Document of The World Bank L: FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. P-3308-YU REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO PRIVREDNA BANKA SARAJEVO - UDRUZENA BANKA Public Disclosure Authorized WITH THE GUARANTEE OF THE SOCIALIST FEDERAL REPUBLIC OF YUGOSLAVIA FOR A SEMBERIJA DRAINAGE PROJECT May 10, 1982 Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the perfprmance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS* Calendar 1981 February 15, 1982 Currency Unit Yugoslav Dinar US$ 1 Din. 41.82 Din. 43.678 Din 1 US$ 0.024 US$ 0.022 Din 1,000,000 US$ 23.910 US$ 22,895 FISCAL YEAR January 1 - December 31 GLOSSARY OF ABBREVIATIONS GDP = Gross Domestic Product GMP = Gross Material Product BOAL = Basic Organization of Associated Labor BOCF Basic Organization of Cooperative Farmers COAL UPI = Complex Organization of Associated Labor of the United Agriculture, Marketing and Industry ICB International Competitive Bidding IWRD = Institute of Water Resources Development LCB = Local Competitive Bidding PAC = Project Advisory Committee PBS = Privredna Banka Sarajevo - Udruzena Banka SDK = Social Accounting Service SFRY = Socialist Federal Republic of Yugoslavia SIZ = Self-Managed Water Management Community of Interest for Water Economy SRBH = Socialist Republic of Bosnia-Herzegovina W.O. = Work Organization W.O.A.E. = Work Organization Agricultural Estate Semberija Semberija * The Yugoslav Dinar has been floating since July 13, 1973. The currency equivalents effective on February 15, 1982 have been used in this report. .p FOR OFFICIAL USE ONLY YUGOSLAVIA SEMBERIJA DRAINAGE PROJECT Loan and Project Summary Borrower: Privredna Banka Sarajevo - Udruzena Banka (PBS). Guarantor: Socialist Federal Republic of Yugoslavia. Beneficiary: Work Organization Agricultural Estate Semberija (W. 0. A. E. Semberija). Amount: US$34.6 million, equivalent in various currencies, including capitalized front end fee of US$511,330- Terms: Amortization in 15 years, including three years grace, with interest at 11.60%. Re-Lending Terms The proceeds of the Bank's loan (except for US$2.7 million for feasibility studies) would be on-lent to the beneficiary (who would bear the foreign exchange risk) at 11.60%, plus an 0.5% fee to cover PBS's administration costs. Project Description: The main objectives of the project are: (a) increasing and stabilizing crop production; (b) supplying raw materials for agro-based industries; (c) raising labor and land productivity; (d) helping reverse decline in agricultural trade balance; (e) improving agricultural services; and (f) reversing the trend of declining arable land. These would be achieved by providing land improvement and drainage facilities in an area of about 15,600 hectares, and land improvement without drainage over an additional area of about 3,500 hectares. The project would include: (a) extension of Seliste interceptor by about 8 kms; (b) reconstruction of about 14.5 kms of Sava river dike; (c) construction of sub-surface and surface drainage systems; (d) construction of one new pumping station, increasing capacity of an existing pumping station and repair of two pumping stations; (e) construction of about 170 kms of paved and unpaved roads; (f) land consolidation and on-farm development; (g) provision of equipment for project operation and maintenance; (h) provision of farm equipment to intensify agriculture; (i) provision of equipment for agricultural extension and research ; and (j) feasibility studies for future land and water development projects in Socialist Republic of Bosnia-Herzegovina (SRBH). This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. - 11 - Beneficiaries of the project would be some 4,700 farm families, all of which belong to the target group, with average per capita income of $440. Employment opportunities would increase by 25% in individual sector agriculture (about 650 new jobs). Direct employment from actual project works and future maintenance would create about 65 additional highly skilled and skilled jobs. The annual estimated gross value of production at full development would increase by about 200% (US$20.0 million) for the project as a whole. An estimated 15,000 tons of incremental wheat, 6,400 tons of maize and 170,800 tons of sugar beet, as well as increased production of various vegetables and fodder crops would result from the project. Foreign exchange earnings would result from increased production of maize and foreign exchange savings are expected from an increased self-sufficiency in wheat and industrial crops. The project faces no special risks. -----------(US$ Million)----- Estimated Cost: Local Foreign Total Seliste interceptor 0.3 