Document of The World Bank Public Disclosure Authorized Report No: 28792-SAM FOR OFFICIAL USE ONLY
PROJECT APPRAISAL DOCUMENT Public Disclosure Authorized ON A
PROPOSED CREDIT
IN THE AMOUNT OF SDR 37.5 MILLION (US$55 MILLION EQUIVALENT)
TO
SERBIA AND MONTENEGRO
FOR A Public Disclosure Authorized TRANSPORT REHABILITATION PROJECT
FOR SERBIA
April 27,2004
Infrastructure and Energy Department Europe and Central Asia Region
[This document has a restricted distribution and may be used by recipients only in the performance of I
Public Disclosure Authorized ltheir official duties. Its contents may not otherwise be disclosed without World Bank authorization. 1 CURRENCY EQUIVALENTS (Exchange Rate Effective April 5,2004)
Currency Unit = Yugoslavian New Dinar 1 New Dinar = US$0.01748 US$1 = 56.2034 New Dinar
FISCAL YEAR July 1 -- June 30
ABBREVIATIONS AND ACRONYMS
AADT Annual Average Daily Traffic CAS Country Assistance Strategy EA Environment Appraisal EAR European Agency for Reconstruction EBRD European Bank for Reconstruction and Development EC European Commission EIB European Investment Bank EMP Environmental Management Plan EIRR Economic Intemal Rate of Retum ERTP Economic Recovery and Transitional Program FSU Former Soviet Union HDM Highway Design and Management Model ICB International Competitive Bidding IDA International Development Association IF1 International Financing Institution MFRS Ministry ofFinance of the Republic of Serbia MOCI Ministry of Capital Investments NPV Net Present Value OHR Office ofthe High Representative PIP Project Implementation Plan PIU Project Implementation Unit SIDA Swedish International Development Agency SNRA Swedish National Road Administration SRD Republic of Serbia Road Directorate TSS Transitional Support Strategy
Vice President: Shigeo Katsu, ECAVP Country ManagerDirector: Rory O'SullivadOrsalia Kalantzopoulos, ECCU4 Sector Managermirector: Motoo KonishikIossein Razavi, ECSIE Task Team Leader/Task Manager: Cesar Queiroz, ECSIE FOR OFFICIAL, USE ONLY
SERBIA AND MONTENEGRO TRANSPORT REHABILITATION PROJECT
CONTENTS
A. Project Development Objective Page
1. Project development objective 2 2. Key performance indicators 2
B. Strategic Context
1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2 2. Main sector issues and Government strategy 3 3. Sector issues to be addressed by the project and strategic choices 4
C. Project Description Summary
1. Project components 2. Key policy and institutional reforms supported by the project 3. Benefits and target population 4. Institutional and implementation arrangements
D. Project Rationale
1. Project altematives considered and reasons for rejection 2. Major related projects financed by the Bank andlor other development agencies 3. Lessons leamed and reflected in the project design 4. Indications ofborrower commitment and ownership 5. Value added of Bank support in this project
E. Summary Project Analysis
1. Economic 10 2. Financial 10 3. Technical 11 4. Institutional 11 5. Environmental 12 6. Social 13 7. Safeguard Policies 15
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. F. Sustainability and Risks
1. Sustainability 15 2. Critical risks 16 3. Possible controversial aspects 17
G. Main Loan Conditions
1. Effectiveness Condition 17 2. Other 17
H. Readiness for Implementation 18
1. Compliance with Bank Policies 19
Annexes
Annex 1: Project Design Summary 20 Annex 2: Detailed Project Description 24 Annex 3: Estimated Project Costs 26 Annex 4: Cost Benefit Analysis Summary 27 Annex 5: Financial Summary 32 Annex 6: (A) Procurement Arrangements 33 (B) Financial Management and Disbursement Arrangements 39 Annex 7: Project Processing Schedule 44 Annex 8: Documents in the Project File 45 Annex 9: Statement of Loans and Credits 48 Annex 10: Country at a Glance 50 Annex 11: Road Finances and Expenditures in Serbia and Montenegro 52 Annex 12: Road Safety in Serbia and Montenegro 58 Annex 13: Twining Arrangements between the Swedsh National Road Administration (SNRA) 64 and the Republic of Serbia Road Directorate (SRD) Annex 14: Letter of Development Policy 66 SERBIA AND MONTENEGRO TRANSPORT REHABILITATION PROJECT Project Appraisal Document Europe and Central Asia Region ECSIE late: April 27,2004 Team Leader: Cesar Queiroz iector Manager: Motoo Konishi Sector@): Roads and highways (70%), Central Zountry Director: Orsalia Kalantzopoulos government administration (25%), General transportation 'roject ID: PO75207 sector (5%) ,ending Instrument: Specific Investment Loan (SIL) Theme@): Administrative and civil service reform (P), Infrastructure services for private sector development (P), Other public sector governance (S), Regional integration (SI
For LoanslCreditslOthers: Amount (US$m): 55.00 Proposed Terms (IDA): Modified terms for Serbia and Montenegro Grace period (years): 10 Years to maturity: 20
Borrower: SERBIA AND MONTENEGRO Responsible agency: Serbian Ministry ofCapital Investments Address: Nemanjina 22-26, Belgrade Contact Person: Mr. Miodrag Jocic, Deputy Minister ofCapital Investments Tel: 381 11 361 65 71 Fax: 381 11 361 74 86 Email: [email protected] Other Agency(ies): Serbian Road Directorate Address: Kralja Alexandra 282, Belgrade Contact Person: Mr. Djordje Djordjevic, Head of Main and Regional Roads Department and Project Coordinator Tel: 381 11 3040647 Fax: 381 11 2412540 Email: [email protected]
Project implementation period: 4.5 years Expected effectiveness date: 0713 If2004 Expected closing date: 1213 1l2008
CIPAOrlmI m u&2mo A. Project Development Objective
1. Project development objective: (see Annex 1) The main project objective is to improve the effectiveness of the policies ofthe Serbian Road Directorate (SRD) for road maintenance and rehabilitation through (i)the introduction ofnew contracting arrangements with the private sector in two pilot districts; and (ii)enhancing the sustainability ofthe use of network analysis in the selection of road rehabilitation segments.
2. Key performance indicators: (see Annex 1) Progress towards the development objective would be monitored according to the following key performance indicators: e Improved maintenance systems in two pilot districts within fixed budget envelopes; e Lower costs and improved quality and safety in road segment rehabilitation projects following competitive procedures; and e Increased capability of SRD to procure road works competitively and objectively supervise their implementation.
Monitoring of the proposed indicators will be made in accordance with the baseline and target figures provided under the table in Annex 1.
B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: Transitional support Strategy Update 27048-YU Date of latest CAS discussion: August 8, 2002 The Bank's assistance program for FY04 is presented in the Transitional Support Strategy Update, February 18, 2004 (TSS) for Serbia and Montenegro. A new CAS be prepared by the end of 2004. The TSS supports four priority areas for reform: (i)restoring macroeconomic stability and extemal balance; (ii) stimulating near-term growth and creating the basis for a sustainable supply response; (iii)improving the social well-being of the most vulnerable individuals and building human capacity; and (iv) improving govemance and building effective institutions.
The proposed project would support the priorities expressed in the TSS, by focusing on the structural agenda in the road transport sector and the institutional building that is its corollary. More specifically, the project would support the second and fourth objectives of the TSS, through: (i)both the rehabilitation of 240 kilometers ofhighway and the introduction of competitive tendering ofwinter and routine maintenance for two regions, Macva and Kolubara; and ii) the development of the capability of the Serbian Road Directorate (SRD) to plan, budget, and monitor road expenditures, and to use road maintenance funding more effectively. These two initiatives will contribute to a reduction in vehicle operating costs and time expenditures in a sustainable manner, and thereby contribute to the continued economic development in the country and the region. The project has also been conceived to complement those projects which are underway, or planned, by other international financing agencies (particularly the EIB and the EBRD) which have, traditionally, provided substantial financial support for road transport infrastructure, but with only
-2- limited emphasis on the more difficult issues of public resource management and efficiency issues at the sector level.
2. Main sector issues and Government strategy: The upheaval of the last twelve years, with the different conflicts and their legacies, in the form of economic sanctions and political and economic upheaval, have made a significant contribution to the deterioration of the physical, social and institutional infrastructure within the country. The transport sector, and the physical and institutional infrastructure therein, has been particularly affected, and is currently inadequate to contribute to the recovery of the national economy or facilitate the reintegration of the country into the regional economy. The following are regarded as the most pressing issues in the sector at present:
Poor condition of assets: The limited and intermittent funding to the sector since the late 1980s, together with a misplaced emphasis on the provision of new construction projects with political rather than economic significance, has contributed to a significant deterioration in the asset base, in terms of both the infrastructure and the sector equipment, over that period. As a result, transport assets in Serbia are in a poorer condition than any ofthe neighboring countries, with the possible exceptions ofAlbania and Bosnia and Herzegovina. SIUSs responsiblilities currently extend over a network of about 14,000 km of arterial and regional roads, out of a total network of approximately 40,000 kilometers. Of the former, SRD estimates that, approximately, 25% of the main and regional roads are in good condition, 19% are in fair condition and 56% are in bad or very bad condition. The comparative figures for Croatia, according to a recent survey, are 32%, 46%, and 22% respectively. Similarly, in Central and Eastern Europe, in an assessment sponsored by the World Bank in 1991, the comparable figures were 37%, 41%, and 22% respectively.
The story is similar on other modes within the transport sector; 100 kilometers of the main international Pan-European railway corridor require immediate reconstruction and there are a total of 130 significant speed restrictions on the rail network. In addition, only one third of the locomotives and freight wagons and one half of the passenger coaches are regularly available. The average age of the facilities and equipment at river ports exceeds 25 years of age, and one of the legacies of the 1999 NATO bombings, the associated weakening (or even collapse) of river navigation systems have increased the risks and the costs of river transport, even in those locations where it remains an option. A recent review of the air navigation system, sponsored by the EIB, has revealed it to be obsolete and needs replacement. The concomitant to limited and inadequate transport infrastructure and equipment is increased transport costs that undermine the competitiveness and potential contribution of both Serbian industry and agriculture and constrain both domestic and international trade.
Weak institutions: Throughout the 1990s, despite their human resource base, institutions within the Serbian transport sector have become weaker as systems and procedures for planning, monitoring, regulating and managing transport activities have been neglected, overlooked or even misused. The Ministry of Capital Investments (MOCI) lost a considerable number of its staff and, partly as a result of insufficient qualified personnel, has not followed trends elsewhere towards more competitive transport markets with a greater role for private suppliers of services and infrastructure.
Within the road transport sector, specifically, the SRD has been unable to follow significant developments, or benefit from experiences, elsewhere over that period. Although, a number of the typical deficiencies of public sector road administrations in developing countries (overstaffing, excessive force account, lack of incentives and discipline etc) are less pronounced in Serbia, reflecting earlier attempts to restructure the
-3- agency back in the 1980's. In operational terms, there was also a focus, understandable in the circumstances, on short-term emergency works, which were a manifestation of the often fraught relationship between the country and the outside world at that time. Modern methods for planning and budgeting road expenditures, which were introduced in the late 1980s with World Bank assistance, were abandoned and there was a steady erosion of the necessary capacities to both procure competitively and to supervise civil works, particularly in the case ofthe routine and winter maintenance ofroads.
High level of State ownership: The transport sector in Serbia remains characterized by a high level of state control, with many of the main actors, excepting road freight transport and some of the larger construction enterprises, under public ownership. A number ofthe parastatals, such as the national railway (SZ), the national airline (JAT), and the Belgrade public transport company (GCP) are of a significant size, but face similar problems in terms of overstaffmg and weak, if not parlous, finances. The benefits of the private sector have been recognized and introduced in some areas, with early attempts to establish privately funded motorway concessions, the subcontracting of some public bus services in Belgrade and the introduction of the processes ofprivatization in the river ports and road maintenance enterprises. However, progress is slow, reflecting both limited capacity, in the form of insufficient knowledge of available options, and a detailed strategy for subsequent implementation.
Insufficient cost recovery: A number of the public transport services are, presently, provided at a price that does not cover their operating costs, and the corresponding subsidy systems are inefficient, as they do not relate the subsidy to a well defined output, and unsustainable, reflecting the increasing inability of the state to continue to support these programs. The most striking example of this is the national railway which, up to 2001, received almost two thirds of its revenues through state subsidies, in the form ofa block grant, which was provided, essentially, to cover the cash flow deficit. In general, even after subsidies are factored in, the revenues of the 'commercial' parastatals are insufficient to allow them to maintain assets properly, or set aside sufficient reserves for asset replacement at the end of the working life. In the road transport sector, particularly, the current level of road user charges on trucks and buses is insufficient to fully cover their respective contribution to the deterioration of the road.
Insufficient Funding of road maintenance: The funding of road maintenance, which was satisfactory until the early 1990s, decreased dramatically and remained at inadequate levels throughout the 1990s. Average annual maintenance expenditures on main and regional roads have been of the order of 0.3% of GNP over that period, whilst a comparable figure from countries at similar stages of development would be around 1% of GNP on road maintenance. The level of funding to the sector improved in 2002, but the actual level remains volatile, reflecting the dependency of the sector on the short term considerations and constraints imposed by the national budget.
3. Sector issues to be addressed by the project and strategic choices: The project would contribute to the development of SRD as a key institution in the transport sector, capable of delivering a performance that would make a substantive contribution to the economic development of the country. The SRD needs assistance to build on those earlier changes and strengthen its institutional capability to implement, inter alia, measures to improve road safety and mitigate adverse effects on the environment. SRD also needs to strengthen its capacity to undertake an extensive program of road maintenance and rehabilitation, based on the latest developments, knowledge and best practices in developed countries. There is also an overall ambition to improve harmonisation with the EU in all aspects related to roads and road transports, but progress has been rather slow up to this point.
Similarly, low effectiveness and high costs are also observed in major road segment rehabilitation projects,
-4- due to the use ofsmall local contracts and the under-capitalization of local contractors. An improvement in SRD's increased capability to assess road conditions in Serbia and determine the hdingrequirements for proper maintenance, could contribute both to a better utilization of limited resources, and, partially, to an increase in the stability of funding of road maintenance in the sector. In addition, better systems and procedures and enhanced capacities to implement road maintenance would contribute to the more efficient use of the limited hds available for maintenance. By helping to increase the capability of SRD, the project would assist SRD to bring main sector issues to the forefront and develop solutions to these issues.
C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): The proposed project would consist of the following two components:
1. Strengthening of SRD Institutional Capacity
The institutional strengthening of SRD, which would include technical assistance, training, services, and provision of goods for (i)strengthening of SRD's Information Center, including the improvement of its computerized road and bridge databases for the main and regional road networks, as well as the establishment of a computerized system for contract management; (ii)strengthening of systems and procedures for planning and budgeting road expenditures, based on economic appraisal methodologies; (iii) improving the procurement and supervision ofroad works; (iv) consultancy services for supervision ofroad maintenance and rehabilitation works; and (v) equipment, materials, and supplies for improved road management capability in the SRD.
2. Enhancement of Road Maintenance, Rehabilitation, and Safety
The provision of priority rehabilitation needs on (i)seven main road network sections, and (ii)main and regional road maintenance by contract, on a pilot basis, in the regions of Macva and Kolubara. Measures to improve traffic safety will be included under the maintenance and rehabilitation contracts, such as improvements in road marking and signs, installation of crash barriers, modifications to dangerous intersections, together with the creation ofparlunghest areas on those sections of the main network located in mountainous areas.
2. Enhancement of Road Maintenance, Rehabilitation, and Safety
Total Project Costs I 61.25 I 100.0 I 55.00 I 100.0 Total Financing Reauired I 61.25 1 100.0 I 55.00 I 100.0 I
The fust component will be complemented by a separate activity, involving an arrangement between SRD and the Swedish National Road Administration (SNRA) funded by the Swedish Intemational Development Agency (SIDA). The arrangement will (i)provide services and training for improving SRD's capacity to implement maintenance and rehabilitation works, (ii)address road safety issues, possibly including the preparation of a high level road safety seminar to raise public awareness of the serious traffic safety
-5- situation in Serbia, (iii)address environmental issues linked with the roads, and (iv) improving the monitoring of the road network and the planning of road works. SIDA funding will be treated as parallel financing for the project. The SIDA funded support (through an expected grant equivalent to US$1.5 million) is likely to include strengthening of SRD's ability to manage routine and winter maintenance, define and implement a strategy to improve road safety, and to manage the environmental impacts of road projects.
2. Key poiicy and institutional reforms supported by the project: The primary focus of the project is to contribute to the strengthening of the policy and institutional framework of the Serbian transport sector in a sustainable manner, which will complement both the physical works, the rehabilitation of 240 kilometers of highway in this project, but also the major investment projects that are currently being financed by other donors on European transport comdors (mainly the EIB and the EBRD) in parallel. The main aspects ofthe policy and institutional reforms can be described as follows:
Strengthening the capability of SRD to fulfill its main roles of road sector maintenance and development, formulating strategies, preparing and enforcing appropriate regulations, identifying priorities for investment in the sector, monitoring the condition of the road network, assessing priorities for road maintenance, rehabilitation, and construction and formulating sound medium term plans and annual budgets;
Establishment of a regulatory, financial and institutional environment that promotes economically sound public-private partnerships in the road sector;
Introduction of systems and procedures in SRD to cany out routine road maintenance through competitively tendered contracts, including performance-based specifications, with independent contractors: and
Adaptation to the needs of a market economy by ensuring open market entry and fair competition between suppliers, consultants, and contractors, through improvement of SRD's capability to procure and supervise road rehabilitation and construction works.
