Document of The World Bank
Public Disclosure Authorized FOR OFFICIAL USE ONLY
Report No: 27920-RO
PROJECT APPRAISAL DOCUMENT
ON A
Public Disclosure Authorized PROPOSED LOAN
IN THE AMOUNT OF US$225.0 MILLION
TO
THE REPUBLIC OF ROMANIA
FOR A
TRANSPORT RESTRUCTURING PROJECT Public Disclosure Authorized
October 22,2004
Infrastructure and Energy Department Europe and Central Asia Region
This document has a restricted distribution and may be used by recipients only in the
Public Disclosure Authorized performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS
(Exchange Rate Effective October 18, 2004) Currency Unit = Romanian Lei (ROL) US$l.OO = ROL33,104
FISCAL YEAR January 1 - December31
ABBREVIATIONS AND ACRONYMS
APL Adaptable Program Loan Marfa Romania National Railway Freight Operations Company Calatori Romania National Railway MTCT Ministry ofTransport, Construction Passenger Operations Company and Tourism CAS Country Assistance Strategy MPF Ministry of Public Finance CDF Comprehensive Development RNCMNR Romania National Company for Framework Motorways and National Roads CESTRIN Romania Central Laboratory for PAD Project Appraisal Document Transport and Road Infrastructure CFAA Country Financial Accountability PAL Programmatic Adjustment Lending Assessment CFR Romania National Railway PHARE Fund for Assistance to Central and Company Eastern European Counties EBRD European Bank for Reconstruction PPLBL Public Private Institution Building and Development Loan EL4 Environmental Impact Assessment PPP Public -Private Partner ship EIB European Investment Bank PSC Public Service Contract EMP Environmental Management Plan SAPARD Special Accession Program for Agriculture and Rural Development EU European Union SIL Specific Investment Loan GRSP Global Road Safety Partnership SNCFR National Railway Company of Romania (former) ICR Implementation Completion Report SOEs State Owned Enterprises IRIS Integrated Railway Information SWAP Sector Wide Approach System ISPA Instrument for Structural Policies for pre-Accession
Vice President: Shigeo Katsu, ECAVP Country Director / Manager: handK. Seth / Owaise Saadat, ECCUS Sector Director / Manager: Hossein Razavi / Motoo Konishi, ECSIE Task Team Leader: Henrv G. R. Kerali. ECSIE FOR OFFICIAL USE ONLY ROMANIA TRANSPORT RESTRUCTURING PROJECT
CONTENTS
Page
A . STRATEGIC CONTEXT AND RATIONALE ...... 1 1. Country and Sector Issues ...... 1 2 . Rationale for Bank Involvement...... 4 3 . Higher'Level Objectives to Which the Project Contributes ...... 4
B. PROJECT DESCRIPTION...... 5 1. Lending Instrument...... 5 2 . Project Development Objective and Key Indicators...... 6 3 . Project Components ...... 7 4 . Lessons Learned and Reflected in the Project Design...... 9 5 . Altematives Considered and Reasons for Rejection...... 11 C . IMPLEMENTATION ...... 12 1. Partnership Arrangements ...... 12 . 2 . Institutional and Implementation Arrangements ...... 13 3 . Monitoring and Evaluation ofOutcomesResults ...... 14 4 . Sustainability ...... 15 5 . Critical Risks and Possible Controversial Aspects ...... 16 6 . Loadcredit Conditions and Covenants ...... 16
D. APPRAISAL SUMMARY ...... 18 1. Economic and Financial Analyses ...... 18 2 . Technical ...... 20 3 . Fiduciary ...... 20 4 . Social ...... 21 5 . Environment...... 21 6 . Safeguard Policies...... 22 J 7 . Policy Exceptions and Readiness ...... 23
Annex 1: Country and Sector or Program Background...... 24 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...... 29 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. Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...... 30 Annex 3: Results Framework and Monitoring ...... 31 Annex 4: Detailed Project Description...... 35 Annex 5: Project Costs ...... 44 Annex 6: Implementation Arrangements ...... 45 Annex 7: Financial Management and Disbursement Arrangements...... 47 Annex 8: Procurement...... 53 Annex 9: Economic and Financial Analysis ...... 60 Annex 10: Safeguard Policy Issues ...... 72 Annex 11: Project Preparation and Supervision ...... 75 Annex 12: Documents in the Project File ...... 76 Annex 13: Statement of Loans and Credits ...... 77 Annex 14: Country at a Glance ...... 79 MAP of Romania ROMANIA
TRANSPORT RESTRUCTURING PROJECT
PROJECT APPRAISAL DOCUMENT
EUROPE AND CENTRAL ASIA
ECSIE
Date: October 22, 2004 Team Leader: Henry G. R. Kerali Country Director: handK. Seth Sectors: Roads and highways (66.5%); Country Manager: Owaise Saadat Railways (33%); Urban Transport (0.5%) Sector Director: Hossein Razavi Themes: Other public sector govemance (P); Sector Manager: Motoo Konishi Other urban development (P); Public expenditure, financial management and procurement (S); State enterprisehank restructuring and privatization (S); Other rural development (S)
~ Project ID: PO83620 Environmental screening category: A I Lending Instrument: Specific Investment Loan Safeguard screening category: S2
[XI Loan [ ] Credit [ ] Grant [ 3 Guarantee [ ] Other:
3r Loans/Credits/Others: Total Bank financing (USsm.): 225.0 Proposed terms: LIBOR based Variable Spread Loan (VSL) in US Dollars; 5/17 vears (Gracematuritv Deriods)
I
~~ Total 152.90 152.90 FOR I 0.00 I 225.00 RECONSTRUCTION AND DEVELOPMENT Total: 152.90 225.00 377.90 Responsible Agencies: Romania National Company for Motonvays and National Roads (RNCMNR) 38 Bd. Dinicu Golescu, Floor 8, Sector 1, Bucharest 77113, ROMANIA Tel: (40-21) 223-26-06 Fax: (40-21) 312-09-84 andaandnet.ro
National Railway Infrastructure Company (CFR) 38 Bd. Dinicu Golescu, Sector 1, Bucharest 77113, ROMANIA Tel: (40-21) 223-14-87 Fax: (40-21) 222-25-17 Volievschi@,central.cfr.ro / [email protected]
S.C. METROREX S.A. 38 Dinicu Golescu Bvd., 010873 Bucharest, 1, Romania Tel: +4021 336 00 90 / 55 90 Fax: +4021 312 51 49 E-mail: Tiberiu Moldovan
I
ICumulativeI 20.0 I 75.0 I 135.0 I 195.0 I 225 I 225 I Project implementation period: Start: May 15,2005 End: April 30,2009 Expected effectiveness date: May 15, 2005 Expected Loan closing date: July 3 1, 2009 Does the project depart fkom the CAS in content or other significant respects? [ ]Yes [XINO Re$ PAD A.3 Does the project require any exceptions fiom Bank policies? Re$ PAD D. 7 [ ]Yes [XINO Have these been approved by Bank management? ]Yes [ IN0 Is approval for any policy exception sought from the Board? [ ]Yes [ IN0 Does the project include any critical risks rated “substantial” or “high”? [ ]Yes [XINO Re$ PAD C.5 Does the project meet the Regional criteria for readiness for implementation? [XIYes [ ]No Re$ PAD D. 7 Project development objective Re$ PAD B.2, Technical Annex 3 The project aims to improve the efficiency ofthe railways and roads sectors, and thereby reduce the overall costs oftransportation.
Project description Re$ PAD B.3.a, Technical Annex 4 The project includes components primarily for roads and railways sub-sectors selected from the governments priority investments for the transport sector, with a small component added for institutional development of urban transport planning and management. This will be achieved by financing: (i)improvements in the efficiency ofmanaging the railways and roads sub-sectors; (ii) improvements in road safety; (iii)reduction in the overall costs of transportation through construction ofroad by-passes in selected cities, and procurement ofequipment for railway track maintenance, power supply and signaling; (iv) rehabilitation and improvement of selected road bridges; and (v) institutional development ofurban transport planning and management capacity.
Which safeguard policies are triggered, if any? Re$ PAD D. 6, Technical Annex 10 Environmental Assessment (OB/BP/GP 4.0 1). lnvoluntary Resettlement (OP/BP 4.12)
Significant, non-standard conditions, if any, for: None Board presentation: None.
Loadcredit effectiveness: (i)Government has submitted to the Bank duly authorized and ratified Subsidiary Loan Agreements making the loan proceeds available to CFR and RNCMNR on the same terms as the loan. (Ratification of Metrorex Subsidiary Loan Agreement is a condition of disbursement ofthat component). (ii)Government endorsement of the key elements in the transport sector expenditure program and 5 year cash flow projections with identified financing sources prepared under the WB TA program.
Covenants applicable to project implementation: Standards covenants.
A. STRATEGIC CONTEXT AND RATIONALE
1. Country and Sector Issues
Macro-econ om ic Environment
1. Romania has experienced steady growth of its economy since 1991 with per capita GDP growth rates ranging between 5 - 6 percent. The Government adopted an economic reform strategy in 1996 with the goal to transform the economic system from a centrally planned economy to the free market model that has been the foundation of the economic success in western Europe. This has provided the impetus to the government, and to the Romanian public, to aspire to join the European Union within the first decade of this millennium. Consequently, the Government sees the integration of Romania within the European Union as one ofits highest priorities, and this has shaped much of its policies and strategies for development. Integration with the EU requires a range of measures to be taken by the government, in addition to aligning the economy with the rest ofEurope, including improving social, strategic and physical links.
2. In 2003, Romania had a total population of around 22.7 million, with around 45% living in rural areas, resulting in an average population density of 45 people per square km in the rural areas. The transport sector contribution to the Romanian economy was 6.4% of the total GDP (USD 54.7 billion equivalent) in 2003. In addition, trade in goods as a share of GDP was 67.8% in 2001, and much of this trade utilizes one or more modes of transport, which in Romania is dominated by the railways and roads. These two modes have unique problems: for the roads, there is insufficient capacity, which only can be corrected by a large highway development program; whilst for the railways, there is excess capacity that only can be corrected by abandoning uneconomic railway lines. Common to both transport modes is the need to rehabilitate viable fixed assets, to reduce the direct labor force, and to introduce modern management methods and models.
Road Transport
3. The road network in Romania totals 78900 km ofwhich 20% are national roads that carry 60% of the traffic. Road density, with respect to both population and land area, is among the lowest in all of Europe thereby suggesting low accessibility to the road networks. Countries with comparable road classification structures, such as Austria, Sweden and Finland, have road lengths of 135000km, 98000km, and 78000km, respectively, but with one third or less of the population of Romania. The current stock of vehicles is estimated to be 3.5 million, which is very low for a population of about 23 million, compared to the Netherlands with 7 million vehicles for 16 million people. Consequently, it is expected that car ownership will grow, and personal travel too will commensurately grow. Intercity bus travel, as an economic and highly competitive mode, has also grown and will continue to win market share from rail passenger services. Truck transportation will also grow, at approximately twice the rate of economic growth. This growth in truck traffic will come from two sources; transfer from rail, and restructuring ofthe economy. Until 1990, all land transports afmore than 50 km were required to use the railways. However, the drive to integrate with the EU, along with the transformation to a market economy, has forced the transport industry to become more sensitive to logistics costs and just-in-time deliveries. As a consequence, road capacity and the level of service provided by
1 roads are increasingly becoming a constraint to the movement of goods and passengers in Romania. In addition, direct access to the main and collector roads is prevalent in Romania, thereby negatively affecting road capacity, the level-of-service and traffic safety. With more than 50% of the national road network reported to be in poor condition in 2003, primarily due to inadequate financing of the road network, road transport costs are on average 30 - 56% higher than they should be.
4. Romania's road traffic crash rate of 10.4 fatalities per 100,000 inhabitants, is much higher than the average for EU countries, where the norm is well below 10. The comparison is even worse if the fatality rate is taken per vehicle, resulting in a rate that is more than 3 times the average EU rate. Although the number and the rate oftraffic crashes have declined over the past 5 years, recent estimates by the Ministry of Transport, Construction and Tourism (MTCT) indicate that the gross costs of traffic crashes in Romania could be around 2 % ofGDP.
5. In summary, there are four principal problems in the roads sub-sector: (i)few roads in the country have been designed with adequate capacity and durability, (ii)there is direct access from land to the main roads with negative consequences in urbanized areas, and consequently, most roads require major rehabilitation, remedies for access control and upgrading to carry vehicles with the EU standard 40T truck loads, (iii)shortage of financing that is required to increase road network capacity and to rehabilitate those in poor condition, and (iv) traffic safety with significantly higher crash rates compared to EU countries.
Railways
6. The railway network in Romania comprises 22,298 km of track, of which 36% is electrified and 27% is double track. In 2003, the railways carried 8.1 billion passenger-km in addition to 17.3 billion ton-km of freight, and the combined total transportation by rail constituted around 45% of all passenger and freight movement in the country. In terms of the size and scale ofoperations, the railways are comparable with the larger EU railways. However, as in other centrally planned economies, Romanian railways had very short lengths of haul, averaging only 250 km. Consequently, the railways experienced a dramatic fall in freight and passenger volumes from the peak volumes recorded in 1989 mainly due to the decline in GDP and competition from road transport. The rail share fell significantly from 80% for freight, and 70% for passenger traffic in 1960, to less than 40% for freight, and to about 50% for passenger travel by 2001. Road transport competes aggressively with rail transport and has continued to gain in the share of the combined freight market (in terms of tonnage), and of the intercity passenger transport market (in terms of number of passengers). International trade is still important for the Romanian railways with imports accounting for 11% of the traffic, exports about 6%, and transit about 1%.
7. As the market share for railway transport fell, its deficits rose. The railways could not finance maintenance and investment in facilities and equipment. Also, heavy losses were incurred because of overstaffing, outdated equipment, and non-payment by many loss-making state-owned enterprises (SOEs). The railways covered the losses by accumulating arrears to the state and through debt to other creditors. As a result, the Government launched a railway reform program in 1996 to reduce the fiscal burden and to meet EU accession benchmarks. The reforms were jointly financed by the Bank, EBRD, the EU (PHARE) and the government. The previous state railway company (SNCFR) was initially separated into five companies, and these were
2 subsequently merged into three: infrastructure (CRF), freight (Marfa), and passenger (Calatori), with the state as the sole shareholder in all three. The restructuring also created a regulatory agency (AFER) within MTCT, in addition to the Ministry’s railway department that coordinates the operations of the railway companies. The Bank funded the Romanian Railways Rehabilitation Project (Loan 39760) that contributed to the restructuring of the railways and resulted in the following reforms that were achieved by the end of2003’:
Enactment of a new Railway Law creating an environment that permits private participation in the railway industry in Romania; An increase in the efficiency of operations for the Railways to respond to market demands and to meet the requirements ofEU accession; Privatization of a total of20 out of26 non-core railway activities ; Reduction in the number ofstaff from 137,139 in 1996 to 72,744; and The size ofthe railway network is expected to be reduced by around 3,500 km as part of the on-going restructuring and divestiture of non-performing railway assets.
8. Despite these changes, rail passenger services still require large subsidies. In 2002 alone, the Government spent over US$170 million for Public Service Contracts (PSC). Despite this level of subsidy, railway passenger services are the main cause of the growing deficits for the entire railway system due to its continued operation of extensive but uncompetitive services at low fares. Conversely, the railway freight company (Marfa) operates with a modest profit. Freight rates are deregulated and private companies have entered the market. There is concern that the state freight company will continue to lose the most profitable cargo contracts to the private sector if it is not privatized in the near future. For example, in 2001 there were nine private operators whose market share was only 1% in terms ofton-km as well as tonnage, but the new entrants have increased their market share and taken over profitable freight contracts. The Government intends to privatize Marfa after the necessary groundwork is in place including rationalization of network and operations, implementation of undistorted access charges, and further labor reductions.
9. For the railways to become competitive and financially viable, the agenda includes continuation of: (i)the improvement in labor productivity; (ii)rationalization of the railway network and services; (iii)implementation of a new railway regulatory regime to permit EU interoperability; (iv) contractual financing arrangements between the State and the passenger railway services to pay for or terminate non-commercial services through a Public Service Contract (PSC); (v) implementation of commercially-based access charge scheme; and (vi) restructuring ofcore railway activities to lower infrastructure maintenance and operation costs.
Urban Transport
10. The project also includes a small component that was added for institutional development of capacity for planning and managing urban passenger transport. This will improve efficiency and effectiveness of the metro-rail urban transport operator in Bucharest (Metrorex), as well as the urban transport unit within MTCT.
’ Implementation Completion Report No. 27750, Romania Railways Rehabilitation Project. World Bank, Europe and Central Asia region, May 2004.
3 2. Rationale for Bank Involvement
11. The World Bank has actively supported the transport sector in Romania through investment operations and advisory services for the past 15 years. The most recent operations financed through Bank loans include the Railway Rehabilitation Project (Loan 39760-RO) and the Second Roads Project (Loan 4178-RO). The Railway Rehabilitation Project was instrumental in seeing through the implementation of siaificant reforms in the railways sub- sector. The Bank financed project, together with other donor financed components, resulted in significant improvement ofproductivity (measured in terms ofpassenger-km plus freight ton-km per staff) for all three railway companies (CFR, Marfa, and Calatori). In quantified terms, the productivity gains were impressive; from a low point of 272 in 1999 to a projected 420 by the end of 2005, i.e. 54% increase. Much of this improvement is attributed to the organizational restructuring and the divestiture ofnon-core railway businesses, that were undertaken during the Bank financed project. The Bank financed Second Roads Project focused on improving: (i)road safety; (ii)the condition of selected road sections; (iii)management and performance ofthe road administration; (iv) the capacity of the civil works construction industry; and (v) the environmental impacts oftraffic through the reduction oflead in petrol.
12. The need for Bank engagement in the transport sector in Romania remains strong. There have been welcome structural reforms in both roads and railways sectors. However, the level of government intervention in each sector remains high and affects both investment priorities and business management. The impacts ofthat intervention on managerial behavior, combined with a prevalence oftraditional work methods and culture mean that many necessary changes have not yet been fully embraced. As a result, and despite significant budgetary transfers, neither the roads, nor the railways sub-sector is financially stable or sustainable in their current form.
13. This project has therefore been developed to consolidate the reforms in the railways sub- sector, and to further improve the performance of the roads sub-sector by removing some of the critical bottlenecks caused by inadequate capacity of the national and rural road network, and hrther build capacity for road administration and management. Thus, considering the above, involvement of the Bank in the project is justified on the following grounds: (i)given its knowledge in the transport sector, the Bank can provide substantive assistance to the Government in implementing sustainable policy and institutional reforms in the sector; and (ii) the Bank is uniquely equipped to help the Government and the sector’s main agencies synthesize the information from other countries that have experienced similar challenges and tailor these to the needs of the transport sector in Romania. Consequently, the Bank is desired both as an advisor and a financier.
3. Higher Level Objectives to Which the Project Contributes
14. The combined impacts of the government’s drive for EU integration, with the relatively low population density, and the poor condition ofthe existing transport infrastructure, has greatly influenced the government’s strategy to increase planned investments in transport infrastructure and transport services. The government’s goal is to raise the competitiveness of the Romanian economy to levels close to those of EU accession countries, and at the same time, improve the internal links between populations living in all regions of the country. Estimates by the Romanian government of the investment needed to improve land transport range between USD 18.5 to 21.2 billion for the period 2003 - 2015. For the road network, this includes USD4.4
4 billion for investments in rehabilitation, USD2.6 billion for road improvements (such as widening and bypasses to congested cities), and USD4.5 billion for construction of new highways and motorways. For the railways, planned investments range between USD7.0 - 7.7 billion for improvements to the infrastructure and modernization of essential rolling stock. These significant levels of planned investments reflect the importance that the government attaches to the contribution of the transport sector to economic development, poverty reduction, and its role in achieving both internal and external integration within the EU.
15. One of the goals of the FY02-04 CAS was to promote structural reforms and private sector development through unbundling and the privatization of state owned enterprises (SOEs) and infrastructure services. The FY02-04 CAS objectives also included sustained investment in the national transport systems and stimulation of private participation in infrastructure. The restructuring so far achieved in the railways sub-sector, together with the institutional reforms to be implemented under this new loan in both railways and roads sub-sectors, should further consolidate private sector participation in transport infrastructure. In addition, the Bank reviewed and prepared a strategy in 2002 that defined its support to the Romanian infrastructure and energy sectors. The strategy, endorsed by the Government and key donors validated continued Bank involvement in priority areas, including railways and roads in the transport sector. The strategy envisions a combination of adjustment and investment lending to support key reforms and priority investments.
