Document of The World Bank Public Disclosure Authorized Report No: 72287-YF
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED LOAN
Public Disclosure Authorized IN THE AMOUNT OF EUR73.8 MILLION (US$100 MILLION EQUIVALENT)
TO THE
REPUBLIC OF SERBIA
FOR THE
SERBIA ROAD REHABILITATION AND SAFETY PROJECT
March 29, 2013 Public Disclosure Authorized
Transport Sector Unit Sustainable Development 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 January 31, 2013) Currency Unit = Euro Serbian Dinar 1.00 = Euro 0.009 US$1.00 = Euro 0.738
FISCAL YEAR January 1 - December 31
ABBREVIATIONS AND ACRONYMS
AADT Average Annual Daily Traffic NBS National Bank of Serbia ARAPs Abbreviated Resettlement Action NRNRP National Road Network Plans Rehabilitation Program Bank World Bank (IBRD) NRTSC National Road Traffic Safety CoS Corridors of Serbia Coordination Body CPS Country Partnership Strategy NCP National Competitive Bidding CXHP Corridor X Highway Project NPV Net Present Value DLI Disbursement-Linked Indicators ORAF Operational Risk Assessment EBRD European Bank for Reconstruction Framework and Development P4R Program for Results EC European Commission PAC Project Audit Consultant ECA Europe and Central Asia PAD Project Appraisal Document EIB European Investment Bank PAPs Project Affected Peoples EIRR Economic Internal Rate of Return PBMC Performance-Based Maintenance EMF Environmental Management Contract Framework PDO Project Development Objectives EMP Environmental Management Plan PERS Public Enterprise for State Road EU European Union Management (Public Enterprise GCR Global Competitiveness Report Roads of Serbia) GDP Gross Domestic Product PIT Project Implementation Team GoS Government of Serbia PMIS Pavement Management and HDM4 Highway Development and Information Systems Management Model POM Project Operation Manual HIMS Highway Information Management QBS Quality Based Selection System RAP Resettlement Action Plan IAASB International Auditing and RoS Republic of Serbia Assurance Standards Board RPF Resettlement Policy Framework IBRD International Bank for RRSP Road Rehabilitation and Safety Reconstruction and Development Project ICB International Competitive Bidding RSD Serbian Dinar IFC International Finance Corporation RSL Road Safety Law IFIs International Financial Institutions RTSA Road Traffic Safety Agency IFRs Interim Financial Reports SAI Supreme Audit Institution TEN-T Trans European Transport Network SEETO South East Europe Transport IMF International Monetary Fund Observatory IPA Instrument for Pre-accession SIL Specific Investment Loan Assistance SNRA Swedish (National) Road IPSAS International Public Sector Administration Accounting Standards SRD Serbian Road Directorate IRI International Roughness Index TOR Terms of Reference MolE Ministry of Infrastructure and TRP Transport Rehabilitation Project Energy USD United States Dollars MoCI Ministry of Capital Investments WB World Bank MoFE Ministry of Finance and Economy WHO World Health Organization MoT Ministry of Transport Regional Vice President: Philippe H. Le Hou6rou, ECAVP Country Director: Ellen A. Goldstein, ECCU4 Sector Director: Laszlo Lovei, ECSSD Sector Manager: Juan Gaviria, ECSTR Task Team Leader: Moustafa Baher El-Hefnawy, ECSTR SERBIA SERBIA ROAD REHABILITATION AND SAFETY PROJECT
TABLE OF CONTENTS Page
I. STRATEGIC CONTEXT ...... 1 A. Country Context ...... 1 B. Sectoral and Institutional Context...... 1 C. Higher Level Objectives to which the Project Contributes ...... 4
II. PROJECT DEVELOPMENT OBJECTIVES ...... 5 A. PDO...... 5 B. Project Beneficiaries ...... 5 C. PDO Level Results Indicators...... 5...... 5
III. PROJECT DESCRIPTION ...... 6 A. Project Components ...... 6 B. Project Financing ...... 8 C. Program Objective and Phases...... 9...... 9 D. Lessons Learned and Reflected in the Project Design...... 10
IV . IM PLEM ENTATION ...... 11 A. Institutional and Implementation Arrangements ...... 11 B. Results Monitoring and Evaluation ...... 13 C. Sustainability...... 14
V. KEY RISKS AND MITIGATION MEASURES...... 15 A. Risk Ratings Summary Table ...... 15 B. Overall Risk Rating Explanation ...... 15
VI. APPRAISAL SUMMARY ...... 15 A. Economic and Financial Analyses ...... 15 B. Technical ...... 16 C. Financial Management...... 16 D. Procurement ...... 17 E. Social (including Safeguards) ...... 17 F. Environment (including Safeguards) ...... 19 G. Other Safeguards Policies Triggered (if required) ...... 20
ANNEX 1: RESULTS FRAMEWORK AND MONITORING...... 21
ANNEX 2: DETAILED PROJECT DESCRIPTION...... 35
ANNEX 3: IMPLEMENTATION ARRANGEMENTS ...... 44
ANNEX 4: OPERATIONAL RISK ASSESSMENT FRAMEWORK (ORAF)...... 65
ANNEX 5: IMPLEMENTATION SUPPORT PLAN ...... 71
ANNEX 6: ECONOMIC AND FINANCIAL ANALYSIS...... 74 PAD DATA SHEET Serbia ROAD REHABILITATION AND SAFETY PROJECT (P127876) PROJECT APPRAISAL DOCUMENT
EUROPE AND CENTRAL ASIA ECSTR
Report No.: PAD352
Basic Information Project ID Lending Instrument EA Category Team Leader P127876 Specific Investment B - Partial Assessment Moustafa Baher El- Loan Hefnawy Project Implementation Start Date Project Implementation End Date 26-Apr-2013 30-Apr-2018 Expected Effectiveness Date Expected Closing Date 01-Nov-2013 31-Oct-2018 Joint IFC No Sector Manager Sector Director Country Director Regional Vice President Juan Gaviria Laszlo Lovei Ellen A. Goldstein Philippe H. Le Houerou