3. Benefits and target population: Benefits: The rehabilitation, maintenance and road safety components of the project will contribute to an improvement in the efficiency of the road network, reducing vehicle operating costs, travel time and accidents, bringing significant potential benefits both to road users and pedestrians, and to producers and consumers of goods moved by road. A more efficient transport sector is a necessary, and sometimes sufficient, condition, depending on other interventions and the particular context, to promote economic development in a particular region. In addition, death and serious injuries from road accidents are estimated to be of the order of 2-3% of GDP in emerging and transitional economies, on average, and the concomitant improvement in safety that will follow this project, will realize a significant economic and social benefit for Serbia.
The project would also contribute to the development of the SRD as a key institution in the transport sector, capable of delivering a level of performance that is consistent with the economic development
-6- objectives of the country. An improvement in SRD's increased capability to assess road conditions in Serbia and determine the funding requirements for proper maintenance, could contribute both to a better utilization of limited resources, and, partially, to an increase in the stability of hnding of road maintenance in the sector. In addition, better systems and procedures and enhanced capacity to implement road maintenance would contribute to the more efficient use of the limited funds available for maintenance. In developing the capability of SRD, the project will assist SRD to bring main sector issues to the forefront of their agenda and develop solutions to these issues
Target population: Since it is focused on both infrash-ucture improvements and policy and institutional development, the project will benefit the population of Serbia as a whole, both directly and indirectly. It would do this by benefiting (i)transport operators, who would benefit from the reductions in transport costs on the road network, as well as (ii)producers and consumers of goods moved by road, who would benefit, at least partially, from the reduction in transport costs, and (iii)transport users, who would have access to a wider and less expensive range of transport services. The project would also bring indirect benefits to the entire population by reducing the cost of goods and services in Serbia, thereby making a positive contribution to both economic growth and poverty reduction.
4. Institutional and implementation arrangements: Implementing Entity The project will be implemented by SRD, with overall project implementation coordinated by the Head of Department of Main and Regional Roads, who will serve as Project Coordinator. The Project Coordinator will be assisted by both SRD departments (Road Information Center, Accounting, Technical Laboratory) and specialists, as required during the implementation of the project. Support will also be provided, as required, by the existing Project Implementation Team (PIT) which was established within SRD for the implementation of the road rehabilitation projects financed by EBRD and ED, and has gained a considerable amount of positive experience from these ongoing activities. The supervision of road maintenance and rehabilitation works will also be undertaken by SRD, with support from a competitively selected consulting firm. SRD has included more detailed implementation arrangements in the PIP. Preparation of project reporting will also be the responsibility of SRD. Flow of Funds The International Development Association (IDA) would make funds available to Serbia and Montenegro (SAM) under the Credit Agreement, governing the terms and condtions of the IDA credit and specifylng the project. Project funds will flow from: (i)the IDA, either via a single Special Account established in a commercial bank acceptable to the Bank or by direct payment on the basis of direct payment withdrawal applications; or (ii)the SRD, via the Treasury at the Ministry ofFinance of the Republic of Serbia (MFRS) on the basis of payment instructions submitted by the SRD. The SIDA support will be provided through a twining arrangement between SRD and SNRA for an expected grant equivalent to US1.5 million. This is a complementary, but entirely separate activity, so these funds are not included in the funds flow mechanism.
-7- D. Project Rationale 1. Project alternatives considered and reasons for rejection: The most logical alternative project was identified as one that was more modest in both scale and scope, and which focused on technical assistance, training, and the provision of equipment, without any physical works. A project of this nature would have the added advantage that it could be prepared and appraised relatively quickly. However, such an approach was rejected as it was felt that there would be two main drawbacks: First, a project of such size and scale might not have the same political credibility, in a competitive lending environment, with senior decision makers in the road sector who, since they were appointed in early 2001, have had the expectation that the World Bank would once again become their main financial partner. Thus, whilst the proposed project may require more resources at preparation and appraisal, there are additional advantages for the World Bank, over and above those engendered directly by the absolute increase in the scale of the credit.
Secondly, and possibly more importantly, the transport sector within Serbia needs fundamental and significant change, and experience has shown that such changes can best be designed and implemented through a 'learning by doing' approach, consistent with the pragmatic nature of many road administrations, which requires that better ways of doing things be tested in pilot projects, with an external partner, like the Bank, bringing knowledge from other countries and ability to draw the lessons of implementation elsewhere. A smaller project that excluded any physical works, either for routine and winter maintenance or the rehabilitation work, would have been a little more theoretical in approach, and although it would raise awareness it was felt to be unlikely to engender widespread acceptance of the benefits ofthe proposed approaches. Thus, despite the relatively small amount of the credit, SRD and the World Bank have agreed that this project would include both the capacity building and the two types ofphysical works, to maximize the benefits of knowledge transfer.
Another alternative might be for a prospective project to be broadened to address the entire transport sector: However, other donors, particularly the European Agency for Reconstruction (EAR), have started a dialogue with the Ministry of Capital Investments (MOCI) with a view to the provision of overall assistance to the sector, and there would be an inefficient duplication of resources. The Bank has been consulted by both MOCI and EAR, and it will follow closely on the development of these key policy reforms in the transport sector during project implementation.
2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned).
I Implementation Development Progress (IP) Bank-financed Objective (DO) Constraints to international road Trade and Transport S S transport; modernization ofcustoms Facilitation in Southeast Europe Proiect Other development agencies Urgent rehabilitation needs ofthe EIB railway; labor reduction; railway sector EBRD restructuring; and improvement of France
-8- railway management information Canada system
Emergency road’ repair; reconstruction EIB of Sloboda bridge in Novi Sad European Agency for Reconstruction (EAR) Priority road rehabilitation; minimum EIB funding ofroad maintenance; increase EBRD in road user charges
3. Lessons learned and reflected in the project design: The prior experience with transport projects in both Central and Eastern Europe and the Former Soviet Union has illustrated the importance of (i)limiting the complexity of the project’s design to what can be achieved realistically in a single operation; (ii)focusing on issues that are perceived as real priorities by the Borrower; (iii)having a committed, trained, and stable counterpart team in the Government and implementation agencies, able to move the project forward; (iv) involving, wherever and as far as possible, local consultants and technical institutes together with users in project design and implementation; (v) disseminating lessons of,world experience in the transport sector; (vi) carrying pilot activities whenever possible to do so; (vii) giving detailed attention early on to procurement and other project implementation issues; and (viii) maintaining flexibility to facilitate project implementation. All these lessons have been considered in the project design, and reflected in the selection of project components, including the pilot nature of the proposed road maintenance works, and the selection of institutional development priorities for SRD.
4. Indications of borrower commitment and ownership: The Serbian Government’s commitment to break away from its recent past is one of the strongest in the region, and its performance under Bank structural adjustment programs has been positive. This commitment is also evident in the transport sector and the Government has started to take action to improve both transport policies and the institutions. For example, there have been major changes in senior decision makers in the sector (most notably at SRD and ZTP) which have restored a sound technical and economic basis for decisions. MOCI has also initiated work to adjust several laws related to the sector. Significant changes to the organization of the railway sector have been introduced through a new railway law recently submitted to Parliament’s approval. The funding of road maintenance has increased significantly and SRD has started to prioritize expenditures within the sector on the basis of economic criteria. In general, whenever possible, external support has been used to design reforms. It is mainly the lack ofmeans, not of willingness to reform, that is presently the principal constraint to faster change. For the road sector in particular, MOCI and SRD have jointly prepared a Road Management and Maintenance Policy Letter which demonstrates the Government’s commitment to an appropriate strategy that would ensure improved efficiency and effectiveness ofthe road sector.
5. Value added of Bank support in this project: Bank involvement in the project isjustified for the following main reasons: (i)based on its broad experience in the transport sector and the trust that results from its long involvement in Yugoslavia prior to the 1990s, the Bank can provide substantive assistance to the Government in designing and implementing sustainable policy and institutional reforms in the sector; and (ii)the Bank is uniquely placed to help the Government and the sector’s main agencies gather information from countries experiencing similar challenges (in
-9- Europe and the former Soviet Union), and also in Latin America and Asia), and connect with centers of expertise in the transport sector throughout the world, something that the Government considers a priority in improving the design of its reforms. More generally, the Bank can also use its broader lending experience, as well as its analytical and advisory assistance, to help the Government coordinate its transport sector reforms with complementary reforms both in other sectors and at the national level.
E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (see Annex 4): 0 Cost benefit NPV=US$140.6 million; ERR = 56 % (see Annex 4) 0 Cost effectiveness 0 Other (specify) The economic evaluation has been conducted on the project in two broad parts: The first part comprises road rehabilitation, road maintenance and safety improvements on the seven key sections of arterial highway, totaling about 240 lan. This component accounts for 70% oftotal project costs and the aggregate NPV and ERR, reported above, relate to this component alone. The second part of the economic evaluation relates to the introduction of the two pilot contracts for the competitive tendering of the routine and winter maintenance operations within the two regions of Macva and Kolubara. The proposed interventions will encompass 1200 km ofmain and regional roads (or 8% ofthe total network), for a period of 3 years. This component of the project accounts for 19% of total project costs and the estimated NPVs run from US$0.71 Million to US$53 Million, with associated EIRRs ranging between 15% and 94%. The remaining portion of the project, which is allocated to institutional strengthening of the Serbian Roads Directorate (SRD) and includes technical assistance, training and services, is considered to be a prerequisite for the evolution of the organization into a modem and efficient unit. Given its modest size, there has been no formalized economic analysis of the expenditures, and associated benefits, under this component of the project.
The economic analysis has been undertaken using the HDM-4 model, using the conventional approach of comparing the reductions in vehicle operating costs and time expenditures in the ‘do-something’ scenario, with a defined intervention and a proposed maintenance regime, against the ‘do-minimum’ scenario, when nothing is done to the road (s), except the continuation ofthe current maintenance regime. The Net Present Value (NPV) was calculated, using a 12% discount rate and appropriate sensitivity analyses were undertaken, predicating a 20% increase in construction costs and a 20 reduction in forecast traffic growth, to demonstrate that the project is sufficiently robust to provide a positive NPV under those conditions. The results of the sensitivity analysis show that the project is very robust to changes in the specified parameters.
2. Financial (see Annex 4 and Annex 5): NPV=US$ million; FRR = % (see Annex 4) Not applicable, as the SRD is not a revenue producing institution.
Fiscal Impact: The Government counterpart financing requirement, estimated at US$2.6 million equivalent, will be spread over the four and a half year life of the project implementation period. An initial deposit ofEURO 400,000 equivalent will be a condition for the credit effectiveness.
-10- 3. Technical: The main technical issue has been the formulation of a detailed strategy for carrying out routine and winter road maintenance by contract in the two pilot areas, and the conversion of this strategy into sound bidding and contract documents, including technical specifications, for such maintenance and the formulation of appropriate supervision procedures. The Bank has assisted SRD in preparing the strategy and the documents by organizing training and technical support by road maintenance experts from Sweden, one of the countries with the earliest and most interesting experience in routine maintenance by contract. SRD established a counterpart team which, under guidance from, and review by, the maintenance experts, has completed the strategy and the documents.
4. Institutional: There are two institutional difficulties that may be anticipated during project preparation and early implementation. The first one is that the project executing agency has little knowledge and experience with the implementation principles and procedures used by intemational financing agencies. The second difficulty is that SRD's current organization provides for only limited staff at upper level. For these reasons, special attention will be required to (i)the detailed allocation of responsibility for project implementation, and the flow of funds, and (ii)ensuring that the number and qualification of staff involved in the project are commensurate with their work load and that these staff are adequately trained. The SRD has appointed a highly capable Project Coordinator who will have the overall responsibility for project management. Our assessment of SRD is that its organization has the necessary capability to implement the project. 4.1 Executing agencies: SRD will be the executing agency. 4.2 Project management: See above 4.3 Procurement issues: A procurement assessment was conducted during project pre-appraisal. 4.4 Financial management issues: A financial management review was undertaken in November 2003 and updated in February 2004, to determine whether the financial management arrangements for the Project are acceptable to the Bank.
It has been concluded that the Project satisfies the Bank's financial management requirements.
The SAM CFAA report notes that there are a number of risks on the management ofpublic funds in SAM. The risks to the public funds include: (a) poor public sector financial management in the past, (b) unfinished reforms - the new governments that were elected have commenced a process of major reform, which looks good as designed, but it is still too early to say if the reforms will be totally successful, (c) capacity constraints in both the Federal and Republic governments, (d) weak banking sectors, (e) weak audit capacity, (f) poor implementation capacity in line ministries, and (g) the lack of recent Bank implementation experiences within SAM. Since rejoining the membership of the World Bank, SAM has been using individual implementation units for each investment project (traditional PIU model), located within the relevant line ministries or project beneficiaries, to mitigate some of these risks.
- 11 - However, during the period since the CFAA was published, the Bank has been able to increase the number of commercial banks assessed as acceptable to hold Special Accounts from 3 to 5 and has been able to increase the number of firms assessed as acceptable to audit Bank-financed projects from 2 to 4, indicating an improvement in the fiduciary environment. Experience in implementing Bank-financed projects is increasing but the lending portfolio is still too young to be able to conclude that the Borrower has a thorough understanding ofBank operations.
Disbursements from the IDA credit will follow the transaction-based method, i.e., the trahtional IDA procedures including reimbursements with full documentation, Statements ofExpenditure (SOE), direct payments and special commitments. It is not anticipated that the project will migrate to report based disbursement. 5. Environmental: Environmental Category: B (Partial Assessment) 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (includmg consultation and disclosure) and the significant issues and their treatment emerging from this analysis. In accordance with World Bank Safeguard Policies (OP/BP/GP 4.01 Environmental Assessment) the project is rated environmental category B and an Environmental Management Plan (EMP) has been prepared by SRD. The project is expected to have only minor negative impacts on the environment, as it will focus on road rehabilitation and maintenance activities. No resettlement or land acquisition is involved. Slight negative impacts would be of a temporary nature during the construction phase, and would be restricted to road works related to movement of men and materials (asphalt, dust, noise etc.), disposal of wastes and associated activities of road crews. After completion, the project will have positive indirect impacts on human health and safety through decreased number of accidents, and reduced air pollution from more even travel speeds on rehabilitated road sections. Materials (e.g. asphalt, stone, etc.) would be supplied only from sources with approved licenses, permits, andor approvals for environment and worker safety, and any equipment used during construction would meet intemationally recognized standards for environment and worker health and safety. 5.2 What are the main features of the EMP and are they adequate? The draft EMP has been prepared by the Borrower for road maintenance and rehabilitation activities under the project. The EMP includes: mitigation plan, monitoring plan, institutional strengthening needs, institutional arrangements for environmental management, implementation schedule, and a record of the public consultations. During project implementation, provisions ofthe EMP will be applied to all activities undertaken by SRD, including design of road works. As appropriate, mitigation measures specified in the EMP will be incorporated as requirements in the bidding document for the works. The contracts will contain adequate provisions to ensure that the contractors undertake the measures specified in the EMP. The SRD will be committed, under the Credit Agreement, to implement the EMP through its environmental unit established under the project and with the support ofthe Serbian Ministry of Environment. 5.3 For Category A and B projects, timeline and status of EA: Date ofreceipt offinal draft: December 8,2003
5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms of consultation that were used and which groups were consulted? Stakeholders have been consulted during project preparation and the descriptions of who was consulted, when, where, and the method of consultation are fully described in the EMP. Public hearings were held near those communities located close to road sections to be rehabilitated under the project to ensure that
- 12- those most directly concerned by the project can, by voicing their opinions and suggestions, increase the quality and efficiency of the works design. Maintenance and rehabilitation works to be funded under the project include activities ranging from cleaning ditches and pothole patching to new overlays on certain road sections. The project will also fund the modification of dangerous intersections and the creation of parking areas on mountainous road sections. However, these works will be performed on road sections that are not located within inhabited areas, and will be confined to the road right-of-way. Given the fact that the works to be carried out are standard and do not have the potential to substantially modify the environment within which the communities are located, hearings will take place during preparation of the individual works contracts, and will be in accordance with guidelines to be agreed with the SRD. Furthermore, a clause in the EMP requires SRD to submit any proposed work activity to appropriate environmental authorities for their approval. 5.5 What mechanisms have been established to monitor and evaluate the impact of the project on the environment? Do the indicators reflect the objectives and results of the EMP? The SRD will be committed, under the Credit Agreement, to monitor on a regular basis the impact of the project on the environment. A detailed monitoring program designed to validate the effectiveness of the mitigating measures is included in the EMF. The monitoring program will be the responsibility of the SRD, in collaboration with the environmental authorities.