B. PROJECT DESCRIPTION
1. Lending Instrument
16. The $377.9 million project will be financed under a Specific Investment Loan (SIL) amounting to $225 million that is structured to improve efficiency, productivity and service to users ofroads and railways through restructuring, modernization, capacity-building and carefully selected improvements to road infrastructure to relieve traffic bottlenecks around key cities. A significant proportion of the loan is dedicated for physical improvements to the road network, and for the acquisition of essential high value equipment for the maintenance of railway infrastructure. Other project components will support improvements in road safety, institutional development ofthe road management organization (RNCMNR), and privatization ofthe freight railway company. As such, these are specific investments that support a broad range of components that are all aimed at the development, rehabilitation and maintenance of economic, social, environmental, and institutional infrastructure.
17. The project is coordinated with the Programmatic Adjustment Lending (PAL) program in order to maximize leverage and full achievement of the project development objectives. The PAL includes significant transport related conditionalities with specific targets for productivity, operating efficiency, and debt service ratio for the railways sub-sector; and privatization ofdirect labor organizations and increased cost recovery for the roads sub-sector. The PAL program includes a number of technical assistance consultancies, financed through a PPIBL. For the railways, the technical assistance consultancies include: (i)restructuring the core businesses and divesting non-core operations; (ii)identification and removal of non-core railway track segments; and (iii)strengthening the railway regulatory regime, consistent with the EU practice. For the roads sub-sector, the consultancies will address: (i)reorganization of the RNCMNR
5 including privatization ofworks execution units; (ii)alternatives for cost recovery through a road user charges study; and (iii)development ofa road management system to prioritize investments based on engineering and economic principles.
18. The Romanian government expects to conclude negotiations for the Transport Chapter of the aquis communautaires before the end of 2004. No significant derogations are anticipated. Romania has been able to utilize all ISPA funds available to it, approximately Euro 230 million for the Euro 310 million railway projects; and Euro 410 million for the Euro 555 million road projects. The ISPA funds (and the Cohesion funds when they become available) are not, however, sufficient. In order to satisfy the demand for infrastructure investment, Romania is borrowing from other international financial institutions. Consequently, the SIL is the most appropriate loan instrument as both the road and the railway networks in Romania need targeted modernization.
2. Project Development Objective and Key Indicators
19. The Government of Romania has defined a strategy for the transport sector that is , primarily aimed at improving the efficiency of the railways and road sectors, and thereby reducing the overall costs of transportation. The project also includes a small component that was added for institutional development of capacity for planning and managing urban passenger transport. The government aims to achieve this by undertaking the following investments and reforms in the years leading up to EU accession:
Rehabilitate, modernize and develop transport facilities to improve safety and mobility of all travelers. Relieving traffic congestion in or near cities is of the highest priority in order to improve traffic flow and preserve old historic cities. Restructure the administration of roads through reclassification of the road network and associated changes in the road management and financing. Increase efficiency of road works through privatization and development of the domestic construction industry. Complete restructuring of the state railway companies to improve productivity towards full cost recovery (counting PSC as legitimate income rather than subsidy) and prepare the railways for open competition within the EU. Improve efficiency and effectiveness of urban transport planning and management, as well as the urban transport unit within MTCT. Stimulate liberalization of the domestic transport market by privatizing service delivery for both railways and roads.
20. The key performance indicators that will be used to monitor progress will be:
(i) Road traffic safety: the number offatalities per 100,000 vehicles. (ii) Effectiveness ofthe city by-passes: a. Reduction in through traffic volumes, especially trucks, in the affected cities’ main streets b. Reduction in air pollution and noise in the city’s main streets (the environmental monitoring procedures are described in the EMP) (iii) Road management effectiveness: a. review offunctional classification
6 b. budget allocation methodology between road owners and road classes. (iv) Railway management effectiveness: a. Full-cost Public Service Contract (PSC) for the passenger services b. Labor productivity C. Track maintenance costs (v) Urban Transport planning and management effectiveness: a. Improved regulation ofurban transport in large cities b. Investment plans for improving Bucharest metro-rail urban transport system. (vi) Private sector participation: a. Percent ofthe road maintenance budget spent through competitive contracting.
3. Project Components
21. The project includes components for roads, railways and urban transport sub-sectors, selected from the governments priority investments for the transport sector. The loan will also finance external audits to assure transparency and accuracy ofproject expenditures and financial statements prepared by RNCMNR, CFR, and Metrorex. Details of the results framework expected from the project components together with the key performance monitoring indicators are further described in Annex 3. The estimated costs for the components are summarized in Table 1. Details ofthe project components are presented in Annex 4, with the cost estimates in Annex 5.
Road Sub-sector Comvonents
Rdl. Institutional Development: The activity consists oftechnical cooperation and training to improve efficiency of road management and administration targeted at the RNCMNR. Specifically: (a) technical support for institutional development, including organizational development, review and update of functional and administrative classification of the public road network, development of RNCMNR environmental policy and program, and development of data services and analytical capabilities in road management; (b) development of RNCMNR planning methods and capabilities; (c) review and diagnosis of RNCMNR technical specifications and technical documents; (d) harmonization and updating of RNCMNR technical standards and documents with EU standards; and (e) carrying out a road user charges study (unless it is funded from other sources). There also will be consultancies for the engineering design, training in project management, including procurement, and modernization ofRNCMNR computer systems.
Rd2. Road Safety Improvements: To raise public awareness, support the implementation and application of a road traffic crash database, to finance a “Linear Village’’ traffic safety pilot project and corrective measures at road sections with high traffic crash rates (black spots).
Rd3. Construction of Bypasses to Selected Cities: To relieve congestion, environmental pollution, and reduce travel costs for traffic traveling through key cities that are at present a major bottleneck to both passenger and freight transport. The selected cities include; Bacau, Brasov, Reghin, Medias and Targu Mures. In addition alternatives analyses and
7 environmental assessments are ready for two other bypasses, in Adjud and Ramnicu- Sarat should there be savings during project implementation.
Rd4. Supervision of Civil Works During Construction: To ensure quality ofthe civil works during construction ofthe bypasses, rehabilitation ofbridges, and road safety civil works.
Rd5. Bridge Rehabilitation: Repairs or replacement of selected bridges that are in critical condition.
The project will also finance the costs incurred by RNCMNR to hire Auditors approved by the Bank to conduct financial audits for the project funds, and for the entity accounts, and also includes US$ 1.O million for physical and price contingencies.
Railwav Sub-sector Components
Rwl. Technical Cooperation and Training for the Commercialization of the Railway Industry: Activities to further consolidate the reforms achieved in the railways industry under the previous Bank loan. The component will comprise: (i)management training and development to assist the railways adopt commercial/private sector practices and to institutionalize Railway Management Training; (ii)Business Process Redesign. Three technical consultancy projects will be supported to redesign the organization and the business processes associated with Freight Marketing, Train Operations for CFR, and Infrastructure Maintenance and Management. These TA support will also have specific software and hardware components to be identified in the respective consultancies; (iii) Survey and Analysis ofthe market demand for passenger services. This will help Calatori to update its 5-year plan and investment plan to meet current and future market demands for passenger services in a cost-effective manner; (iv) Training to the PMU and Railway Management staff.
Rw2. Completion of the IRIS Hardware and Communications Network: Major developments and installations of Communications and Information Systems were accomplished during the previous Project. The objective of this component is to ensure that the benefits from the previous investments are realized by the entire Romanian Railway industry. The project will finance the completion of the National Data Transmission Network to facilitate implementation of IRIS in all of the railway service units. This will result in diversification of services and increase in quality of service offered to users, and improve interoperability with the European network.
Rw3. Infrastructure Maintenance, Power Supply and Signaling Equipment: To improve the efficiency and quality ofrailway infrastructure maintenance and to lower the costs of operations for both passenger and freight services. This component will finance the purchase ofvarious equipment for track maintenance, and for the modernization ofpower supply and signaling at selected railway stations and segmenst, as described in Annex 4.
Rw4. Systems for Quality and Environmental Management: To assist the railways to implement integrated systems of quality and environmental management in order to align the industry with European standards for train operations. This component will finance
8 purchase of equipment and systems for monitoring emissions, metrological measurements, and environmental management.
The project will also finance the costs incurred by CFR to hire Auditors approved by the Bank to conduct annual financial audits for the project funds, and for the entity accounts. The loan also includes US$ 0.5 million for physical and price contingencies.
Urban Transport Component
UT1. Institutional Development: Provision of technical assistance to support institutional development for MTCT and Metrorex , consisting of: (i)organizational development of the urban transport planning and management unit within MTCT, and establishment of the Bucharest Metropolitan Transport Authority; (ii)reorganization of the Metrorex institutional structure to improve efficiency and effectiveness; (iii)feasibility studies for extensions to the Metrorex commuter services within Bucharest metropolitan districts, and (iv) provision of consultant services for audit of the Project accounts covering the financial years during project implementation.
The project will also finance the costs incurred by Metrorex to hire Auditors approved by the Bank to conduct financial audits for the project funds. Metrorex is expected to finance the costs of audits ofthe entity accounts.
4. Lessons Learned and Reflected in the Project Design
22. Preparation of this project has benefited from the lessons learned during two previous Bank financed projects in the transport sector; (i)the Railway Restructuring Project (Loan 39760 - RO), and (ii)the Second Roads Project (Loan 4178 - RO). The ICR for the Railways project shows that the project was rated highly successful by the Borrower - an indication of the value attached to the project outcomes. The key lessons learned from both projects are that:
0 In middle income countries, such as Romania, implementation of a project is more of a partnership between the Government, the executing agencies, and the Bank. This bestows upon the Bank a greater responsibility than simply monitoring progress of the lending program and each of the project components. Through the interaction with the various government organs, the Bank needs to understand the changing socio-economic and political environment, and share in the development ofstrategies to ensure the overall success ofthe project.
0 The rapid evolution of the Romanian economy between 1996 - 2003, and the drive to join the EU, created higher demands on the transport sector than had been expected. Thus for projects with significant institutional development or restructuring objectives, Bank supervision needs to guide the process towards the shared objectives of the Borrower and the Bank. The extent and level of detail during supervision needs to be tailored to suit each project component.
0 Projects financed by the Bank often constitute a small % of the total investment in the transport sector; less than 10% in the case of Romania between 1996 - 2003. Nevertheless, the Bank brings to the table the expertise and experience from other
9 countries that have successfully implemented reforms in the transport sector. Although, the Bank’s technical support is invaluable to the Borrower, coordination ofthe various donor-financed projects should always remain the responsibility ofthe government.
0 Projects with several components should not be planned to the last minutiae ofdetail - it should be sufficient to define the goals, objectives and targets to be achieved during project implementation. The implementing agencies should have the freedom to manage the project in order to achieve the development objectives within the resources made available to them.
0 The Romanian implementing agencies are competent in procuring and implementing civil works, acquiring equipment, and procuring sophisticated management systems. Technical cooperation is desirable in defining and implementing needed management systems and procedures, training both management and staff in their application and use, and in updating standards and regulations.
23. The above lessons have guided the preparation activities leading up to the appraisal of this project. Preparation activities for this project were largely carried out and financed by the Borrower, including the identification of project components, feasibility studies for the roads components, safeguards analyses, as well as the arrangements for fiduciary management. This not only demonstrates the level of ownership of the project, but also the success of the institutional reforms achieved during previous Bank financed projects. Investment priorities for the transport sector were defined by the Borrower, particularly the Ministry of Transport, Construction and Tourism (MTCT). Project components were selected from the priority list prepared by Borrower.
24. Finally, it is pertinent to note that the legal framework, safeguards requirements and fiduciary standards now applied in Romania are very much in line with the Bank’s own requirements and standards. Project preparation was therefore carried out using the Borrower’s laws and requirements for safeguards and fiduciary standards. The Bank’s project team reviewed these at an early stage to identify the few areas of key differences with the Bank’s requirements where additional inputs would be necessary for full compliance with the Bank’s own standards and procedures. This project has subsequently been designed to include further institutional development to strengthen the legal framework, safeguards requirements and fiduciary standards of the Borrower so that future Bank operations in the transport sector will entirely utilize the Borrower’s own laws and standards. This is foreseen as a pre-requisite for any future Sector Wide Approach (SWAP) to investments in the transport sector in Romania.
10 Table 1. Estimated Project Component Costs
Counter- World Project 'roject Cost By Component (US% million) Part Bank Total toads sub-sector: - Institutional Development 1.2 6.5 7.7 - Road Safety Improvement 3.9 4.0 7.9 - Construction ofbypasses to selected cities 104.7 117.8 222.5 - Supervision ofbypasses, bridge rehab & road safety works 2.0 10.7 12.7 - Bridge rehabilitation 6.9 7.0 13.9 - Annual Financial audits 0.4 2.0 2.4 - Contingencies and Unallocated 0.2 1.o 1.2 - Miscellaneous (permits, approvals, authorizations, land acquisition) 9.4 0.0 9.4 Roads Sub-Total: 128.7 149.0 277.7 Railways sub-sector: - Technical cooperation & training for railway commercialization 2.1 11.5 13.6 - Completion ofIRIS Hardware and the Communications Network 2.7 4.5 7.2 - Infrastructure maintenance, power supply and signaling equipment 18.9 57.0 75.9 - Systems for quality and environmental management 0.2 1.o 1.2 - Annual Financial audits 0.1 0.5 0.6 - contingencies and unallocated - 0.0 0.5 0.5 Railways Sub-Total: 24.0 75 .O 99.c Urban Transport sub-sector: - Technical assistance & institutional development 0.2 1.o 1.2 Urban Transport Sub-Total: 0.2 1.o 1.2 Total Baseline Cost 152.9 225.0 377.9 Project Costs excluding taxes & duties (*) 130.0 225.0 355.0 Total Financing Required 225 .O
Note: Identifiable taxes and duties amount to US$22.9 million of counter-part funds.
5. Alternatives Considered and Reasons for Rejection
25. The loan responds to the highest priorities in the transport sector. Bypass roads are ofthe highest priority in order to preserve historic cities, to improve traffic flow in the cities, to reduce pollution, and to improve traffic safety. The design of the bypasses is coordinated with the planned improvements of intercity roads. On the railway side, the project continues to support improvement in railway management and financial restructuring, mainstreaming the information and communications technology, and upgrading the infrastructure maintenance and train control equipment. In the road sector, the alternative would have been to continue rehabilitation of
11 existing roads. This was rejected because it would not contribute to solving the traffic and road safety and direct land access control problems in and near the cities. For the existing road network the greatest needs are for bridge rehabilitation to prevent bridge collapses and sudden lack of road access, and improvements to road sections with high traffic crash rates in order to reduce road crashes. In the railways, rehabilitation of infrastructure was considered but rejected in favor of enabling continued infrastructure maintenance and rehabilitation using own funds and promoting good railway service to customers.
26. The loan also supports capacity building leading to the next logical step for Bank operations in the transport sector in Romania that would comprise a Sector Wide Approach to investment lending. However, at this stage of institutional development, as well as the evolving socio-political and legal environment, it is judged that a SWAP operation in the transport sector would be premature. There is a need to further strengthen the institutional and legal environment of the implementing agencies in the MTCT, and to allow time for Romania to complete its negotiations with the EU leading to finalization of the Aquis Communautaires. Integration with the EU will result in significant changes to the laws of the country, as well as changes to fiduciary and safeguards standards. It will be appropriate to consider application ofthe SWAP to lending when all ofthe above have been agreed with the EU.
27. The Adaptable Program Loan (APL) instrument was not considered because this project comprises well defined components that must be implemented and completed within a specific period oftime. The APL instrument would be ideal for a series ofloans planned at the outset, but subject to agreed progress and attainment of targets between phases. The components of this project (for example the road bypasses for selected cities) do not have natural follow-up activities that could constitute the next phase ofthe same Bank operation.
28. Consequently, as indicated above, the Specific Investment Loan (SIL) is considered to be the most appropriate instrument for this project. This provides for the focusing and for the flexibility for the broad range ofcomponents included under this project.
C. IMPLEMENTATION
1. Partnership Arrangements
29. The government has a well defined program of investments for the transport sector that defines both planned and completed projects for the period 1996 - 2015, amounting to a total of over USD13.1 billion (Euro 10.9 billion)2 for the road sector and over USD7 billion for the railways. Much of these investments are being undertaken with the support of various IFIs, the EU, bilateral agencies, and through Public-Private Partnerships (PPPs). The road investments are managed by the Romanian National Company for Motorways and National Roads (RNCMNR), the successor road agency to the former National Administration ofRoads (NAR), the railway investments will be managed mostly through the railway infrastructure company CFR, and the small component for institutional development ofurban transport will be managed by Metrorex. All three implementing agencies RNCMNR, CFR and Metrorex, have increased their capacities to plan, procure and manage investments, having benefited from several years of experience in dealing with the IFIs, as well as being the recipient of technical assistance grants
Euro 1.OO = USD 1.20 (June 2004)
12 funded through the EU PHARE program. For this project co-financing is not envisioned. However, there will be coordination ofthe road component with EBRD, and parallel financing of the railway component with EBRD is being discussed.
2. Institutional and Implementation Arrangements
Project Management
30. The MTCT will have overall responsibility for project oversight and coordination with other IFIs, the EU (ISPA program), bilateral agencies, and the private sector partners. Management of the main project components will be undertaken separately for the roads and railways. The RNCMNR will manage all of the roads components, whilst the railways infrastructure company, CFR, will manage all ofthe railways components.
31. The RNCMNR has well established departments or units that perform specialized fimctions such as planning and development, road safety, maintenance management, financial management, and a PPP unit. Consequently, the project will utilize well established procedures for procurement and financial management. The various departments and units within RNCMNR have previous experience with managing Bank financed projects, and therefore the present administrative arrangements within the organization will be maintained.
32. Management ofthe railways components of this project will be undertaken by CFR under the supervision of the General Directorate for Railways (GDR) within the MTCT. A Project Management Unit (PMU) was established within CFR under the previous Bank financed loan. The PMU has highly motivated staff who have accumulated significant experience with the Bank’s fiduciary procedures and requirements. The PMUwill undertake all project management functions on behalf ofall three railway companies.
33. The small urban transport component, comprising technical assistance studies, will be managed by Metrorex, the metro-rail urban transport operator in Bucharest.
Financial Management
Strengths and Weaknesses 34. The significant strengths that will provide a basis of reliance on the project’s financial management systems include the experience of the existing project implementation teams, one within RNCMNR, currently in charge with the implementation of the Second Roads Project (Loan 4178-R0), with a closing date of September 30, 2005, and the other one within CFR, which was in charge with the implementation ofthe Railway Rehabilitation Project (Loan 3976- RO) that closed on September 30, 2003. The most recent financial management supervision of the Second Roads Project of June 2004 confirmed that the FM and FP ratings of the project are satisfactory.
Implementing Entities 35. The existing project implementation teams established within the RNCMNR, CFR and Metrorex, would be responsible for the financial management aspects ofthe Roads components, of the Railways components, and of Urban Transport components, respectively, of the new
13 Transport Restructuring Project. Three Project Agreements will be signed by the World Bank (IBRD), one with RNCMNR, one with CFR, and one with Metrorex.
Procurement
36. The thee executing agencies, RNCMNR, CFR and Metrorex are established within the structure of the MTCT and will be responsible for management of procurement procedures (mostly RNCMNR and CFR, due to the small amount in the Metrorex Component). All entities will have full time procurement/financial management staff and two full-time procurement specialists. Procurement of goods and services for the Bank financed components will be done by all entities in accordance with the provisions ofthe World Bank “Guidelines for Procurement under IBRD Loans and IDA Credits and Selection and Employment of Consultants by World Bank Borrowers” (effective May 1,2004). Project components not financed by the Bank may be procured in accordance with the national regulations or the co-financing institutions procurement regulations. Procurement of goods, works and services for the project will be carried out in accordance with the agreed Procurement Plan, which will be updated annually and included in the progress report to be reviewed by the Bank. Details of the proposed procurement arrangements are provided in Annex 8.
37. In order to hrther strengthen the procurement capacity of the implementing entities appropriate training will be provided for relevant staff and financed under this loan. Training, and if possible, study tours will be carried out according to a training plan that will be prepared by the agencies annually and submitted to IBRD for no-objection prior to implementation. The locations for the training and study tours will be selected on the basis of an evaluation of the most suitable program of training offered by several institutions or consultants, availability of services, period of training, within the frame ofthe Selection method based on the Consultants’ Qualifications (CQS) or Section V of the Guidelines for the major part, and Shopping method for smaller ready-made training programs (proposed by UN Agencies such as ILO for example).
3. Monitoring and Evaluation of Outcomes/Results
38. The results frameworks given in Annex 3 will be the main tool that will be utilized by senior management and policy-makers to assess the effectiveness of the project during implementation, and subsequently after project completion to measure the outcomes. The main outcome for the railways will be increased efficiency and reduced costs of operation, with the freight company fully commercialized and ready for privatization. The main measures for this will be reduced costs of railway infrastructure maintenance leading to lower access charges to the operating companies. For the passenger railway services, subsidies will be at levels commensurate with the public service obligations agreed with the government. The freight services will be in a better position to compete with the private operators that offer selective freight services for specialized cargo. For the roads sub-sector, the first and foremost outcome that is sought is a reduction in road crash rates that are currently among the highest in Europe. Second, will be the improvement in the traffic environment within the cities for which road bypasses are to be constructed. This will be measured in terms of reduced traffic congestion within the central business districts, as well as reduced noise and pollution from vehicle emissions.