Borrower: Republic of Serbia Responsible Agency: Public Enterprise for State Road Management (Public Enterprise Roads of Serbia) Contact: Mr. Zoran Drobnjak Title: Director Telephone 381113040701 Email: [email protected] No.:
Project Financing Data(US$M) [X] Loan [ ] Grant [ ] Other ] Credit [ ] Guarantee For Loans/Credits/Others Total Project Cost (US$M): 393.01 Total Bank Financing 100.00 (US$M):
Financing Source Amount(US$M) Borrower 157.48 International Bank for Reconstruction and 100.00
1 Development EC European Investment Bank 135.53 Total 393.01
Expected Disbursements (in USD Million) Fiscal 2013 2014 2015 2016 2017 2018 2019 0000 0000 Year Annual 0.00 4.00 25.00 24.00 21.00 15.00 11.00 0.00 0.00 Cumulati 0.00 4.00 29.00 53.00 74.00 89.00 100.00 0.00 0.00 ve
Project Development Objective(s) The proposed PDO is to improve the condition and safety of the National Road Network for road users by supporting the Republic of Serbia in the implementation of the first phase of its National Road Network Rehabilitation Program.
Components Component Name Cost (USD Millions) Road Rehabilitation and Safety Investments (264 million 357.72 Euros) Institutional Strengthening (3.10 million Euros) 4.20 Project Detailed Design, Project Supervision, Management, 25.56 Monitoring and Audits (18.86 million Euros)
Compliance Policy Does the project depart from the CAS in content or in other significant Yes [ ] No [X] respects?
Does the project require any waivers of Bank policies? Yes [ ] No [X] Have these been approved by Bank management? Yes [ ] No [ ] Is approval for any policy waiver sought from the Board? Yes [ ] No [ ] Does the project meet the Regional criteria for readiness for implementation? Yes [X] No [ ]
Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 X Natural Habitats OP/BP 4.04 X Forests OP/BP 4.36 X Pest Management OP 4.09 X Physical Cultural Resources OP/BP 4.11 X Indigenous Peoples OP/BP 4.10 X Involuntary Resettlement OP/BP 4.12 X
11 Safety of Dams OP/BP 4.37 X Projects on International Waterways OP/BP 7.50 X Projects in Disputed Areas OP/BP 7.60 X
Legal Covenants Name Recurrent Due Date Frequency
Description of Covenant
Conditions Name Type Subsidiary Agreement has been executed Effectiveness Description of Condition The Subsidiary Agreement has been executed on behalf of the Borrower and the Project Implementing Entity Name Type Co-financing Agreement has been executed and delivered Effectiveness Description of Condition The Co-financing Agreement has been executed and delivered and all conditions precedent to its effectiveness or to the right of the Borrower to make withdrawals under it (other than the effectiveness of this Agreement) have been fulfilled Name Type Project Operations Manual has been adopted Effectiveness Description of Condition The Project Operations Manual, satisfactory to the Bank, has been adopted by the Project Implementing Entity Name Type Project accounting system is in place Effectiveness Description of Condition The Project accounting system satisfactory to the Bank is in place, with adequate in-built controls and capable of tracking Project resources and expenditures and generating financial reports, including interim financial reports (IFRs). Team Composition Bank Staff Name Title Specialization Unit Marie Antoinette Laygo Program Assistant Program Assistant ECSSD Elizabeth C. Wang Senior Financial Officer Senior Financial Officer ECSTR Jose M. Martinez Senior Procurement Senior Procurement ECSO2
iii Specialist Specialist I. U. B. Reddy Senior Social Senior Social SASDS Development Specialist Development Specialist Moustafa Baher El- Lead Transport Lead Transport ECSTR Hefnawy Economist Economist / Task Team Leader Jose C. Janeiro Senior Finance Officer Senior Finance Officer CTRLA Marc Sanford Shotten Sr Transport. Spec. Sr Transport. Spec. TWITR Natalya Stankevich Transport Specialist Transport Specialist ECSTR Nikola Ille Senior Environmental Senior Environmental ECSEN Specialist Specialist Desanka Stanic Program Assistant Program Assistant ECCYU Aleksandar Sr Financial Financial Management ECSO3 Crnomarkovic Management Specialist Specialist Svetlana Vukanovic Transport Specialist Operations Officer ECSTR Funda Canli Program Assistant Program Assistant ECSSD Ramiro Ignacio Counsel Counsel LEGLE Jauregui-Zabalaga Sandra Schlossar Social Development Jr Professional Officer ECSSO Specialist Marinos Skempas E T Consultant E T Consultant ECSTR Nargis Ryskulova Operations Analyst Operations Analyst ECSTR Pedja Sovilj Temporary Transport Specialist ECSTR Non Bank Staff Name Title Office Phone City
Locations Country First Administrative Location Planned Actual Comments Division
Institutional Data Sector Board Transport
Sectors / Climate Change Sector (Maximum 5 and total % must equal 100) Major Sector Sector % Adaptation Mitigation Co-benefits % Co-benefits %
iv Transportation Rural and Inter-Urban 90 Roads and Highways Transportation General transportation 10 sector Total 100 ZI certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable to this project.
