economic valuation of the costs considers the investment outlay of reconstruction of the street. In contrast, the savings in reparation costs are presented as in the financial analysis only without VAT calculated.

1) Economic valuation of the investment outlay (however it is shown below) Reconstructions of the streets consist of civil works. The project's financial costs are used as a basis to estimate its economic costs by correcting the non-skilled labor component in the investment and operating costs with a shadow wage that takes into account the current unemployment level in the country (with a Conversion Factor equal to 0.7)

Table 28. Economic valuation of the investment outlay (in MKD)

Amount Convergence Description without VAT factor Share Preparatory works 1.030.470 0,70 721.329 Earth works 839.000 0,70 587.300 Upper layer 12.238.112 0,70 8.566.678 Amount in MKD 14.107.582 9.875.307 Source: Own calculations based on the project’s technical documentation

6.4 OTHER ASSUMPTIONS

The inflation rate is neglected in calculations, as well as loan service costs. The time horizon is 30 years, and the discount rate of 5% is calculated as in the financial analysis.

6.5 VALUATION OF THE COSTS AND BENEFITS

The following table presents in one place the summary of comparisons between the situation without and with the project.

Table 29. Summary of comparisons between the “without” and “with the project” scenarios Without the project With the project Quantification of project benefits • Current/higher amount of the • Reduction in spending on repairs; municipal and private spending on • Lower VOCs; • 311.932 MKDMKD per annum repairs; • Increased traffic safety and comfort; saving on street repairs • Current VOCs; • Increased traffic capacity and • Savings in VOC 100.000 MKD • Current/higher level of danger for communication; pedestrian and car accidents; • Removed disruption to transport • Current/lower market value of services; streets’ nearby real estate; • Lower travel costs; • Increased polution and negative • Municipal finances will improve; influence on the health of the • Increase property value; population and the eco-system; • Minimized risks from flooding of the streets; • Minimized health and safety hazards;

Source: Own analysis based on the information received by the municipality

The cost-benefit analysis of the project is built upon the financial appraisal. Any irrelevant items from the economic point of view are excluded. To provide an economic valuation of the costs previously valued at market prices, revaluation of economic value is made by using conversion factors.

6.6 RESULTS FROM THE COST-BENEFIT ANALYSIS

The economic appraisal based on the above assumptions and procedure gives a negative ENPV of MKD 458.377or Euro 7.453 using 5% discount rate (see Table below). The results imply that the project is attractive and desirable for implementation. Additionally, the calculations showed that the EMIRR is 9,66 (using 5% discount rate).

Table 30. Cost-benefit analysis (in MKD) Nominal Capital Saving оn total year repayment Total costs Saving on VOC repairs revenues Cash flow 1 2021 0 100.000 368.080 468.080 468.080 2 2022 0 100.000 368.080 468.080 468.080 3 2023 0 100.000 368.080 468.080 468.080 4 2024 1.097.257 1.097.257 100.000 368.080 468.080 -629.177 5 2025 1.097.257 1.097.257 100.000 368.080 468.080 -629.177

6 2026 1.097.257 1.097.257 100.000 368.080 468.080 -629.177 7 2027 1.097.257 1.097.257 100.000 368.080 468.080 -629.177 8 2028 1.097.257 1.097.257 100.000 368.080 468.080 -629.177 9 2029 1.097.257 1.097.257 100.000 368.080 468.080 -629.177 10 2030 1.097.257 1.097.257 100.000 368.080 468.080 -629.177 11 2031 1.097.257 1.097.257 100.000 368.080 468.080 -629.177 12 2032 1.097.257 1.097.257 100.000 368.080 468.080 -629.177 13 2033 100.000 368.080 468.080 468.080 14 2034 100.000 368.080 468.080 468.080 15 2035 100.000 368.080 468.080 468.080 16 2036 100.000 368.080 468.080 468.080 17 2037 100.000 368.080 468.080 468.080 18 2038 100.000 368.080 468.080 468.080 19 2039 100.000 368.080 468.080 468.080 20 2040 100.000 368.080 468.080 468.080 21 2041 100.000 368.080 468.080 468.080 22 2042 100.000 368.080 468.080 468.080 23 2043 100.000 368.080 468.080 468.080 24 2044 100.000 368.080 468.080 468.080 25 2045 100.000 368.080 468.080 468.080 26 2046 100.000 368.080 468.080 468.080 27 2047 100.000 368.080 468.080 468.080 28 2048 100.000 368.080 468.080 468.080 29 2049 100.000 368.080 468.080 468.080 30 2050 100.000 368.080 468.080 468.080 ENPV MKDMKD using 5% 458.377 ENPV Euro using 5% 7.453 BCR -1,42 EMIRR using 5% 9,66 Source: own calculations based on the data received by the municipality

6.7 SENSITIVITY ANALYSIS

The sensitivity analysis was performed using variations of 10% for both costs and benefits. According to the sensitivity analysis shown in Table below, ENPV is very sensitive to any change of both costs and benefits. Increasing the costs or decreasing the benefits makes the ENVP negative.