14 39. The key performance indicators required to assess progress in achieving the above outcomes will be measured annually as part of the implementing agencies’ reporting requirements. The railway companies already prepare annual management information and statistics, largely derived from data held in the Integrated Railway Information System (IRIS) that was implemented under the previous Bank financed loan, and also from the financial management system used by the PMU within the railways. These two management information systems provide details of unit costs of operation for the various activities performed by the railways. Performance indicators for the roads sub-sector will be derived from measures recorded annually by CESTRIN, the research arm of RNCMNR. Data collected by CESTRIN on an annual basis include road condition, traffic counts, and updates ofroad inventory features (i.e. the physical characteristics of the road network). Provisions have been made under this loan to improve the capacity of RNCMNR to collect and store the required data in modern databases. Additional capacity will be required for the collection of traffic noise and vehicle emission data from selected city centers.
4. Sustainability
40. The government is in the midst of negotiations with the EU to agree the obligations, policies, and strategies for the transport sector as part of the Aquis Communautaires for EU accession. Transport is seen by the government as the key to physical integration with other EU countries, and as such the government has prepared an investment plan for the transport sector ahead of the EU accession that is planned for 2007. The components for this project are all derived from the priorities for investment in the transport sector prepared by the Borrower. In addition, much of the preparation activities leading to the appraisal of the project were undertaken by the implementing agencies and financed from the Borrowers own resources. This is a clear demonstration of the level of commitment and ownership by the borrower towards all ofthe project components.
41. Increased road financing is expected from the introduction of road vignettes, a form of special purpose license or permit for vehicles using the main roads and motorways in Romania. These revenues are expected to be utilized to finance adequate maintenance ofroads managed by RNCMNR and to finance activities such as road safety awareness campaigns, performance monitoring activities, etc. This should ensure the long-term sustainability and continued attainment ofthe project outcomes. For the railways, the investments being made under this loan to reduce the operating costs of the railway infrastructure company, CFR, will need to be accompanied by corresponding investments in the passenger and freight operating companies. The successful commercialization of Marfa, the freight operations company, and cost reductions at the railway passenger operator, Calatori, will depend on critical investments required to modemize the railways industry that will considerably reduce their operating costs. The government and Calatori, must agree on appropriate levels of public service contracts that must be adequately and filly paid for by government. These actions will enable both Calatori and Marfa to fully pay for the access charges that are necessary for the successful operation of the infrastructure company, CFR.
15 5. Critical Risks and Possible Controversial Aspects
Risk Risk Mitigation Measure Rating To Project Development Objectives: Insufficient budget allocation for the Reduction in passenger services to reduce S passenger railways PSCs overall railways deficit; surveillance of budget discipline and Bank loan conditions. Insufficient budget allocations for RNCMNR Increase in value ofroad vignettes or other M annual road maintenance needs road user charges paid by road users Private operators offreight services take away Reduction in the volume offreight services by M too much business from Marfa Marfa Government resists increases in road user Surveillance of budget discipline and S charges to cover 70% ofroad expenditures observance ofIMF and Bank loan conditions Resistance to institutional restructuring is Issues will be raised with the govemment in M successful and change is slower than mapped the context ofthe PALprogram out in the project time line
To Component Results Adequate counterpart funds are not allocated Advance assurance from government and M in a timely fashion quarterly joint reviews with MPF Government does not allocate sufficient Advance assurance from government and S monies for data services and use ofmodern quarterly joint reviews with MPF management systems
Overall Risk Rating M Risk Rating: H = High; S = Substantial; M = Modest; N = Negligible or Low
6. Loadcredit Conditions and Covenants
42. The following actions should be agreed no later than Loan negotiations:
Negotiations 0 There are no conditions for Negotiations
Effectiveness 0 Government has submitted to the Bank duly authorized and ratified Subsidiary Loan Agreements making the loan proceeds available to RNCMNR and to CFR on the same terms as the loan. 0 A five-year transport sector expenditure program satisfactory to the Bank, consisting of a five-year business plan including cash flow for CFR, and a five-year investment plan for RNCMNR, has been endorsed by the supervisory boards of RNCMNR and CFR.
16 Dated covenants
0 The Government shall, beginning not later than December 31, 2004, and continuing each year thereafter, provide full financing, through the budget, for the Public Service Contracts for railway passenger services.
0 The Borrower shall, in cooperation with the Bank, carry out a Mid-Term Review not later than September 30,2007 to determine any need for revisions in the project design.
Other covenants
0 Borrower shall ensure construction and operation of bypasses and bridges for the roads component to be done in accordance with an Environmental Management Plan satisfactory to the Bank
0 Borrower shall ensure that all land acquisition for construction of bypasses for the roads component shall be undertaken in accordance with land acquisition framework satisfactory to the Bank
0 RNCMNR shall maintain policies and procedures adequate to enable it to monitor and evaluate on an ongoing basis, in accordance with indicators satisfactory to the Bank, road condition and achievement ofother road sector objectives.
0 CFR shall maintain data and financial systems to enable it to monitor and evaluate on an ongoing basis, in accordance with indicators satisfactory to the Bank, their financial condition and achievement ofthe objectives stated in their business plans.
0 RNCMNR, CFR, and Metrorex shall submit to the Bank quarterly progress reports, in a format satisfactory to the Bank, not later than 30 days after the end of each quarter outlining the progress made in the implementation ofthe Project, as well as the problems encountered and how they are being addressed.
0 RNCMNR and CFR shall prepare, within 90 days after each calendar year, Annual Reports for each calendar year, outlining the progress made in the implementation ofthe Project, and including the measures recommended to ensure the efficient carrying out of the Project, and the achievement of the objectives, during the following calendar year.
Disbursement Condition 0 Government has submitted to the Bank the duly authorized and ratified Metrorex Subsidiary Loan Agreement, making the loan proceeds available to Metrorex on the same terms as the loan.
Finan cia1 Management Condition 0 The project financial management arrangements have been reviewed and found to be acceptable to the Bank.
17 Finan cia1 Managemen t Covenants 0 RNCMNR, CFR and Metrorex shall maintain financial management systems acceptable to the Bank. The project’s financial statements, withdrawal applications and Special Accounts shall be audited by independent auditors acceptable to the Bank and on terms of reference acceptable to the Bank. The annual audited statements and audit report will be provided to the Bank within six months ofthe end ofeach fiscal year.
Legal Covenants 0 Standard legal covenants
D. APPRAISAL SUMMARY
1. Economic and Financial Analyses
Roads Sub-sector Components
43. All of the road bypasses that are to be financed under this project were subjected to full economic analysis using HDM-4, the de facto standard model approved by the Bank. In all cases, the results for the individual bypasses show that their construction would be viable with economic rates of return (ERR) greater than 17%. The combined NPV, at 12% interest rate for the 5 bypasses included in this project is US$150.86 million (US$159.17 for the seven bypasses). The total economic cost of construction is estimated to be US$ 1993million (US$219.7 million for the seven bypasses), representing a benefitkost ratio (BCR) of 1.76. The bridge rehabilitation investments were appraised and prioritized under the ongoing Second Roads project. The subset chosen for financing in this project consisted of bridges, which showed positive economic benefits and were seriously deficient and would collapse unless remedial works were undertaken. The investments earmarked for road safety, and institutional development for the roads sub- sector were not subjected to economic benefit tests, given the unquantifiable nature of the expected benefits. Appraisal ofthese components was undertaken using intemationally accepted methods with the results indicating desirability and benefits that the investments would bring.
Railways Components
44. It is expected that the investments planned for the railways under this project will lead to gradual, though modest, improvements in the overall financial position ofthe railway companies. The results ofthe financial analysis show that performance will very much depend on the market response to the planned reforms and the speed of privatization of freight services. Whilst total revenues (net of track access revenue) of CFR (Infrastructure Company), Marfa (Freight Company) and Calatori (Passenger Company) are estimated to decline by around 9% over the period 2004-2009, their total costs (net of track access charges) are expected to decline by 12%, resulting in a 17% reduction in net deficit from US$415 million to US$346 million.
45. The reduction ofrevenues of the three state-owned companies is due mainly to declining transport revenue of Marfa because of an estimated 14% reduction of freight traffic from the growing number of private operators, whose market share is still below 10% in train-km. The
Base cost of construction excluding taxes and contingencies, but including environment mitigation measures, utility relocation, engineering design and supervision costs.
18 recent revenue trend of Marfa shows clearly that they are already losing market share to the private sector. Marfa should be privatized as soon as possible, or it will keep losing market share and value. Access to Romanian network is to be extended to international operators in 2007 when Romaniajoins the EU. The framework for deeper reforms prescribed under the project will facilitate the objective of improving the efficiency and productivity of MARFA (see Annex 1). The reduction of costs will be achieved through: (i)the planned 10% staff reduction, or 8,000 employees from CFR and Marfa in 2004; (ii)reduction of 3,000 km of route length in 2004- 2005 with an estimated annual saving of about 5-10% of infrastructure maintenance costs; and (iii)improved efficiency of track and rolling stock maintenance.
46. Marfa is expected to achieve modest improvement despite declining traffic, mainly due to the above actions for cost reductions and productivity improvements. Freight rates are forecast to stay at the 2004 level. The financial performance of Marfa will be measured in terms of the working ratio that is forecast to improve from 90% in 2003 to 85% in 2009, with annual net profits ranging from US$11 million in 2004 to US$13 million in 2009. The Bank will also monitor Marfa's cash reserves and the debt service coverage ratio in view of the scheduled bullet payment ofEUR 120 million bond maturing in 2007.
47. The passenger traffic and tariffs are expected to remain constant. The financial deficit of Calatori and thus the need for Government support through PSC will increase sharply from US$240 million in 2003 to US$332 million in 2009, because of a significant increase in track access charges on passenger services (see Annex 1 for details). The corresponding working ratio (excluding subsidy) will therefore increase sharply from 203 '30to 275 %. The loan agreement includes a covenant that requires the Government to meet the full PSC payments. This will be monitored in terms of the working ratio (including subsidy) target of 100% or less each year between 2004 to 2009. This high level of Government support for PSC is not sustainable. The project, therefore, will finance an in-depth analysis of passenger markets in Romania to reduce the level of passenger services to match the market demand at the lowest possible cost. Further reforms of Calatori including labor restructuring will depend on the TA study with specific recommendations to rationalize passenger services, establish investment requirements, and minimize the PSC costs to the Government. In the medium term, the financial burden ofCalatori on the Government budget will decrease.
48. For CFR, the financial deficit is estimated to decrease from US$99 million in 2003 to US$27 million in 2009, thanks to the rising track access payments by Calatori and labor cost cuts. Track access revenue will stay largely the same as private freight operators are presumed to win market share from Marfa. Progress would be measured in terms of the improvement in the working ratio to achieve a target of 100% or less by 2009, from 138% posted in 2003. The success of the railways companies will depend to a large extent on the implementation of more market driven and commercial practices to transform the railway industry into a fully commercial enterprise with minimum Government financial support and the adherence by all parties to the Public Services Contract.
19 2. Technical
49. The design standards used for the road bypasses to be financed .under this project were based on Romanian standards defined for national roads. These design standards are in line with European and international practice. The bypasses have been designed as either two-lane or four- lane roads according the traffic flow forecast for the design year, commonly year 15 after completion of construction. This is based on accepted Highway Capacity norms as practiced widely in Europe and in North America. The civil works planned for bridge repair and rehabilitation will restore existing bridges to serviceable condition and therefore do not involve the application ofany new design standards.
3. Fiduciary
50. Three implementing agencies, RNCMNR, CFR, and Metrorex, will be responsible for management ofprocurement procedures. Appraisal of the implementing entities established that they are staffed by full time procurement and financial managers, each with two full-time procurement specialists, and accounts assistants. A procurement plan detailing the packaging and estimated schedule of the major procurement actions has been prepared and is presented in Annex 8. During project implementation, the procurement plan will be updated and sent to the Bank for approval annually at a minimum.
51. The financial management arrangements ofthe project are acceptable to the Bank. As of the date of this report, the Borrower is in compliance with its audit covenants of the Bank- financed projects. Formats of the FMRs and financial reports have been developed and have been attached to the minutes ofnegotiations.
52. The first Country Financial Accountability Assessment (CFAA) for Romania was finalized in December 2003 and concluded that the overall fiduciary risk associated with the public financial management and financial accountability arrangements of the Romanian government administration is considered to be moderate, with the systems for accounting, financial reporting and internal control representing the areas with the higher risks and budgeting, cash management and extemal audit and Parliamentary oversight representing the lower risks.
53. The implications ofthe CFAA for the project are addressed by the following actions:
e A detailed review ofthe systems was performed for each implementing entity; e Each implementing entity has a distinct proj ect-specific accounting ledger; e Project accounting staff has been nominated for each implementing entity; a The format of the FMRs and financial reports agreed with both implementing entities; e Financial statements for the implanting entities, RNCMNR, CFR, and Metrorex, as well as for the Transport Restructuring Project, are annually audited by an independent auditor.
20 4. Social 54. The railway component of the project has few direct social implications, as the investment will go to purchase equipment or improve management, management systems and communications technology. Technical cooperation for the component will enhance the productivity ofmanagement and staff. The roads component will have a considerable impact on the population. The traffic safety component will draw public attention to traffic safety issues and fund works to address bottlenecks and black spots; construction ofnew bypasses will reduce congestion and danger on city streets; improve the environment and livability of affected cities; and speed the flow of goods, ; the bridge rehabilitation component will be largely invisible to the public. Affected interests and stakeholders have been consulted and involved since the beginning directly and indirectly in developing and evaluating the altematives, and other aspects of project preparation. The project is expected to have an inqjrect impact on poverty reduction. 55. The bypasses will all require land acquisition, adversely affecting landowners, particularly those who farm land that will be taken for rights of way. The exact number of affected persons will be known only when the final designs are completed. The RNCMNR and its engineering consultants have aimed to minimize land acquisition, avoid resettlement of residents and maximize use of marginal lands whenever possible. During feasibility studies, a number ofthe initial alignments were revised to meet these criteria.
56. The RNCMNR has prepared a Land Acquisition Policy Framework approved by the Bank, which clarifies steps and procedures in the land acquisition process. The project poses no significant social risks. At the time ofappraisal, no opposition to the bypasses had been notified to the Borrower.
5. Environment
57. The only environmental issue of significance in the project is the protection of peoples’ health from environmental risks and pollution. The inherent nature of the project component associated with by-pass construction directly relates to this issue. After by-pass construction is completed its’ very nature will redirect traffic from heavily populated and congested central business districts (CBD) to locations that are less densely populated. The improved traffic flow will also promote greater combustion efficiencies for the vehicles. The net result is expected to be a reduction in the exposure of densely populated areas to combustion exhausts containing hydrocarbons, carbon monoxide, nitrogen oxides, particulates, and lead.
58. For Environmental Assessment, the project was assigned Environmental Screening Category A. As a consequence, seven individual detailed Environmental Impact Assessment (EIA) reports were prepared for each of the bypasses. As required by Government of Romania, EIA reports were prepared in Romanian language for each proposed bypass. This was done before the World Bank was involved. For several reasons (see discussion below) it was agreed that an independent consultant be secured to review these EIA reports. This was done and the independent consultant reached the conclusion that all EIA studies are in full compliance with the requirements ofboth the Government ofRomania and the World Bank.
59. Generally, the main negative issues identified were during the construction phases and included combustion exhausts from machinery involved with construction, disruption ofhabitats, noise and vibrations, waste disposal etc., and emissions from suppliers of concrete and asphalt.
21 When the by-passes are in use the chief negative issue would be pollutant runoff from the road during precipitation which may affect soils, and/or surface and ground waters. Construction issues were determined to be minor, temporary, and reversible. Issues associated with the by- pass in use were determined to be minor.
60. Environmental management plans (EMPs) were included as part of the EIA reports. The independent consultant reviewed these EMPs indicated that there is generally sufficient institutional capacity for their implementation, either directly or through the use of specialized consultants (particularly for the monitoring programs). Specific additional needs (equipment, training etc.) are also included in the EMPs.
61. According to OP/BP/GP 4.01 for a Category A project, the EIA document must be prepared by EA experts not affiliated with the project. Since the EIAs had been prepared prior to World Bank involvement by consultants who were responsible for other project preparation aspects (feasibility, design studies etc.), it was agreed with Bank management to secure an independent Romanian consultant to: (a) determine if the EIAs meet World Bank safeguard policy requirements and (b) provide the World Bank with a summary document for each EIA. This consultant would thus provide the independent perspective that in essence would comply with the spirit ofOP/BP/GP 4.01.
62. Key environmental issues for each of the bypass EIAs were identified by the independent consultant and are incorporated into the individual project specific Environmental Management Plans that includes: mitigation program, monitoring program, institutional arrangements for effective implementation, schedule, and institutional development needs. The independent consultant concluded that all EMPs were satisfactory for addressing all individual bypass subproject environmental issues. For purposes of Quality Assurance and Control, the separate EIAs were internally reviewed by the Bank and were found to be adequate to Bank standard.
6. Safeguard Policies
Safeguard Policies Triggered by the Project
Safeguards Screening Category: s2 Environmental Screening Category: A Safeguard Studies submitted to the Infoshop: July 19,2004
* By supporting theproposedproject, the Bank does not intend to prejudice the final determination of the parties’ claims on the disputed areas
22 7. Policy Exceptions and Readiness
63. The project does not require any exemptions from Bank policies. Regional criteria for readiness for implementation:
Financial management staff have been identified Project staff and consultants have been mobilized Counter part funds have been estimated and the government has committed itself to providing the budget in a timely fashion Tender documents for the first year’s procurement have been prepared and pre- qualification documents for three of the road bypasses have been reviewed and cleared by the Bank Disclosure requirements for Environmental Assessments and Land Acquisition Policy Framework were sent to InfoShop in July 2004 Land Acquisition Policy Framework has been submitted by the Borrower for review and approved by the Bank
23 Annex 1: Country and Sector or Program Background ROMANIA: TRANSPORT RESTRUCTURING PROJECT
The Romanian Economy
Romania is a lower middle income country with GNI per capita ofUS$ 1,850. With a population of some 23 million. It is the second largest country in Central and Eastern Europe, and is larger than 10 of the 15 current members ofthe European Union (EU).
The country is in the process of comprehensively reforming and restructuring its economy with a view to joining the EU in 2007. As part of this effort, the Government is seeking to build institutions and design and implement public policies to fundamentally transform Romania’s economy and society. Strong political commitment, considerable expertise and resources, as well as popular and external support are required to achieve this objective.
Although economic growth has turned around in the past two years, important challenges remain. Further structural reforms are crucial to build a competitive market economy which is capable ofwithstanding the pressures of EU integration. Moreover, poverty remains widespread with 28.9 % ofthe population living below the poverty line. Some 60 % of Romania’s poor live in rural areas despite the country’s substantial potential in agriculture, forestry and fisheries.
Romania is a pilot country for the Comprehensive Development Framework (CDF) whereby the country owns and directs its development agenda by articulating its long term strategy for development. Consultations held in 1999 as part of the Framework revealed a clear consensus among Romanians around the country’s twin development objectives of poverty reduction and EU accession.
The transition that began in Romania in 1990 was, in many respects, more difficult than in the other countries of Central and Eastern Europe. By the late 1980’s Romania’s economy was on the verge ofcollapse after forty years of rigid central planning that had emphasized self reliance, an excessive focus on heavy industry and large, uneconomic infrastructure projects.
In an attempt to minimize the social costs of transition, and often captive to vested interests, the Romanian government initially hesitated to impose tight fiscal constraints and privatize large loss-making enterprises. In the late 1990’~~attempts to impose macroeconomic stability without full structural support led to negative economic growth, and poverty increased sharply, doubling from 20 % in 1996 to 41 % in 1999.
Since 2000, the new Government has implemented macroeconomic policies which are supportive of growth. A disciplined fiscal policy, which complemented a tight monetary policy, and was augmented by strong advances on structural reforms, led to improved financial discipline in the enterprise sector, and has placed public finances and the financial system on much firmer footing.
This resulted in robust GDP growth for two consecutive years - 5.3 in 2001 and 4.3 in 2002 . In addition, inflation and interest rates declined steadily, the fiscal deficit was brought under
24 control, foreign exchange reserves increased to historic highs, and the external balance was comfortable. Export growth remained vigorous, fuelled by private investment and the competitive depreciation of the currency. The competitiveness of the enterprise sector was boosted by productivity gains. Romania is now a visible and attractive destination for international investors as a result ofbetter sovereign ratings and improved access to international capital markets
The Road Network
Romania's total road network totals about 78,000 km. Public roads in Romania (excluding street networks) are classified in a three-tier system: national (main) roads (14,500 km), district roads (app. 36,000 km), and communal roads (app. 28,000 km). In addition there are approximately 30,000 km village roads serving the rural villages' needs, and farming related activities. The national roads are administered and managed by the National Company for Motonvays and National Roads (RNCMNR) - an entity under the Ministry of Transport, Construction and Tourism. The district (county) roads are administered by the County Council and managed by the County's technical department. The communal roads are administered and managed by the village councils aided by the County council's technical office.