Themes Theme (Maximum 5 and total % must equal 100) Major theme Theme % Financial and private sector development Infrastructure services for private sector 80 development Public sector governance Other public sector governance 20 Total 100 Gender Flag Does the activity support (select all that apply) Z Analysis and/or consultation on gender related issues O Specific actions to address the distinct needs of women and girls, or men and boys, or positive impacts on gender gaps Z Mechanisms to monitor gender impact to facilitate gender-disaggregated analysis
V I. STRATEGIC CONTEXT
A. Country Context
1. Serbia in its first decade of transition (2000-2008) experienced dynamic, albeit unsustainable economic growth, and a significant reduction in poverty. The economy grew at an average rate of about 5 percent during this period, fueled by capital inflows and a credit boom. This led to a rapid expansion in the domestic demand which in turn resulted in high and increasing current account deficits. This consequently caused a significant build-up of debt throughout this period and peaking at about 80 percent of GDP in 2009. Poverty fell from 13.4 percent in 2002 to 6.1 percent in 2008, which translated into about half a million people (about 7 percent of the population) moving out of poverty.
2. Serbia's economy was severely impacted by the 2008 global economic crisis. The global financial crisis ended capital inflows and access to easy credit, and significantly slowed down investment. In 2009, the Serbian economy entered recession; real GDP dropped by 3.5 percent and unemployment increased significantly to 22 percent. The economy's growth in 2010 and 2011 was lackluster, averaging 1.3 percent. Consequently, poverty jumped back to 9.2 percent with around 230 thousand people falling back below the poverty line.
3. After low GDP growth in 2010 and 2011, Serbia is facing a double-dip recession. According to the latest estimates, GDP is estimated to have dropped by about 2 percent in 2012, but is expected to grow at around 2 percent in 2013 and 3-4 percent per year over the medium term. Unemployment continues to be high reaching a peak level of 25.5 percent in April 2012. The main policy challenges are balancing growth-enhancing policies with fiscal consolidation. Therefore measures to improve the investment climate, including cutting red tape, implementing regulations to support the private sector, and making the labor market more flexible are expected to be policy priorities.
4. At the same time, Serbia has undergone a remarkable period of political change. The previous government was the first one to serve its full, four year term. The direction taken by the new government elected in 2012 demonstrates the willingness to urgently address macroeconomic imbalances. The Serbian society has generally endorsed the Government of Serbia's (GoS) actions which have not deviated from the agenda of European Union (EU) accession, fiscal discipline and structural reform. Serbia gained EU "candidate" status for membership in March 2012. This landmark event reflects the significant progress Serbia has made thus far in its reforms. Going forward, Serbia needs to develop trade beyond Europe and to make the most of EU accession increasing the economy's export orientation.
B. Sectoral and Institutional Context
5. Serbia is at the crossroads of South East Europe; having an efficient transport network is essential for the country's economic growth. The international roads and railways crossing Serbia represent the shortest link between Western and South Eastern Europe and Greece, Turkey and further east. Corridor X of the Trans-European Network (TEN-T) connects Austria/Hungary, Slovenia/Croatia, Serbia and Bulgaria/Macedonia/Greece. The Government
1 and international financial institutions (IFIs) are financing the construction of several road segments on Corridor X through the on-going Corridor X Highway Project (CXHP).1 The backbone of the Serbian rail network is also along the Corridor X corridor, about 870 km, with branches to the Hungarian and Bulgarian borders. GoS is in the process of upgrading the Corridor X rail line.
6. The road network is a major asset for Serbia but connectivity and road conditions need improvement to support economic growth. The road network, estimated to have an asset value of US$13 billion, extends 40,800 km, including about 9,500 km of national roads. Road transport is the dominant mode in Serbia, with a share of 80 percent of total cargo transport and about 74 percent of total passenger transport. Despite the importance of the road network, the quality of road infrastructure appears to have declined in the past few years. While a 2010 survey of the National Road Network indicated that 48 percent of the network was in good condition,2 the 2012-2013 Global Competitiveness Report (GCR) ranked Serbia 122nd out of 144 countries on road quality. While this represents an improvement from its 13 1s position out of 142 countries in the 2011-2012 GCR, it is a significant drop from the 2008-2009 GCR ranking of 83rd out of 134 countries. The poor quality of roads manifests itself in high vehicle operating costs and inadequate road safety; and reduces Serbia's overall trade competitiveness.
7. The Ministry of Transport (MoT is responsible for policy, while the Pubic Enterprise for Sate Road Management (Public Enterprise "Roads of Serbia" or PERS) is responsible for construction, maintenance, operation and management of national roads. Road sector institutions in Serbia have undergone major institutional reforms in the past few years. The Serbia Roads Directorate (SRD) was transformed into a PERS in 2008,4 and the Ministry of Capital Investments into MoT. In early 2009, GoS established the Corridor X Company, a subsidiary of PERS for construction of Corridor X. In 2010 the Company was transformed into Corridors of Serbia (CoS) to manage road construction projects of strategic national importance.