6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. During the 1990s, the isolated and war-tom Serbian society almost experienced an economic and institutional collapse. Key industrial facilities were closed or continued their production at reduced rates producing poor quality products with obsolete technology. Unemployment has increased to 50% in some regions, and there was a significant fall in real incomes, with increased prevalence of poverty in many areas. The taxation basis ofpublic finance plummeted, which directly impacted all public programs and the country infrastructure (roads, railroads) in particular. For more than a decade, road maintenance and rehabilitation has been neglected, with a concomitant impact on the deterioration of the economy, employment and living standards.
These impacts are particularly pronounced in Western Serbia region, where the key project activities have been planned. The region's road network is in a very poor condition and access to the country's main centers is difficult. This has had an impact of the level of commercial activity in the region, with a corresponding impact on the level of foreign direct investment. The is evidence of several foreign investors declined to make an investment, after initial substantive interest, due to the quality of the road network, This has had a marked impact on the value of local land, buildings, and commercial facilities in the region. Possibly not surprisingly, against such a backdrop, the project is expected to generate significant social benefits since more efficient transport will help people to access economic opportunities, social services, support networks and participate in social activities in all weather conditions. Better and cheaper transport also decreases the price of goods, fosters competition between suppliers and promotes domestic and international trade, with significant direct impacts on people's well being and ability to choose, and on economic growth. Westem Serbia is rich with natural resources, natural habitats, historical and sacral sites and is, potentially, a very attractive tourist destination. When better linked with the Voyvodina province and further north with Hungary, the region will attract more investors and passengers; the local diaspora living in Western Europe will support their families and partners in agriculture productions, tourism, and local service industry.
As envisaged, the project will not require any land acquisition or resettlement, since the focus is on the
-13- rehabilitation and maintenance of the existing road network. The privatization of public maintenance companies, is very advanced. The majority have adapted to new bidding procedures and are increasingly becoming independent commercial actors. According to a local privatization model, new owners are obliged to have a ‘social package’ to deal with possible redundancy. But first observations suggest that these local maintenance companies will need more rather than fewer workers. This is based on the estimates that the initiated maintenance and rehabilitation will increase the scope of work for all of them. According to new legislation, the decentralization process will grant more responsibility to local governments in maintaining and rehabilitating regional road networks, which will imply very precise division of labor, cooperation and consultation in the definition ofpriorities, projects, and quality of services.
Safety will also be improved and monitored and accident data will be collected to help define where architectural and other barriers will be removed and safe pedestrian crossings will be constructed. Measures to improve traffic safety will be included under the maintenance and rehabilitation contracts, such as improvements in road marking and signs, installation of crash barriers, modifications to dangerous intersections, creation of parkinghest areas on those sections of the main network located in mountainous areas. In addition, more consultation and a special public campaign might be planned do deal with one specific issue. It is being observed that a number of the light sensitive road markers (catseyes) have been stolen in rural areas with a deleterious impact on road safety. In addition, the SIDA-supported ‘twining arrangement’ will help SRD define and implement a strategy to improve road safety at national level.
6.2 Participatory Approach: How are key stakeholders participating in the project? Besides the MOCI and the project implementing agency (SRD), there will be numerous stakeholders in the project, including road maintenance and construction companies, local governments where pilots and road rehabilitation sites are located, road users represented by the road transport operators’ associations, the Chamber of Commerce and the local automobile clubs. It is mainly through information sharing and consultation that these stakeholders will be involved in the project. Bank missions have already had in-depth contacts with road contractors and road users and plan to continue to do so. MOCI and SRD have provided much help in this and the meetings have shown that the consultation process between stakeholders is currently intense and continuous in Serbia. A peculiarity of Serbia is that the local transport expertise is well developed due to the universities and technical institutes, whose expertise has bridged the traditional gaps between users and decision makers. To formalize these processes in the context of the project, it is expected that, during the finalization of loan documents, MOCI will express its commitment to consultation with all stakeholders whenever significant changes are made to the institutional and regulatory framework. And finally, when SRD designs its Information Center, key tasks will be to develop a communication strategy both with final users and with other important stakeholdors, such as police, mass media, health service, and local govemments departments. 6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? Consultations have been held between SRD and road users as well as local community associations. A Rapid Social Assessment for this project was undertaken with the focus on rural communities and their role and voice with regard to rural roads connections, location of bus stops, rest stops, and a proper demarcation of local farmer market sites along the regional roads. These associations have already participated during the design phase to provide their inputs on how the designs should be modified to accommodate as much as feasible their needs. Local communities will also be invited to provide feedback on the implementation of works. 6.4 What institutional arrangements have been provided to ensure the project achieves its social
-14- development outcomes? social monitoring indicators have been determined by the Rapid Social Assessment, and two have been incorporated into the project implementation monitoring and evaluation plans. Decreased vehicle operating costs and the perceptions of road safety and road conditions, inter alia,have been selected as the relavent indicators for this pr0ject.A full list of indicators is provided in Annex 1. 6.5 How will the project monitor performance in terms of social development outcomes? In addition to Social indicators outlined above, locally produced public opinion surveys and reports will be used to assess access to services, improved living standards, gender impacts, safety issues as part of the monitoring plan. The monitoring and measuring of project performance will be carried out by the SRD. Monitoring and measuring modalities have been discussed with the Borrower. The following agreements are to be reached: (i)the nature of the required technical assistance for strengthening of the SRD for the measurement ofthese outcomes; and (ii)establishment of a baseline for these outcomes at the beginning of project implementation.
7. Safeguard Policies:
7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. The Draft EMP has been prepared by the Borrower. The Credit Agreement will contain a requirement that the Borrower agrees to implement the Em.
F. Sustainability and Risks 1. Sustainability: In respect of the necessary institutional and regulatory changes, there is a strong commitment from MOCI and SRD and a focus on the needs of transport users, which provides a good basis for sustainability. Reforms, if properly designed, will have many beneficiaries and these will form a constituency that will enhance their sustainability. The main risk to the sustainability of this part of the project stems from potential rapid turnover of staff and related institutional disruptions. Measures to mitigate this risk are described succinctly below.
In respect of the road maintenance and road rehabilitation components, sustainability will depend to a large extent on sufficient and settled levels of future road maintenance funding. There has, fortunately, been a positive change in this respect, with the new political regime, and proper funding provided in 2002 and allocated for 2003. The Road Management and Maintenance Policy Letter, to which both MOCI and the SRD adhere, provides for a long term commitment to sound policies in the sector. The importance of road
- 15- maintenance was well understood in Yugoslavia prior to the 1990s and it is expected that, as before, technical views on this subject will continue to prevail. The improvements in road monitoring and budget formulation to which the project will contribute, will also help demonstrate the benefits of adequate maintenance funding and strengthen the case for the provision ofa secure flow of funds.
2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column ofAnnex 1): Risk Risk Rating Risk Mitiaation Measure rom Outputs to Objective 'he new regulations, systems and M fie Government has signed a Road rocedures are not adopted by the Management and Maintenance Policy Letter, iovemment and SRD which expresses strong commitment to change;
The Donor community will continue to disseminate information on international best practice and the potential benefits from change;
The Bank will maintain a continuous dialogue with senior decision makers in the Govemment and SRD and monitor the change process;
here is little or no political and M The Government is establishing institutions that istitutional will, and proper incentives to are harmonized with the requirements ofthe EU; 'ut the new institutional capabilities at gork
'here has been a significant S The Donor community, and the regional eorganization of the Serbian Govemmen Infrastructure Steering Group, are supporting nd there is ongoing reform in the domestic efforts to define a coherent transport ransport sector. policy and strategy, encompassing the reform process;
The Donor community continue to support the stability and independence oftransport sector management
'he Govemmer and SRD do not promot M The Bank will continue to support and develop ound and transparent procurement the capacity ofthe PIT to apply international iractices, and adequate quality control procurement guidelines to the required standard.
+om Components to Outputs heSRD management will not be M SRD commitment is stated in the Road upportive of change Management and Maintenance Policy Letter
- 16- There is resistance amongst SRD staff to S The Bank is supporting the dissemination of learn and apply both new knowledge and information on international best practice in the the new systems and procedures road transport sector, including amongst others, HDM and road safety, via workshops in Belgrade to agency staff and interested stakeholders.
Private contractors are not responsive to M The conditions ofthe three-year maintenance new forms ofcontract contract will provide incentives to the construction industry
The three-year pilot maintenance contract: S The competitive procurement process will are not successfully implemented ensure quality of contract execution Overall Risk Rating S Risks are being mitigated by: (i)focusing project activities on those areas where a consensus for reform exists; and (ii)by I maintaining a continuous dialogue with senior decision makers. I Risk Rating - H (High Risk), S (Substantial Rir , M (Modest Risk), I :Negligible or Low Risk)
3. Possible Controversial Aspects:
G. Main Credit Conditions 1. Effectiveness Condition (i) Execution ofa satisfactory sub-credit agreement between SaM and the Republic of Serbia. (ii) Submission to IDA of a satisfactory legal opinion from SaM attesting to (a) the validity and binding nature ofthe DCA, following DCA ratification by SaM parliament, and (b) the validity and binding nature of the sub-credit agreement. (iii) Submission to IDA of a satisfactory legal opinion from the Republic of Serbia attesting to the validity and binding nature of the Sub-credit agreement.
2. Other [classify according to covenant types used in the Legal Agreements.] (i) Procurement will be undertaken in accordance with the Bank’s Procurement Guidelines; (ii) The Republic of Serbia should implement the Project, in accordance with the terms and conditions set forth in the Environmental Management Plan. (iii) The Republic ofSerbia should: (a) Prepare, on the basis of guidelines acceptable to IDA, and furnish to IDA by October 3 1, 2004, and each year thereafter during the term of the Project, an annual SRD Project implementation work plan for the forthcoming calendar year, including planned procurement and financing . activities.
- 17- (b), Review such a plan with IDA by November 30 of such year, and, thereafter, implement the Project in accordance with such a plan, and consistently with the conclusions and recommendations ofIDA. The Republic of Serbia should submit to IDA a quarterly Project implementation progress report for each calendar quarter during the term of the Project, no later than 45 days after the end of each quarter, describing in a manner acceptable to IDA the progress made in the implementation of each part of the Project, the problems in Project implementation, and plans to correct such problems. The Republic of Serbia should: (a) Prepare and hrnish to IDA, by June 30,2006, a report integrating the results of the monitoring and evaluation activities performed, according to the annual SRD Project implementation work plan, the progress achieved in the carrying out of the Project, and the measures recommended to ensure the efficient carrying out of the Project and the achievement of its objectives during the next period. (b) Review the report with IDA by September 30, 2006, in order to determine if the progress toward meeting the Project objectives is on schedule, and (c) Make any necessary adjustments suggested by this Mid-term Review in order to assure that the project objectives are achieved by the Project completion date. The Republic of Serbia should prepare, on the basis of guidelines acceptable to IDA, a plan for the hture operation of the project activities not later than 6 months after the Closing Date, or on a later date as may be agreed for this purpose between SaM, the Republic ofSerbia and IDA. The Republic of Serbia should cause the SRD to have its records, accounts and financial statements audited each year, commencing with the accounts for the year ending December 31, 2004.
Financial Covenants
(i) The Republic of Serbia should maintain a satisfactory Financial Management System, including records and accounts, and to prepare financial statements in accordance with accounting standards satisfactory to the Bank. (ii) The Republic of Serbia should have the financial statements audited by independent auditors acceptable by IDA, and provide IDA with copies of the financial statements or any other records or accounts, as well as with opinions ofthe independent auditors on such statements (iii) The Republic of Serbia should retain until at least one (1) year after the Association has received the audit report, all records evidencing expenditures made on the basis of statements of expenditure, and enable the examination of such records by IDA. (iv) The Republic of Serbia should prepare and fumish to IDA a Financial Monitoring Report which sets forth sources and uses of funds for the Project, describes physical progress in Project implementation, sets forth the status ofprocurement under the Project.
H. Readiness for Implementation Kl 1. a) The engineering design documents for the first year's activities are complete and ready for the start ofproject implementation. 0 1. b) Not applicable.
5 2. The procurement documents for the first year's activities are complete and ready for the start of project implementation. 0 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory
-18- quality. 0 4. The following items are lacking and are discussed under loan conditions (Section G):
1. Compliance with Bank Policies [XI 1. This project complies with all applicable Bank policies, 0 2. The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies.
c
V Cesar Queiroz Mot06 KoGshi Team Leader Sector Manager