Road financing was arranged through a Road Fund, which received 45 % of the fuel excise tax and a vignette. The income from the fuel excise tax was shared between the national roads (65 per cent) and county roads (35 YO).The road fund income covered the administrative expenses, routine maintenance, loan service payments, and limited rehabilitation costs of the national roads, (see table below). The road fund was also the principal, albeit insufficient, source of funding for the rehabilitation and maintenance of county roads. Recently, the Government has issued a Policy Letter for the road sector. It includes, inter-alia, a study to modernize the road fund and road financing in Romania.
Over the past decade RNCMNR has secured grants (EU-ISPA) and several loans from International Financial Institutions (the World Bank, EIB, EBRD) guaranteed by the state, to upgrade its main road corridors. The Government is actively pursuing new external IF1 financing or Public-Private Partnerships to further strengthen RNCMNR institutional development, and upgrade the main roads. RNCMNR's multi-year Highway Development Program and a multi- year Highway Rehabilitation Program are both primarily funded through loans and grants. Last year the communal road network has begun receiving support from EU's SAPARD program and the World Bank's Rural Development Project.
Road capacity and the quality of this capacity must be increased to meet the anticipated traffic demand. The old roads have no functional distinction between serving land access and traffic; they have direct access to land, and pass directly through villages, towns and cities. The by- passes which will be funded in the current project are meant to serve traffic and provide no direct access to land. In this way, the road capacity and its quality are improved. As a by-product, road traffic safety is improved and the urban city-often richly historic-is preserved. Attendant to the physical works, road management is improved through targeted technical assistance. The issues at the railways are more diffused, but the core objective is the same: tailor the capacity to meet market demand, reorganize the railways to take advantage of newly acquired information tools, and retrain the management to manage and run the railways commercially.
25 Road transport is privatized and performed by numerous buses and trucks operated either by their owners or bus and trucking companies. The issue of road safety has moving inexorably up the policy agenda, reflecting the seriousness and the significance of the issue, at both a personal and national level. Road accidents are responsible for about one thousand deaths, and a further 24 thousand serious injuries each year.
A Global Road Safety Partnership (GRSP) program has been active in conjunction of the Bank’s Second Roads project to contribute to the development of all aspects of road traffic safety, including emergency response (009), safe road design, driver training, vehicle inspections, and the transfer of knowledge about road traffic safety. The intention is that, via a series of training courses, research work, media coverage, and training both the public and private sectors will work together to improve road traffic safety. The outputs from the project are specific short-term recommendations that will both prevent accidents and increase the capacity of the road, whilst also building human resources in accident analysis and prevention.
Revenue and Expenditures for National Roads, 2000 - 2005 (million of 2003 US$)
2000 2001 2002 2003 2004 2005 Revenues (budget) (projected) Own revenues Road Fund Fuel Tax 107 118 103 132 132 132 Vignette 0 0 5 40 50 155 Tolls and Crossing Taxes 30 28 18 20 36 55 Other revenues 5 2 2 4 2 2 Total Own revenues 143 148 128 196 220 344 International Funds 158 191 162 276 427 306 Local Commercial Loans 0 35 41 0 0 0 State Budget Funds 114 130 132 206 272 250 Expenditures Routine Maintenance 118 142 99 82 82 82 Periodic Maintenance 13 16 47 39 94 219 Other Investments 15 19 24 31 31 31 Debt Service 56 59 76 155 150 158 Rehabilitation 213 268 217 372 563 411 Total Expenditures 415 504 463 678 919 900
26 The Railways
Present Situation. The Romanian Railways have achieved significant progress in structural reform under the umbrella of the previous World Bank/EBRD financed Railway Rehabilitation Project (1996-2003), in particular regarding labor, organizational, and financial restructuring, and privatization ofnon-core railway businesses. The railways have achieved to: (a) reduce staff and increase staff productivity, despite declining traffic; (b) unbundle the integrated railway system into five separate companies; (c) issue license to private operators; (d) set up appropriate mechanism to relieve the railway ofhistoric debt; (e) provide PSC compensation for uneconomic passenger lines and services; (f) make long-term planning through 5-year Business Plans an integral part of its business culture; (g) invest in asset modernization and rehabilitation plan, which should lead to improved productivity and safety in the coming years; and (h) separate and privatize non-core railway businesses. Recent trends in the key operational and financial indicators are given in Annex 9.
While substantial progress has been made in improving financial performance of the railways, some undesirable legacies ofthe past remain and negatively affect the financial well-being ofthe railways. Much still remains to be done to transform the railways into a fully commercial enterprise with minimum budget support. The state contribution to the railway as well as the railways’ uncovered financial deficit amount to US$300 million, accounting for about 0.7% of GDP in 2002. Although the US$300 million is huge in absolute terms, its value expressed as share of GDP compares well with Croatia (1.3% of GDP), fairly with Bulgaria (0.6% of GDP), and poorly with Poland and Turkey (0.4% of GDP). All railway systems in Western Europe receive substantial financial support by one mechanism or another from governments to sustain their respective railway networks: In U.K., with a similar length of network, the Government spent around US$2.7 billion (0.2% of GDP) on the railways; US$8.5 billion (0.5% of GDP) in Germany; US$6.2 billion (0.5% of GDP) in France; US$2.3 billion (0.6% of GDP) in Netherlands; US$0.58 billion (0.3% of GDP) in Austria; and US$0.56 billion (0.5% of GDP) in Greece. The challenge for Romania is to sustain a railway network of much the same density as Western Europe with about 60% ofthe traffic density, less than half of the labor productivity and a tenth of the Gross National Incomehead. The Romanian Government is committed to start a deeper and more radical reform to reduce the fiscal burden ofthe railways on the state budget.
Framework for Further Restructuring. A framework for restructuring the railways comprises six key components:
reduction ofexcess staff (about 10% ofthe number in December 2003); reduction of excess railway track (3,000 km, or 30% of railway route length in December 2003); implementation offair, transparent, and competitive track access charges; rationalization of passenger services, and refinement of a clear public services contract; transformation ofthe railways into a fully commercial business; private sector participation in the operation and management of railways, particularly in the provision offreight services.
27 Projected Future Financial Situation. The above framework can lead to a gradual, though modest, improvements. The financial impact ofprivate sector involvement and development of new freight market have not been reflected in the analysis. The actual performance thus will depend on the speed ofprivatization of freight services and the market response to the planned reforms. While total revenues are estimated to decline by 9% over the period 2004-2009, total costs are expected to decline by 12%, resulting in a 17% reduction in net deficit. The reduction of revenues of the railways as a whole, is due mainly to declining transport revenue of Marfa because of an estimated 14% reduction of freight traffic from the growing number of private operators (whose market share is still below 10% in train-km). The freight tariffs are forecast to remain at the 2004 level in real terms. Passenger traffic and revenue are expected to remain constant. For CFR, track access revenue will stay the same since private freight operators are presumed to win market share from Marfa. The reduction of costs will be achieved through: (i) the planned 10% staff reduction, or 8,000 employees from CFR and Marfa in 2004; (ii)reduction of 3,000 km of route length in 2004-2005 with an estimated saving of about 5-10 % of annual infrastructure maintenance costs; and (iii)improved efficiency of track and rolling stock maintenance.
Net deficit (before subsidy) is estimated to rise from US$339 million in 2003 to US$415 million in 2004 because of higher track access charges for Calatori, but will gradually decrease by 17 percent to US$346 million in 2009. The estimated amount of budget support for PSC will rise from US$240 million in 2003 to US$332 million in 2009
Comparison of Performance of Romanian Railways and other European Railways
South Western East Europe Europe Romania Population density (persons1000 sq km) 106 92 94 Route density (rail route-km1000 sq km) 44 42 48 Traffic density (000 traffic unitslrail route-km) 3,670 1,640 2,254 Labor productivity (000 traffic units1rail staff) 650 223 277 Gross National Income ($000/capita 2003) 21 2 2
28 Operational and Financial Forecast (2004-2009 constant mid-2004 prices)
2003 2004 2005 2006 2007 2008 2009 2004-2009 % change 'EX (1USD = Lei) 13,210 37,000 37,000 37,000 37,000 37,000 37,000
'assenger (billion pkm) 8.5 8.5 8.5 8.5 8.5 8.5 8.5 ?eight (billion tkm) 16.6 15.5 15.0 14.6 14.1 13.7 13.3 -14%O%I 'rivate operators (billion tkm) 1 .o 2.1 2.6 3.0 3.5 3.9 4.3 'otal Traffic Unit: (pkm+tkm) (billion) 26.1 26.1 26.1 26.1 26.1 26.1 26.1
'rack access charges (TACs) (Euro per train km) Freight 3.6 3.6 3.6 3.6 3.6 3.6 3.6 Passenger 1.o 2.2 2.4 2.4 3.6 3.6 3.6 tailway Network (km) (year-end) 11,364 10,064 8,364 8,364 8,364 8,364 8,364 tailway Network (km) - reduction 1,300 1,700 dumber of employees (year-end) 74,285 66,034 66,034 66,034 66,034 66,034 66,034 .abor productivity (thousand TU per employee) 310 372 395 395 395 395 395
'assenger revenue 145 153 153 153 153 153 153 :reight revenue 495 465 451 438 424 412 399 Total transport revenue 641 61 8 604 591 577 565 552 Ither rev. (excl. TACs from Marfa & Calatori) I/ 285 86 80 83 84 88 88 Total revenue 925 704 684 674 662 652 641 rota1 costs (excl. TACs from Marfa & Calatori) 1265 1,119 1,073 1,045 1,032 1,009 987
Net profiff (deficit), of which: (339) (415) (389) (371) (370) (356) (346) Infrastructure Company (99) (136) (107) (102) (39) (36) (27) Passenger Company (240) (290) (291) (275) (336) (334) (332) Freight Company 0 11 9 7 5 13 13
State budget support: PSC payment (including discount tickets) 2/ 240 290 291 275 336 334 332
Vet deficit, incl. effect of the state budget support (99) (125) (98) (96) (34) (23) (14)
Norking Ratio (without subsidy) 31 Infrastructure Company 138% 132% 119% 115% 95% 93% 93% Freight Company 90% 86% 86% 85% 85% 85% 85% Passenger Company 203% 260% 254% 242% 275% 275% 275% lebt Service Coverage Ratio 41 Infrastructure Company (1.3) 1.8 1.8 1.6 1.7 1.6 1.5 Freight Company 5/ 1.5 1.8 1.9 1.8 1.0 5.0 5.3 Passenger Company 14 I
21 Includes State budget support for subsized tickets. 3/ The working ratio is defined as: operating costs before depreciation, divded by operating revenues (excluding the the State contributions for infrastructure maintenance, public service obligations and subsidized tickets). 41 The debt service coverage ratio is defined as: total sources from operations (operating income, plus depreciation, minus dutiedtaxes, misc. charges and penalties), divided by debt service obligations (principal repayments & interest). 5/ Because of scheduled repayment of EUR 120 million bond in 2007, Marfa has to raise additional resources of about Lei 5 billion (US$135 million equivalent) to achieve the DSCR of 1.0.
29 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ROMANIA: TRANSPORT RESTRUCTURING PROJECT
The Roads
The Bank completed the first Transport project (Loan 35930-RO) in 1998 and is far along to complete the Second Roads project (4178-RO) for US$l50 million. Bothprojects finance a slice of the Government’s road and bridge rehabilitation program. The second project also included a traffic safety component with elimination ofthe worst black spots and a pilot project to improve traffic safety in “linear villages”. There also was a small but successful environmental component to introduce unleaded petrol. Unfortunately, a substantial institution building program to be funded by PHAREi fell through and the project’s institutional development component was an unfunded mandate carried out through the project supervision missions. Both projects are meeting their development objectives and performing satisfactorily.
The RNCMNR is also borrowing from the EBRD (US$l50 million), EIB (Euro 920 million), and JBIC (US$80 million) to rehabilitate roads and to build new roads. Also ISPA funds (Euro 410 million) are available and being used for road rehabilitation. RNCMNR has also taken commercial loans (US$190 million). The EBRD loans have included a modest technical assistance component. The Bank projects have addressed the road rehabilitation and traffic safety issues. The new project would focus on city bypasses to improve traffic circulation in the cities, protect the historic cities, improve traffic safety, and provide meaningfhl funding for institutional development and development of methods for prioritizing and allocating the road budget efficiently.
The Railways
The Romanian Government, together with the Romanian Railways and the World Bank have recently completed the Railway Rehabilitation Project that began in 1996. The objective of the project was to support and consolidate the restructuring process, which the Railways and the Government had initiated. The ICR for the Railways Rehabilitation Project gives details of the progress and the results ofthe restructuring that has occurred during the term of the last project. The Project contributed to a major restructuring ofthe Romanian Railway industry, including:
A new railway Law enacted to create the legal environment for the railway industry. The previous State Railways was restructured through a series of evolutions into three companies focusing on Infrastructure, Freight, and Passenger services. This restructuring was aimed at aligning the operations to the market place, increasing efficiency, and responding to the requirements for European Integration. Several non-core businesses, such as power generation, hotels & restaurants, schools, etc., were privatized. Railway facilities such as stations and switching terminals were rationalized. Staff numbers were reduced from 137,139 to 72,744 during the term ofthe previous project, i.e. from 1996 to 2003. A modern fiber optic railway communication network was installed, together with a modern Integrated Railway Information System (IRIS).
30 Annex 3: Results Framework and Monitoring ROMANIA: TRANSPORT RESTRUCTURING PROJECT
Results Framework
- Project Development Outcome Indicators Use of Outcome Information Objectives
(1) Aligned with EUpractices, Reduction in through traffic Increased capacity to improve traffic rehabilitate, modernize and develop volumes, air pollution and circulation in and around cities. transport facilities for traveler safety congestion in the affected cities. and mobility. Traffic circulation Reduction in travel times for long near cities is of highestpriority to distance freight traffic. improve traflcpow and preserve old historic cities.
(2) Restructure administration of Road networks reclassified; a Improved allocation ofresources to roads through reclassification of the method to distribute the road budget achieve economic efficiencies and road network and associated between road owners is developed; broader impact on road conditions changes in road management and PMS and BMS systems are used to under budget constraints. financing. Increase eficiency of develop financially identified 5-yr Development ofMultiyear Program. road works through privatization road programs; and new and development of the domestic maintenance plans and technologies construction industry. are employed.
(3) Restructure the management of ICT (and IRIS) are fully engaged in Design of more competitive services the state railway companies to daily management; (labor) to freight forwarders. Further improve productivity toward full productivity has increased; and improvement in (labor) productivity. cost recovery and for competition information ofthe transport market Full cost PSO contracts for within the EU transport market. is used to design services. passenger services.
(4) Stimulate liberalization of the Freight services endowed with Private sector development and domestic transport market by complete managerial freedom; road improvement ofmarket competition. privatizing the service delivery at and railway maintenance operations both railways and roads. procured competitively. ,
31 Results Monitoring
Intermediate Results Results Indicators for Each Use of Results Monitoring One per Component Component Road Component Rdl: ,Road Component Rdl: Road Component Rdl: Development ofprocurement One contract for both rehabilitation Comparison ofdesign-build with method for design-build in and new construction let using the standard “design first and then rehabilitation and new construction. design-build method. build” method.
Road Component Rd2: Road Component Rd2: Road Component Rd2: Implementing a ‘Linear Village’ The number offatal and injury Planning for traffic safety and type traffic safety improvement. accidents in the ‘linear villages’. monitoring ofaccidents in urbanized areas. ~~ Road Component Rd3: Road Component Rd3: Road Component Rd3: Construction and Supervision of Bypasses built as designed. Monitor progress and correct if Bypasses for Selected Cities quality/progress is poor. Ensure that RNCMNR learns from the experience. Road Component Rd4 Road Component Rd4: Road Component Rd4: Bridge rehabilitation Bridges rehabilitated according to Monitor progress and correct if schedule qualitylprogress is poor. Ensure that RNCMNR learns from the experience. Rail Component Rwl: Rail Component Rwl: Rail Component Rwl: Management training in CFR, (Railway) Management training Attendance in the business program Marfa, and Calatori program established in a Romanian by the railway management staff. business school ~ Rail Component Rw2: Rail Component Rw2: Rail Component Rw2: Extension ofIRIS Extension ofIRIS function for the Monitoring ofrailway performance commercial activities (TUI, etc.). indicators. Component Rw3 Component Rw3: Component Rw3: Infrastructure Maintenance, Power Maintenance, power supply and Reduction in track maintenance unit Supply and Signaling Equipment signaling equipment procured. costs and labor requirements. Component Rw4: Component Rw4: Component Rw4: Environment management Environmental equipment procured. Monitoring ofenvironment quality.
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e, .-* -m e, a 6 E, 2 0 0 u 0 Annex 4: Detailed Project Description ROMANIA: TRANSPORT RESTRUCTURING PROJECT
The Project
The proposed Transport Restructuring Project has two main parts (with separate loan numbers) processed as one operation.
1) Road loan, which includes technical co-operation, traffic safety, urban bypasses, and bridge rehabilitation; and
2) Railway loan, which includes technical co-operation, track machinery, train control system and other capital improvements.
The project total cost amounts to US$ 377.9 million, of which US$225 million is supported by the World Bank loan. The project’s key components are: (i)restructure road administration, management and finance to improve the road sector efficacy, traffic safety, traffic circulation near important cities by building urban bypasses, and rehabilitate severely deteriorated bridges; and (ii)improve railways management through technical cooperation, especially in information and communication systems, better track machinery, train control systems, and improving regulatory capacity.
The project will build on and complement earlier projects funded by the Bank by both benefiting from the institutional reforms carried out earlier and extending them to address needs that either have come apparent or could not be addressed earlier. It will improve the RNCMNR’s ability to plan and manage urban segments of its road system, improve its design, environmental, and procurement processes. For the Railway companies the project supports continued financial and technological restructuring, and finances the acquisition of asset-specific maintenance equipment. Detailed description ofthe components follows.
The Road Sector Components Estimated at US$277.7 million (loan US$149 million)
Substantial progress was made in the past road projects to rehabilitate Romanian main road network. However, the inherited road network is insufficient and requires both rehabilitation and development investments, especially near cities and other major traffic generators. The RNCMNR is modernizing its organization and management frameworks and systems, aligning them with EU standards and practices, and engaging the private sector in both financing and service delivery. A key objective ofthe Roads component ofthe Transport Restructuring Project is to consolidate the many changes into a coherent whole, update key planning and managerial functions and finance important bypasses that are carefully designed and integrated into the existing and planned main highway network.
35 Rdl. Technical Cooperation and Training to Improve Efficiency of Road Management and Engineering Design
Technical cooperation and assistance funded by the loan aims to support institutional development in five areas, plus a sixth task as a stand-by item. These are:
1. Institutional support for the RNCMNR, consisting of:
a. Organization development, including management training.
b. Review and propose functional and administrative classification of the public road network; including identification of road owner, administrator, and manager responsibilities, and development of a method for dividing the road sector budget between road owners and administrations;
c. Development ofRNCMNR environmental policy and program, with training;
d. Development of data services and analytical capabilities in road management, including training.
2. Development ofplanning methods and capabilities, consisting of: a. Use of road management systems (Pavement and Bridge Management Systems) to develop a rolling 5-yr program, with training; b. Development of multi-year maintenance plans and methods and processes for their procurement, including training
3. Review, diagnosis and improvement of RNCMNR procurement documentation, including quantity measurement and instructions to tenders. As a specific item, this component includes the development of consultancy TORAWP and associated process for design-build method, which will be tested in one ofthe by- passes.
4. Harmonization and updating of RNCMNR technical specifications, geometric standards, and documents with EU standards (as diagnosed above).
5. As a stand-by task, a Road User Charge study will be undertaken in case the PPJBL - TA consultancy on the subject is further delayed. Under the Consultancy services category there will be training in project management, procurement and engineering design for the road works. The project will have Goods Category for the modemization of RNCMNR computer systems, and for the purchase of licenses for pavement and bridge management systems.