8. MoT is initiating a National Road Network Rehabilitation Program (NRNRP) to improve the quality and safety on priority national roads thus improving connectivity of the entire road network. With the support of the EU, MoT has developed a Transport Strategy and Master Plan that envisage a E4.6 - E5.0 billion investment in maintenance and rehabilitation between 2009 and 2027. About 5,000 km of national roads (slightly over 50 percent of the National Road Network) have been identified as high priority; and financial support from several IFIs is being sought to implement the rehabilitation works. In the first phase, about 1,125 km will be rehabilitated incorporating safety considerations in the design.
1EBRD, EIB and the WB are financing the construction of road segments to motorway standards. See Project Appraisal Document June 12, 2009, Report No. 47069-YF. The Bank Loan, US$388 million, is financing the completion of the Southern axes of the Serbian segment of Corridor X. 2 The survey was conducted by the Faculty of Civil Engineering of the University of Belgrade. Formerly the Ministry of Infrastructure and Energy-mandate and name changed in July 2012. 4 The World Bank-funded Transport Rehabilitation Project and the Twinning Arrangements with Swedish National Road Administration (SNRA) supported the newly-established PERS.
2 9. Budgetary allocations to maintenance have dropped below annual requirements resulting in a large maintenance backlog. Annual maintenance expenditures averaged about 6290 million between 2005 and 2011, but have been generally on a downward trend dropping from about 6360 million in 2006, to 6194 million in 2010 and further to 6168 million in 2011. The reductions were a result of the financial crisis and the Government's commitment to completing CXHP and the Belgrade bypass. Given the economic outlook in Serbia and the need for fiscal consolidation, a further reduction in road maintenance expenditures is likely. Current funding levels are insufficient to meet the annual needs, let alone address the maintenance backlog. Annual needs for routine, periodic and backlog maintenance for the period 2009 - 2011 were estimated at 6500 million (of which 6240 million is for routine and periodic maintenance).5 6
10. Besides inadequate funding for the National Road Network, asset preservation management and contracting practices remain inefficient and in need of modernization. While the regional maintenance companies have been privatized, with the exception of two pilot hybrid Performance Based Maintenance Contracts (PBMC) financed under the Bank's Transport Rehabilitation Project (TRP), competitive tendering of maintenance works is not used. All the companies still operate in the same region for which they were responsible (a total of about 26 regions) before privatization through annual extensions of their contracts. The contract model for road maintenance was developed in 1992 and is based on unit rates set by PERS.7 In addition, the national road database and condition surveys managed by PERS are not used for maintenance planning.
11. The Bank-supported TRP financed road rehabilitation and strengthened rehabilitation and maintenance planning and management. The US$105 million loan for TRP financed the rehabilitation of over 200 km of national roads. In addition, TRP supported hybrid PBMC for 1,100 km on the National Road Network in the Macva and Kolubara regions which resulted in significant savings in comparison to unit price approach (described in paragraph 10) and demonstrated the potential of this contracting approach. TRP also supported better planning by helping establish the national road asset database, and introducing systematic maintenance planning and programming based on sound economic efficiency criteria (using the Highway Development and Management Model-HDM4). In addition, condition surveys for the entire National Road Network were conducted under TRP in 2008 and were used in the preparation of NRNRP and the Road Rehabilitation and Safety Project (RRSP).
12. Serbian authorities are improving road safety but the social cost of traffic accidents remains high. The level of injuries and fatalities caused by traffic accidents is a growing social and economic cost for the country. Between 2001 and 2010, there were about 9,000 fatalities and 190,000 injuries resulting from road traffic crashes in Serbia. While road fatalities have dropped significantly from 1,275 in 2001 to 656 in 2010, injuries have only dropped slightly over the same period from 20,000 to 19,300. According to the latest data of the World Health Organization (2009), the number of traffic fatalities per 100,000 of population in Serbia is about
"Preparation of Reform Action Plan for the Public Enterprise "Roads of Serbia", DESTIA, 2011. 6 The maintenance cost estimates were developed prior to the recent reclassification of the National Road Network when the network was about 14,500 km and not 9,500 km. While the estimates for the National Road Network need to be revised accordingly, the required maintenance for the reclassified roads is unlikely to change much. 7 A unit rate contract is a contract where the employer decides on a bill of quantities, sets the unit prices and directs the contractor on maintenance needs and actions. 3 9 which is high compared to EU countries such as the Netherlands, Germany and France where traffic fatalities are in the 3 to 6 range. While there is no official estimate of the socioeconomic costs of road accidents in Serbia, some estimates suggest a cost as high as 2.0 percent of GDP.
13. The Bank through TRP and CXHP has been supporting road safety initiatives in Serbia since 2004. TRP financed the removal of 18 blackspots and improvement of road safety design practices, and CXHP is financing and supporting the implementation of a comprehensive road safety program valued at US$2.9 million and involving all affected stakeholders. In 2009, CXHP helped establish the Road Traffic Safety Agency (RTSA) and is now helping build its capacity. CXHP-financed activities also include developing a National Road Safety Strategy, developing a road accident database, undertaking road safety audits and developing awareness campaigns and capacity building activities for the different stakeholders. During the past few years, GoS has also been earnest in road safety institutional and policy reforms. The Road Safety Law (RSL), adopted on May 29, 2009, represents the first major update in legislation since the 1980s and addresses many aspects of the EU Transport Acquis Communautaire and the recommendations given in the Road Safety Capacity Review funded by the WB Global Road Safety Facility. In 2009, the Republic of Serbia (RoS) passed legislation mandating the incorporation of an independent safety audit by an accredited road safety auditor in road design.