- 19- Annex 1: Project Design Summary SERBIA AND MONTENEGRO: TRANSPORT REHABILITATION PROJECT Key Performance Data Collection Strategy Indicators Critical Assumptions sector indicators: iectorl country reports: :Tom Goal to Bank Mission) Stimulate near-term growth Improve govemance and ,eve1 ofperformance of Jsers surveys and official 'he Government will build effective institutions ;RD tatistics :main committed to the 'SS Project Development Iutcome I Impact 'roject reports: from Objective to Goal) Objective: ndicators: Improve the effectiveness of mproved routine and oint assessment prepared leGovernment and SRD SRD policies for road )eriodic maintenance by SRD staff and Bank emain committed to the maintenance and bystems in two pilot nissions during project rctions of Road rehabilitation through (i)the Iistricts within fixed budget upervision danagement and introduction ofnew xvelope daintenance Policy Letter contracting arrangements with the private sector in two pilot districts; and (ii) enhance the sustainability ol the use of network analysis in the selection ofroad rehabilitation segments 2ower costs and improved hnual survey of road The private sector invests in pality in road segment .oughness reductive capacity and .ehabilitation projects iman resources 'Ollowing competitive irocurement procedures mproved road safety kcident database :ondition ncreased capability of SRC 3ank supervision mission o procure road works issessment based on SRD's :ompetitively and supervise :ontract data Ibjectively their mplementation - 20 - Key Performance Data Collection Strategy Indicators - Critical Assumptions htput from each Output Indicators: 'reject reports: :fromOutputs to Objective) :omponent: . Development ofSRD I'he SRD's Information luarterly progress reports fie new regulations as well ,wards a level of Center data base for road and repared by implementing is systems and procedures are 'erformance consistent with bridge condition, traffic and gencies idopted by the Government ne development aims of the accidents is computerized and md SRD ountry operational; )ank supervision mission eports A methodology for planning There is the political and and budgeting road institutional will as well as Expenditures is in place proper incentives to put the new institutional capabilities About 20 staff of SRD have at work been trained There is no disruptive reorganization of the Serbian Government in general and the transport sector in particular !. Rehabilitation of about 240 Post construction audits :ethnical audit reports Sound and transparent m of selected road sections, indicate compliance with procurement practices and md 1,200 km ofroads agreed road standards and adequate quality control are naintained for 3 years in approved designs promoted by the Government i4acva and Kolubara regions and SRD All routine and periodic maintenance at pilots are camed-out by a three-year contract; Safer roads on the The number of accidents has ;RD accident data base .ehabilitation segments and been reduced by 5% naintenance areas -21 - Data Collection Strategy -I 'roject Components 1 nputs: (budget for each Voject reports: [from Components to sub-components: :omponent) Dutputs) 1. Strengthening of SRD JS$6.41 million luarterly progress reports The SRD management will be nstitutional Capacity repared by SRD; supportive ofchange; 'inancial audit reports Sufficient numbers of SRD annual) staff will be willing to leam and apply both new iank supervision mission knowledge and the new aports; systems and procedures; The twining arrangement with SNRA becomes effective and starts on time. 2. Enhancement ofRoad JS$48.59 million ruarterly progress reports Private contractors are Maintenance, Rehabilitation, irepared by SRD; responsive to new forms of I and Safety contract; 3ank supervision mission eports. The three-year pilot maintenance contracts are successfully implemented I Indicators 2003 1 June2006 I December2008 I (Baseline) I (Midterm) I (Completion) Outcome/Impact Actual I Target I Target KAverage road roughness at pilots I 6 I 5 I 4 I Macva and Kolubara (h) 2. Average road roughness in road 5 4 3 segments- rehabilitation (h) 3. Improved road safety: number of 6 5.5 5 deaths per 10,000 vehicles 4. Number of competitively awarded and 0 4 6 implemented contracts 5. Perception of road conditions in 1 2 4 - 22 - Macva and Kolubara regions (1= very poor, 5= very good) 6. Perception of road safety in Macva 1 2 4 and Kolubara regions (1= very unsafe, 5=very safe) Output 1. SRD’s IC data base computerized and 0 50 100 operational (% ofcompletion) 2. Planning and budgeting road 0 50 100 expenditure methodology (% of completion) 3. Number of SRD staff trained 0 20 20 - 23 - Annex 2: Detailed Project Description SERBIA AND MONTENEGRO: TRANSPORT REHABILITATION PROJECT By Component: Project Component 1. Strengthening of SRD Institutional Capacity - US$7.85 million This component will include technical assistance, training, services, and the provision of goods for: (i)strengthening of SRD's Information Center, including the improvement ofits computerized road and bridge data bases for the main and regional road networks, as well as the establishment of computerized system for contract management; (ii)strengthening of systems and procedures for planning and budgeting road expenditures, which are based on economic optimization methodologies; (iii)improving the procurement and supervision ofroad works; (iv) consultancy services for supervision ofroad maintenance and rehabilitation works; and (v) equipment, materials, and supplies for improved road management capability in the SRD. Total IDA financing ofthis component is estimated at about US$6.41 million. There is a complementary, but entirely separate, activity involving the provision of support to SRD by the Swedish International Development Agency (SIDA), which takes the form of a 'twining arrangement' between SRD and the Swedish National Road Administration (SNRA). The intention is the dissemination ofknowledge from the former to the latter. This support (through an expected grant equivalent to US$1.5 million) is expected to include strengthening of SRD's ability to manage road routine and winter maintenance, define and implement a strategy to improve road safety, and to manage the environmental impacts ofroad projects. Project Component 2. Enhancement of Road Maintenance, Rehabilitation, and Safety - US$53.40 million This component will include provision ofpriority rehabilitation needs on: (i)seven main road network sections. These sections have been selected through a comprehensive process in two phases, including fust a nationwide analysis of priorities on the main road network (4,800 km), and second a feasibility study of 350 km ofroad sections judged to be ofhigher priority for rehabilitation. Based on this feasibility study, the rehabilitation of the following seven road sections will be included in the project: Sabac - Zminjak (20.9 km), Pmjavor - Loznica (18.8 km), Kragujevac - Ravni Gaj (10.3 km), Ravni Gaj - Kraljevo (33.9 km), Loznica - Valjevo (73.5 km), Valjevo - Calije (20.9 km) and Sabac - Valjevo (61.8 km). The contracts are to be procured by intemational competitive bidding, and several local contractors are expected to bid. The implementation of these contracts would be expected to have a demonstration effect (especially in terms of quality of procurement and supervision) on the overall road works program of SRD. The project would also include supervision ofthese contracts. (ii)main and regional road maintenance by contract, on a pilot basis, in the regions of Macva and Kolubara. The project envisages the implementation oftwo pilot contracts for - 24 - routine and winter road maintenance ofabout 1,200 km (or about 8% ofthe main and regional road network) for three years. These two contracts will introduce the applicability to Serbia of contractually based, competitively tendered routine maintenance as now implemented in a number of West European countries such as the United Kingdom and Sweden, as well as in several developing countries. It is expected that the experience gained through these contracts will help develop a model which can be replicated throughout the country. Measures to improve traffic safety will be included under the maintenance and rehabilitation contracts, such as improvements in road marking and signs, installation of crash barriers, modifications to dangerous intersections, creation of parkinghest areas on those sections of the main network located in mountainous areas. IDA financing ofthis component is estimated at about US$48.59 million. - 25 - Annex 3: Estimated Project Costs SERBIA AND MONTENEGRO: TRANSPORT REHABILITATION PROJECT Local Project Cost By Component US $million 1. Strengthening of SRD Institutional Capacity 3.36 2. Enhancement of Road Maintenance, Rehabilitation, and 24.75 Safety Total Baseline Cost 28.11 Physical Contingencies 1.59 Price Contingencies 1.59 1 Total Project Costs 3 1.29 29.96 61.25 Total Financing Required 31.29 29.96 61.25 Local Foreign Total Project Cost By Category US $million US $million US $million Goods 0.18 0.72 0.90 Works 29.11 24.29 53.40 Services 1.96 4.79 6.75 Training 0.04 0.16 0.20 Total Project Cost; 3 1.29 29.96 61.25 Total Financing Required 3 1.29 29.96 61.25 Identifiable taxes and duties are 1.28 (US$m) and the total project cost, net oftaxes, is 59.97 (USSm). Therefore, the project cost sharing ratio is 91.71% of total project cost net of taxes. - 26 - Annex 4: Cost Benefit Analysis Summary SERBIA AND MONTENEGRO: TRANSPORT REHABILITATION PROJECT The economic analysis of the project has been undertaken employing a standard cost-benefit approach and the aggregate results for the seven road sections are presented in the following table, with the disaggregate results in the following section. [For projects with benefits that are measured in monetary terms] Present Value of Flows Fiscal Impact ECOnomic Finan c ia I An a Iy s id Analysis Taxes Subsidies Benefits: 229.80 US$ million costs: 41.90 US$ million Net Benefits: 187.90 US$ million IRR: 56% ’ Ifthe difference between the present value of financial and economic flows is large and cannot be explained by taxes and subsidies, a brief explanation ofthe difference is warranted, e.g. “The value offinancial benefits is less than that ofeconomic benefits because ofcontrols on electricity tariffs.” Summary of Benefits and Costs: The economic analysis of the project has been undertaken in two parts: The first part of the project comprises road rehabilitation, road maintenance and safety improvements on the seven key sections of arterial highway, totaling 240.3 Km, as detailed below. This component accounts for 70% of total project costs. The results of this analysis are presented in the following section. 1. Roadway M-19, Section Sabac - Zminjak, length 20.9 km 2. Roadway M-19, Section Prnjavor - Lomica, length 18.8 km 3. Roadway M-23, Section Kragujevac - Ravni Gaj, length 10.3 km 4. Roadway M-23.1, Section Ravni Gaj -Kraljevo, length 33.9 km. 5. Roadway M-4, Section Lomica - Valjevo, length 73.5 km 6. Roadway M-4, Section Valjevo - Celije, length 20.9 km 7. Roadway M-21, Section Sabac - Valjevo, length 61.8 km The second part of the economic evaluation relates to the introduction of the two pilot contracts for the routine and winter maintenance operations within the two regions of Macva +d Kolubara. The proposed interventions will encompass 1200 kilometers of main and regional roads (or 8% of the network of main and regional roads under SRD’s control), for a period of 3 years. This component of the project accounts for 17% of total project costs. The results of this analysis are presented in the following section, The remaining portion of the project, which is allocated to institutional strengthening of the Serbian Roads Directorate (SRD) and includes technical assistance, training and services, is considered to be a - 27 - prerequisite for the evolution of the organization into a modem and efficient unit. There has been no formalized economic analysis of the expenditures, and associated benefits, under this component of the project. Main Assumptions: The economic analysis has been undertaken on both the 240.3 kilometers of arterial roads and the pilot contracts for the introduction of routine and winter maintenance, over an appraisal period of 11 years. The selection of the former was made following preliminary work which examined the network on the basis of current condition, in terms of roughness (IRI ”), the risk of accidents and current and forecast traffic volumes. The latter were selected as they represented areas that offered a broad mix of terrain, road types and traffic volumes, and which had also suffered a lack of maintenance expenditure in the past. The economic analysis has been undertaken using the HDM-4 simulation model, using the conventional approach of comparing vehicle operating costs, time expenditures and accident cost savings in the ‘do-something ’ scenario, where the road is rehabilitated, predicating an appropriate ex post maintenance regime, against the ‘do-minimum’ scenario, where there is no intervention, excepting a continuation of the current maintenance regime. The output of the model allows the seven sections to be ranked in terms of their Net Present Value (NPV), their Economic Internal Rate of Retum (EIRR) and their NPVK, where K represents a measure of their respective capital costs. In the case of the two pilot studies, a similar approach was adopted, but the costs of accidents were excluded from the analysis. In this case, the analysis was undertaken at a strategic level, catagorizing the respective regional roads by trafic volume, road condition and road type. Again, the output from this model allows the different road types, at different traffic volumes and conditions, to be ranked in terms of the Net Present Value (NPV), their Economic Internal Rate of Retum (EIRR) and the NPVK, where K represents a measure ofthe present value costs of the intervention to the agency. The input data for the economic analysis in both cases has been provided by SRD from both their own resources and from prior studes, supplemented with primary data collection from automatic traffic counts and road roughness measurements. The former revealed the following average annual daily traffic volumes in 2001: 1. Roadway M-19, Section Sabac - Zminjak - 6966 vehicles; 2. Roadway M-19, Section Pmjavor - Loznica - 5 124 vehicles; 3. Roadway M-23, Section Kragujevac - Ravni Gaj - 6159 vehicles; 4. Roadway M-23.1, Section Ravni Gaj -Kraljevo - 2810 vehicles. 5. Roadway M-4, Section Lonica - Valjevo - 4286 vehicles; 6. Roadway M-4, Section Valjevo - Celije - 5485 vehicles; and 7. Roadway M-21, Section Sabac - Valjevo - 2971 vehicles; Traffic is forecast to grow at 6% per annum for passenger cars in the first year ofthe project, declining to a conservative 4.3% per annum in the final years of the project. The comparable ranges for buses and commercial vehicles are 3.5% and 3%, and 4% and 4.3%, respectively. The rationale for the higher initial rate is the current low traffic volumes within the country, the impact of the removal ofphysical constraints and a reduction in the perceived risks for both domestic and transit traffic, together with increased economic growth, which is forecast at 4% per annum in real terms (World Bank, (2003) Serbia and Montenegro Public Expenditure and Institutional Review Volume 2, PREM ECA). This suggests a range of income elasticities, by vehicle type, of between 1-1.5, which represent conservative assumptions for - 28 - future traffic growth on the network. The results of the economic analyses, by road section, are presented in the following table: Road Number /Section Name /Section length 1 PV Costs (US# NPV EIRR I NPVK I M-19 ISabac 20.9 2.61 23.7 94.3% I 9.0 Zminjak M-19 Pmjavor - 18.8 2.15 13.3 80.3% 6.1 Loznica M-23 Kragujevac - 10.3 2.60 2.2 24.3% 0.8 Ravni Gaj M-23.1 Ravni Gai 33.9 5.81 3.5 20.4% 0.6 -Kraljevo M-4 Lonica - 73.5 7.71 65.6 72.1% 8.5 Valjevo M-4 Valjevo - 20.9 2.29 17.2 65.7% 7.5 Celije M-21 Sabac - 61.8 7.94 15.1 33.5% 1.9 Valjevo r- I Overall, the seven road sections perform well with regard to the standard criteria for measuring the performance of an investment: All the seven road sections lie above the 12% rate of return threshold, significantly above in the case offive ofthe sections, with Economic Intemal Rate of Return (EIRR) values ranging between 20.4 per cent and 94.3 per cent. The corresponding NPVK ratios range from 0.6 to 9.0, with NPVs ranging from US$2.2 million to US$65.6 million. In the economic analysis of the two pilot contracts for routine and winter maintenance in the regions of Macva and Kolubara, the estimated NPVs run from US$0.71 Million to US$ 53 Million, with associated EIRRs ranging between 15% and 94%. The following figure provides a stylized illustration of the benefit of a proposed intervention, in this case relating to the rehabilitation of the first section of the M-19 highway. The figure clearly illustrates the improvement in the measure of roughness (IN &) between the 'do-nothing' and 'do-something' scenarios, with the measure declining from approximately 4, in the former, to just above 2 in the latter, predicating a one year construction period, commencing in 2003. - 29 - HDM-4 Average Roughness by Project (Graph) HIGHWAY DEVELOPMENT & MANAGEMENT Study Name: Serbia Rehabilitation Run Date: 19-11-2003 Average Roughness (IRlav) for each Project (weighted by section length) W Base Alternative Section MI9 IALternative 1 Year Sensitivity analysis / Switching values of critical items: Sensitivity analysis has been undertaken to assess the robustness of the results to unforeseen variation in the key parameters of the project, which in this case, were identified as capital costs and the forecast rate of traffic growth. The analyses tested the impact on the performance criteria of a 20% increase in the capital costs, and a 20% reduction in the forecast growth of traffic on the roads, and both occuring at the same time. Table 3 - Sensitivity Analysis I Road Section Capital costs NPV EIRR EIRR EIRR EIRR Name (US$ million) +20% costs -20% traffic +20% costs and -20% traffic Sabac - 2.61 23.7 94.3% 8 1.9% 88.1% 77.8% Zminj ak Pmjavor - 2.15 13.3 80.3% 70.7% 76.7% 67.4% Loznica Kragujevac - 2.60 2.16 24.3% 20.7% 2 1.!?Yo 18.5% Ravni Gaj Ravni Gaj 5.81 3.47 20.4% 17.3% 17.6% 14.5% -Kralj evo Lonica - 13.0 65.5 72.1% 61.5% 68.5% 58.3% Valjevo Valjevo - 3.7 17.1 65.7% 57.3% 62.3% 54.2% Celije Sabac - 12.0 15.1 33.5% 27.6% 31.8% 26.1% Valjevo The results of the sensitivity analysis reveal that the project is very robust to the specified variation in the key parameters of the project, with all the selected sections returning a positive NPV and an EIRR that exceeds the 12% discount rate in all scenarios. - 31 - Annex 5: Financial Summary SERBIA AND MONTENEGRO: TRANSPORT REHABILITATION PROJECT Years Ending IMPLEMENTATION PERIOD I I Year1 I Year2 I Year3 1 Year4 I Year5 I Year6 1 Year7 Total Financing Required Project Costs investment Costs 7.5 16.9 17.2 12.3 7.4 0.0 0.0 Recurrent Costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Costs 7.5 16.9 17.2 12.3 7.4 0.0 0.0 Total Financing 7.5 16.9 17.2 12.3 7.4 0.0 0.0 Financing IBRDllDA 7.0 15.0 15.0 11.0 7.0 0.0 0.0 Government 0.5 1.9 2.2 1.3 0.4 0.0 0.0 Central 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0 User FeeslBeneficiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 7.5 16.9 17.2 12.3 7.4 0.0 0.0 Main assumptions: - 32 - Annex 6(A): Procurement Arrangements SERBIA AND MONTENEGRO: TRANSPORT REHABILITATION PROJECT Procurement Civil works, goods and services to be financed by the Bank will be procured in accordance with the "Guidelines for Procurement under IBRD Loans and IDA Credits" published by the Bank in January 1995 and revised in January and August 1996, September 1997 and January 1999 and "Guidelines for Selection and Employment of Consultants by World Bank Borrowers" published in January 1997 and revised in September 1997, January 1999 and May 2002. The project components, their estimated cost and procurement methods are summarized in Tables A and Al. The thresholds for each procurement method and Bank prior review are shown in Table B. A procurement plan detailing the packaging and estimated schedule ofthe major procurement actions is enclosed in Table B1. The Project will be carried out by the Republic of Serbia Roads Directorate (SRD), which is responsible for the intermediate and annual programs of construction, reconstruction, maintenance, protection, usage, development and management of arterial and regional roads. The procurement under this component would mainly relate to the maintenance and rehabilitation of roads, and technical assistance to SRD. SRD has recently received loans from EBRD and EIB and has been responsible for procurement under these loans. SRD has a procurement specialist assigned to the project and will hire/assign one procurement assistant before the new project becomes effective to ensure that procurement is undertaken efficiently, in a timely manner, and in accordance with the Bank guidelines. I. Procurement of Civil Works Civil Works will be procured as follows: (a) International Competitive Bidding (ICB): All works contracts estimated to cost over US$500,000 equivalent per contract will be procured through ICB. (b) National Competitive Bidding (NCB): Works contracts estimated to cost less than US$ 500,000 equivalent per contract may be procured through NCB. 2. Procurement of Goods Goods will be procured in package sizes that will encourage International Competitive Bidding. (a) international Competitive Bidding (ICB): Goods contracts estimated to cost over US$lOO,OOO equivalent per contract will be procured through ICB. (b) International Shopping (IS): Goods estimated to cost less than US$lOO,OOO equivalent per contract may be procured through IS. (c) National Shopping (NS): Goods estimated to cost less than US$ 50,000 equivalent per contract may be procured through NS. 3. Employment of Consultants Contracts for Consulting Services will be awarded following the World Bank Guidelines "Selection and Employment of Consultants by World Bank Borrowers" dated January 1997, revised September 1997, January 1999, and May 2002. The following methods of selection will be followed: - 33 - (a) Quality and Cost Based Selection (QCBS) procedures will be used for consultant services. (b) Least Cost Selection (LCS) procedures will be used for small consultant services such as preparation of feasibility studies and project financial audits. (c) Selection Based on Consultants Qualifications (CQ) will be used for very small consultant assignments to cost less than US$ 100,000 equivalent per contract. (d) Individual Consultant selection (ICs) procedures will be used for assignments which meet the criteria specified in Section V of the Guidelines. 