0.3 0.6 Surface drainage 5.2 5.9 11.1 Sub-surface drainage 0.7 1.2 1.9 Pumping stations 1.5 2.3 3.8 Flood control works 2.3 3.0 5.3 Roads 2.5 2.6 5.1 On-farm development and miscellaneous works 3.4 4.1 7.5 Equipment for O&M 0.1 0.2 0.3 Farm Equipment 1.0 2.1 3.1 Land consolidation 2.3 - 2.3 Extension and research services 0.2 0.5 0.7 Engineering 0.5 1.6 2.1 Organization and management 0.4 - 0.4 Training of personnel - 0.2 0.2 Miscellaneous feasibility studies 0.3 1.7 2.0 20.7 25.7 46.4 - iii1 - - (US$ Million) ----------- Estimated Cost (cont.) Local Foreign Total Base Cost 20.7 25.7 46.4 Physical contingencies 3.2 3.9 7.1 Price contingencies 15.0 4.5 19.5 Total Contingencies 18.2 8.4 26.6 Total Project Cost 1/ 38.9 34.1 73.0 Front end fee on Bank loan - 0.5 0.5 Total Financing Required 38.9 34.6 73.5 Financing Plan -- (US$ Million)------ % of Total Sources Local Foreign Total Financing IBRD (Loan and front-end fee) - 34.6 34.6 47 Federal Fund 10.4 10.4 14 Republic Fund 2.7 2.7 4 PBS - Basic Bank Bijeljina 2.9 2.9 4 PBS - Udruzena Banka 9.5 9.5 13 Social Sector equity contributions 13.4 13.4 18 Total Project Financial Requirements 38.9 34.6 73.5 100.0 Estimated Disbursements: -----------------(US$ Million)----------------- IBRD Fiscal Year FY83 FY84 FY85 FY86 FY87 FY88 Annual 2.4 4.4 8.9 8.6 7.2 3.1 Cumulative 2.4 6.8 15.7 24.3 31.5 34.6 Rate of Return: About 21% Appraisal Report: Report No. 3841-YU, dated May 6, 1982. 1/ Including import duties and taxes estimated at US$1.8 million I INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO PRIVREDNA BANKA SARAJEVO - UDRUZENA BANKA WITH THE GUARANTEE OF THE SOCIALIST FEDERAL REPUBLIC OF YUGOSLAVIA FOR A SEMBERIJA DRAINAGE PROJECT 1. I submit the following report and recommendation on a proposed loan to Privredna Banka Sarajevo - Udruzena Banfka (PBS) for the equivalent of $US34.6 million , with the guarantee of the Socialist Federal Republic of Yugoslavia, to help finance a Semberija Drainage Project in the Socialist Republic of Bosnia-Herzegovina (SRBH). The loan would have a term of 15 years, including three years of grace, with interest at 11.60% per annum. PART I - THE ECONOMY 1/ 2. A Basic Economic Mission visited Yugoslavia in October and November 1976. Its report entitled, "Yugoslavia: Self-Management Socialism and the Challenges of Development", 1615a-YU, was distributed to the Executive Directors on April 5, 1978. An economic mission visited Yugoslavia in November, 1979; its report entitled "Yugoslavia: Export Performance and Policies", 2972-YU, was distributed to the Executive Directors on November 5, 1980. In November 1980 an economic mission visited Yugoslavia and its report entitled "Raising Productivity in Yugoslav Industry: Some Issues", 3383a-YU was distributed to the Executive Directors on August 3, 1981. Basic data on the economy are given in Annex I. Institutional Setting 3. The social sector in Yugoslavia, which includes government, enterprises and public institutions plays the leading role in economic and social development. It accounts for 85% of GDP and employs over half the total labor force. The private sector consists predominantly of peasant farms and small enterprises, mainly engaged in handicrafts, construction, trade, transport and tourism. Decision making at all levels is governed by the principle of workers' self-management, involving a unique set of institutions and instruments of economic policy. The current system has evolved over the years with major changes introduced through the constitution of 1974. Responsibility for important social and economic decisions has been shifted from the Federation to the Republics, autonomous provinces and Communes. Concurrently, the control of workers' collectives over the socially-owned means of production has been increased by a 1/ Part I of this report is substantially unchanged from Part I of the Report and Recommendation of the President for the Sixth Industrial Credit Project (Report No. P-3188-YU) of April 2, 1982. -2- restructuring of all economic organizations into legally autonomous Basic Organizations of Associated Labor (BOALs) which are the smallest production units producing a marketable output. 4. In addition to this strengthening of workers' participation at the microeconomic level, the concept of workers' management has been extended to encompass macroeconomic decisions. A set of instruments called social compacts and self-management agreements have gradually become a part of the system of macroeconomic management. These measures enable the participation of all economic agents in the formulation of macroeconomic policy while maintaining decentralized responsibility for policy implementation.