14. The Project is a part of a larger IFI effort to rehabilitate the Serbian national roads. EBRD and EIB are also supporting the development of the transport sector and the National Road Network in Serbia. Nearly half of EIB's total lending to Serbia of C3.1 billion between 2001 and 2010 period has been to upgrade the road network. EBRD has been the country's second largest investor since 2001 committing almost E2.5 billion to the country with transport infrastructure being a main focus area. In 2010, EBRD committed C590.5 million to Serbia, 41 percent of which is for municipal environmental infrastructure and transport. RRSP will build on the achievements and the strong engagement of the IFIs in the sector over the past decade.
C. Higher Level Objectives to which the Project Contributes
15. The Project is consistent with, and part of, the Country Partnership Strategy (CPS) for Serbia for FY12-15. The CPS was largely informed by Serbia's articulation of its own development goals and challenges and its document under preparation entitled "Strategy and Development Policyfor Industrializationfor the Republic of Serbia". The CPS is closely aligned with the European Commission's (EC) Europe 2020 Growth Strategy. As outlined in the CPS, the Bank's interventions in Serbia are designed to advance the EU agenda of smart and inclusive growth. To continue to improve the quality of people's lives, Serbia aims at restoring strong, sustainable and job-creating growth through improved competitiveness. The CPS also finds the quality of Serbia's transport infrastructure to be inadequate (see paragraph 6) as a result of underinvestment in maintenance. RRSP will contribute to promoting competitiveness through improved and safe road connectivity, thus encouraging economic development in regions not directly linked to the main transport corridors.
4 II. PROJECT DEVELOPMENT OBJECTIVES
A. PDO
16. The PDO is to improve the condition and safety of the National Road Network for road users by supporting the Republic of Serbia in the implementation of the first phase of its National Road Network Rehabilitation Program.
B. Project Beneficiaries
17. The primary Project beneficiaries are the road users. National road users are expected to benefit from the improved condition and safety of the National Road network. This would result in reduced vehicle operating costs, better riding comfort, and reduced risk of injury and death due to traffic accidents. Improved road safety would not only benefit road users but also pedestrians and the economy at large by reducing the economic and social costs arising from road accidents. Also, the Project is expected to enhance Serbia's competitiveness and its inhabitants' access to jobs, markets and social services by improving the conditions of the national roads that link into the international road corridors, Lastly, PERS is expected to benefit directly from the capacity and institutional development activities under the Project which would enable it to discharge of its responsibilities more effectively and efficiently, benefiting all road users.
C. PDO Level Results Indicators
18. The PDO covers the first phase of NRNRP (see paragraph 20 for the definitions of the Project and the first phase of NRNRP). The PDO will be assessed based on: (i) the improvement in road conditions measured by a reduction in the International Roughness Index (IRI) for the roads covered in the first phase of NRNRP from 5.42 to 2.5; and (ii) the improvement in road safety measured by a 10 percent reduction in fatal road traffic accidents on the roads covered in the first phase of NRNRP.
19. The first phase of NRNRP has been designed to utilize the model of results-based disbursement with the exception of a few consulting services and technical assistance activities (see paragraphs 21 and 27). A series of disbursement-linked indicators (DLIs) will be used to establish the achievement of the agreed results. Annex 1(B) presents the DLIs, the annual targets for disbursement and result chain diagrams. The DLIs are grouped into three broad categories:
(i) DLI-1: road rehabilitation and safety. Targets will be met when a predefined number of km under the first phase of NRNRP is rehabilitated incorporating safety considerations.
(ii) DLI-2: road safety actions. Targets go beyond the first phase of NRNRP to include road safety inspections and implementation of low-cost safety measures on sections of the National Road Network that are not part of the first phase of NRNRP, awareness campaigns and the certification of road safety auditors.
5 (iii) DLI-3: maintenance management reforms. Targets will be met when the updated rehabilitation and maintenance design standards are adopted, a strategic plan for PBMC is developed, tender documents prepared and issued, training conducted, and contracts signed.
III. PROJECT DESCRIPTION
A. Project Components
20. Definition of the first Phase of NRNRP and RRSP: RRSP (the Project) is a part of a larger IFI coordinated effort to support RoS in the implementation of the first phase of NRNRP (see the diagram below). The first phase of NRNRP refers to two projects: (i) the project co-financed by RoS, EIB and WB (the Project or RRSP), and (ii) the project financed in parallel solely by EBRD (the EBRD Project). See Section C "Program Objectives and Phases" for more details on the first phase of NRNRP and the roles of the IFIs.
Figure 1: NRNRP Phases and Financiers
National Road Network Rehabilitation Program (NRNRP)
First Phase Future Phases:
The Project The Poject EBRD Project (GoS, EIB, WB)
21. RRSP has three components. In addition to disbursing against eligible expenditures, supported by Interim Unaudited Financial Statements, some disbursement for Components 1 and 2 will be dependent on meeting annual agreed DLI targets; while Component 3 will disburse exclusively against eligible expenditures for specified activities. Costs include price and physical contingencies.
22. Component 1: Road Rehabilitation and Safety Investments (Total cost (263.35 million, including IBRD financing of C67.97). This component will finance periodic maintenance and rehabilitation works, partial pavement widening, works concerning traffic signalization improvement and structure renewal as well ancillary road connections for 35 - 40 sections, totaling over 800 - 810 km in length. This component will also support the incorporation of road safety measures as recommended by road safety audits, and pursuant to criteria set forth in the Project Operations Manual (POM), in the design of the Project's road sections and their subsequent implementation as a way to institutionalize these practices for all road works.
