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The World Bank Public Disclosure Authorized Report No: 28792-SAM for OFFICIAL USE ONLY

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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
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