Here should be mentioned that some benefits cannot be measured in the analysis. ENPV is sensitive in case where benefits lower by 10% and costs increase by 10% that implies that if the project is being implemented the municipality will have to be very careful not to increase the costs. If the project is not going to be implemented the municipality will face annual increase of the maintenance costs. Table 31. Sensitivity analysis Benefits Costs

-10% 10% -10% 10%

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ENPV 1.132.093 (MKDMKD) 458.377 -261.177 1.177.931 -215.339 NPV (Euro) 7.453 -4.247 19.153 18.408 -3.501 Source: Own calculation based on the data received by the municipality

6.8 CONCLUSION

The project will definitively improve the quality of life of the citizens which is key function of the Municipality. Improved infrastructure will also create monetary benefits (savings) assigned to the project. No doubt, that improvement of local infrastructure is essential for the further development of the Municipality Karposh. The quality of the infrastructure is often part of the criteria accounting for top places in international city rankings based on their quality of life, attractiveness to business, etc. Investment in infrastructure generates value that exceeds the initial investment – up to 3 to 4 times. This includes wider economic benefits (for example the impact of increased connectivity on productivity of the local economy). Additionally, the implementation of the project is expected to lead towards reduction of the municipal costs for constant repairs of the streets. Once the project is implemented, the municipality will spend less money for repairs and reallocate them to other municipal services. The implementation of the project is also expected to increase the property value for houses and other residential or commercial objects, thus increasing the growth of revenues from property taxes. Furthermore, it is very difficult to relate the benefits of projects of this kind with the economic development and poverty levels in a certain municipality in a short-term. Therefore, this project will have a wide positive impact on the economic growth, local development and poverty alleviation in the Municipality Karposh, in the longer-term perspective.

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7 Risk analysis

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7.1 TECHNICAL RISKS TO THE MUNICIPALITY The term risk of the project refers to any unexpected or unforeseen events arising from side effects or adverse results of the project. At the basis of any well-defined project there is a problem that needs to be solved. Each project is followed by external and internal risk factors as a result of technical-technological, commercial, financial, legal, contracting and other aspects of the project. Risk events are related to natural disasters, environmental protection, legal restrictions, monetary and fiscal effects, contract clauses, project solutions and specifications, procurement and supply, applied technology and the performance of the project. Reconstruction of the local streets contains general risk related to the increased traffic through the settlements during reconstruction. Transportation of materials shall bring temporary bigger density of vehicles through the road leading to the sites. Quality planning, correct calculations, and good start of the management precondition risks during the project implementation. The criteria that need to be taken into consideration in terms of project implementation are related to quality, costs and deadlines for reconstruction. The investor is interested in criteria such as costs of project implementation, terms for the project completion and meeting the required performance parameters. Risks during project implementation are present in the following table.

Table 32. Technical risks Risks Possible mitigation actions Risks with documentation Meetings with the city administration and other institutions that already have done some road construction works in the past. Risk with the tendering for potential Preparing project appraisal study, review of investor documents, engaging experts for procurement and contract preparation Risk with potential contractor, the Preparing prequalification meetings and proper contract or the interpretation of information for interested contractors, engaging certain parts of the agreement experts in preparation of contract Risk for quality performance of Engaging experts in preparation of contract, preparing activities by the contractor during performance check lists, active monitoring of construction construction Risk of increasing the investment Not extending the projected timeframe for value of the projected budget reconstruction, better planning

7.2 FINANCIAL RISKS TO THE MUNICIPALITY Every project that is subject to financial and economic analysis brings potential risk due to the fact that analysis is based on predictions and assumptions that should be met during the life cycle of the project. The financial and the analysis of the economic viability of the project are based on some assumptions. But, in order to improve the estimates and provide the decision‐makers with a broader information basis, the analysis could be extended, by involving assumptions different from the ones used. This would enable us to predict development of the project under different conditions. The analysis of the financial and economic feasibility of the project showed that NPV and MIRR are negative implying that the project is financially and economically non-feasible. However, implementation of the project brings substantial immeasurable benefits, such as: increasing the traffic capacity and communications, ensuring safety movement of the residents especially children, students, elderly people and those with special needs, enhancing the commercial activities, improving efficiency of spending at the private and municipal level, as less money will have to be spent on repairs of vehicles, etc.

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Once the project is implemented, the municipality will receive more revenues from taxes and reallocate them to other municipal services. The implementation of the project is also expected to increase the property value for houses and other residential or commercial objects on the streets, thus increasing the growth of revenues from property taxes. According to all of these financial and economic benefits, there is no risk that will endanger the implementation of the project activities. Moreover, the municipality has implemented various similar infrastructural projects in the past, some of which in collaboration with international institutions, which implies no risk for the municipality to be able to implement large construction projects such as this one.

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8 Recommendations

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The global concept of the project fits well to provide better services to the citizens of Karposh. This include providing traffic comfort, convenience and safety for the pedestrians and traffic by improving the surface on the roads and sidewalks, to ease traffic on the streets, thus making the municipality more attractive for new inhabitants and by that increasing the value of the property. The Municipality also demonstrate sound financial planning and management providing long term development and financing strategies. Therefor increasing the confidence in their capacities to service this loan and to implement the project. The all assumptions were done carefully by consulting similar projects and documents available at the time of preparing this project appraisal and by consulting administrative staff from the municipality of Karposh. This project definitely has different multiplicative positive direct and indirect effects on the citizens of Karposh municipality.

Thus, the recommendation after appraisal is to proceed with this project.

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9 Annex

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9.1 DECISION OF THE MUNICIPALITY OF KARPOSH FOR LOAN

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The PAD was prepared by: Association for Democratic Initiatives (ADI)

Consultants: Goce Dimovski, PhD c. Consultant Team Lead. Katica Mihajlovic, Consultant for Social impact. Marko Acevski, Consultant for EIA. Lindita Zuferi, Consultant for financial analyses.

ADI would like to express many thanks for their generous and immense contribution, to official representative from Municipality of Karposh and World Bank’s MSIP team – PMU office, Skopje, RNM.

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