6 23. Component 2: Institutional Strengthening (Total cost £3.45 million, including IBRD financing of £0.81). This component consists of:
24. Subcomponent 2A: Support to road safety (60.35 million). This subcomponent covers road safety inspections and the implementation of low cost road safety measures such as signage, traffic calming measures and road furniture for an additional 1000 km of national roads beyond what is covered in the first phase of NRNRP. The implementation of these measures will be covered out of PERS's annual maintenance budgets. The subcomponent also includes road safety awareness campaigns, strengthening enforcement on the NRNRP-improved roads and training on road safety audits and inspections. Equipment for additional enforcement on the NRNRP-improved roads will be financed through the ongoing CXHP.
25. Subcomponent 2B: Strengthen road rehabilitationand planning processes (61.75 million). This subcomponent includes a road condition survey for the entire National Road Network, an update of the national road database, institutionalizing the development of multi-year maintenance plans based on clearly-defined economic, social and regional criteria; and the adoption and implementation of updated design standards for maintenance and rehabilitation.
26. Subcomponent 2C: Strengthening maintenance management (61.0 million). This subcomponent includes the development of a strategic plan for PBMC, the preparation of model bidding documents for PBMC, training staff and contractors on PBMC, and the provision of implementation support. The Project will not cover the cost of the PBMC contracts.
27. Component 3: Project Detailed Design, Project Supervision, Management, Monitoring and Audits (Total cost £18.4 million, including IBRD financing of £4.83 million). This component consists of:
28. Subcomponent 3A: Design and supervision (614.8 million). This subcomponent covers the design and supervision costs for all the roads covered under phase 1 of NRNRP (both RRSP and the EBRD Project).
29. Subcomponent 3B: Project management support (62.25 million). This includes project management support and capacity building to PERS as may be necessary in procurement, financial management, environmental and social safeguards and annual program planning.
30. Subcomponent 3C: Project Audits (61.80 million). This includes: (i) the Integrated Performance Audit which will review engineering designs, management of social and environmental issues, procurement, quality assurance, contract management and compliance to agreed conditions, quality of project supervision, review of traffic safety implementation, and achievement of DLIs to trigger disbursement. (See paragraph 49 under Results Monitoring and Evaluation for more details on the Project Audit Consultant; PAC); and (ii) Project financial audit.
7 B. Project Financing
Lending Instrument
31. The Project is a SIL that for the most part uses results-based features to support the implementation of the NRNRP. Based upon the GoS's request, the operation has not been structured as a Program for Results (P4R) and does not use Serbia's country systems because some of the systems still require, or are undergoing, reforms. However, the Project will use the treasury's financial management system for the management of project funds.
32. Loan advances will be made semi-yearly based on: (i) yearly rolling cash flow forecasts in Interim Financial Reports (IFRs), (ii) documentation of previous advances and (iii) for some advances, documentations of previous advances and confirmation of the achievement of DLIs. The use of six-month IFRs will allow for advances to provide regular and consistent levels of liquidity to help finance the first phase of NRNRP. The IFRs which will be produced at the end of each second semester (end of December each year) will be used, with the independent project audit consultant's report on the validation and verification of DLIs met, to recognize expenditures incurred and reported as eligible and to convert prior advances (in part or in total, depending on whether the DLIs have been achieved partially or completely) into disbursements. About 93 percent of the Project's cost, and the Bank's Loan, will use results-based disbursement, while the disbursement for the remaining 7 percent covering, among others, detailed design, construction supervision and monitoring (Component 3 - see paragraph 27) is based on statement of expenditures. For Components 1 and 2, the Bank's funding is divided across the number of DLIs in a given percentage with 50 percent of the loan allocated to DLI-1 on rehabilitation and safety in implementing civil works, 25 percent of the loan allocated to DLI-2 on broader road safety measures and 25 percent of the loan allocated to sound maintenance management practices.
Project Cost and Financing
33. RRSP will finance the rehabilitation of about 800 - 810 km and provide technical assistance at an estimated cost of 6290 million over a 5-year period. The Bank will finance about 25.5 percent of RRSP (E73.8 million or about US$100 million), while RoS and EIB will contribute C116.2 million and E100 million respectively (see Table 1 below). The Bank's financing percentage, when interest during construction and the Front End Fee are excluded, is slightly higher at 25.8 percent. IBRD financing is not subject to government tax. The Front End Fee will be financed out of the IBRD Loan proceeds, and the interest during construction by RoS. The EBRD Project will provide E100 million in parallel financing (see C. Program Objective and Phases below.)
Based on a US Dollar-to-Euro exchange rate of 1.355 (January 31, 2013). 8 Table 1: Project Cost 9 (Euro millions unless otherwise indicated) Project Cost IBRD IBRD Financing (EIB/IBRD/RoS) Financing Percentage 1. Road rehabilitation and safety Investments 229 59.1 25.8 2. Institutional strengthening 3 0.7 25.8 3. Detailed design, supervision, management and 16 4.2 25.8 monitoring Total Baseline Costs 248 64.0 25.8 Physical Contingencies 25 6.4 25.8 Price Contingencies 12.6 3.2 25.8 Total Project Costs 285.6 73.6 25.8 Interest During Construction (IBRD) 4.25 Front-End Fees (IBRD) 0.18 0.18 Total Financing Required 290.0 73.8 25.5
C. Program Objective and Phases
34. NRNRP aims to improve the condition and safety of Serbia's National Road Network by rehabilitating, and enhancing the safety of, about 5,000 km of national roads at an estimated cost of about E1.5 - E1.7 billion (see paragraph 8). RRSP will support RoS in the implementation of the first phase of NRNRP.