4. Notification of Business Opportunities A General Procurement Notice (GPN) was published in issue number 619 dated 11/30/2003 of the Development Business and Market Palace and will be updated annually if there are any outstanding ICB tenders and all outstanding large consulting assignments above $200,000 thereafter. For consultant contracts above US$200,000, a Request for Expressions of Interest will be published in Development Business, as well as in a local newspaper of wide circulation. The Invitation to Bid for civil works and goods contracts will be advertised as per the requirements of the Bank Guidelines. Procurement methods (Table A) Table A: Project Costs by Procurement Arrangements (US$ million equivalent) Procurement Method’ Expenditure Category ICB NCB Other2 N.B.F. Total Cost 1. Works I 53.20 I 0.20 I 0.00 I 0.00 1 53.40 I (48.41) (0.18) (0.00) (0.00) (48.59) 2. Goods 0.57 0.00 0.33 0.00 0.90 (0.51) (0.00) (0.301 (0.00) (0.81) ~~ 3. Services I 0.00 1 0.00 I 6.75 1 0.00 1 6.75 I (0.00) (0.00) (5.40) (0.00) (5.40) 4. Miscellaneous (Training) 0.00 0.00 0.20 0.00 0.20 (0.00) (0.00) (0.20) (0.00) (0.20) Total 53.77 0.20 7.28 0.00 61.25 I (48.92) I (0.18) I (5.90) I (0.00) 1 155.00) I Figures in parentheses are the amounts to be financed by the IDA Credit. All costs include contingencies. 21 Includes goods to be procured through intemational shopping, consulting services, training and workshops, technical assistance services, and project audits. - 34 - Table AI: Consultant Selection Arrangements (optional) (US$ million equivalent) Selection Method Consultant Services Expenditure Category QCBS QBS SFB LCS CQ Other N.B.F. Total cost' A. Firms 6.60 0.00 0.00 0.10 0.05 0.00 0.00 6.75 (5.28) (0.00) (0.00) (0.08) (0.04) (0.00) (0.00) (5.40) B. Individuals 0.00 0.00 0.00 0.00 0.00 0.02 0.00 0.02 (0.00) (0.00) (0.00) (0.00) (0.00) (0.02) (0.00) (0.02) Total 6.60 0.00 0.00 0.10 0.05 0.02 0.00 6.77 '' Including contingencies Note: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants, etc. N.B.F. = Not Bank-financed Figures in parentheses are the amounts to be financed by the Bank Credit. - 35 - Prior review thresholds (Table B) Review by the Bank of Procurement Decisions Scheduling of Procurement: The procurement plan will be reviewed by the Association, before inviting any bids in accordance with the provisions of paragraph 1 of Annex 1 of the procurement guidelines. Procurement of civil works, goods and services for the project will be modified as appropriate and included into the progress reports subject to Bank review. Prior Review: (a) Goods: All ICB and the first IS and NS contracts will be subject to prior review; (b) Civil Works: All ICB contracts, and first NCB contracts will be subject to prior review; (c) Consulting Services: Terms of Reference for all consulting assignments will be subject to prior review. Request for Proposals (RFP), shortlists, terms and conditions of contracts as well as evaluation reports and recommendation of award will be prior reviewed for contracts for individual consultants above $50,000 equivalent and for firms above $100,000 equivalent Ex-post review: During Bank supervision missions, not less than 1 in 5 tenders not subject to Bank prior review will be examined ex-post. Table B: Thresholds for Procurement Methods and Prior Review’ Contract Value Contracts Subject to Threshold Procurement Prior Review Expenditure Category (US$ thousands) Method (US$ millions) 11. Works 500,000 or > ICB 53.2 <500,000 First NCB 0.20 2. Goods 100,000 or > ICB 0.57 <100,00 First IS 0.10 <50,000 First NS 0.03 3. Services > 100,000 for firms All QCBS, LCS or CQ 6.75 <50,000 Individual Selection 4. Miscellaneous All N.A. 0.2 (Training and workshops) 5. Miscellaneous 6. Miscellaneous I I I I L Type Description Cost Procuremen Document. Bid Bid Contract Contract (Million t Prep Invitation Submit Award Complet USD) Method aration ted ed Works Maintenance of roads in 5.90 ICB Oct03 Mar 04 May04 JunO4 JunO7 Macva region Maintenance of roads in 5.80 ICB Oct03 Mar04 May04 .Tun04 JunO7 Kolubara region - 36 - Rehabilitation of Sabac 2.20 ICB Oct03 Mar04 May04 June04 May05 -Zminjak road Rehabilitation of Pmjavor 1.90 ICB Oct03 Mar04 May04 June04 May05 - Lomica road Rehabilitation of 2.60 ICB Oct03 Kragujevac - Ravni Gaj -----road Rehabilitation of Ravni 6.00 ICB Oct03 Mar04 May04 June04 Dec05 Gaj - Kraljevo road Rehabilitation of 28.8 ICB Oct04 Mar05 May05 June05 Dec07 Loznica-Valjevo (M-4), (3 contracts) Valjevo-Celije (M-4), Sabac-Valjevo (M-2 1) Installation of Traffic 0.20 NCB Novo4 Jan05 Mar 05 Apr05 Apr06 Counters TOTAL WORKS 53.40 Goods Procurement of Traffic 0.42 ICB JulO4 SepO4 Novo4 Dec04 Mar04 Counters Procurement of vehicles 0.15 ICB Jun04 JulO4 Sep04 Oct04 Dec04 for supervision Procurement of Bump 0.03 IS AugO4 Sep04 Oct04 Novo4 Dec04 Integrator and Roughness Calibration Device Procurement of Database 0.10 IS Aug04 Sep04 Sep04 Oct04 Novo4 Software Procurement of Computers 0.03 NS Aug04 Sep04 Sep04 Oct04 Novo4 Procurement of portable 0.07 IS Sep04 Sep04 Oct04 Novo4 Dec04 scales Mobile traffic counters 0.1 IS Sep04 Oct 04 Nov 04 Dec04 Jan05 (20 units) TOTAL GOODS 0.90 Technical Road Inventory and 1.40 QCBS Aup04- Oct04 Dec04 Jan05 Jan06 Assistance ICondition Study /Project Supervision I 1.60 I QCBS lOct03 /Mar04 /May04 lJune04 IJun07 Maintenance Management 0.10 QCBS Oct04 Dec04 Feb05 MarO5 SepO5 System Study Project Financial Audits 0.10 LCS Sept04 Oct04 Novo4 Dec04 March05 Technical Assistance to 0.05 ICS/QC SRD Road data base including 1.5 QCBS Dec04 Feb05 Apr05 May05 Dec05 reference system (Main Roads) Innovationharmonization 2.0 QCBS Jan05 Mar05 May05 JunOS June06 of road technical standards according to EU standards TOTAL SERVICES 6.75 Training Workshops, training, 0.2 NA conferences for SRD staff TOTAL TRAINING 0.2 NA GRAND TOTAL 61.25 ICB: Intemational Competitive Bidding, NCB: National Competitive Bidding; IS: Intemational Shopping; NS: National Shopping; QCBS:Quality and Cost Based Selection; LCS: Least Cost Selection; QC: Consultant Qualifications; ICs: Individual Consultant Selection; NA: Not Applicable. - 37 - Overall Procurement Risk Assessment training on procurement. 2002. IYESX NO I ~g,Information and Development on Procurement ' Estimated date of Estimated date of Indicate if there is IDomestic Preference for Project Launch publication of procurement Preference for Workshop General subject to Works, if July 2004 Procurement mandatory SPN in applicable Notice Development Yes NoX 11/30/2003 Business Yes X No "Thresholds generally differ by country and project. Consult "Assessment of Agency's Capacity to Implement Procurement" and contact the Regional Procurement Adviser for guidance. - 38 - Annex 6(B): Financial Management and Disbursement Arrangements SERBIA AND MONTENEGRO: TRANSPORT REHABILITATION PROJECT Financial Management 1. Summary of the Financial Management Assessment Country Issues The 2002 SAM CFAA report noted that there are a number of risks on the management of public funds in SAM. The risks to the public funds include: (a) poor public sector financial management in the past, (b) unfinished reforms - the new govemments that were elected have commenced a process of major reform, which looks good as designed, but it is still too early to say if the reforms will be totally successful, (c) capacity constraints in both the Federal and Republic govemments, (d) weak banking sectors, (e) weak audit capacity, (f) poor implementation capacity in line ministries, and (g) the lack of recent Bank implementation experiences within SAM. Since re-joining the membership of the World Bank, SAM has been using individual implementation units for each investment project (traditional PIU model), located within the relevant line ministries or project beneficiaries, to mitigate some of these risks. During the period since the CFAA was published, the number ofcommercial banks assessed as acceptable to hold Special Accounts has increased from 3 to 5 and the number of fmsassessed as acceptable to audit Bank-financed projects has increased from 2 to 4, indicating an improvement in the fiduciary environment. Experience in implementing Bank-financed projects is increasing but the lending portfolio is still too young to be able to conclude that the Borrower has a thorough understanding of Bank operations. Strengths and Weaknesses PIT staff lack experience in managing IDA funded projects, however, the head of finance of SRD is familiar with Bank disbursement procedures. PIT staff are currently managing projects fbnded by other IFI’s and have considerable experience in the transport sector generally. Implementing Entity The project would be implemented by the SRD; overall project implementation will be coordinated by the Head ofDepartment ofMain and Regional Roads, on behalf of SRD, who will act as Project Coordinator. The Project Coordinator will be assisted by both SRD departments (Road Information Centre, Accounting, Technical Laboratory) and specialists, as required during implementation. Support will also be provided, as required, by the existing Project Implementation Team (PIT) which has been established within SRD for the implementation of the road rehabilitation projects financed by EBRD and EIB. The supervision ofroad maintenance and rehabilitation works will be undertaken by SRD, with support from a competitively selected consulting fm. Funds Flow The International Development Association (IDA) would make funds available to the Government of Serbia and Montenegro (SAM) under the Credit Agreement, governing the terms and conditions ofthe IDA credit and specif4ring the project. The Government of SAM would on-lend - 39 - the funds on IDA terms to the Republic of Serbia based on the Subsidiary Credit Agreement with terms and conditions satisfactory to IDA. Project funds will flow from: (i)the IDA, either via a Special Account established in a commercial bank acceptable to the Bank or by direct payment on the basis of direct payment withdrawal applications; or (ii)the SRD, via the Treasury at the Ministry of Finance of the Republic of Serbia (MFRS) on the basis ofpayment instructions submitted by the SRD. Staffing of the Accounting/Finance Function The financial accounting department ofthe SRD has approximately 25 staff. The majority of the accounting cycle will follow SRD’s standard operating procedures, with the exception being the final production ofFMRs. The qualifications and the practical experience ofthe staff are adequate for the purposes of controllingjmonitoring the project. Accounting Policies and Procedures An operations manual has been prepared by the PIU describing the functions of each member of the PIU and the internal control structure (including authorization limits, segregation of duties, regular reconciliation, etc.). The PIU will prepare financial reports on the modified accrual basis, consistent with the accounting basis used by the SRD. All project data will be captured in the SRDs accounting system; data will be extracted from SRD’s system and entered manually into the FMRs. Reporting and Monitoring The PIT will prepare financial monitoring reports (FMRs) on a quarterly basis. The FMRs include: Project Sources and Uses of Funds Uses ofFunds by Project Activity Special Account Statement Project progress report Procurement report The fust Financial Monitoring Report will be furnished to the IDA not later than 45 days after the end of the first calendar quarter after the Effective Date, and will cover the period from the Effective Date to the end ofthe first calendar quarter. Information Systems SRD uses an Oracle based accounting system. The system permits SRD to comply fully with the accounting requirements of a direct budget user, while facilitating the monitoring of project expenditures and implementation progress on a project-by-project basis. The system is capable of recording separately the in-flows and expenditures related to the Project. FMRs will be produced manually using reports downloaded from Oracle. - 40 - Financial Covenants The SRD is to maintain a satisfactory Financial Management System, including records and accounts, and to prepare financial statements in accordance with accounting standards satisfactory to the Bank. The SRD is to provide annual project accounts and audit reports to the Bank within five months of each fiscal year (with the audit to be carried out by independent auditors in accordance with International Standards on Auditing, and TORSsatisfactory to the Bank). Supervision Plan The reports of the progress of the project implementation will be monitored in detail during supervision missions. FMRs will be reviewed on a regular basis by the Belgrade-based FMS and the results or issues followed up during the supervision missions. Audited financial reports of the Project will be reviewed and identified issues followed up. 2. Audit Arrangements The PIU will be responsible for ensuring that Project financial statements are audited by an independent auditor acceptable to the IDA, in accordance with standards on auditing that are acceptable to the IDA. It was agreed during negotiations that auhting standards acceptable to the IDA are International Standards on Auditing promulgated by the International Federation of Accountants (IFAC). It was agreed during negotiations that auhtors acceptable to the IDA are those auditors that have been unconditionally pre-qualified to audit IDA funded projects in SAM. The cost of the audit will be financed from the proceeds ofthe creht. The following chart identifies the audit reports that will be required to be submitted by the project implementation agency together with the due date for submission. Audit Report Due Date Entity NIA - the SRD is a direct user of the Republican budget. Project, SOEs Within 5 months of the end of each fiscal year and also at the closing of the I andSA broject 3. Disbursement Arrangements It is expected that the proceeds of the Credit will be disbursed over a period of four and a half years, which includes six months for the completion of accounts and the submission of withdrawal applications. Disbursements from the IDA credit will follow the transaction-based method, i.e., the traditional Bank procedures including reimbursements with full documentation, Statements of Expenditure (SOE), direct payments and special commitments. Some of the proceeds of the Credit are expected to be disbursed on the basis of Statements of -41 - Expenditure (SOEs), as follows: (a) works costing less than US$500,000 except for the first contract procured under NCB; (b) goods contracts costing less than US$lOO,OOO except for the first contracts procured under IS and under NS; and (c) services contracts for individuals costing less than US$50,000 each and services contracts firms costing less than US$lOO,OOO each. Disbursements against works, goods and services exceeding the above limits will be made against full documentation. SOEs will be prepared by the PIT. Related documentation in support of SOEs will not be submitted to the Bank, but will be retained by the PIT for at least one year after receipt by the Bank of the audit for the period in which the last withdrawal fiom the Credit has been made. This documentation will be made available for review by the auditors and supervisions missions. If ineligible expenditures, including those not justified by evidence furnished, are financed from the Special Account (SA), the Bank will have the right to withhold further deposits in the SA. The Bank may exercise this right until the Recipient has: (a) refunded the amount involved, or (b) (if the Bank agrees) submitted evidence ofother eligible expenditures that can be used to offset the ineligible amounts. Allocation of credit proceeds (Table C) Table C: Allocation of Credit Proceeds Expenditure Category I Amount in US$million I Financing Percentage 1 TWorks 48.59 91% 2. Goods 0.81 90% 3. Consultant Services and auhting 5.40 80% 4. Training 0.20 100% Total Project Costs with Bank 55.00 Financing Total 55.00 Use of statements of expenditures (SOEs): Some of the proceeds ofthe Credit are expected to be disbursed on the basis of Statements ofExpenditure (SOEs), as follows: (a) works costing less than US$500,000 except for the first contract procured under NCB; (b) goods contracts costing less than US$lOO,OOO except for the first contracts procured under IS and under NS; (c) services contracts for individuals costing less than US$50,000 each and services contracts fmscosting less than US$lOO,OOO each; and d) training. Disbursements against works, goods and services exceeding the above limits will be made against full documentation. SOEs will be prepared by the PIT. Related documentation in support of SOEs will not be submitted to the Bank, but will be retained by the PIT for at least one year after receipt by the Bank of the audit for the period in which the last withdrawal from the Credit has been made. This documentation will be made available for review by the auditors and supervisions missions. If ineligible expenditures, including those not justified by evidence furnished, are financed from the Special Account (SA), the Bank will have the right to withhold fixther deposits in the SA. The Bank may exercise this right until the Recipient has: (a) refimded the amount involved, or (b) (if the Bank agrees) submitted evidence of other eligible expenditures that can be used to offset the ineligible amounts. -42- Special account: To facilitate timely project implementation, the SRD, with the assistance of the MFRS, will establish, maintain and operate, under conditions acceptable to the Bank, a special account in