Rd2. Road Safety Improvement
The project’s traffic safety component would be coordinated with the traffic safety work of the GRSP and PHARE programs. The civil works would support the “Linear Village” type traffic safety improvements and elimination of “black spots”. Several of these were already identified
36 and designed in the ongoing Second Roads project, but will be scrutinized using the road crash database that is scheduled to be available later this year, funded through PHARE. Specifically, the component will include: (i)education and public awareness for the Romanian public through workshops to be delivered in different regions of Romania; (ii)technical support for the application of the traffic crash records database, and (iii)implementation of the Busteni Linear Village pilot road safety plan, designed earlier, and minor works and goods for the correction of road sections with recorded high rates oftraffic crashes as identified in the traffic crash database. Rd3. Construction of Bypasses to Selected Cities
To improve traffic circulation, relieve congestion and environmental pollution, reduce travel costs and traffic accident risk for traffic traveling through key cities that are at present a major bottleneck to both passenger and freight transport. The bypasses also improve the urban environment and the livability of the cities. The environmental assessments describe the details about the bypasses. The selected cities include: Bacau, Brasov, Reghin, Medias, and Targu Mures. Studies for the bypasses in Adjud and Ramnicu-Sarat are ready and available should there be savings in the project. A short description of the bypass studies and the bypasses themselves follows.
All the bypasses are located in cities with severe traffic problems and bottlenecks for growth. Many of the cities have historic cores, which are now negatively affected by traffic caused pollution and vibration (causing damage to old buildings). All the bypasses enjoy widespread popular support and acceptance among the cities' population.
The feasibility/ alternatives analyses of the bypasses were financed by the Government. The environmental studies and public consultations were done according to Bank guidelines and reviewed by an independent consultant. The environmental permits for all the bypasses have been issued following the requirements of the Romanian laws. A brief synopsis of each bypass, starting with the highest ranked (by NPV/CAPCost criterion) follows. Summary information for the bypasses is in Table 1, a map is annexed to the PAD. The by-passes in Adjud and Ramnicu Sarat may be included during project implementation if there is sufficient project balances.
0 Brasov, an industrial city with population of 310,000, is located in the foothills of the Carpathian mountains. Besides being home to numerous industries, Brasov is also a railroad center, a crossroads for several national roads, and has extensive recreational facilities for both summer and winter. Brasov has an old city center with many historic buildings. The city is congested and the overloaded street network suffers from the lack of maintenance. An important contributor to congestion are the several national roads from all directions that converge in Brasov. The bypass would enable the long distance traffic from all directions bypass the city. The bypass would also effectively distribute the incoming traffic between different city sectors before reaching the city center. It would enable better land use planning, give room for growth, and serve the planned airport northwest to the city. The design includes substantial environmental improvements. The bypass would connect the city to the planned Bucharest-Brasov-Oradea motonvay. It is planned that the Brasov bypass would be the first project and would start as soon as possible.
37 0 Medias is a mediaeval city of 57,000 inhabitants; part of the city wall is still in place. The Headquarters of the Romanian Gas industry is located in Medias. Over the past 10 years Medias has lost population, but has now started to grow again. The city is surrounded by mountains and Tarnave river runs through it. Railroad bisects the city and causes substantial delays on the national road now traversing through the city. The street network is in poor condition. The bypass would run along the Tarnave river enabling the elimination of the railway crossings. Environmental protectiodenhancement works (totaling US$1.6 million) are included in the capital costs. This bypass is tentatively selected for developing the design-build method.
0 Targu Mures, a historic Transylvanian city with a population of 165,000, a growth center and home to several industries, is crossed by national roads fkom north to south and east to west. The bypass would enable the north-south traffic avoid the city and also connect it to the Brasov-Oradea motonvay, which will pass the city to the south. Like in Brasov, the substantial through traffic, especially trucks, now plough through the city streets causing congestion and reducing livability in the city. The rolling terrain has presented demanding engineering and environmental challenges to the designers. Because of the terrain around Targu Mures, the extant road and street network is insufficient to accommodate the expected growth, making this bypass an important factor in future growth ofthe city.
0 Bacau, population 215,000, is one of the larger cities in the northeastern part of Romania with a diverse set of industries. It is in the crossroads of several national roads each having a vek difficult alignment in the approach and through the city. Because ofthe mountains in the west, along which the city growth has occurred, and river in the east, the bypass design was demanding and the result expensive. It is likely that because of the budget constraint, the bypass will be built in two phases, the first phase being the north-south bypass on DN2. The bypass would relieve severe traffic congestion in the linear, old and attractive city.
0 Reghin is a medium size city of some 50,000 north ofTargu Mures in Transylvania. It has a historic downtown with some stunning and colorful buildings from its German past. Reghin is the center of musical instrument manufacture in Romania. It is surrounded by rich farmland and experiencing rapid growth. The bypass would detour the city of the south and east sides, the west side being blocked by hilly terrain and small mountains.
0 Adjud is a smaller city, which the heavily traveled national road DN2 crosses. The city street network is thoroughly inadequate for the existing traffic. The bypass would enable the through traffic avoid the city, provide relief from traffic and eliminate a traffic safety hazard in the city’s main street.
0 Ramnicu Sarat, like Adjud, is a smaller city on the heavily trafficked DN2. The street network is inadequate for the existing traffic. The bypass would provide relief from traffic and eliminate a traffic safety hazard in the city’s main street.
38 This project sub-component also includes the costs of consultant’s services to be financed from the loan for detailed engineering design and to supervise the civil works during construction of the by-pass roads.
Rd4. Supervision of Civil Works
Supervision of the civil works during construction of the bypasses, rehabilitation ofbridges and road safety works.
Rd5. Bridge Rehabilitation
Repairs or replacement of selected bridges that are in critical condition and in imminent danger of collapse. Under the ongoing Second Roads project a thorough study was made on the condition ofthe bridges on the main roads. The rehabilitation needs were prioritized and designs are available. It is relevant to note that some bridges are in a critical condition and recently one bridge collapsed.
Project Audits
RNCMNR will hire Auditors approved by the Bank to conduct financial audits for the project funds, and for the entity.
Railways Components Estimated at US99 million (loan US$75 million)
While much has been accomplished during the last Bank financed Railway Rehabilitation Project, much still remains to be done to transform the Romanian Railways into fully commercial enterprises with gradually declining Government financial support (for a given level of service). Progress has been made in privatizing parts ofthe old State railway, and reducing the size of the labor force and the wagon and locomotive resources that are used to provide the railway services. Productivity of the Railways has significantly increased. A key objective of the Railway component of the Transport Restructuring Project is to consolidate the reforms and assist the Government and the Railways to complete the process initiated in the last Project with the following activities.
e Complete the privatization of the non-core activities, and focus on the core business. e Reduce the size of the Railway Infrastructure Company and improve its productivity. e Embed the Integrated Railway Information System (IRIS), and other technology tools, into the operational processes to improve customer service at lower costs. e Introduce market orientation and commercial practices into the Railways through management training. e Tailor the passenger services to market demand to increase efficiency, and minimize Public Service Contract costs. e Facilitate the complete managerial independence ofMarfa.
39 These measures, which the components ofthis loan support, target further productivity increases and will lead to significant decreases in the real costs ofthe Railways to the government.
Rwl. Technical Cooperation for the Commercialization of the Railway Industry and Training
The Technical Assistance component for the Railways under the proposed project will consist of:
1. Management Development. To institutionalize Railway Management Training. The previous Project focused on restructuring the Railway industry through the sale ofthe non-core businesses, and aligning the core businesses to match their marketplace, the focus ofthe current Project will be to commercialize the core railway businesses. This will require a major effort to change the culture ofthe Railway from being operations driven to being business driven.
The Project will support investment in people by broadening the Management Training program that was successfully piloted in the previous Project. To ensure the long term success ofthe Railways in Romania, management training must be seen as a continuous process. It is therefore important that this capability be established in Romania. The project will seek a multi-party agreement between the MTCT, the Ministry of Education, and suitable training institutes inside and outside Romania. This would serve to benefit not only the Railways, but also other Government commercial entities.
2. Business Process Redesign. Major developments and installations of communications and information systems were accomplished during the previous Project. It is now necessary to ensure that the benefits from the previous investments are realized by the entire Romanian Railway industry. This will require technical support for the integration of the current systems into the operating practices of the Railway. Three technical consultancy projects will be supported to redesign the organization and the business processes associated with Freight Customer Sewice, Train Operations for CFR, and Infrastructure Maintenance and Management. These TA support will be associated with specific software and hardware components, which will identified in the respective consultancies and procured in the project.
(a) Freight Customer Service Center will redesign the processes that Marfa uses to deliver customer service. Technical assistance consultancy would adapt the best practices to design the organization and the support requirements to manage the interface between the customers and the Railway. The consultancy will address the issues of Tariff Policies, Customer Contracts, Wagon Orders, Consignment Notices, Billing and Revenue Collection, Local Switching Orders, Shipment Tracing and Advising. The role and the locations ofthe Customer Service Centers will be defined. The work that is currently handled at the station level and other organizational units within the Railway will need to be clearly identified with a plan for consolidation and rationalization.
40 (b) Train Operations Management Center consultancy will redesign the process of managing the delivery of train services. It will examine the tools and processes available in IRIS to report on train circulation, to manage timetables and speed restrictions. It will examine CFR’s interface with the clients to optimize train management decisions for different train operator companies. The consultancy will review the current organization structure and locations that are involved in managing the train operations in order to determine how to improve customer service and reduce costs.
(c) Infrastructure Maintenance Management System consultancy will redesign the infrastructure maintenance management processes and systems to take advantage of the Track Geometry Wagon and the implementation of the IRIS infrastructure sub- system and relate them to the Capital Budget Planning systems, and Track Maintenance Planning Systems to optimize the organization and delivery of track maintenance activities.
(d) System development, and procurement of associated software and hardware for the redesign of the business processes. After completion of each consultancy follows system development, and procurement of associated software and hardware. The implementation the systems includes physical reorganization of working locations, and provision of telecommunications and other support equipment. The Railway Information Technology team must be an integral part ofall the three consultancies to ensure that the system enhancements and integration with IRIS are achieved.
3. Survey of market demand for passenger services. The key for commercializing the core railway business is to understand the Marketplace. The production resources of the core railway companies will need to be adjusted to meet market demands. This consultancy supports an intemational resource to assist the Passenger Railway Company to undertake a passenger demand survey. An objective ofthis action is also technology transfer of best practices to Romanian Railways. The survey will help Calatori to update its 5-year plan and investment plan to meet current and future market demands for passenger services in a cost-effective manner.
4. Project Management Unit staff training. The PMU that successfully managed the previous Railway Project has had a significant staff reduction and turnover. To ensure that the PMU team has the necessary skills to deal with all aspects of the World Bank project management, including procurement, the project will provide funds for training up to 20 PMUand Railway Management staff.
Rw2. Completion of the IRIS Hardware and Communications Network
Major developments and installations of Communications and Information Systems were accomplished during the previous Project. It is now necessary to ensure that the benefits from the previous investments are realized by the entire Romanian Railway industry. This will include: (i) Completion of the National Data Transmission Network (RENTRAD-CFR) to facilitate the implementation of IRIS (CRONOS, ARGUS, MERCUR) in all the
41 railway units. This will result in diversification of services and increase of quality of service offered to the users, and improve of interoperability with the European network. (ii) Increase of processing capacity of database servers and provide access to additional railway units for the diversification and increase of services offered to users in order to guarantee ofinteroperability with the European network.
Rw3. Infrastructure Maintenance, Power Supply and Signaling Equipment
In order for the Romanian Railway industry to remain competitive in the Marketplace, it must provide a quality service at the lowest cost, while ensuring an adequate retum to support it’s investments. The Project will support the Romanian Railways in improving its quality ofservice and in reducing its cost base by providing funds to acquire modem infrastructure maintenance equipment, as well as modem power supply and signaling equipment. The results of these investments will be improved service to all train operators within the Romanian railway network. A. Machines and Heavy Track Equipment
Universal tamping machines to double productivity compared with the current machines, and possibility to certify the quality ofthe works. Ballast prism profiling machines to increase the works quality and reduce implementation time. Ballast savings because ofits recoverability. Universal ballast-scarifier and screening machines to increase productivity, reduce operation costs, resulting in increased ofquality and mechanization ofworks. Special-purpose wagons for cleaning and direct storage ofwaste from ballast cleaning process. This will increase labor productivity, improve works quality and environmental protection. Tamping machines for tracks, and switches for increased productivity, quality and mechanization ofthe works resulting in reduction ofoperation costs. B. Machines and Small Track Equipment
Small mechanization machines for improved quality and productivity resulting in savings in labor, fuel, and consumables, and increased labor safety. The small machines will include: (i) Rail drills (ii) Motor driven sleeper screw drivers (iii) Rail saws with abrasion plate (iv) Rail grinding machines
C. Signaling Equipment
(i) Axle counters for the control of the current track between stations equipped with BLSAR, resulting in a reduction of 207 positions and increase in traffic safety. (ii) Introduction of centralized traffic control in track segments to Faurei (station) and associated equipment for electronic centralization resulting in IDM positions reduced at 21 stations.
42 (iii) Replacement of ten CEM with CED equipment (to control tracks at stations and on line) resulting in 100 positions reduced (10 for each station). In addition CEM equipment is obsolete and spare parts are no longer available.
D. Power Supply Equipment
Modemization of stations at Adjud, Barbatesti, Bolovanis, Caralita, Onesti, Parangu and substations at Ciceu, Deda, Toplita, Voslobeni. This will involve replacement of current equipment that are obsolete, for which no spare parts are available, resulting in manpower savings and reduction in the number ofelectro-mechanical positions.
Rw4. Systems for Quality and Environmental Management
The Railways need to acquire equipment to implement integrated systems of quality and environmental management to align them with European standards for train operations. This component will finance purchase of equipment and systems for monitoring emissions, metrological measurements, and environmental management. Other Components
The Railways loan also provides for annual financial audits for CFR, and for physical and price contingencies.
Urban Transport Component (loan US$ 1.0 million)
UT1. Institutional Development: Provision of technical assistance to support institutional development for MTCT and Metrorex, consisting of: (i)organizational development of the urban transport planning and management unit within MTCT, and establishment of the Bucharest Metropolitan Transport Authority; (ii)reorganization of the Metrorex institutional structure to improve efficiency and effectiveness; (iii)feasibility studies for extensions to the Metrorex commuter services within Bucharest metropolitan districts, and (iv) provision of consultant services for audit of the Project accounts covering the financial years during project implementation.
43 Annex 5: Project Costs ROMANIA: TRANSPORT RESTRUCTURING PROJECT
This annex shows the base cost by component (and, if needed, major activity per component) followed by contingencies. The footnote indicates the amount and percentage oftaxes.
:ounter- World Project 'roject Cost By Component (US$ million) Part Bank Total iidssub-sector: - Institutional Development 1.2 6.5 7.7 - Road Safety Improvement 3.9 4.0 7.9 - Construction ofbypasses to selected cities 104.7 1 7.9 222.5 - Supervision ofbypasses, bridge rehab & road safety works 2.0 0.7 12.7 - Bridge rehabilitation 6.9 7.0 13.9 - Annual Financial audits 0.4 2.0 2.4 - Contingencies and Unallocated 0.2 1.o 1.2 - Miscellaneous (permits, approvals, authorizations, land acquisition) 9.4 0.0 9.4
Roads Sub-Total: 128.7 149.0 277.5 Railwayssub-sector: - Technical cooperation & training for railway commercialization 2.1 11.5 13.6 - Completion ofIRIS Hardware and the Communications Network 2.7 4.5 7.2 - Infrastructure maintenance, power supply and signaling equipment 18.9 57.0 75.9 - Systems for quality and environmental management 0.2 1.o 1.2 - Annual Financial audits 0.1 0.5 0.6 - Contingencies and unallocated - 0.0 0.5 0.5
Railways Sub-Total: 24.0 75.0 99.( Urban Transport sub-sector: -Technical assistance & institutional development 0.2 1.o 1.2 Urban Transport Sub-Total: 0.2 1.o 1.2
Total Baseline Cost 152.9 225.0 377.9
Project Costs excluding taxes & duties (*) 130.0 225.0 Total Financing Required 225.0
Note: Identifiable taxes and duties at 19% amounting to US$22.9 million of counter-part funds,
44 Annex 6: Implementation Arrangements ROMANIA: TRANSPORT RESTRUCTURING PROJECT
Administrative Arrangements
The loan will be channeled through the Ministry of Public Finance to the Ministry ofTransport, Construction and Tourism. The project will be implemented by three entities: RNCMNR, CFR, and Metrorex. Both RNCMNR and CFR have experience in implementing World Bank projects, and Metrorext has experience implementing both EIB and EBRD funded projects. The three entities will be responsible for all technical aspects of the project, including planning, procurement of goods and services, implementation of civil works, institutional strengthening and training. Supervision of civil works will be carried out by independent consultants. Administration of the Special Account and project accounting will be done separately by the three entities. Consolidated accounts and reports to the Bank for all project components will be undertaken by the RNCMNR.
Project Management
The MTCT will have overall responsibility for project oversight and coordination with other IFIs, the EU (ISPA program), bilateral agencies, and the private sector partners. Management of the main project components will be undertaken separately for the roads and railways. The RNCMNR will manage all ofthe roads components, whilst the railways infrastructure company, CFR, will manage all of the railways components. The small urban transport component, comprising technical assistance studies, will be managed by Metrorex, the metro-rail urban transport operator in Bucharest.
The RNCMNR has well established departments that perform specialized functions such as planning and development, road safety, maintenance management, financial management, and a PPP unit. Consequently, the project will utilize well established procedures for procurement and financial management. The various departments and units within RNCMNR have previous experience with managing Bank financed projects, and therefore the present administrative arrangements within the organization will be maintained.
Management of the railways components of this project will be undertaken by CFR under the supervision of the General Directorate for Railways (GDR) within the MTCT. A Project Management Unit (PMU) was established within CFR under the previous Bank financed loan. The PMU has highly motivated staff who have accumulated significant experience with the Bank’s fiduciary procedures and requirements. The PMUwill undertake all project management functions on behalf ofall three railway companies.
Project Financial Management
The three implementing agencies will each maintain a financial management system for the project where project accounting, reporting, monitoring and auditing arrangements will be centralized. Accounts will be maintained in accordance with generally accepted accounting principles and practices satisfactory to the Bank. The significant strengths that will provide a basis of reliance on the project’s financial management systems include the experience of the
45 existing project implementation teams. The RNCMNR has previously managed Bank financed projects, including implementation of the US$ 150 million Second Roads Project that is scheduled to close September 30, 2005. The most recent financial management supervision of the Second Roads Project of June 2004 confirmed that the FM and FP ratings of the project are satisfactory. The National Railway Company, CFR, also has previous experience in managing Bank financed projects, including the US$ 125 million Railway Rehabilitation Project that closed on September 30, 2003. Whilst Metrorex has no direct experience of managing Bank financed projects, it has managed both EIB and EBRD financed projects that use fiduciary arrangements with requirements similar to those ofthe World Bank.
Procurement
The two main executing agencies, RNCMNR and CFR, are both established within the structure ofthe MTCT, whilst Metrorex is established within the City Corporation ofBucharest. The three entities will be responsible for management of procurement procedures. The entities have full time procurement/financial management staff and full-time procurement specialists. The technical and procurement capacity ofboth RNCMNR and CFR will be further strengthened by adequate training financed through this project. Relevant staff from Metrorex will be invited to participate in local training programs organized for the staff from the two main project implementing agencies. Procurement of goods and services for the Bank financed components will be done by all entities in accordance with the provisions ofthe World Bank “Guidelines for Procurement under IBRD Loans and IDA Credits and Selection and Employment of Consultants by World Bank Borrowers” (effective May 1, 2004). Project components not financed by the Bank may be procured in accordance with the national regulations or the co-financing institutions procurement regulations. Procurement of goods, works and services for the project will be carried out in accordance with the agreed Procurement Plan, which will be updated annually and included in the progress report to be reviewed by the Bank. Details of the proposed procurement arrangements are provided in Annex 8.
In order to further strengthen the procurement capacity of the implementing entities appropriate training will be provided for relevant staff and financed under this loan. Training and study tours will be carried out according to a training plan that will be prepared by the agencies annually and submitted to IBRD for no-objection prior to implementation. The locations for the training and study tours will be selected on the basis of an evaluation of the most suitable program of training offered by several institutions, availability of services, period of training, within the frame of the Selection method based on the Consultants’ Qualifications (CQS) or Section V of the Guidelines for the major part, and Shopping method for smaller ready-made training programs (proposed by UN Agencies such as ILO for example).
46 Annex 7: Financial Management and Disbursement Arrangements ROMANIA: TRANSPORT RESTRUCTURING PROJECT
Financial Management
Country Issues
The first Country Financial Accountability Assessment (CFAA) for Romania was finalized in December 2003 and concluded that the overall fiduciary risk associated with the public financial management and financial accountability arrangements of the Romanian government administration is considered to be moderate, with the systems for accounting, financial reporting and internal control representing the areas with the higher risks and budgeting, cash management and external audit and Parliamentary oversight representing the lower risks.