35. The first phase of NRNRP is expected to include about 50 - 55 sections totaling 1,125 km, of which about 35 - 40 sections will be financed by RRSP and 15 - 20 sections by the EBRD Project. EIB, IBRD and RoS will co-finance RRSP, while EBRD will provide parallel financing. EIB and EBRD will contribute E100 million each to the first Phase of NRNRP. The detailed design, construction supervision, project management and monitoring for the entire first phase of NRNRP (both RRSP and the EBRD Project) will be financed by RRSP. See Table 2 for the expected contribution to the first phase by each partner. The financing percentage is slightly higher for IBRD and EIB when interest during construction and the front fee are excluded from the project cost as they will be borne by RoS (see paragraphs 33 and 131).
' The total project cost will be higher by the extent of the interest during construction on the EIB loan. This amount will be financed by RoS over and above the Euro 290 million and will have no bearing on the net of interest financing percentages for RoS, EIB and the Bank.
9 Table 2: NRNRP-Financing of the First Phase
Euro Millions Percentage of Total Percentage of RRSP The Project (RRSP) WB (IBRD) 73.8 19 25.5 EIB 100 26 34.5 RoS 116.2 29 40.0 Sub Total 290 74 100.0
The EBRD Project 100 26 Total 390 100
36. EIB plans to hold its management review meeting in May/June 2013 and negotiate the Loan in June/July 2013. Based on this schedule, the ratification of the EIB's Loan by the Serbian Parliament is likely to take place a few months following the ratification of the Bank's Loan. However, the period required for the ratification of the EIB loan by Parliament is likely to be shorter given that the Project would have passed through Parliament when ratifying the Bank's Loan. The Effectiveness of the Bank's Legal Agreements with the Republic of Serbia will require ratification of the EIB's Legal Agreements, as will the Effectiveness of EIB's Legal Agreements require the ratification of the Bank's Legal Agreements. EBRD plans to negotiate its Term Sheet in late March/early April, the Loan and Guarantee Agreement in late April/early May.
D. Lessons Learned and Reflected in the Project Design
37. RRSP is designed to incentivize the implementation of institutional reforms. Based on the experience of similar programs such as the Poland Road Maintenance and Rehabilitation Projects, the implementation of the civil works component will be relatively easy, while that of the institutional strengthening component is likely to be more challenging as it entails changing the way of doing business. To incentivize PERS to focus on institutional reforms, implementing these reforms will have a significant impact on disbursement through the DLIs, even though over 90 percent of the Project's financing will be expended on civil works. RRSP is also realistic about the pace of the reform. While the "Reform Action Plan" for PERS recommends a comprehensive list of actions, RRSP is being selective in its focus on strategic activities related to (i) maintenance management modernization to help ensure sustainability of NRNRP's investments, and (ii) road safety to help further reduce traffic accidents (beyond the Project's direct investments) building on the Bank's experience in Serbia through TRP and CXHP.
38. Based on past experience in road projects in Serbia, social safeguard issues are given close attention. Key lessons learned in the implementation of social safeguards in CXHP and appropriately incorporated in the preparation of the Resettlement Policy Framework (RPF) for RRSP include: (i) the need for hands-on support to the client for timely mitigation of expropriation-related impacts; (ii) an independent grievance committee to deal with complaints from Project Affected People (PAPs) has a positive impact on social safeguards implementation
10 outcomes; and (iii) certification of completion of expropriation and payment of compensation prior to commencement of civil works ensures payment of compensation and assistance to PAPs.
39. Safety standards will be directly incorporated in road designs. Bank-wide experience shows that it is not inconceivable for the rehabilitation of a road to have an adverse impact on road safety due to the increased operating speeds on the improved roads. This Project is designed to ensure that road safety considerations are incorporated in road designs and will ultimately be institutionalized in design standards. In addition, the Project will strength enforcement of traffic safety rules and will increase road safety awareness.
40. New design procedures to strengthen the designs process. The Bank's experience implementing road projects in Serbia has revealed weaknesses in the tendering and approval processes of road designs due to the lack of clear responsibilities and consequences for underperformance. The Project mitigates this risk by clearly defining and allocating the responsibility for designs with the experienced Project Implementation Team (PIT). The PIT will develop new detailed Terms of Reference (TOR) for each road section to be rehabilitated based on a detailed screening and diagnostic of the current situation on the ground. In addition, PERS is considering ways to strengthen the accountability of designers such as withholding the last payment due until the selected contractor confirms that there are no serious design issues. GoS and PERS are also considering introducing a "negative list" for designers who underperform.
IV. IMPLEMENTATION
A. Institutional and Implementation Arrangements
41. Implementation concept for the Project. (a) Financinga tranche of the Project.Unlike traditional transport projects where the Bank directly finances specific road sections and activities in a program, in RRSP the Bank will finance a certain percentage of all the activities under the Project. So for example, for the rehabilitation of the 35-40 road sections that will be financed under Component 1, the Bank will finance about 27 percent of each section. EIB and RoS would finance the balance of about 35 percent and 38 percent respectively.