Euro, in a commercial bank acceptable to IDA. The Authorized Allocation for this special account would be Euro 500,000, representing about four months ofaverage expenditures made through the special account. During the early stage of the project, the initial allocation to the special account would be limited to Euro 250,000. However, when the disbursements under the Credit have reached the level of SDR 1.65 million, the initial allocation may be increased up to the Authorized Allocation by submitting the relevant Application for withdrawal. Applications for replenishment ofthe special account would be submitted monthly or when one-third of the amount has been withdrawn, whichever occurs earlier. Documentation requirements for replenishment would follow standard Bank procedures as described in the Bank's Disbursement Handbook, Chapter 6. Monthly bank statements ofthe special account, which have been reconciled by the SRD, would accompany all replenishment requests. -43 - Annex 7: Project Processing Schedule SERBIA AND MONTENEGRO: TRANSPORT REHABILITATION PROJECT Project Schedule Planned Actual 1Time taken to prepare the project (months) I 12 I I IFirst Bank mission (identification) I 02/01/2003 I 0210112ao3 I FpraGal mission departure I 02/09/2004 I 02/09/2004 I Negotiations 02/17/2004 ~ 0211 712004 Planned Date of Effectiveness 07/01/2004 Prepared by: Project Team Preparation assistance: Lorraine McCann Kosinski Bank staff who worked on the project included: Name Speciality Cesar Queiroz Program Team Leader Ahmet Gokce Senior Procurement Specialist Anca Dumitrescu Transport Specialist Nirmala Saraswat Environmental Specialist Robert H Nooter Consultant, Economist Periklis Saragiotis Consultant William Denning Consultant, Economist Martin Humphreys Sr. Transport Specialist Gennady Pilch Sr. Counsel Joseph Formoso Sr. Finance Officer Miroslav Ruzica Sr. Social Scientist Michael Gascoyne Sr. Financial Management Specialist Jean-Charles Crochet Team Leader at Identification and Pre-appraisal -44- Annex 8: Documents in the Project File* SERBIA AND MONTENEGRO: TRANSPORT REHABILITATION PROJECT A. Project Implementation Plan PIP Serbia FinaLdo B. Bank Staff Assessments Environmen ct AssessmentEnvironmental Management Plan EMP - Serbian Transport Rehabilitation Proit Procurement Capacity Assessment Capacity assessment.dc Aide Memoire March 2002 Aide Memoire March 2002.1 Aide Memoire Februanr 2003 Aide Memoire.pd Aide Memoire June 2002 Aide Memoire.pd 0 Aide Memoire, October 23,2003 SaM TransportRehab AM Oct2003. C. Other e Country Profile 200 ia and Montenegro, the Economist Intelligence Unit Serbia and Montenegro Country Profile El e Poverty Reduction Strategy Paper for Serbia, Government of the Republic of Serbia, Belgrade 2004 -45- e Statistical Bulletin, National Bank of Serbia. November 2004 ad traffic injury prevention, World Health Organization, 2004 World reDort on road traffic injury preventic e Road routine Maintenence Pilot Project in Serbia- Economic Analyses, Belgrade November 2003 Economic Analyses for intenance Pilot Project in a Routine and Winte Main And Regional Roads in Kolubara District Routine and Winter Maintenence of Main And Regional Roads in Kolubara a Routine and Winter Maintenence of Main And Regional Roads in Macva District Routine and Winter Maintenence of Main And Regional Roads in Macva a UrbanTra in Belgrade, A Policy Note Report No 26298, June 2003 Belgrade Urba port Policy Note e Serbia - Motorway Sector and the Potential for Public-Private Partnerships by Dr. Andras Timar, August 2003 Motorway Sector and Potential for Public Private Partners a Annual Report of the Road Directorate of Serbia for years 2001, 2002, and Program of the Road Directorate of Serbia for 2003 a Organization of the Directorate of Roads, Road Directorate of Serbia, November 2001 e Institutional Project in Transport Sector, Mission Completion Report, European Agency for Reconstruction, September 2003 e Technical Assistance Project and Roads Recovery Plan, Stakeholder Workshop, Booz Allen Hamilton, Belgrade , September 2003 a Proceedings from Stakeholder Workshop, Serbian Roads Directorate and Booz Allen Hamilton, September 2003 a Map: Position of sections to be repaired-Program from the World Bank credit, Serbian Roads Directorate, October 13, 2003 e Role of HDM-4 in Road Management, Fourth International Conference on Managing Pavements, Durban, South Africa, Kerali H. et al, 1998 e Feasibility studies for primary roads rehabilitation in World Bank program, Serbian Roads Directorate, April 2003 e Rehabilitation of arterial roads from the World Bank Credit, Republic Directorate for Roads, September 2002 a Proposal for World Bank loan-institutional strengthening, Executive Summary, Serbian Roads Directorate, October 2003 -46- 0 Transport Project for World Bank Financing : Rehabilitation Arterial Roads, Serbian Roads Directorate, October 2003 0 Feasibility Stu up 04, Project O! 0 Feasibility Stud p 04, Proiect 01 Feasibility Stud p 04, Project 06.C 0 Feasibility Stud p 04, Project 06.0 0 Feasibility Study Group 04, Project 06.0 0 Feasibility Studies for Primary Roads Rehabilitation in World Bank Program, Book 1, Serbian Roads Directorate, April 2003 0 Feasibility Studies for Primary Roads Rehabilitation in World Bank Program, Book 2, Serbian Roads Directorate, April 2003 0 Feasibility Studies for Primary Roads Rehabilitation in World Bank Program, Book 3, Serbian Roads Directorate, April 2003 . 0 Feasibility Studies for Primary Roads Rehabilitation in World Bank Program, Book 4, Serbian Roads Directorate, April 2003 0 Feasibility Studies for Primary Roads Rehabilitation in World Bank Program, Book 5, Serbian Roads Directorate, April 2003 0 Program Rehabilitation of Arterial Roads Sep 2( 0 Statistical Report on Road Accidents 1999-2000, European Conference of Ministers of Transport, Paris France 2003. 0 available at: http://wl .oecd.org/cem/pub/pubann.htm#Road Accidents 0 Regional Balkans Infrastructure Study: Transport Final Report, European Commission and REBIS transport, July 2003 available at: http://www.seerecon.org/infrastructurelsectors/transpoNdocuments/REBIS/Rebis_FR_FinaI,pdf & http://www.seerecon.org/infrastructure/sectorsltranspo#documentslREBIS/annexes.htm 0 Map of Souhteast Europe - Pan European Transport Corriodors TTFSE map-pilots MayO3.1 0 Map of Southeast Europe - Main Trade Patterns TTFSE map-trade May03.c *Including electronic files -47- Annex 9: Statement of Loans and Credits SERBIA AND MONTENEGRO: TRANSPORT REHABILITATION PROJECT 28-Apr-2004 Difference between expected and Original Amount in US$ actual Millions disbursements ProjectID FY Purpose IBRD IDA SF Cancel. Undisb. Orig. Frm Rev'd PO75189 2002 EDUC IMPRVMNT 0.00 10.00 0.00 0.00 8.81 1.48 0.00 PO74136 2002 EMG ELEC POWER RECN 0.00 0.00 6.00 0.00 0.971 0.97 0.39 PO77473 2003 EMG POWER LIC (MONTENEGRO) 0.00 5.00 0.00 0.00 5.55 2.24 0.00 PO69374 2003 EMPLYMT PROMO LIL 0.00 2.75 0.00 0.00 2.81 0.99 0.00 PO75343 2004 ENERGY EFF 0.00 21.00 0.00 0.00 20.79 0.00 0.00 PO79116 2004 ENVIRONMENT (MONTENEGRO) 0.00 7.00 0.00 0.00 7.49 0.00 0.00 PO74484 2003 EXP FIN FAC 0.00 11.50 0.00 0.00 12.50 14.53 0.00 PO74127 2001 FIN SEC DEVT TA GRANT 0.00 0.00 6.00 0.00 1.31 1.31 0.00 PO77675 2003 HEALTH 0.00 20.00 0.00 0.00 21.00 3.87 0.00 PO74618 2002 MONTENEGRO ENV INFRA 0.00 0.00 2.00 0.00 0.93 -1.06 0.26 PO74868 2003 PFSAC 2 0.00 80.00 0.00 0.00 40.96 72.67 0.00 PO77732 2003 PRIV & REST OF BANKSIENTPRS TA 0.00 11.00 0.00 0.00 10.88 2.50 0.00 PO74145 2001 PRIV SECT DEVT TA 0.00 0.00 6.00 0.00 0.66 0.66 0.00 PO74124 2002 SOC ASST 0.00 0.00 10.00 0.00 0.34 0.34 0.34 PO78390 2003 SOSAC 0.00 80.00 0.00 0.00 42.14 37.43 0.00 PO74090 2002 TRADE & TRANSPORT FACILITATION IN SEE 0.00 6.76 0.00 0.00 7.57 2.06 0.00 Total: 0.00 255.01 30.00 0.00 184.79 140.04 0.99 -48- SERBIA AND MONTENEGRO STATEMENT OF IFC’s Held and Disbursed Portfolio As of 313 112004 In Millions US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1985 Energohvest 9.50 0.00 0.00 0.00 9.50 0.00 0.00 0.00 1982187 Igalo 3.35 0.00 0.00 0.00 3.35 0.00 0.00 0.00 1985 Jugobanka 0.00 0.00 0.00 1.13 0.00 0.00 0.00 1.13 2002 MEB Kosovo 0.00 1.11 0.00 0.00 0.00 1.11 0.00 0.00 2002/03 MFB Yugoslavia 0.00 1.00 0.00 0.00 0.00 1.00 0.00 0.00 1980 Monte Hotels 2.00 0.00 0.00 0.00 2.00 0.00 0.00 0.00 1980 Radoje 1.17 0.00 0.00 0.00 1.17 0.00 0.00 0.00 2002 Raiffeisen Yug 0.00 2.37 0.00 0.00 0.00 2.37 0.00 0.00 1977 TKA Cazin 4.13 0.00 0.00 0.00 4.13 0.00 0.00 0.00 2002 Tigar Tyre 19.40 0.00 4.11 0.00 19.40 0.00 4.11 0.00 1987189 Vojvodjanska 27.03 0.00 0.00 7.64 27.03 0.00 0.00 7.64 Total Portfolio: 66.58 4.48 4.11 8.77 66.58 4.48 4.11 8.77 -49- Annex 10: Country at a Glance SERBIA AND MONTENEGRO: TRANSPORT REHABILITATION PROJECT Europe 8 Lower- POVERTY and SOCIAL Serbia and Central middle- Montenegro Asia income Development diamond' 2002 Population, mid-year (millions) 8.3 475 2,164 Life expectancy GNI percapita (Atlas methcd, US$) 1,400 1,960 1,240 GNi (Atlas method, US$ billions) 11.6 930 2,677 - I Average annual growth, 199642 Population (%) 0.1 0.1 1 .o Labor force (%) 0.4 0.6 1.2 GNI Gross per - primary Most recent estimate (latest year available, 199642) capita nrollmenl Poverty Is', of population below national poverty line) 10 Urban population ('A of total population) 53 63 46 Life expectancy at birth (years) 72 69 69 Infant mortality (per 1.000 live births) 12 20 33 Chiid malnutrition (% of children under 5) 2 11 Access to improved water source Access to an improved water source ("A ofpopulation) 90 80 illiteracy (% ofpopulation age 75+) 3 15 -Serbia and Montenegro Gross primary enrollment (% of school-age population) 69 102 107 Male 69 103 107 1- Lowermiddle-income group Female 70 101 107 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982 1992 2001 2002 Economic ratios' GDP (US$ billions) 11.6 15.7 I Gross domestic investmenffGDP 13.6 16.1 Trade Exports of goods and services/GDP 23.7 20.7 Gross domestic savingdGDP -7.2 -7.0 Gross national savingslGDP 9.1 7.2 T Current account baiancelGDP -4.6 -8.8 Domestic Investment Interest payments/GDP 0.6 savings Total debUGDP 101.4 76.0 Total debt service/exports 2.4 3.5 I Present value of debffGDP Present value of debffexports lndebted ness 1982-92 199242 2001 2001 200246 (average annual growth) GDP 5.5 4.0 3.8 -Serbia and Montenegro GDP per capita 5.7 4.3 3.8 Lower-middle-income U~UD Exports of goods and services 7.7 18.2 16.8 STRUCTURE of the ECONOMY 1982 1992 2001 2002 Growth of investment and GDP (%) h (% of GDP) Agriculture industry Manufacturing Services I Private consumption General government consumption ~ -GDI -O'GDP Imports of goods and services 1982-92 199242 2001 2002 Growth of exports and imports (%) (average annual growth) l~0 Agriculture - Industry 30 - Manufacturing Services 1:: Private consumption 14.9 6.3 , General government consumption 6.1 11.6 97 90 99 w 01 02 Gross domestic investment 9.2 34.4 -Exports -O'lmports Imports of goods and services 30.0 26.3 Note: 2002 data are preliminary estimates. Group data are through 2001 * The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. -50- Serbia and Montenegro PRICES and GOVERNMENT FINANCE 1982 1992 2001 2002 Domestic prices (% change) Consumer prices 91.1 21.2 Implicit GDP deflator 91.7 25.5 Government finance (% of GDP, includes current grants) Current revenue 38.9 42.8 0.2 -1.1 Current budget balance -GDP deflator *CPI Overall surpluddeficit -1.4 -4.5 I TRADE 2002 1982 1992 2001 Export and import levels (US$ mill.) (US$ millions) Total exports (fob) 2,003 2,412 Food Other fuel Manufactures Total imports (cif) 4,837 6,320 Food Fuel and energy Capital goods 1 98 97 98 99 00 01 02 Export price index (1995=100) Import price index (1995ZfOO) i B Exports Imports Terms of trade (1995=100) BALANCE of PAYMENTS 1982 1992 2001 2002 Current account balance to GDP (%) (US$ millions) Exports of goods and services 2,743 3,241 Imports of goods and services 5,160 6,857 Resource balance -2,417 -3,616 Net income -26 -111 Net current transfers 1,915 2,343 Current account balance -528 -1,384 Financing items (net) 923 2,200 Changes in net reserves -395 -816 Memo: Reserves including gold (US$ mil/lons) 1,169 2,280 Conversion rate (DEC, /ocal/US$) 66.7 64.2 EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 Composition of debt mill.) (US$ mil/ions) 2002 (US$ Total debt outstanding and disbursed 11,740 11,912 IBRD 1,840 2,175 IDA 0 167 Total debt service 107 188 IBRD 75 IDA 0 Composition of net resource flows Official grants Official creditors 242 Private creditors Foreign direct investment Porlfolio equity E: 2,837 World Bank program Commitments A - IBRD E - Bilateml Disbursements B - IDA D -Other multilateral F -Private Principal repayments 0 C - IMF G - Short-term Net flows Interest payments 75 Net transfers Development Economics 2/4/04 -51- Additional Annex 1I : Road Financing and Expenditures in Serbia SERBIA AND MONTENEGRO: TRANSPORT REHABILITATION PROJECT A. Road Expenditures A road fund existed in Serbia until 1992 and, on average, the contribution from fuel duty accounted for 80% of total regular revenues of the road sector’s budget between 1961, when the mechanism was introduced, and 1992. This allocation was substantially higher than the equivalent allocation today, reflecting both the higher volume oftraffic and the associated higher fuel consumption. In the 199Os, public funds allocated to road expenditures decreased significantly and, by default, toll revenues generated by motorways and semi-motorways gradually became the main source of road funding (in certain years motorway tolls provided 90% of regular revenues ofthe total road budget). In line with the policy outlined above, the sums of EUR 83 and 113.5 million were allocated from the State budget to the road network in 2002 and 2003 respectively (Tables la and lb), of which EUR 36.5 and 3 1.1 millions were spent on rehabilitation and reconstmction ofroads in 2002 and 2003 respectively. The rehabilitation of the existing Belgrade - Novi Sad semi motorway and the construction of the second carriageway is now expected to be financed by the State through sovereign loans from the ED3 and the EBRD. IF1 sovereign loans are expected to become available to co-finance the reconstruction and extension of the Belgrade bypass, the Kosovska Mitrovica - Podgorica road and the Leskovac - Strzovce road. Although several feasibility studies, financed by EU and other grants, are underway, it should be noted that, at present, none of these planned motorway construction projects have been shown to be justified by a comprehensive feasibility study, or studies, undertaken in accordance with intemational standards, (including cost-benefit analysis, environmental impact assessment and an assessment of technical and financial viability). It is also unlikely that the State budget, or IFIs through sovereign loans, will be able to provide sdticient funding to realize these road construction projects in the short-to medium term. A more pressing issue is the lack of sufficient funding for routine and periodic maintenance in recent years, which is a significant factor in the deterioration of the road network. This problem has been compounded by a further factor; a substantial part of available funding has been spent on improvement and construction projects which, in many cases, were selected to reflect political priorities, rather than economic justification. The use ofavailable resources, therefore, was not optimized in an allocative efficient sense. TABLE la Revenues of Serbian Road Directorate [Origin 1 Millions (Dinars) Millions (Em) YO 2001 2002 I 2003 1 2001 2002 2003 2001 2002 2003 1. Budget 2095.7 5033.0 7329.2 34.9 83.0 113.5 31.3 34.7 40.0 2. Toll 1639.5 2608.8 4538.9 27.3 43.0 70.3 24.5 18.0 24.8 671.2 1371.9 1860.9 22.6 28.8 -Domestic 1236.9 2678.0 20.4 41.5 Vehicles 968.3 - Foreign - 52 - & vehicles 4. Rent for exploitation 32.8 371.2 424.4 0.6 6.1 6.5 0.5 1 2.6 2.3 of the groundalong roads, gas stations, etc 5. Compensation for 8.1 16.8 18.9 0.1 0.3 0.3 0.1 0.1 0.1 non-standardtranspod (i.e. overweight) 6. Registration fee 325.5 Under Under No 5.4 Under No Under No 4.9 Under No Under Nc NO4 4 4 4 4 4 7. Other funds 238.7 Under Under No 4 Under No Under No 3.5 Under No Under Nc NO4 4 4 4 4 4 TOTAL REGULAR 4746.4 8660.5 13107.6 79.1 142.8 203.0 70.9 59.8 71.5 INCOME 8Participation of other 16.9 122.5 31.1 0.3 2.0 0.5 0.3 0.8 0.2 subjects TOTAL 16.9 0.3 31.1 0.3 2.0 0.5 0.3 0.8 0.2 PARTICIPATION 9. IF1loans EIB: 5181.2 30.0 80.2 12.6 28.3 1819.6 10. Loans from 1926.9 3884.1 Under No 5.0 64.1 UnderNo 4.5 26.8 UnderNc 9 9 4 commercial banks and contractors TOTAL LOANS 1926.9 5703.7 5181.2 32.1 94.1 80.2 28.8 39.4 28.3 TOTAL INCOME 6690.2 14486.7 18319.9 111.5 238.9 283.7 100 100 100 Source: Serbian Road Directorate, 2004 TABLE lb Expenditures of Serbian Road Directorate Main Items a) b) Arterial c) Regional Total % Motorways roads roads & semi-motor ways 200200 200 2001 2002 2003 2001 2002 2003 2001 2002 2003 2001 2002 2003 123 studies & 160. 297. 279. 45.5 129.3 279.3 Include 27.5 56.0 205.8 454.2 614.3 3.1 3.1 3.3 3 4 0 0.7 2.1 4.3 dinb) 0.5 0.9 3.4 7.5 9.5 Projects 2.7 4.9 4.3 Maintenence 577. 911. 981. 2564.1 2970.4 2543.1 Include2151.0 2549.! 3141.4 6032.4 6074.4 46.9 41.6 33.2 3 0 4 42.7 49.0 39.4 din b) 35.5 39.5 52.3 99.5 94.1 9.6 15.0 15.0 Rehabatation 168. 791. 427. 1209.2 539.1 1002.0Include 884.1 582.0 1377.6 2214.5 2011.1 20.6 15.3 11.0 4 3 1 20.2 9.0 15.5 dinb) 14.5 9.0 23.0 36.5 31.1 2.8 13.0 6.6 I Reconstructio a Construction 587. 1067 3653 544.9 373.6. 266.6 Include 71.0 132.0 -cct1132.2 1511.64051.8 16.9 ~ 10.5 22.1 - 53 - 3 .3 .2 9.1 13 4.1 dinb) 1.2 2.0 18.9 24.9 62.7 9.8 17.6 56.6 6.1 Total Works 149 3067 5340 4363.7 4012.1 4091.OInclude3133.6 3319.9 5857.0 10212. 12751 3.3 .O .7 72.7 66.2 63.3 dinb) 51.7 51.4 97.6 7 6 24.9 50.5 82.7 168.4 197.4 i Additional 472.3 919.6 Programs (1) 7.9 15.2 i Expensesof 288.3 430.1 559.8 SRD 4.8 7.1 8.7 ' Debt services 72.6 2924.3 5008.: & transfers 1.2 48.2 77.6 TOTAL 149 3067 68874363.74012.1 5121.6Include3133.6 2548.2 6690.2 14486. 18319 3.3 .O .5 72.7 66.2 80.4 din b) 51.7 40.0 111.5 7 9 24.9 50.5 108. 