The implications of the CFAA for the project are addressed by the following actions: a A detailed review ofthe systems was performed for each implementing entity; a Each implementing entity has a distinct project-specific accounting ledger; a Project accounting staff has been nominated for each implementing entity; a The format of the FMRs and financial reports agreed with both implementing entities; a RNCMNR, CFR, and Metrorex entities’ as well as Transport Restructuring Project financial statements audited by an independent auditor annually.
Strengths and Weaknesses
The significant strengths that will provide a basis of reliance on the project’s financial management systems include the experience of the existing project implementation teams, one within RNCMNR, currently in charge with the implementation of the Second Roads Project (P039250), with a closing date of September 30, 2005, and the other one within the CFR, which was in charge with the implementation of the Railway Rehabilitation Project (PO36013), closed on September 30,2003.
The most recent financial management supervision of the Second Roads Project of June 2004 confirmed that the FM and FP ratings ofthe project are satisfactory.
Implementing Entities
The existing project implementation teams established within the RNCMNR, CFR and Metrorex , would be responsible for the financial management aspects of the Roads components, of the Railways components, and of Metrorex components, respectively, of the new Transport Restructuring Project.
Three Project Agreements will be signed by the World Bank (IBRD), one with RNCMNR, one with CFR and one with Metrorex.
47 Funds Flow
Project funds will flow in respect of each ofthe sources ofproject financing as follows:
(i) the Bank loan, by direct payments or via the three Special Accounts, which will be replenished on transactional methods using Statements of Expenditure; and
(ii) Government counterpart contribution, via dedicated Treasury project accounts.
Three Special Accounts will be opened at commercial banks and on terms and conditions acceptable to the WB. One Special Account will be opened for the RNCMNR in respect of its Roads components, another Special Account will be opened for the CFR in respect of its Railways components and the third Special Account will be opened for Metrorex in respect of its underground transport components. Foreign currency amounts will be exchanged as needed in local currency (ROL), to cover eligible expenditures payments in local currency to suppliers, from the Special Accounts into local currency transfer accounts that will be opened at commercial banks and on terms and conditions acceptable to the WB.
Government counterpart contribution payments will be made from separate Treasury project accounts, being sub-accounts of the entities' main budgetary accounts, and which will be used specifically for the counterpart contributions to the project. These contributions will be received monthly in accordance with normal budget procedures.
A summary flow of funds diagram is presented below:
World Bank
I
I I I I I i Ministrv of Public I I
I Finance I I:;I I I I I I I I I I I I I I I I I I I I I I I Construction and Tourism I I I I I
Treasury Account Treasury Account Treasury Account
Flow of WB loan funds Flow of Government funds
.... " ...... ------b
48 Staffing
Each implementing entity is staffed as follows in terms ofproject financial management:
0 RNCMNR has nominated among its existing staff the project financed manager, project disbursement officer and project accountant, all having considerable experience on Bank - financed projects; 0 CFR has nominated among its existing staff the project financed manager, project disbursement officer and project accountant, all having considerable experience on Bank - financed projects; 0 Metrorex has nominated among its existing staff the project finance manager and project accountant.
Accounting Policies and Procedures
The project’s accounting books and records at the various agencies will be maintained on an accrual basis and denominated in Romanian Lei (ROL) with the exception of the books and records in respect of the Special Accounts which will be maintained in the currency ofthe IBRD Loan.
The RNCMNR and CFR have in place appropriate accounting regulations and internal controls including authorization and segregation ofduties documented in their internal control procedures and regulations.
Metrorex is currently improving its accounting procedures and internal control regulations, to address the points raised by the auditors and will prepare a comprehensive financial management manual in early 2005. In the meantime, Metrorex will put together a project procedures manual.
Audit Arrangements
Internal Audit
Both RNCMNR and CFR have an internal audit department. It is anticipated that these internal audit departments will review the project’s financial management arrangements. The internal audit departments in both implementing entities will include in their annual work program the Transport Restructuring Project, as part of their entities’ overall activities. Metrorex is currently establishing its internal audit department.
A number of internal audit reports prepared by the relevant departments of the implementing entities have been reviewed during appraisal. The various findings reported do not have an impact on the project.
External Audit
As ofthe date ofthis report, the Borrower is in compliance with its audit covenants ofthe Bank- financed projects.
49 The National Administration ofRoads (NAR), the predecessor entity ofRNCMNR, has been audited in accordance with ISA since its incorporation in 1998 by independent extemal auditors. The auditors issued a qualified-exception opinion on NAR’s financial statements for 2001,2002 and 2003, due to issues relating to the application ofIAS 36 and aspects pertaining to fixed assets.
CFR has been audited in accordance with ISA since its incorporation in 1998 by independent extemal auditors. The auditors issued a qualified-disclaimer opinion on CFR’s financial statements for 2001, 2002 and 2003, due to issues relating to the inventories, deferred income, accounts receivable and other receivables.
The Second Roads Project Financial Statements and Railway Rehabilitation Project Financial Statements always received clean audit opinions over their implementation life.
Metrorex has been audited in accordance with Romanian auditing requirements, by audit firms that are members of the Chamber of Financial Auditors. The auditors issued a qualified- exception opinion on Metrorex financial statements for 2002 and 2003, due to issues relating to weaknesses in the flow ofdocuments, the accounting system which is mostly manual, accounting policies, inventories, fixed assets, subsidies and accounts receivable.
The Transport Restructuring Project will be audited annually both by an audit firm and on terms of reference acceptable to the Bank. The terms of reference for the audit have been agreed and attached to the minutes of negotiations. The audit scope will include the project’s books and records as maintained by each implementing entity, all withdrawal applications, and the Special Accounts. The audited project financial statements together with the auditor’s opinion thereon will be provided to the Bank within six months ofthe end ofthe reporting period, being the fiscal year. The audit contract will be financed by the loan and be awarded to a single audit firm for the life of the project, subject to satisfactory performance. RNCMNR will coordinate the entire project audit.
The RNCMNR and CFR entities’ financial statements will be audited annually, by audit firms and on terms of references, acceptable to the Bank. The terms of reference for the audit have been agreed and attached to the minutes of negotiations. The costs of the RNCMNR and CFR audits will be covered by the loan, and the costs of the Metrorex audits will be financed from Metrorex’s own sources.
In addition, the Romanian Court of Accounts (CoA), the country’s supreme audit institution, will continue to perform ad hoc extemal audits ofthe implementing entities, including ofthis project.
The audit report prepared by the CoA for FY 2002 for the MTCT, which covered also the RNCMNR and CFR, as subordinated entities ofMTCT has been reviewed. The CoA has granted the ‘discharge of responsibility’, being a process of whereby the CoA confirms that a budget holder has discharged its obligations in respect of the execution and reporting of the budget, to the above mentioned budgetary holders. The CoA report for FY 2003 will be available in November 2004.
50 Disbursement Arrangements
Bank funds will be disbursed either as direct payments, or to one of the three Special Accounts opened for each component which will be replenished under the transactional disbursement procedures. Withdrawal applications for the replenishments of the SAs will be sent to the Bank directly by each responsible project implementing entity monthly, or when about a third of the initial deposit in the SA has been utilized, whichever comes first. All replenishments for transactions above the prior-review threshold will be fully documented. Supporting documentation for all transactions, including completion reports, goods received noted and acceptance certificates, will be retained by each implementing entity and made available to the Bank during project supervision. There is no plan to move to forecast-based periodic disbursements.
Reporting and Monitoring
Project management-oriented Financial Monitoring Reports (FMRs) will be used for project monitoring and supervision. The project implementing team in the RNCMNR will produce the project’s FMRs every calendar quarter and the reports will be submitted to the Bank within 45 days after the calendar quarter-end. The FMRs will be aggregated from the reports provided to the RNCMNR by the project implementing teams in the CFR and Metrorex, within 30 days after the calendar quarter-end. The formats of the FMRs and financial reports have been agreed and attached to the minutes ofnegotiations.
Information Systems
Each entity already has access to an accounting software system on which it has created and will maintain project-specific accounting ledgers, as follows:
0 RNCMNR - a project-specific accounting ledger created within its existing entity accounting software system to record the operations of the project, using the existing chart ofaccounts; 0 CFR - a project-specific accounting ledger created within its existing entity accounting software system to record the operations of the project, using the existing chart of accounts; and 0 Metrorex - a project-specific accounting ledger created within its existing entity accounting system to record the operations of the project, using the existing chart of accounts and distinct analytical sub-accounts for the project.
Action Plan (Agreed with Borrower)
None.
51 Supervision Plan
During project implementation, the Bank will supervise the project’s financial management arrangements in two main ways: (i)review the project’s quarterly financial monitoring reports (FMRs) as well as the project’s annual audited financial statements and auditor’s management letter; and (ii) during the Bank’s supervision missions, review the project’s financial management and disbursement arrangements (including a review of a sample of withdrawal applications and movements on the Special Accounts) to ensure compliance with the Bank’s financial management requirements.
52 Annex 8: Procurement ROMANIA: TRANSPORT RESTRUCTURING PROJECT
Summary of Procurement Arrangements
This section ofthe PAD describes the Procurement arrangements for the project. Should there be a discrepancy between the PAD and the Loan Agreement, the provisions of the Loan Agreement shall prevail.
Procurement of goods and services ofthe Bank financed components will be done in accordance with the provisions of the World Bank Guidelines Procurement under IBRD Loans and IDA Credits and Selection and Employment of Consultants by World Bank Borrowers (effective May I, 2004 ). The project components not financed by the Bank would be procured in accordance with the national regulations or the co-financing institutions procurement regulations. Proposed procurement arrangements are summarized in Table A below.
The Bank’s latest Standard Bidding Documents, Requests for Proposals, Invitations to Quote and Forms of Contracts will be used for all procurement packages wholly or partly paid out of the loan.
Notification and Advertising
A General Procurement Notice (GPN) will be published in the UN Development Business. For ICB goods contracts and large-value consultant contracts (more than $200,000) Specific Procurement Notices would be advertised in the Development Business and the national press and in the case ofNCB in a major local newspaper with nationwide circulation (in the national language).
Procurement Responsibilities
The executing agencies (more particularly RNCMNR and CFR), established within the MTCT’s structure will be responsible for management ofprocurement procedures. These agencies will be staffed by a full time procurement/financial manager and two full-time procurement specialists. In addition, the procurement activities will be supported by the project transport specialist. The technical and procurement capacity ofboth agencies will be strengthened by adequate training.
Procurement Methods and Thresholds
The Project includes procurement of civil works, goods, and consultant services. A procurement plan detailing the packaging and estimated schedule of the major procurement actions has been prepared by the borrower, attached to the minutes of negotiations, and will be posted on website (without the estimated costs), according to Bank’s guidelines. During project implementation, the procurement plan will be updated and sent to the Bank for approval annually at a minimum.
53 Direct Contracting
There is one direct contracting procedure envisaged in the Railways component for an Information Technology package (supply of the updated version of a proprietary software, with related incidental services such as development, installation and training).
Domestic Preference
Domestic preference for the evaluation purpose shall apply to locally manufactured goods in accordance with provisions of the guidelines Procurement under IBRD Loans and IDA Credits (effective May 1, 2004 ).
Consulting Services
Consulting Services will be selected in accordance with the World Bank Guidelines Selection and Employment of Consultants by World Bank Borrowers (issued November 2003). Quality and Cost Based Selection (QCBS) will be the preferred method for selection of consulting firms for contracts estimated to cost $100,000 equivalent or more, except for a few contracts of a standard nature: Least Cost Selection (LCS) may be the method used for selection of consulting firms for contracts of a standard, non complex nature, estimated to cost less than $200,000 equivalent. QCBS selection over $200,000 will be advertised in Development Business and in a national newspaper for expressions ofinterest, from which a short list will be drawn. Contracts estimated to cost less than $200,000 may be procured following Consultants Qualifications (CQ) and/or Least Cost Selection (LCS). Individual consultants will be selected in accordance with Part V of the Consultants Guidelines.
Single Source Selection
The extension and development of two modules of the existing “IRIS” software developed for the Railways Company, CFR, during the previous Romania Railways Project, which is partly a proprietary software, will be undertaken by the same consulting firms, on the basis ofthe rates of the initial development contract (updated and considered as a cap), under Single Source Selection method, for the subcomponents relating to the Freight Customer service Center and to Train Operations Management. Training
In order to further strengthen the procurement capacity ofthe implementing entities, appropriate training will be provided for relevant staff and financed under this loan. Training, and if possible, study tours will be carried out according to a training plan that will be prepared by the agencies annually and submitted to IBRD for no-objection prior to implementation. The locations for the training and study tours will be selected on the basis of an evaluation of the most suitable program oftraining offered by several institutions or consultants, availability of services, period of training, within the frame of the Selection method based on the Consultants’ Qualifications (CQS) or on Section V of the Guidelines for the major Lots, and of the Shopping method for smaller ready-made training programs (proposed by UN Agencies such as ILO for example).
54 Bank’s Review of Procurement Decisions
Scheduling of Procurement. Procurement of goods, works and services for the project will be carried out in accordance with the agreed Procurement Plan, which will be updated annually at a minimum, included in the progress report and reviewed by the Bank. Prior Review
Goods and Works. The following contracts are subject to the Bank’s prior review as set forth in paragraphs 2 and 3 ofAppendix 1 to the Guidelines:
i. all ICB contracts; ii. all goods contracts estimated to cost the equivalent of$200,000 or more; and iii. the first two contracts procured under NCB (regardless of contract value), the first two contracts procured under shopping and the first two contracts procured under Minor Works.
Consulting Services. With respect to consulting services, prior Bank review will be required for all terms ofreference for consultants. Contracts for services estimated to cost the equivalent of $100,000 or more for firms and $50,000 or more for individuals, and the first two contracts under CQ and LCS are subject to Bank’s prior review as set forth in paragraphs 2 and 3 of Appendix 1 to the Guidelines.
All other contracts are subject to post review, in a ratio ofone contract in five.
Action Plan for strengthening Agency’s Capacity to Implement Project Procurement
1. The agencies will be staffed by a fill time procurement/financial manager and two full- time procurement specialists whose qualifications, experience and terms of reference shall be satisfactory to the Bank; 2. A training program for the procurement staff ofthe agencies (minimum four staff each in the program for CFR and RNCMNR) will be implemented, based particularly on regional workshops and seminars, and on International Labor Organization ILO (Turin) regular WE3 standards procurement training sessions . It would include at least a two day training session per procurement specialist or officer, focusing mainly in the preparation of bidding documents for each type ofprocurement method proposed in the loan agreement, bid evaluation and preparation ofcontracts. Relevant Metrorex will also be invited. Overall Procurement Risk Assessment:
Risk assessment is rated high.
Frequency of Procurement Supervision Mission Proposed
One every six months including in-depth procurement supervision for post-review. A sample of contracts subject to post review, in the ratio of one in five contracts, will be subject to periodic post reviews.
55 Table A: Project Costs by Procurement Arrangements (US$ million equivalent)
Procurement Method4 Total Expenditure Category ICB NCB Other5 N.B.F. Cost ROADS 1. Works 222.5 21.8 0.0 0.0 244.4 I1 7.9 11.0 0.0 0.0 128.9 I. Goods 1.3 0.0 0.0 0.0 1.3 1.I 0.0 0.0 0.0 1.1 3. Consultants’ Services, including Training 0.0 0.0 20.3 0.0 20.3 0.0 0.0 17.1 0.0 17.1 4. Land Acquisition & miscellaneous (permits etc.) 0.0 0.0 0.0 9.4 9.4 0.0 0.0 0.0 0.0 0.0 Sub-Total (Roads) 223.8 21.8 20.3 9.4 275.4 Sub-Total (Roads) WB I 19.0 11.0 17.1 0.0 147.0 RAILWAYS 1. Works 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2. Goods 86.7 0.0 2.2 0.0 88.8 64.7 0.0 1.8 0.0 66.5 3. Consultants’ Services, including Training 0.0 0.0 9.6 0.0 9.6 0.0 0.0 8.0 0.0 8.0 Sub-Total (Railways) I 86.7 0.0 11.8 0.0) 98.4 Sub-Total (Railways) WB 64.7 0.0 9.8 0.0 74.5
METROREX 1. Consultants’ Services, including Training 0.0 0.0 1.2 1.2 I I 0.0 0.0 1.0 O.O/0.0 1.0 Sub-Total (Metrorex) 0.0 0.0 1.2 0.0 1.2 Sub-Total (Metrorex) WB 0.0 0.0 1.0 0.0 1.0
Total 310.5 21.8 Total (World Bank) 1 183.7 11.0, 27.9 222. :
~~ Figures in bolditalic are the amounts to be financed by the Loan. All costs do not include contingencies. * Includes civil works and goods to be procured through shopping, consulting services, services ofcontracted staff of the project management office, training, and incremental operating costs related to (i)managing the project, and (ii) re-lending project funds to local government units.
56
U Table B: Thresholds for Procurement Methods and Prior Review
Contract Value Contracts Subject to Expenditure Threshold Procurement Method Prior Review Category (US$ thousands) (US$ millions) 1. Works ->2,000 ICB All <2,000 NCB First two contracts <100 S First two contracts
2. Goods6 ->200 ICB All >loo NCB First two contracts 400 S First two contracts
3. Services >200 Firms QCBS > 100 All <200 Firms CQ, LCS First two contracts >5 0 IC All <50 IC First two contracts
59 Annex 9: Economic and Financial Analysis ROMANIA: TRANSPORT RESTRUCTURING PROJECT
Benefit Cost Analysis of the Roads Component
Economic analyses for the bypasses were conducted using standard engineering-economic methodology employed by the World Bank in numerous projects worldwide. The objective is to minimize the total road transport costs to society over the life of the road subject to constraints, which include road design, traffic safety features, and environmental considerations. The total road transport costs comprise five interacting sets ofcosts: (1) construction, (2) rehabilitation and periodic maintenance, and (3) routine maintenance and system operation costs spent by the road administration (4) the road user costs (whose most important components are vehicle operating costs, time costs and accident costs), and (5) external costs to society (pollution, development, and production benefits if identifiable). In the analyses local values were used for all the cost components; the external costs were included in the construction costs through the mitigation measures.
Decisions always consist of choosing between two or more possible solutions. Everything that is common to the choices disappears in the comparison process, which is only concerned with differences. The differences in expenditures between alternatives are easier to establish than the expenditure itself. The differences in user expenditure are generally called "user benefits", that is reductions in user costs. The attempt to minimize the total expenditure is thus equivalent to maximizing the difference between the streams of "user benefits" and road administration costs, this difference being referred to as "net benefit".
Figure 1 illustrates the solution principles of the engineering-economic analysis. The curve showing road user costs decreases and the curve showing road administration costs rises with better road condition. The better the road the less it costs to the travelers in vehicle wear and tear, in delays, and both the society and the travelers gain from better traffic safety. But, to provide a better road costs more to the road administration and the taxpayers.
The total cost curve, the sum ofthese two types ofcosts has a minimum value that is the desired "optimum" point. In figure 1 the optimal road condition would be at Q and the associated total cost for bringing or keeping the road in this standard would be at S; the road administration costs being OB and the user costs BS.
Figure 1 refers to a single year. But, what is carried out in a particular year has an effect on all later years and this framework is able to account for present and future costs. The totality of current and future expenditure - the life cycle costs - must be considered. The "road stock preservation" objective then enters into calculations as an optimization of schedule of expenditures for maintenance and for road user expenditures. The total transport cost T to be minimized is the discounted sum ofexpenditures B and road user expenditures S.
60 Figure 1
Cost or budget Total road transport costs
administration costs Road administration costs after productivity improvements
S Too large budget I I Optimal budget Too small budgel
7 Too Q Too ,I Road condition poor good I Optimal Optimal for more efficient road administration
Figure 1 also has a curve for more productive and efficient road administration. The importance of this issue is discussed later as it relates to the technical assistance and cooperation part ofthe Project’s road component.
Using the above framework, benefit-cost calculations were conducted for each of the seven bypasses. The results are in Table 1 which also indicates the breakdown costs for various purposes such as construction, environment, etc. and the contribution of the government to the projects’ costs. The results show that all the bypasses have a good rate ofreturn, in excess of 16 YO. The figures sizable sums are invested in environmental mitigation measures. The results are also robust against cost increases.
Figure 1 refers to a single link it can also be envisaged to refer to a (homogenous sub)network and indicate the network wide optimal road standard and the budget associated with the standard. In the context of the road administration, such as RNCMNR, the interest is of the discounted net benefit of a entire road program.
61 Figure 1 can also easily be used to illustrate the effect of standards and budget constraints to allocation and distribution of monies that result either in too good or too poor road condition. The importance of the budget constraint is not only related to “political” considerations. Improving road administration and management can significantly affect the road administrations cost curve, the dotted line in figure 1.
In this project, there significant technical cooperation activities, which aim to improve the RNCMNR data and road management systems, and in so doing make RNCMNR more productive. As the dotted line indicates, such improvement in productivity has the dual impact of improving road network condition and lowering the user costs for the same level ofbudget. Thrifty road management calls for multi-year road programs, consisting of different actions to which the road condition is linked. Within the limits of a given road policy it is generally possible to modify the total amount of hnding to some extent. A correct policy choice would be to increase the costs, the size of the road construction, rehabilitation and maintenance program, until the increase in benefit is equal to the increase in cost.