238.9 283.7 RES 1 Source: Serbian Road Directorate, 2004 B. Road User Charges The structure of road user charges in Serbia is based on a combination of fuel taxes, annual vehicle registration fees, tolls collected on the motorways and semi-motorways, together with transit charges imposed on foreign freight vehicles. The structure of the specific road user charges and taxes is similar to that found in other European countries, with a user charge that reflects the distance traveled (i.e. fuel consumed, through the excise tax), together with an 'access to the network charge' on the different types of road users (cars, coaches, trucks) in the form of vehicle registration fees. The former are collected directly by the Government, forming part of the general fimd that is used to finance the State budget. The latter, the vehlcle registration fees, whilst differentiated by vehicle type, are not based on the damage a particular vehicle, or vehicle class, does to the road network, and are, therefore, too low for the heavier commercial vehicles. In addition, the current system for calculating these fees is unnecessarily complex. A further problem is that the tolls paid on motorways and semi-motorways by domestic vehicles are far below the levels paid in Western Europe, even after the toll increase introduced in March 2003. Finally, transit fees have been used in the past to control foreign traffic but they have tended to decline year by year in real terms. Vehicle registration fees are below what would be required for heavy goods vehicles to cover the full road damage costs that these vehicles incur. A HGV (tractor-trailer combination) would pay about EUR 275 per year, compared to about EUR 700-2000 paid in EU Member States. In Serbia around 45% of the yield of these registration fees is paid to the local administration and 55% to the Serbian Road Directorate. - 54 - TABLE 2. Source: Rebis, 2003 The fuel tax is seen as a general tax. A specific fuel levy paid exclusively by road users, which survived the annulment ofthe road fund, was also abolished in April 2001 because it was difficult to administer. The fuel retail price for gasoline (EUR 0,730Aitre) is set on the average of the price level observed in the region (EUR 0,73l/litre). However, the diesel retail price (EUR 0,65/litre) is by 7.2% hgher than the average price level ofthe region. The tax amounts up to 53% of the retail price for diesel and 57% for gasoline, which is about average for the region, but below the proportion in EU countries. (Table 3). Country Diesel Taxes Tax paid Gasoline Taxes Tax paid Total Taxation price (YO) per litre price (YO) per litre Revenue millions EURllitre in EUR EURAitre in EUR EUR in 2002 Bulgaria 0.58 47.46% 0.28 0.67 52.94% 0.36 1,225 Albania 0.5 39.22% 0.2 0.79 60.00% 0.48 137 Serbia & Montenegro 0.65 53.03% 0.35 0.73 56.76% 0.42 1,750 Bosnia & Herzegovina 0.73 58.11% 0.43 0.73 56.76% 0.42 102 ,Romania 0.56 45.61% 0.26 0.63 50.00% 0.32 1,620 FYROM 0.62 50.79% 0.32 0.84 62.35% 0.52 204 L1llllll 1111111111 11-1111111-1111111 Region Average 0.61 50.49% 0.31 0.73 57.40% 0.42 839 IEU Averaee I 0.81 62.13% 0.5 098 hihio/. nhh ih4~n Source: International Fuel Prices, 2003 Although tolls are actually collected exclusively on motorways and semi-motorways by a separate department of SRD, they are allocated, together with all other revenues, to cover expenditure related to the whole public road network. As a consequence motorway toll revenues are not directly linked, or restricted to be spent, on motonvays and semi-motorways. Another feature of the motorway toll charging system is discrimination between domestic and foreign motonvay users (Table 4). Toll rates levied on foreign vehicles are similar to rates applied in Europe (typically about EUR 0.05 per vehicleh for cars and up to EUR 0.15 per vehicleh for heavy goods vehicles), whereas tolls for domestic users were only about 15% of these until mid March 2003. Since that date, domestic tolls were nearly doubled so that the ratio of foreign to domestic toll rates is currently 3.6. Although Serbia is not a pre-accession country, EU policy is that tolls for foreign and domestic users be set at the same level. The EU puts considerable pressure on - 55 - Serbia to conform to this policy. The Government has stated that it intends to eliminate the difference by the end of2005 by raising domestic tolls. However, it is not clear whether domestic users will be willing to pay these higher rates as discussed below. The revenue from tolls paid by domestic vehicles increased from EUR 22,6 million in 2002 to EUR 28.8 million in 2003 while the revenue from tolls paid by foreign vehicles increased from EUR 20,4 million in 2002 to EUR 41.5 million in 2003. Altogether, currently, about 35% of the road sector’s regular annual income derives from tolls collected on the motorways and semi-motorways. Vehicle Domestic Foreign (EURkm) cateporv (E Uwkm) I 0.0 15 0.065 I1 0.025 0.095 I11 0.05 0.195 IV 0.1 0.385 Source: Rebis, 2003 Finally, a significant portion of the road revenues has traditionally come from transit taxes on foreign freight vehicles. The amount gathered from the tax as a percentage of the total revenues was greater than the amount collected from registration fees both in 2002 and in 2003. However, the rationale for its existence and imposition has been highly criticized and most European and Balkan countries plan to abolish it. According to the budget of SRD, the amount oftransit taxes collected in 2003 (6.1%) as a percentage of total regular income is smaller compared to the 7.2 % collected in 2002 (Table 5). Trucks EUR 0.026 per gross ton per km Buses < 30 passengers EUR 0.028 per km Buses > 30 passengers EUR 0.036 per km Source : Rebis, 2003 C. Cost Recovery The annual road maintenance (routine and periodic) needs in Serbia is about EUR 255 million. The number above is based on the average estimate of 6250 EUR/km needed for the maintenance of the total Serbian road network (40,845 km). According to REBIS and other similar studies, the cost ofroutine and periodic maintenance ofthe total network is around 80% of the total revenues or in other words the cost is recovered 1.27 times. However, funds dedicated to maintenence rehabilitation and reconstruction of the existing network, covered only 53% ofthe needs, in 2003. D. Governmental Policies and Commitments A sustainable solution to the financing of maintenance activities in the road sector will require a strong political consensus. A first step would be the the preparation of a multi-year road expenditure and financing plan, to be prepared by SRD and approved by the Parliament, with the objectives of reforming the road financing system, addressing the maintenancehehabilitation backlog, completing ongoing construction projects and defining a realistic schedule for the rehabilitation and eventual extension of the - 56 - motorway network based on economic efficiency and financial viability criteria. The road financing system should be reformed to support the above revenue and expenditure plan. The principles to be followed should include charging each class ofroad user in accordance with their respective road cost responsibility, providing an assured source of road financing on a multi-annual basis, and moving in line with EU practice. Increases in road related fuel taxes and heavy goods vehicles registration fees will be required, as will increases in motorway tolls for domestic users. The financial consequences ofnot catching up with the maintenance backlog are serious (premature reconstmction) and multi-year road contracts and planning require fimding which is not subject to annual budgetary fluctuations. Any road rehabilitation and construction project which would be implemented either entirely with public funding or under complex PPP arrangements (in the form of concessions) would require high levels of Government support. These levels of support appear to be neither economically/socially justified nor affordable at this time, due to low traffic volumes and the lack of users willingness to pay the required tolls. It is recommended that the Government continue to monitor the rate of traffic growth, identify and evaluate a number of potential new road projects, including toll motorways, in a national transport context. This process would enable the Government to build up an inventory of projects, including some eligible for PPP implementation in the future and to rank them in order ofpriority according to economic and social criteria. Because PPP project preparation time is lengthy, priority should then be given to project preparation measures, including preliminary design, feasibility studies (cost-benefit analysis, environmental impact assessment, financial planning, etc.), land acquisition and the issuance of relevant licenses and building permits. - 57 - Additional Annex 12: Road Safety in Serbia & Montenegro SERBIA AND MONTENEGRO: TRANSPORT REHABILITATION PROJECT The Central and Eastem Europe region accounts for 12 % of the world's fatalities, almost twice its share of population or motor vehicles (6-7%). In terms of number of fatalities per capita, it has one of the worst personal safety records of any of the world regions. While current crash and casualty data is readily available for the region, trend data is difficult to collect on many countries and discrepancies are frequent, especially in respect to motor vehicles. I- 0 5 02468101214 I I Source: Author's calculations The risk on the roads in Serbia has been one of the highest in Europe for decades and today a few things have changed. As Figures 1 and 2 indicate the level of road safety in Serbia and Montenegro has been better than the level of road safety in other Central and Eastem European countries. However, in absolute terms Serbia still faces the same safety issues that has been facing for years. - 58 - Figure 3. The Composition of Road Accidents in Serbia (1997-2002) 30000 El Number ofFatalities mNumber of Injuries 25000 n 20000 15000 10000 5000 0 1997 1998 1999 2000 200 1 2002 Source: Ministry of Interior, 2003 The data above reveal a downward trend in road accidents over the last five years in Serbia and Montenegro. Figure 3 shows the number of accidents declined approximately by 36% from 1997 to 2002. Severe speed limits were first introduced in Yugoslavia in the early seventies as a measure to decrease fuel consumption rather than to effectively control road accidents. The result was the most significant reduction in accidents recorded without any earlier plans or strategies. Lowering the speed limit has been seen as the only remedy to enhance safety on the roads. The manifest safety issues such as dangerous locations, limited equipment for adverse weather conditions, systematic reactive measures against slipperiness, and poor facilities for pedestrians or additional lanes were addressed. Approximately 55% of fatal accidents in 2002 were reported to be caused by speed violations and more than 90% were described as drivers fault (Figure 4). Pedestrians account for a significant portion of fatal accidents ranging from 6-7%. Figure 4. Main accident causes reported by Serbian Police (2001-2002) -59- 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Main causes Main causes Main causes Main causes Main causes Main causes of fatal of injured of accidents of fatal of injured of accidents accidents 2001 (%) 2001 (%) accidents 2002 (%) 2002 (%) 2001 (%) 2002 (%) Source: Ministly of Interior, 2003 Most accidents occur on urban roads, however, the accidents occurring on rural roads are more serious as indicated in Table 1. 7% ofthe total accidents occurred on rural roads while 24% ofthe fatal accidents and 26% ofthe fatalities happened on rural roads. There are 1.37 fatal and injured per accident on the urban roads and 1.78 fatal and injured per accident on rural roads. Accidents Consequences With fatal With injured With damage only Total Fatalities Injured Total Urban areas 586 76% 9694 90% 37933 94% 48215 93% 631 74% 13519 87% 14151 86% Outsideurbanareas 183 24% 1099 10% 2577 6% 3859 7% 216 26% 2066 13% 2282 14% Total 769 100% 10793 100% 40510 100% 52074 100% 847 100% 15585 100% 16433 100% The numbers of fatal and injured are presented in Figure 2 by age groups. Most fatal and injured in traffic accidents are found in the age group 19-25 years and 26-35 years. This is rather typical in most countries that young drivers (often male) are over represented in the traffic accident statistics. Figure 5. Fatal and Injured by age groups (2002) - 60 - 2500 -0 e 2000 -.-3 1000 500 0 Under 7 8-14 I5-1 a 19-25 26-35 36-45 46-55 56-65 over 65 unknown Age (years) Source: Ministry of Interior, 2003 Most ofthe 19-45 years of age are killed or injured in traffic accidents (either driver or passenger) while children and people over 65 years are mainly injured or killed as pedestrians as seen in Figure 6. Figure 6. Fatal and injured by age and mode (2002) -61 - 100% 0 Other 90% 0 Passengers tI Pedestrians 80% 0 Drivers 70% 60% 50% 40% 30% 20% 10% 0% Under7 8-14 15-18 19-25 26-35 36-45 46-55 56-65 over65 unknown Age Source: Ministry of Interior, 2003 However, road accidents in Serbia and Montenegro are the result of a complex interplay between drivers, vehicles and road infrastructure and determined by other factors such as high average vehicle age, which in Serbia is currently over sixteen years and increased traffic volume. Table 2 presents the average age of the different types of vehicles. Data from the Serbian Road Directorate indicates that most of the vehicles are poorly maintained, and are unable ofhandling and avoiding road hazards and vulnerabilities. Table 2. Average age of Vehicles in Serbia IPassenaer - Cars Buses Trucks Articulated Trucks I I 16 18.4 16.8 14.60 I Source: Faculty on Transpoor? and Traffic Engineering Institute, 2002 Wars and sanctions have decreased the network traffic volume (AADT) during the three years period (from 1990 to 1993) by 50%. From that time until 2002 AADT has not yet reached the level of 1990. For instance, data on foreign vehicles participation in the traffic flow from 6 toll places indicate that international transit have reached only 33% of the intemational transit recorded in 1990. During the past decade the average traffic volume realized two major declines but also a positive traffic trend during the last three years. According to the Rebis Study (2003) cars and domestic trucks traffic will grow by 30% and intemational cars traffic will grow by 25% between 2001-2006. The forecasts have been generated regarding the overall economic conditions -especially the future GDP growth-, the actual state of the vehicle fleet and time for its recovery, the amount of foreign traffic and the expected population growth. - 62 - The short and medium term results of such an expansion will definitely have an impact to the wear and tear of the highways and increase the probability of road accidents. It should be taken into account that the roads are already in a bad condition and special consideration should be given in designing realistic and feasible strategies that will embrace both rehabilitation and road safety needs. The Traffic Department of the Serbian Ministry of Interior is responsible for collecting and processing traffic data. However, the quality of the data is poor and the regular official summary reports on safety are not informative enough to serve as a base for analyses and specific responsive measures. Moreover, the reference system for accident locations is very weak and makes it extremely difficult to identify possible black spots, sites or areas. Because of the already mentioned general attitude about the role of the driving speed as a cause of accidents and because of other reasons connected with the reporting routine as well, the accident causes are usually not identified or analyzed thoroughly. Improvement of Road Safety Management could be achieved by creating a Traffic Safety Department under the Ministry of Interior or under SRD. The Road Safety Manager and the road safety staff would be responsible for implementing various activities such as: Upgrading and enriching the existing road safety data system, in order to collect reliable and accurate safety database. Audits could be a trustworthy source of information about number and causes of accidents, inconsistency ofsigning and road markings, and about blackspots identification. Establishing legislation on safety issues as a supplement to the new Road Law. Identifying road safety priority projects which can be financed by IFIs, the local or federal government or domestic organizations and associations. Decisions for the selection of the projects should be based on purely economic and social criteria. Publishing reports and studies reflecting the present status ofroad safety as well as potential future policies. Establishing training courses for road engineers as well as open seminars in cooperation with other agencies and international organizations. Establishing a Road Safety Awareness program that would run all over the country. Potential target groups might be school children, drivers, taxi owners, public bus operators, institutions, associations and local communities in general. The creation ofroad safety consciousness could be achieved by organizing special road safety events at schools, by giving away booklets, leaflets and posters or by producing animated road safety education TV programs for children. A necessary condition for the successful implementation ofsuch a plan is the close cooperation of Traffic Police, Local Governments, the Ministry ofCapital Investments, Ministry ofInterior, Ministry of Education and Sports and Ministry ofHealth. The existing policy makes little reference to specific traffic safety issues. However, MOCI is planning on developing a new national transport policy and strategy to replace the current one. Under this framework MOCI is planning to develop a five year program to coordinate road safety activities. The proposed Twinning Arrangement with the Swedish National Road Administration as well as the ongoing collaboration with the World Bank shows that MOCI has realized the importance of creating a robust transport policy oriented towards traffic safety. - 63 - Additional Annex 13: Twining Arrangements between the Swedish National Road Administration (SNRA) and the Republic of Serbia Road Directorate (SRD) SERBIA AND MONTENEGRO: TRANSPORT REHABILITATION PROJECT Matters related to road transport infiastructure in Serbia are the responsibility of the Republic of Serbia Road Directorate (SRD). SRD currently manages the network of about 14,000 km of arterial and regional roads. Due to under-funding and inadequate maintenance over the past decade, the network has deteriorated rapidly and is in a poor condition overall. After years of isolation and mismanagement SRD needs assistance to improve its institutional capability to implement extensive programs of road maintenance and rehabilitation, based on the latest developments, knowledge and best practices in developed countries. Within the strategy of supporting transitional changes of legal, institutional and financial frameworks for Serbia, the World Bank has identified a project for rehabilitation of the transport sector. The aim is mainly support of institutional transformation of road administration through implementation of selected measures in restructuring, capacity building, policy development and promotion of private sector development. The main objective of the Transport Rehabilitation Project is to increase the efficiency of the Serbian road transport sector by rationalising its regulation, strengthen local contractors and encourage competition, optimise the use ofexisting assets and reduce the burden to the public finance. The proposed twinning arrangement is a complement to the World Bank project. Experiences in other countries have shown that establishment of lmks between similar institutions can be a very effective approach to institutional development and technical assistance. In addition to these advantages, twinning of SNRA and SRD could also substantially reduce the time and effort needed for harmonisation with EU legislation, standards and procedures, as