The management systems, the engineering-economic analysis framework and the review of its technical standards and specifications - all components in the TA program--will also assist RNCMNR to determine the “optimal” size of its annual budget. This combined with the road user charges study will assist the Government and RNCMNR to establish budget targets and allocate the road budget the most efficient manner.
If RNCMNR is provided with a dedicated income source from road user charges, the methodology will also enable RNCMNR to conduct financial analyses, which today are quite rare even in modem road administrations.
62 mi I Economic Costs and Benefits of the Railways Components
The two main groups ofrailway equipment included for financing under the proposed project are heavy track equipment and train control equipment.
Heavy Track Machines. Track machine performance, mostly tamping and ballasting machines, have a substantial influence on track maintenance costs and, as a result, on overall infrastructure costs. All aspects of tamping machines operation have to be governed by the consequences of the track costs. However, this does not necessarily mean that minimizing machine expenses reduces the cost of track maintenance. When comparing different strategies, it must be considered how they influence direct work costs, the cost per meter tamped, and the life-cycle of the track. In addition, the cost of train operation is also very important. Initial and inherent quality determine track maintenance cycles, and therefore the life-cycle cost of the track. Even on track where there is less need for train ride comfort, it is advisable to rely on machines that produce high quality work. Improving the quality of track will extend by as much as 30% the interval between track maintenance.
Every kilometer of conventional double-track line has between 3000 and 5000 m3 of ballast, depending on the type of permanent way and the track spacing. The economic handling and management of these huge quantities of material pose a great challenge for track maintenance. The ballast is required to distribute the load from the sleepers as uniformly as possible over the foundation, to give the sleepers and track sufficient resistance against lateral and longitudinal movement, and to keep the track dry by providing the best possible passage for the circulation of air and water run-off A knowledge of the quantity ofballast in the track is the start of efficient ballast management. Machines can be equipped with systems to measure the ballast profile which allow for extremely high efficient ballast management. Using intelligent ballast management systems has the potential for large reductions in the amount of new ballast that needs to be purchased annually and thereby avoid the associated transport and unloading costs.
The new equipment is expected to increase output by five or six times in about 30% of the network, and it has been conservatively estimated that the direct benefit would be the reduction of 20% of the maintenance costs on the portion of the network to which the equipment will be allocated. These results are fairly conservative, since they do not include benefits derived from increased safety due to improved capacity and alignments.
Power Supply and Signaling Equipment. This equipment, comprising mainly of electronic equipment for traffic dispatching, mechanical interlocking, and signaling will modernize train power supply and signaling increasing automation, reducing the cost of labor, and more importantly, improving safety and replacing obsolete equipment prone to failure and costly service disruptions. The Romanian Railways carried out a cost-benefit analysis for each group of stations, based solely (and conservatively) on the savings in the operating costs of the new systems. It was implicitly assumed that the freed labor would be allocated to activities with at least equal marginal productivity. The analysis confirms the high priority of the proposed systems, with an estimated ERR of 45%. Details of the economic evaluation are included in the project file.
64 Background to Railway Reforms in Romania
Under the umbrella of the previous World Bank/EBRD financed Railway Rehabilitation Project (1 996-2003), the Romanian Railways have achieved significant progress in fundamental structural reform based on the Railway Law enacted in 1998 to increase efficiency, respond to the market demands, and meet the requirements of EU accession. The restructuring has four parts -- organizational, labor, privatization, and financial.
Organizational Restructuring. Since October 1998, the previously monolithic company (SNCFR) has been split into five companies - railway infrastructure (CFR), freight (Marfa), passenger (Calatori), surplus asset management (SAAF), and financial, legal and procurement management services (SMF). SMF was dissolved in 2002 and its functions have been taken over by the four companies. SAAF is also planned to be dissolved soon as the bulk ofthe surplus and obsolete assets has now been disposed of. SNCFR has continued to exist as a separate debt amortization unit to help reduce its indebtedness. Because the passenger services required substantial subsidies, the Government divided the passenger railways into nine different companies in February 2000, eight for short-haul regional services and one for long-haul international and inter-city services. The idea was that the local govemments would pick up the subsidy payments as none was needed for the long haul services. This solution did not work out because of lack of legal framework allowing PSO compensation from local budgets, lack of an IT-based ticketing system to allow revenue allocation among the eight operators, and fragmentation of assets causing higher operating costs. In April 2001, the Government reversed its decision and all ofthe nine companies have been merged back into one passenger company.
Labor Restructuring. Since end-1997, with the support of the State budget, labor has been reduced by about 40 YOfrom 133,000 to around 74,000, which has improved labor productivity compared to what it would been without this program. Despite a sharp reduction of traffic volume (40%) during this period, labor productivity has now reached 3 10,000 TU/per staff. There are still excess staff and the size of network is too large relative to traffic levels and a high proportion ofuneconomic services. The Romanian Railways have adopted an approach to reduce the excess railway track by dividing the railway track into two categories: interoperable and non- interoperable. The former, about 70 percent of the total route network of 11,364 km, would be maintained in compliance with EU regulations and standards. The latter 30 percent would be franchised, given to local governments, or closed. This will benefit the railways in reducing staff, operating costs, track access charges and therefore tariffs. Another labor reduction ofabout 8,000 employees, or about 10 percent of the total workforce, is foreseen in 2004 through layoffs and separation ofinfrastructure maintenance workshops.
Privatization. Between 1999 and 2002, non-core railway activities were first separated from core businesses and 34 railway subsidiary companies were established. A total of20 subsidiaries have been privatized since 2003. Most of the remaining will be privatized in 2004 and 2005, and the railways plan to keep 8 subsidiaries providing essential services such IT center, repair workshops for track, locomotives and coaches, ticket sales and sleeping car.
Financial Restructuring. At the time of 1998 restructuring, the accumulated tax arrears of US$600 million were placed at the SNCFR to enable the new companies to start with a clean slate. SNCFR has now been able to reduce over 80 percent of the old tax arrears using the
65 money collected from old receivables. Since the 1998 reorganization, the Government has provided Calatori with PSC payments ranging about US$150-220 million annually. Passenger tariffs have been adjusted periodically to cover inflation. Many railway facilities and equipment such as stations and switching terminals have been rationalized to reduce costs and increase revenues. Under the previous Railway Rehabilitation Project, the Romanian Railways have modemized and rehabilitated track, equipment, traction units and rolling stock and installed a very sophisticated integrated railway information system and modem communication network. This, together with the ongoing modemization and rationalization of the railways with the support of the Government budget and the proceeds of the recent Eurobonds, IF1 loans, and EU grants, will assist the Romanian Railways in reducing its cost base and improving its competitiveness. While much has been accomplished in improving financial performance of the railways, much still remains to be done to transform the railways into a fully commercial enterprise with minimum budget support. It is not only the railways that need to be restructured, but the entire Romanian economy needs to be restructured as well to create an environment to facilitate a much deeper railway reform. This will be addressed through the proposed project and PAL operation.
Recent Financial Performance
Financial Results. Prior to 1990, the Romanian Railways were profitable since most of the freight and passenger traffic was directed to the railway. As a result ofreduced traffic and rising costs, and particularly because of difficult economic environment, the financial position of the Romanian railways had progressively deteriorated and reached unsustainable levels. As a result of reform program adopted since 1998, the situation began improving, despite declining traffic. Most ofthe financial deficit has been covered by the State budget support. The net deficit of the railway as a whole was reduced from US$214 million in 1995 to US$44 million in 2002. The situation however deteriorated in 2003 and the net deficit has grown to US$99 million, all of which was incurred in CFR mainly because of unfunded maintenance costs. Track access fees were reduced from Euro 5.8 to Euro 3.6 per train km for Marfa, and from Euro 1.3 to Euro 1.0 per train km for Calatori. In the recent past, the passenger services incurred over 90 % of the total losses in the railways, the main reason being the unreasonably high, noncompetitive and uncompensated level of passenger services. The working ratio (without subsidy) deteriorated to 124 % for the entire railways in 2003, from 114 % recorded in 2002 and 120 % in 2001.
Traffic. Traffic volume suffered a sharp reduction but has stabilized since 2003. The decline in production in the traditional sectors such as heavy industries and mining led to a rapid fall of freight traffic. The sharp reduction in passenger traffic was resulted from the growing car ownership and the competition of private buses, coupled with reduced purchasing power of the population due to macro-economic instability and very high inflation, which in 1997 reached an annualized rate of 300 %. Compared with 1995, the Romanian Railways carried in 2003 only about 45 % of passenger-km and 60% of ton-km. Freight accounts for about 70 % of physical traffic (in freight ton-km and passenger-km) and 80 % oftotal transport revenue.
Tariffs. Despite continued traffic decline, the impact of reduced traffic on revenues has been much less important, thanks to a significant real increase in freight and passenger tariffs. Over the period 1995 to 2003, the average unit revenue (in lei) increased 30 fold for freight and 50
66 fold for passenger, well above inflation for the period, as prices increased about 23 fold on average. The average revenue is US0.03 for freight and US$0.02 for passenger services. Revenues from freight services cover about 110% of cost, and cross subsidize passenger services (see costs below). The passenger fare box revenues cover 40-50 percent of the costs, with the budgetary support for PSC covering the bulk of the remaining costs. Quite often unfunded cost is contributing to the unsatisfactory financial situation of the railways. Under the proposed project, the system of PSC would be refined further so that only those obligations deemed essential and affordable by the State budget would be retained with a clear PSC between the Government and the operating company and other services terminated.
Costs. Operating costs have declined only slightly from US$940 million in 1995 to US$920 million in 2002 despite significant staff reduction and the corresponding salary savings. In 2003, the operating costs increased sharply to US$1,120 million. Since the reorganization, all the separated railway companies have significantly increased expenditures for maintenance to reduce the backlog in deferred maintenance, virtually nullifying the gains of staff reduction. Total labor cost decreased from 47% of total revenue (without subsidy) in 1998 to 32% in 2003. The operating cost per traffic unit (excluding track access fees) has more than doubled from US$0.02 in 1995 to US$0.04 in 2002, and US$0.045 in 2003. Consequently, the cost of operations and public service contract and the dependence of the railways on the Government continue to remain high. The railway network and services (in particular for passengers) have not yet been adjusted to the reduced demand. These actions will provide cost savings once they are implemented.
State Budget Support. The State contribution to the railways has gone up from US$82 million in 1997 to US$257 million in 2002, and US$373 million in 2003. The large part of the budget support (about 60%) has been towards the PSC. Yet the Government was unable to pay for the full cost of PSC for rail passenger services and Marfa cross-subsidized these services. This caused the track access charges to be much higher for Marfa than Calatori. In 2003, track access charges were Euro 3.6/train km for Marfa and Euro l.O/train km for Calatori. This undermined Marfa’s competitiveness and in turn reduced CFR’s revenue to maintain the track and pay for the employment and social taxes ofits staff. Marfa’s market position has been further weakened by the business climate of its major clients - mostly state-owned enterprises with similar liquidity problems -- whose payments for transport services are delayed, bartered, or simply uneconomic. The budget support for infrastructure maintenance is also inadequate to cover the actual cost because of excess track and a backlog of deferred maintenance that has accumulated over the past decade. All investments are funded externally by means of IF1 loans and grants as well as the State budget. Most investment needs of CFR and Calatori are covered by the State budget, including about 80-90 % oftheir debt service payments. The total amount ofthe State support to the railways is about 0.7% of GDP. The proposed project would support hrther reforms that would reduce the railway fiscal deficits and the State support.
Arrears to the State. The liquidity situation has continued to deteriorate. Current liabilities of the railways exceed current assets significantly. The payables to the Government, domestic suppliers, contractors and foreign railways (excluding SNCFR’s old debt) increased to from US$200 million to US$830 million from 1999 to 2003 because of unfunded costs of CFR and Calatori. The receivables (excluding SNCFR’s old receivables) increased from US$230 million
67 to US$640 million during the same period. CFR has the largest receivables as Marfa pays its track access fees late because of difficulty in collecting money from its clients. The financial deficits have’been covered by accumulating arrears to the State budget and social funds. As a biggest loss maker, CFR owes US$300 million equivalent to the Government for taxes on salaries and social security payments, or 80% ofthe total arrears ofUS$370 million outstanding for the entire railways. The Government is planning to set up appropriate mechanism to cancel historic debt of the railways to a level which does not impede sound financial management and to improve their financial situation in accordance with EU rules on state aid. Further Restructuring
A framework for further restructuring ofthe railways comprises the following components:
Reduction of Staf. Further reduction in the staff of CFR and Marfa (Freight Company) by 8,000 employees is expected to result in increased labor productivity from 3 10,000 TU/employee in 2003 to 395,000 TU/employee by 2005. Labor restructuring of Calatori will depend on the TA study ofpassenger markets in Romania with the recommendations to support rationalization of passenger services, establish investment requirements, and minimize the Public Services Contract costs to the Government.
0 Reduction of Rail Network: A bidding process is underway for franchises to operate non- economic lines. Railway lines that do not receive any bids will be candidates for closure. The franchising and line closure will result in the reduction of 3,000 km ofroute network from CFR’s track asset and is expected to be completed by end-2005 with an estimated saving of about 5-10% of annual infrastructure maintenance costs. CFR would receive less track access revenue due to closed lines, but this would be balanced by lower payments made by Marfa and Calatori. Track Access Charges and Government Support for Public Services: The track access charges (TACs) for Calatori increased from EUR l.O/train-km to EUR 2.4/train-km in March 2004. From 2007, Calatori is scheduled to pay a higher rate of EUR 3.6/train-km. Marfa’s access charges will remain at EUR 3.6/train-km. This will result in a significant increase in the level of Public Services payments, but will help to focus on the rationalization ofpassenger services, and refinement ofa clear Public Services contract to cover only obligations deemed essential and affordable by the State budget. All loss- making services that are not included in the contract should be closed together with all related facilities.
0 Redesign of Business Processes: The proposed project will assist the railway companies to implement organizational changes based on commercial transactions where marketing and management is essential. Marfa is to explore market niches and develop international freight traffic on main corridors. CFR should define new infrastructure maintenance management processes and the organizational structure required to optimize the activities and minimize the costs.
0 Private Sector Participation: The recent revenue trend ofMarfa shows clearly that they are already being hurt by the private sector. Marfa should be privatized as soon as possible, or will keep on losing market share and value. Access to Romanian network is to be extended to international operators in 2007 when Romania joins the EU.
68 The above actions will facilitate the objective of privatizing MARFA. The performance ofMarfa will be measured in terms of the working ratio that is forecast to improve from 90% in 2003 to 85% in 2009, with annual net profits ranging from US$11 million in 2004 to US$13 million in 2009. The Bank will also monitor Marfa’s cash reserves, and the debt service coverage ratio (DSCR). Consequently, the main monitoring targets for Marfa include: (i)improvement of the working ratio to 85% by 2009; and (ii)maintaining the debt service coverage ratio at about 1.5 between 2004 to 2009.
The financial deficit for Calatori, and thus the need for Government support through Public Services Contract, are projected to increase sharply from US$240 million in 2003 to US$332 million in 2009. The corresponding working ratio (excluding subsidy) will therefore increase sharply from 203% to 275%. The loan agreement includes a covenant that requires the Government to cover the full cost of passenger services specified in annual Public Service Contracts. This will be monitored for Calatori in terms of the working ratio (including subsidy) target of 100% or less each year between 2004 to 2009.
The high level of Government support for PSC is not sustainable. The project, therefore, will finance an analysis ofpassenger markets in Romania to reduce the level ofpassenger services to match the market demand at the lowest possible cost, thereby reducing Calatori’s financial burden on the Government budget. Further reforms of Calatori including labor restructuring will depend on the TA study with specific recommendations to rationalize passenger services, establish investment requirements, and minimize the PSC costs to the Government. For CFR, progress would be measured in terms ofthe improvement in the working ratio to achieve a target of 100% or less by 2009. The key to success for CFR will be full payment ofthe TAC by both Calatori and Marfa, as well as by other train operators who use the tracks.
Projected Future Financial Situation. The above framework can lead to a gradual, though modest, improvements. The financial impact ofprivate sector involvement and development of new freight market have not been reflected in the analysis. The actual performance thus will depend on the speed of privatization of freight services and the market response to the planned reforms. While total revenues are estimated to decline by 9% over the period 2004-2009, total costs are expected to decline by 12%, resulting in a 17% reduction in net deficit.
The reduction of revenues of the railways as a whole, is due mainly to declining transport revenue of Marfa because of an estimated 14% reduction of freight traffic from the growing number of private operators (whose market share is still below 10% in train-km). The freight tariffs are forecast to remain at the 2004 level in real terms. Passenger traffic and revenue are expected to remain constant. For CFR, track access revenue will stay more or less the same since private freight operators are presumed to win market share from Marfa.
The reduction of costs will be achieved through: (i)the planned 10% staff reduction, or 8,000 employees from CFR and Marfa in 2004; (ii)reduction of 3,000 km of route length in 2004- 2005 with an estimated saving of about 510% of annual infrastructure maintenance costs; and (iii)improved efficiency oftrack and rolling stock maintenance.
69 Summary Financial Forecast* (amounts in US$ millions) (2003: current prices: 2004-2009: constant mid-2004 prices) Infrastructure Company (CFR) 2003 2004 2005 2006 2007 2008 2009
?evenue from infrastructurefees 221 283 285 277 343 343 340 Calatori 76 168 172 164 231 231 23 1 Marfa 133 105 102 99 96 93 91 Private Operators I1 10 11 14 15 18 18 3ther Revenue 154 35 35 35 34 33 33 2osts 474 454 426 414 415 412 400 Jrofiffpeficit) (99) (136) (107) (102) (39) (36) (27
Working Ratio ** (without subsidy) 138% 132% 119% 115% 95% 93% 93% Debt Service Coverage Ratio (1.3) 1.8 1.8 1.6 1.7 1.6 1.5
Calatori 2003 2004 2005 2006 2007 2008 2009
Revenue 194 171 172 172 172 173 174 costs 358 294 291 283 277 276 276 Infrastructurefees 76 168 172 164 231 231 23 1 Profiff(Deficit) (240) (290) (291) (275) (336) (334) (332) Subsidy (required) 240 290 291 275 336 334 332 Subsidy (provided) 240 Net results 0
Working Ratio ** (without subsidy) 203% 260% 254% 242% 275% 275% 275% Working Ratio ** (with subsidy) 92% Debt Service Coverage Ratio 1.4 1.4 1.5 1.4 1.3 1.3 1.3
Marfa 2003 2004 2005 2006 2007 2008 2009
Revenue 560 488 467 454 44 1 428 416 costs 427 372 356 348 340 321 312 Infrastructurefees 133 105 102 99 96 93 91 Profiff(Deficit) 0 11 9 7 5 13 13 Working Ratio ** (without subsidy) 90% 86% 86% 85% 85% 85% 85% Debt Service Coverage Ratio *" 1.5 I.8 I.9 1.8 1.o 5.0 5.3
Total Railways
2003 2004 2005 2006 2007 2008 2009
Infrastructure (99) (136) (107) (102) (39) (36) (27) Calatori (240) (290) (291) (275) (336) (334) (332) Marfa 0 I1 9 7 5 13 13 Total (without subsidy) (339) (415) (389) (371) (370) (356) (346)
PSC payment required 240 290 291 275 336 334 332 PSC payment provided 240
Net result, incl. effect of State support for op. (99) (125) (98) (96) (34) (23) (14) World Bank staff estimates based on the financial forecasts provided by CFR, Marfa, and Calatori. ** Working Ratio defined as: operating costs before depreciation, divided by operating revenue. *** Because of scheduled repayment of EUR 120 million bond in 2007, Marfa has to raise additional resources of Lei 5 billion (US$135 million equivalent), without which DSCR will be only 0.2.
70 Performance Indicators
Unit of Baseline Latest value Expected Measure value value
Working Ratio (WR) CFR: WR = Operating costs % 2006 - 115% before depreciation, divided 2009 - 100% by operating revenues (excluding the State budget contributions for infrastructure overhaul)
Marfa: WR = Operating % 2003 - 90% 2006 - 88% costs before depreciation, 2009 - 85% divided by operating revenues Calatori: WR = Operating % A- 2004 - 100% costs before depreciation, 2005 - 100% divided by operating 2006 - 100% revenues (including the State 2007 - 100% budget contributions for public service obligations 2008 - 100% and subsidized tickets) Debt Service Cover Ratio ~~ Marfa: Debt Service times 2003 - 1.5 2004 - 1.5 Coverage Ratio = Total 2005 - 1.5 sources from operations, 2006 - 1.5 divided by debt service 2007 - 1.0 obligations (principal repayments plus interest) 2008 - 1.5
71 Annex 10: Safeguard Policy Issues ROMANIA: TRANSPORT RESTRUCTURING PROJECT
Environmental Assessment
Key environmental issues for each of the bypass EIAs are summarized below from the independent consultant report. All issues are incorporated into the individual project specific Environmental Management Plans which includes: mitigation program, monitoring program, institutional arrangements for effective implementation, schedule, and institutional development needs. The independent consultant concluded that all EMPs were satisfactory for addressing all individual bypass subproject environmental issues.