well as for restructuring and capacity building in the Serbian road sector. The objective of the twining arrangement is institutional strengthening of SRD, complementing the efforts in the Transport Rehabilitation Project. It is anticipated that the twinning arrangements will: i) provide services and training for improving SRD’s capacity to implement routine summer and winter road maintenance and rehabilitation works; ii) address road safety issues with focus on the responsibilities of the SRD; iii) address environmental issues linked with the roads; iv) improve road and bridge maintenance management; and v) enable study tours and exchange of staff. The twinning arrangement shall provide technical assistance and training for implementation and management of the “maintenance by contract”, improvement of procurement procedures and supervision of works, establishment of a Road Weather Information System (RWIS), preparation and management of plans and regulations for trafic safety and environmental protection, improvement of data collection on roads, bridges and traffic etc. The expert assistance and training shall mainly be targeted at senior and middle level staff from SRD, local consulting firms, maintenance and construction companies as well as other stakeholders in road transport sector, notably the Traffic Police. The Project is planned for a 3-year period commencing mid, 2004. The intention is that there shall be no need for any extension after mid, 2007. The assumption is that SRD by that time should be basically self-sufficient in the areas subject to support. - 64 - The benefits of the Project will be a modernised, more effective and efficient road administration that is implementing policies, legislation and procedures harmonised with EU. The Project should result in increased accountability and credibility of SRD in the public eyes as well as increased morale and competence of employees. The project will substantially contribute to improved road safety, mobility and accessibility of all social segments, both men and women, disabled categories and other weak road users. As result of the Project new traffic safety and environment impact mitigation measures will become effective. Parties to the Agreement e Imulementinn organisation: Swedish National Road Administration (SNRA), SE 78187 Borllinge, Sweden The agreement with SRD will be executed SNRA’s subsidiary, SweRoad, Box 4021, SE-171 04 Solna, Sweden. Contact person: Carl-Henrik Ulegkd, Project Director, phone: +46 70 529 7996, email: [email protected] e Recipient organisation: Republic of Serbia Road Directorate (SRD), Bul. Kralja Aleksandra 282, 11 000 Beograd, Serbia. Contact person: Ljerka Ibrovic, Senior Advisor to the Director and Project Coordinator phone: (+381 11) 30-40-701 fax: (+381 11) 30-40-702 mobile: (+381 63) 348 126 email: [email protected]. liibrovic0,dzu.co.yu - 65 - Additional Annex 14: Letter of Development Policy SERBIA AND MONTENEGRO: TRANSPORT REHABILITATION PROJECT REPUBLIC OF SERBIA Ministry of Transport and Telecommunications Republic of Serbia Road Directorate Road Management and Maintenance Policy Letter Ms. Orsalia Kalantzopoulos, Country Director The World Bank Washington D.C. Dear Ms. Kalantzopoulos, 1. In pursuing the program of economic recovery and transition to a modem market economy, the Government of Serbia is facing a number of challenges, particularly with regard to macroeconomic stability, rehabilitation of existing infrastructure and structural reforms. Much has been already accomplished in restoring macroeconomic stability and laying foundations for economic growth, but significant challenges still remain in putting the country onto a path of sustainable growth. Rehabilitation of infrastructure and structural reforms are essential prerequisites for normal functioning of productive capacity and better resource allocation, which is needed to sustain growth into the future. The quality oftransport infrastructure and the capability of institutions in the Serbian transport sector are now significantly lower than 10-15 years ago. This is particularly true in the road sector, which accounts for about 90% of goods and passenger movements in Serbia. Due to under-funding and inadequate maintenance over the past decade, the road network has deteriorated rapidly and now is generally in poor condltion. In order to remove maintenance backlog, the Government has recently started an extensive program of emergency rehabilitation of the road network, based mainly on external financing. At the same time, the Government is making efforts to strengthen road management, improve policies goveming user charges, and increase allocations for road maintenance. After years ofisolation and mismanagement, institutional capability of road administration needs to be improved as well, thus enabling better management of road network in a customer focused, safe and efficient manner, based on the latest developments, knowledge and best practices in more developed countries. 2. The Government of Serbia intends to borrow US$ 15 million from the Intemational Development Association (IDA) to help finance a Transport Rehabilitation Project (TRP) with the overall objective to increase efficiency and safety of road transport in the country. The Borrower's contribution to TRP is expected to be about the same as the IDA contribution. 3. The objective of this Letter of Development Policy (LDP) is to demonstrate the Government's commitment to an appropriate road management and maintenance strategy, allowing seamless implementation of TRP and to enhance sustainability ofits expected impacts. Objective 4. There is a clear and urgent need to take action to improve the ability of Republic of Serbia to manage more efficiently and maintain properly its road network. The Government is currently spending - 66 - substantial financial resources on emergency rehabilitation of the core road network, which will soon start to deteriorate again unless an effective and efficient strategy of road management and maintenance is elaborated, approved and implemented. 5. The project development objective is to increase efficiency and safety in the road sector, which accounts for about 90% of goods and passenger movements in the Republic of Serbia. The project will contribute to economic growth by decreasing transport costs, thus increasing trade efficiency, fostering private sector involvement in the road sector, and increasing efficiency of road public expenditure, including the introduction of contract maintenance. Our policy for achieving this objective, based on results and recommendations of a number of studies related to road management, operation, maintenance and financing, as well as on data collected and analyzed by road administration, is presented bellow. Road Management and Maintenance Policy 6. The policy that we envision is based on the principle of providing and maintaining an appropriate service level for each portion ofthe public road network. At present that means more timely and adequate maintenance for all main and regional roads in Republic of Serbia, but over the longer run it should prevent overspending for maintaining roads beyond what is justified for their traffic level and usage. This principle results in the lowest possible cost for maintaining roads, as timely maintenance reduces the need for costly reconstruction, and avoiding excessive maintenance has obvious benefits in lowering the total costs for the road directorate. The correct application of this principle requires techniques that provide guidance on how to achieve just the right amount of maintenance for each road section at the right time. 7. The policy includes measures to address five important areas at once: a. creating an effective organizational structure for road management, b. establishing a system that assures an adequate level of road financing, c. enhancing privatization of road construction and maintenance companies and contracting out works to the private sector through transparent and competitive procurement practices, d. putting in place sound operational procedures including safety improvement measures, and e. adopting good personnel policies including the provision of relevant training. 8. Organizational Structure - There are three guiding principles that Serbia should pursue in its effort to achieve better organizational structures in road management. First, it has become obvious and it is intemationally acknowledged that private sector operations, especially under competitive conditions, are invariably more efficient than public sector operations. Therefore, as many functions as possible of the Serbian Road Directorate (SRD) should be carried out on contracts, arranged on a competitive bidding basis with due regard for transparency, and suitably supervised by the Road Directorate. 9. The second principle, which has already started to be applied, is that the "client" should be separated organizationally from the "producer", since this results in clear cut, single point responsibilities and obligations. Ifthe road administration is carrying out road maintenance work with its own forces, there is no client to determine that the work has been properly executed. Contracting out can achieve the desired separation of client and producer, in which the producer must produce satisfactory work if he wants to be paid. 10. Third, it is well known that decisions should be taken at a level and by staff having the best information about the problem. There is an obvious need to avoid redundancies and to have a stronger coordination and standardization of the road management and works. The Road directorate shall play an important role in this respect. Organization and responsibility for managing and maintaining roads should - 67 - be structured in line with the Constitution and relevant legal framework. 11. Financing: The road users have both an obligation to pay for the use of the roads (through fuel andor other taxes and fees related to the use of the roads), and an opportunity to gain benefit which they receive in the form of reduced vehicle operating costs and travel time, as well as increased safety, when the roads are well maintained. Other important principles are that (i)an adequate level of financing that permits timely maintenance will result in lower overall costs for the operation of the road network, and (ii)the amounts of financing for road maintenance should be relatively level each year so that the contractors will be able to develop their staffs and purchase equipment with the knowledge that they will be able to compete for work every year. 12. The obvious conclusion is that sufficient road expenditure budget within the Ministry of Transport and Telecommunications is to be allocated on an annual basis. The country's present road user tax structure needs to be revised and improved in order to ensure an adequate and stable flow of funds. If infrastructure damage costs are to be properly recovered, it is necessary to charge users according to actual costs they impose to road network and other users. There is a need for effective cost recovery program which would include a 11 vehicle categories taking into account the differences in road infrastructure damage caused by heavy vehicles as compared to passenger cars and other users. The total cost to be recovered should be allocated to the users in proportion to the damage they cause by applying specific indicators to different vehicle categories. What is also needed is vastly improved tadfee collections, and a mechanism that assures that an appropriate portion of the collected funds are then turned over to the authorities bearing exclusive responsibility for road management and maintenance. 13. In case the steady and rapid traffic growth continues as expected, and traffic volumes on certain elements of the main road network in peak periods will approach capacity level, opportunities to increase capacity attracting private capital into the road business under a concession type public-private partnership scheme will be duly considered and assessed. 14. Procurement Practices: The privatization of road construction and maintenance services and companies will continue to be encouraged and supported by appropriate contracting measures. The road management and maintenance strategy will include good procurement practices t o assure competitive bidding, adequate quality control, and the application of new technologies through contact with what is going on in road maintenance practices in other countries. There is no practical way to become up to date on the best operational practices without the help o f knowledgeable technical advisers that have these skills. As part of the IDA-financed Transport Rehabilitation Project, performance based maintenance contracts will be implemented on a pilot basis. This innovative form of contracting will be supported by a Twinning Arrangement between SRD and the Swedish National Road Administration (SNRA), under the framework ofthe IDA-financed TRP. 15. Operations: The road management and maintenance policy will be implemented through the application of proper operational procedures and practices, including the use of economic evaluation to determine how best to use limited resources and how to avoid under- and over-spending for maintenance. Appropriate environmental and social assessments will be carried out simultaneously. As part of the operational activities a monitoring and data collection system feeding an appropriate data bank will be established, dealing with road, traffic and accident data as well. 16. Personnel Policies: Implementation of the strategy also depends on having competent staff producing at high levels. The personnel issues are reduced to the extent that contracting is used, since most personnel are employed by the contractors. However, there will still be a critical core of persons on - 68 - public payrolls managing the road system. Selection should be on the basis of qualifications, dismissal should be an option for non-performers, and salaries should be at levels that can attract and hold qualified staff. Training is another important element in bringing the staff up to standard in areas that they have not been exposed to before, including transparency in contract management, budgeting, and planning based on economic analysis and concem for the environment and social impact. Training already received should be used as a basis for the future technical assistance and training program. Actions to Implement the Road Management and Maintenance Policy 17. Critical steps in the implementation ofthis policy include: (a) Classify roads hierarchically and place them under the responsibility of the appropriate Government Body by approving appropriate legislation or regulation. (b) Carry-out all road and bridge maintenance work by contract, both for routine and periodic maintenance. The SRD will be responsible for planning and budgeting, contracting for design, civil works and maintenance, and ensuring quality control of the contracted road works. The works will be carried out by private contractors under contracts secured from the road administrations on a competitive bid basis. Procurement of equipment would be the responsibility ofthe contractors. (c) Train relevant SRD personnel in economic analysis, modem budgeting and accounting practices, new road technologies, procurement and contract management (including performance-based contracts and public-private partnerships), quality control, and road safety; salaries should be set at rates able to compete for qualified staff with the private sector; donor support should be sought for training, office equipment, and contacts with road maintenance practices in other countries. (d) Provide financial support and training (on a voluntary basis) for the private road construction and maintenance industry in competitive bidding practices, cost accounting, modem road construction techniques, and good management practices. (e) Establish a comprehensive data bank, collecting, storing and processing road and bridge condition, traffic and accident data serving as a base for long term planning, project evaluation, management systems, and road safety improvement programs. The data bank will include socio-economic information on road users and all accident victims. 18. We are convinced that support for the above set of measures will allow us to tackle the country's road deterioration problem. The elaboration and implementation ofthe proposed Road Management and Maintenance Policy will contribute to the expected sustainable economic growth ofour country. We appreciate your support. - 69 - Sincerely yours, Ministry ofTransport and Telecommunications Raseta Vukosavljavic ic of Serbia Road Directorate Director: Tihomir Timotijevic n de, December 19,2003 - 70 - SERBIA AND MONTENEGRO TRANSPORT REHABILITATION PROJECT PROJECT: EUROPEAN HIGHWAYS PROVINCE BOUNDARIES ANALYSED ROAD SECTIONS ROAD SECTIONS OTHER CLASS I HIGHWAYS REPUBLIC BOUNDARY LOTS EIB REHABILITATION PROJECT NUMBER SECONDARY ROADS INTERNATIONAL BOUNDARIES 01 LOTS EBRD SERBIAN ROAD MAINTENANCE PILOT PROJECT: AIRPORTS 1 LOTS EIB NUMBER MACVA DISTRICT TOWNS 10 LOTS EBRD NUMBER KOLUBARA DISTRICT REPUBLIC OR PROVINCE CAPITALS NATIONAL CAPITALS 18° 19° 20° 21° 22° 23° HUNGARY Szeged Arad Pécs 17.1 Subotica 22.1 ˇ Kanjiza 46° Mohács 24 46° 22.1 Bajmok 17.1 Serbia and Senta 18 Backaˇ 22 3 Montenegro 17.1 Topola Sombor Ada Kikinda Timisoara Sivac VOJVODINA Apatin 3 1 Becejˇ 18 Kula 24 3 7 3 Osijek T Srbobran is a 3 22.1 22 Elemir Temerin 7 CROATIA Zrenjanin 18 Backaˇ 7.1 Vinkovci Palanka 7 1.9 Novi Sad 24 ˇ 22.1 Vrsacˇ Sid 21 Alibunar 18.1 1.9 22.2 1 2 Indjija 22 45° 45° 18 Ruma 7.1 ROMANIA 1.9 4 22.1 24.1 Bela 18 1 Crkva Brckoˇ Pancevoˇ 21 19 01 BELGRADE ˇ 24 Kovin Bijeljina Sabac Sa Zeleznikˇ v 25.1 Zminjak a Danube Prnjavor 1 21 Smederevo 25.1 19 Obrenovac 1.10 Pozarevacˇ Kladovo 02 24 Golubac 25.1 14.1 22 24 25 Loznica 07 4 10 Smed. 24 4 06 3 Majdanpek Palanka 25 D 1 21 23 Petrovac r Celije´ BOSNIA AND i n 05 a Velika- 24 ˇ 22 Plana Zagubica HERZEGOVINA 19.1 Valjevo 4 Ljubovija SERBIA Negotin 22 23 Bor 9 1.11 25 Vidin Rogacicaˇ 44° Gornji Kragujevac 44° Milanovac 23 19.1 22 Ravni Gaj Cuprija´ Zajecarˇ SARAJEVO 21 Cacakˇ ˇ 03 Uziceˇ 23 1 5 Paracin´ 5 5 Pozegaˇ 5 10 7 23.1 04 25 21.1 Kraljevo 5 Soko 5 Banja BULGARIA 21 22 Knjazevacˇ Ivanjica Aleksinac 12 Krusevacˇ 5 10 1 Focaˇ 21 21.1 U Prijepolje va Nisˇ c 8 L Pljevlja i 22 1.12 m 8 11 Raskaˇ Prokuplje Ta 21 Sjenica 1 ra Bela S 8 i Palanka 21.1 tn Pirot ic Novi Pazar a 1.12 22.9 22 12 Bijelo Polje 25 9 43° Leskovac 43° 9 2 Kosovska 2 Mitrovica MONTENEGRO 1 Berane Vucitrnˇ 25 Niksicˇ´ 2 9 8 1.13 9 ˇ Pristina Priboj Pec´ 1 CROATIA Herceg- 9 25.2 Vranje Novi KOSOVO 25.3 Bosilegrad 2 Gnjilane Podgorica 21 Orahovac 25 Bujanovac 25.2 Cetinje 25.3 1 Dakovica Urosevacˇ Presevoˇ Lake Prizren 2 Scutari 25 Bar Shkodër Tetovo 42° Adriatic Ulcinj SKOPJE Sea ALBANIA FYR MACEDONIA This map was produced by the Map Design Unit of The World Bank. IBRD 32810 0 25 50 75 APRIL 2004 The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any KILOMETERS endorsement or acceptance of such boundaries. 20° 21° 22°