By-Pass Location Key Environmental Issues Bacau Construction: Air emissions from equipment operation Temporary land use during construction for access roads and materials storage Operation: Air emissions from new traffic pattern Brasov Construction: Air emissions from equipment operation Temporary land use during construction for access roads and materials storage Surface water pollution from materials stockpiles runoff Influence on nearby protected areas (Harman and Sanpetru) Operation: Air emissions from new traffic pattern particularly NO, impacts on local ecosystems Noise level increases Influence on nearby protected area (Harman and Sanpetru) Medias Construction: Air emissions from equipment operation
Reghin Construction: Air emissions from equipment operation Temporary land use during construction for access roads and materials storage Impacts on habitats, and vegetation Operation: Air emissions from new traffic pattern Targu Mures Construction: Air emissions from equipment operation Temporary land use during construction for access roads and materials storage Noise impacts on natural habitat Surface water pollution from materials stockpiles runoff Pollution from materials supply plants (asphalt, concrete etc.) Impacts on habitats, and vegetation Operation: Air emissions from new traffic pattern
72 I By-Pass Location I Key Environmental Issues Adjud Construction: Air emissions from equipment operation Temporary land use during construction for access roads and materials storage Operation: Air emissions from new traffic pattem
Ramnicu Sarat Construction: Air emissions from equipment operation Temporary land use during construction for access roads and materials storage Surface water pollution from materials stockpiles runoff Temporary disruption ofvegetation and local wildlife Operation: Air emissions from new traffic pattem
Social Analysis
The railway component of the project has few direct social implications, as much of the investment will go to purchase equipment. Technical cooperation for the component will enhance the productivity of management and staff, rather than reducing staff size. The roads component will have a significant impact on the population, however. The traffic safety component will draw public attention to traffic safety issues as well as fund works to address bottlenecks and hot spots; construction ofnew passes will reduce congestion and danger on city streets and speed the flow of goods, as well as result in some expropriation of land; the bridge rehabilitation component will be largely invisible to the public. Overall, the project will contribute significantly to modernizing the highway system in a country that is moving closer to accession to the EU, permitting increased road transport, improved access and reducing the incidence of damage and losses related to the rapid increase of vehicle ownership and use on streets and roads.
Critical stakeholders have been involved directly and indirectly in project preparation since the beginning. All of the road and bridge investments address road safety hazards that are well- known to residents as well as politicians and road specialists. Principal stakeholders in the project include staff ofthe railroad and road administrations, road construction and maintenance companies, local governments, road users, residents of the respective cities and landowners in proposed rights of way. The components emerged fiom discussions with the Ministry of Transport, the Romanian Railway Authority and the National Administration ofRoads, based on the recommendations of other stakeholders. Local administrations strongly support the bypasses and have been engaged closely with consultants working on feasibility studies, strongly influencing the proposed alignments. In turn, local leaders consulted constituents informally, and through public hearings. A range of stakeholders will be consulted in the process of selecting and designing works addressing specific hotspots, including local administration, local technical staff, police, civil society groups and residents immediately adjacent to the sites. Some ofthese stakeholders will also provide data for monitoring and impact assessment.
The project is expected to have an indirect impact on poverty reduction. For example, selection ofthe bypasses included in the project will be based on economic and social criteria to maximize the beneficial impact of the investments. This will include the size of population affected and
73 the incidence of poverty in the target zone. At least three of the bypass candidates are in the poorest regions and Transylvania. Overall, a broad spectrum of people will benefit from the bypasses and resolution of hot spots, including residents along current routes that traverse the cities who experience traffic congestion, noise and danger posed by transport vehicles and reduced air quality, and producers and consumers ofproducts that will move more speedily and safely. A third set of beneficiaries will be the owners of buildings along current routes, especially historical buildings, which are affected by the vibrations and emissions of trucks that must traverse the cities.
The bypasses will all require land acquisition, adversely affecting landowners, particularly those who farm land that will be taken for rights ofway. The exact number of affected persons will be known only when the final designs are completed. The National Administration of Roads makes of point of minimizing land acquisition, avoiding acquisition of residents and using marginal lands whenever possible. During feasibility studies, a number of the initial alignments were revised to meet these criteria. The National Administration of Roads has prepared a Land Acquisition Policy Framework approved by the Bank, which clarifies steps and procedures in the land acquisition process. Romanian laws and practices are already consistent with essential provisions of OPBP 4.12 and standard documentation will be used to demonstrate compliance with the OP.
The project poses no significant social risks except for the possibility of the emergence of local opposition to the site chosen for a bypass. Such an occurrence, which is not anticipated due to the high priority given to the investments, would most likely manifest as the NIMBY (Not in My Back Yard) syndrome. Romanian Land Acquisition laws provide ample opportunity for people to express their opposition and for their concerns to be heard in both public and administrative hearings. The main social impacts of the project - reduction of accidents in hot spots, increased, overall transport traffic increase, and decreased transport traffic through cities - will be . monitored by the project, based on routine data collection by local and regional officials.
Safeguards
Key policies Land Acquisition for bypasses, which will trigger OP/BP 4.12 Involuntary Resettlement.
Studies No studies were undertaken regarding land acquisition policies and practices, but Bank staff have reviewed carefully legislation and standard practices of the National Administration for Roads carefully and found them to be consistent with provisions ofOP/BP 4.12.
Borrowers capacity The borrower has considerable experience in expropriation, the result of which has improved and standardized practices. They require no additional support to undertake the task.
74 Annex 11: Project Preparation and Supervision ROMANIA: TRANSPORT RESTRUCTURING PROJECT
Planned Actual PCN review August 26,2003 Initial PID to PIC Initial ISDS to PIC July 19. 2004 Appraisal June 28 -July 7,2004 June 28 -July 7,2004 Negotiations October 4-6,2004 October 5 - 8,2004 BoardRVP approval November 16,2004 November 16,2004 Planned date of effectiveness May 15,2005 Planned date ofmid-term review September 2007 Planned closing date July 2009
Key institutions responsible for preparation of the project: National Company for Motorways and National Roads (RNCMNR), MTCT, Romania Railway Infrastructure Company (CFR), MTCT, Romania
Bank staff and consultants who worked on the project included:
Name Title Unit Henry Kerali Sr. Highway Engineer (Team Leader) ECSIE Antti Talvitie Sr. Transport Specialist (Consultant after retirement) ECSIE Sunja Kim Sr. Financial Analyst ECSIE Allan Pozniak Consultant, Railway Specialist ECSIE Salim Benouniche Sr. Procurement Specialist ECSPE Stan Peabody Lead Social Scientist ECSSD Bernard Baratz Consultant, Environment Specialist ECSSD Serena Adler Consultant, Environment Specialist ECCU5 Doina Visa Project Officer ECCU5 Otilia Nutu Consultant ECCU5 Bogdan Constantinescu Financial Specialist ECCU5 Jonathan Pavluk Senior Counsel LEGEC Nicholay Chistyakov Disbursement Officer LOAGl Stein Lundebye Peer Reviewer, Roads component SASE1 Paul Amos Peer Reviewer, Railways component TUDTR Coral Bird Staff Assistant ECSIE
Bank funds expended to date on project preparation: 1. Bank resources: US$160,000 2. Trust funds: US$35,000 3. Total: US$195,000
Estimated Approval and Supervision costs: 1. Remaining costs to approval: US$15,000 2. Estimated annual supervision cost: us$llo,ooo
75 Annex 12: Documents in the Project File ROMANIA: TRANSPORT RESTRUCTURING PROJECT
1. Government of Romania, “Economic Development and Poverty Reduction Program of Romania”, Bucharest, June 2003. 2. EBRD/WorldBank, “Business Environment and Enterprise Performance in Romania”, 2002 3. World Bank, “Public Expenditure Review ofRomania”, 2004 4. Engineering Design and Environmental Assessment. Adjud, Bacau, Brasov, Medias, Reghin, Targu Mures, Ramnicu-Sarat, Bucharest, 2004 [includes EMP] 5. Roads and the Environment: A Handbook. World Bank Technical Paper No. 376. 6. World Bank: Building Institutions for Public Expenditure Management: Reforms, Efficiency and Equity (A Public Expenditure and Institutions Review), Romania, August 2002 7. World Bank: Country Assistance Strategy, May 2001 8. World Bank: Program Document for a Proposed First Programmatic Adjustment Loan, August 2004 9. Final Report: Traflc Safety Program, Louis Berger Group, December 2003 10. Final Report: Mediag Bypass: Traffic Study and Project Feasibility Analysis for National Company For Highways And National Roads, May 2004 11. Final Report: Targu Mureg-East Bypass: Traffic Study and Project Feasibility Study for National Company For Highways And National Roads, March 2004 12. Road Diversion For Targu Mures East: Feasibility Study by National Company For Highways And National Roads, 2004 (Volume I) 13. Road Diversion For Targu Mures East Bypass: Feasibility Study for National Company For Highways And National Roads, 2004 (Volume 11) 14. Construction ofAdjud Municipality Bypass. Feasibility Study for National Company For Highways And National Roads, 2004 15. Bacau City East By-Pass. Final Report, Feasibility Study for National Company For Highways And National Roads, 2004 16. Construction ofRamnicu Sarat Municipality Bypass. Final Report, Feasibility Study for National Company For Highways And National Roads, 2004 17. Construction ofMedias Municipality By-Pass. Final Report, Feasibility Study for National Company For Highways And National Roads, 2004
76 Annex 13: Statement of Loans and Credits ROMANIA: TRANSPORT RESTRUCTURING PROJECT
Difference between expected and actual Onginal Amount in US$ Millions disbursements
Project ID FY Purpose IBRD IDA SF GEF Cancel Undisb Ong Frm Rev'd PO43881 2004 IRRIG REHAB 80 00 000 000 000 000 8000 000 0 00 PO67367 2003 FOREST DEVT 25.00 0.00 0.00 0.00 0.00 25.00 0.23 0.00 PO67575 2003 PSAL 2 300.00 0.00 0.00 0.00 0.00 194.02 0.00 0.00 PO68062 2003 ENERGY EFF (GEF) 0.00 0.00 0.00 10.00 0.00 9.92 2.98 0.00 PO81406 2003 ELEC MARKET 82.00 0.00 0.00 0.00 0.00 85.42 0.00 0.00 PO73967 2003 RURAL EDUC 60.00 0.00 0.00 0.00 0.00 60.00 0.33 0.00 PO69679 2003 PPIBL 18.60 0.00 0.00 0.00 0.00 18.56 -0.04 0.00 PO57960 2002 RURAL DEV (APL #I) 40.00 0.00 0.00 0.00 0.00 39.28 1.45 0.00 PO66065 2002 AG POLLUTION CONTROL (GEF) 0.00 0.00 0.00 5.15 0.00 4.68 0.91 0.00 PO68808 2002 SDF 2 (APL #2) 20.00 0.00 0.00 0.00 0.00 18.69 -1.31 1.61 PO56891 2001 RURAL FIN (APL #I) 80.00 0.00 0.00 0.00 0.00 79.77 15.77 0.00 PO08783 200 1 SOC SECT DEV (SSD) 50.00 0.00 0.00 0.00 0.00 49.64 27.70 0.00 PO65041 2000 TRADE & TRANS FACIL IN SE EUR 17.10 0.00 0.00 0.00 0.00 10.31 -6.79 0.00 PO43882 2000 AGR SUPPORT SERVS 11.oo 0.00 0.00 0.00 0.00 7.84 6.10 0.00 PO08797 2000 HEALTH SECTOR REFORM 40.00 0.00 0.00 0.00 0.00 8.51 6.24 0.00 PO56337 2000 MINE CLOSURE 44.50 0.00 0.00 0.00 0.00 33.07 32.40 -6.76 PO44176 1999 BIODIV CONSV MGMT (GEF) 0.00 0.00 0.00 5.50 0.00 3.02 2.78 0.14 PO39251 1999 PIBL 25.00 0.00 0.00 0.00 1.10 10.64 11.74 0.00 PO58284 1999 CULTURAL HERITAGE 5.00 0.00 0.00 0.00 0.00 3.47 3.47 0.75 PO55495 1998 CHILD WELFARE REFORM 5.00 0.00 0.00 0.00 0.00 0.36 0.36 0.00 PO44614 1998 SCHOOLS REHABILITATION 70.00 0.00 0.00 0.00 0.00 11.43 11.43 2.76 PO34213 1998 GEN'L CADASTRE 25.50 0.00 0.00 0.00 0.00 17.35 17.35 7.53 PO39250 1997 SECOND ROADS 150.00 0.00 0.00 0.00 0.00 19.05 19.05 0.00 PO36013 1996 RAILWAY . 120.00 0.00 0.00 0.00 0.00 11.58 11.58 9.36 PO08794 1996 POWER SECTOR REHAB 110.00 0.00 0.00 0.00 33.50 15.06 48.56 6.63 PO08776 1995 EMPLYMT & SOC PROTECTION 55.40 0.00 0.00 0.00 5.70 13.41 19.11 0.00 (ESSP) Total: 1,434.10 0.00 0.00 20.65 40.30 830.08 231.40 22.02
77 ROMANIA STATEMENT OF IFC's Held and Disbursed Portfolio In Millions ofUS Dollars
Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic 1999 Ambro 4.12 0.00 0.00 0.00 4.12 0.00 0.00 0.00 2003 Arctic 11.45 0.00 0.00 0.00 9.16 0.00 0.00 0.00 1998102 Banc Post 0.00 0.00 10.00 0.00 0.00 0.00 10.00 0.00 2003 Banca Comerciala 75.00 0.00 0.00 0.00 75.00 0.00' 0.00 0.00 2001 Banca Romaneasca 5.26 0.00 0.00 0.00 5.26 0.00 0.00 0.00 1998 Bilstein Compa 0.88 0.00 0.00 0.88 0.88 0.00 0.00 0.88 1996 Danube Fund 0.00 1.40 0.00 0.00 0.00 1.40 0.00 0.00 2001 ICME 17.18 0.00 0.00 0.00 12.60 0.00 0.00 0.00 1998 Krupp Compa 3.38 0.00 0.00 1.45 3.38 0.00 0.00 1.45 2002103 MFIMFB Romania 0.00 0.53 0.00 0.00 0.00 0.53 0.00 0.00 1997/98/00 Mobil Rom 1.35 0.00 0.00 1.80 1.35 0.00 0.00 1.80 1997 Rambox 0.81 0.00 2.00 0.00 0.81 0.00 2.00 0.00 1994/98/01 Romlease 3.1 1 0.00 0.00 0.00 3.1 1 0.00 0.00 0.00 Total portfilio: 122.54 1.93 12.00 4.13 115.67 1.93 12.00 4.13
Approvals Pending Commitment
FY Approval Company Loan Equity Quasi Partic 2003 Banca Comerciala 0.00 75.00 0.00 0.00 2003 Ro-Fin Mortgage 5.00 0.00 1 .oo 0.00 Total pending commiltment: 5.00 75.00 1.oo 0.00
78 Annex 14: Country at a Glance ROMANIA: TRANSPORT RESTRUCTURING PROJECT
Europe & Lower- POVERTY and SOCIAL Central middle- Romania Asia income 1 Development diamond' 2002 Population, m id-year (millions) 22.4 476 2,411 Life expectancy GNi per capita (Atlas method, US$) 1850 2,160 1390 I GNI(Atlasmethod, US$ billions) 4 1.4 1,030 3,352 -
Average annual growth, 1996-02 Population (%) -0.2 0.1 1.0 Laborforce (%) 0.2 0.4 1.2 1 GNI Gross per primary Most recent estimate (latest year available, 1996-02) capita nrollment Poverty (% of population belo wnationalpovertyline) I I Urban PO pulatio n (%of total population) 55 63 49 Life expectancyat birth (years) 70 69 69 Infant mortality(per 1,OOOlive births) 18 25 30 Child malnutrition (%of children under5) I1 Access to imDroved watersource Access to an improved water source (%of population) , 58 91 81 Illiteracy (%of population age a+) 2 3 0 Gross primary enrollment (%of school-age population) 99 m2 111 -Romania Male a0 m3 Ill 1- Lo wer-middle-income group Female 98 a1 lr)
KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982 1992 2001 2002
~ Economic ratios* GDP (US$ billions) .. 25.1 39.7 44.4 Gross domestic investment/GDP .. 31.4 21.9 22.0 I Trade Exports of goods and services/GDP 27.8 33.5 34.9 .. I Gross domestic savings/GDP .. 23.0 0.8 14.6 Gross national savingslGDP .. 22.9 15.8 16.5 I Current account balancelGDP -6 .O -5.8 ' Domestic interest payments/GDP 0.2 15 12 Investment Total debt/GDP .. 0.0 29.0 29.9 I sav'ngs Total debt servicelexports 23.3 9.1 18.4 29.4 I Present value of debt/GDP 27.9 Present value of debt/exports 79.3 I Indebtedness 1982-92 1992-02 2001 2002 2002-06 (average annual growth) -Romania GDP -19 0.6 5.3 4.3 5.0 GDP per capita -2.1 0.8 5.4 4.5 5.4 I- Lo wer-m lddle-inco me group
STRUCTURE of the ECONOMY 1982 1g92 2o01 2o02 1 Growth of investment and GDP (YO) 1 (%of GDP) Agriculture I79 150 118 130- Industry 44 0 34 6 Manufacturing Services 38 2 50 4 Private consumption 62 7 79 9 685 ' General government consumption 143 63 169 1-30 ----GDI -GDP Imports of goods and services 36 2 416 423 - - 1982-92 1992-02 *Ool 2o02 'Growth of exports and imports (%) (average annualgrowth) I Agriculture 14 -10 212 industry -2 9 07 74 Manufacturing Services 19 13 Private consumptio n 26 11 0 General government consumption 19 P2 Gross domestic investment -12 185 37 ---Exports -Inports imports of goods and services 99 I75 79 __ - 79 Romania ~ ~~~ ~~ ~ ~ ~~
PRICES and GOVERNMENT FINANCE 1982 1992 2001 2002 ' Inflation (%) Domestic prices (%change) Consumer prices l7.8 213.9 34.5 213 Implicit GDP deflator 12.1 200.1 37.0 22.0 Government finance (%of GDP, includes current grants) - Current revenue 36.7 30.4 34.4 io 97 98 99 00 01 020-21 Current budget balance -0.1 -0.1 2.0 I Overall surDlus/deficit -5.3 -3.4 -3.0 I ----GDPdeflator -CPI 1
TRADE 1982 1992 2001 2002 Export and import levels (US$ mill.) (US$ millions) Total exports (fob) 4,363 n,385 12,677 I 20,000 Textiles 735 158 M etals 572 784 15 000 - Manufactures 2,623 8,122 9,218 Total imports (cif) 6,260 15,552 8,756 Food 996 $207 Fuel and energy 2,028 2,237 Capital goods 1,208 4,326 4,678
Export price index (1995=WO) 96 97 I 96 97 98 99 00 01 02 I Import price index (1995=WO) 88 88 Exports olnports Terms of trade (1995=WO) 113 111
BALANCE of PAYMENTS - 1982 1992 2001 2002 Current account balance to GDP (%) (US$ millions) I Exports of goods and services 12,384 5,023 23,379 14.713 Imports of goods and services 13,493 6,504 8,557 l7,824 Resource balance 1,891 -1481 -3,778 -3,123 Net income -851 -90 -282 -262 Net current transfers 0 65 1.143 1130 Current account balance 1040 -1,506 -2,377 Financing items (net) -988 1,393 3,801 Changes in net reserves -52 113 -1,484 -357 Memo: Reserves including gold (US$ millions) 858 4,880 5.123 Conversion rate (DEC,locaVUS$) 240.3 29,060.9 33,055.4
EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 (US$ millions) Composition of 2002 debt (US) mill.) Total debt outstanding and disbursed 13,003 3,272 11524 13,301 IBRD 1483 213 1876 2,147 I IDA 0 0 0 0 Total debt service 2.913 464 2,571 2,971 IBRD 82 2 204 84 C 428 IDA 0 0 0 0 Composition of net resource flows D 1.30 Official grants 0 89 257 0 Official creditors 378 1006 l7 -34 E 897 Private creditors 413 144 1434 859 Foreign direct investment 0 77 1257 0 Portfolio equity 0 0 8 0 World Bank program Commitments 87 500 230 379 ' A - IBRD E- Bilateral Disbursements 423 2 11 232 307 1 B - IDA D ~ other rmititateral F - Private Principal repayments 73 0 131 18 IC-IMF G- Short-termI
80 MAP SECTION