(b) The use of one set of guidelinesfor the Project. One set of guidelines will be used for the implementation of the Project and will be applicable to EIB, RoS and WB financing. A Resettlement Policy Framework (RPF) and an Environmental Management Framework (EMF) acceptable to RoS, EIB and the Bank, and consistent with the Bank's guidelines, have been prepared. EIB will also follow the procurement guidelines of the WB. EBRD will follow the same set of environmental and social guidelines in the implementation of its EBRD Project that is being financed in parallel. Throughout project implementation, RRSP will support RoS in strengthening project preparation and implementation capacity and processes.
42. A Steering Committee for overall Project Oversight. While PERS will be responsible for project implementation as explained below, given the results-based disbursement that the Project will use for the first time in Serbia, it is important that a Steering Committee including the Ministry of Finance and Economy (MoFE), the Ministry of Interior, the Ministry of Regional
11 Development and Local Self-Governance in addition to MoT and PERS have oversight of overall project implementation to proactively identify and resolve issues that could delay disbursement, to ensure timely availability of counterpart budgetary allocations to the project and to confirm consistency of the Project's investments with regional development goals.
43. Public Enterprise Roads of Serbia will implement the Project. PERS is responsible for the construction, maintenance, operation and management of all national roads in Serbia.10 PERS is familiar with IFI procedures having implemented TRP from 2004 to its closing in September 2012, and currently implementing on-going loans with EIB and EBRD. PERS's implementation track record on TRP has, in general, been satisfactory.
44. The PIT within PERS will be responsible for day to day project implementation. PERS uses its own staff to implement IFI-financed projects and organizes them into a PIT within the Investments Department of PERS. The Director for Investments heads the PIT and reports to the Deputy Director General of PERS. The majority of current PIT members were involved in TRP implementation from 2008 to the project's closing. The PIT is staffed with financial management and procurement specialists familiar with Bank procedures. The capacity of the PIT was assessed and deemed adequate to prepare and implement activities for the first 18-month of the Project. However, given the size of the first phase of NRNRP and the innovative features of linking disbursement to preset indicators, the Project will finance consultants to provide project management support to the PIT during project implementation. They will support the PIT in, among others, the: (i) supervision of the implementation of civil works; (ii) environmental and social supervision of safeguards implementation; (iii) annual program planning and preparation including the economic analysis; and (iv) overall project management. In addition to the consultants, the PIT will draw staff members from other PERS departments as necessary. Prior to project start, the Bank together with EIB and EBRD provided a two-day training workshop for the PIT to manage the implementation of the Project. Due to the relatively large size of the Project, the Bank Team will provide extensive support to the PIT during implementation.
45. Enhanced implementation arrangements for the Project's road safety interventions. Achieving improved road safety in a more holistic manner requires going beyond infrastructure improvements to address enforcement and education. Implementation arrangements for the road safety interventions have been designed to help ensure this goal. At a senior level, the Project's road safety interventions will be coordinated with the National Road Traffic Safety Coordination Body (NRTSCB) through the Road Traffic Safety Department in MoT which acts as the Secretariat of NRTSCB. At the working level, one-two members from each of NRTSCB's Working Groups on Enforcement and Children's Traffic Safety, one-two members from the Road Safety Agency and one-two members from the Ministry of Transport will be part of PERS's PIT to strengthen implementation of the enforcement and awareness/education activities.
46. Advances and disbursement. As explained in paragraph 32, disbursement for Components 1 and 2 is linked to agreed indicators (DLIs). With the exception of a few binary choice DLIs (i.e. DLIs linked to whether a certain measure is undertaken or not), all other DLIs are scalable to provide flexibility in disbursement to match implementation progress whether faster or slower than agreed annual targets. Rolling advance loan proceeds will be utilized in order to facilitate
10See paragraph 103 and Figure A3.1, Annex 3 for a detailed PERS corporate structure.
12 the use of the results-based approach given that the Borrower's budgetary process and limited resources will not allow for pre-financing by RoS and later disbursement by EIB and the Bank. The first advance covering a six month expenditure period will be provided by both the E1B 11 and the Bank based on the cash flow projections for that period. The next advance will be six months after the first one and will be based on both the expenditure reports for the first six months and an updated cash flow forecast for the following six months. Financial reports on program expenditures will be prepared, along with updated cash flow forecasts and contract management information on a semester (semi-annual) basis and will be submitted to the two IFIs for review and acceptance. For the Bank, loan advances will be converted into disbursements when expenditures reported are reviewed and accepted as eligible, when the independent audit consultant report has reviewed and verified that DLI targets have been partially or fully met or exceeded (i.e. this conversion will occur during the end of year review) and upon the Bank's review. Annex 3 describes in more detail how the conversion of advances to disbursement will function and how this will be treated in the event of faster or slower implementation progress with regard to the achievement of DLIs.
47. DLI verification. Since EIB, the Bank and the Borrower will pool their financing, the Bank will not monitor each single contract but will perform annual project performance reviews covering at least 20 percent of the number of contracts. Contract reviews and DLI verification will be carried out by a Project Audit Consultant (PAC)-see paragraph 49.
B. Results Monitoring and Evaluation
48. Annex 1 lists the main outcome indicators for the Project, the principal results indicators for each component as well as the DLIs. These will serve as the basis for monitoring. The PIT will be responsible for collecting the data required for monitoring and evaluation which will in turn be reviewed by PERS. Indicators will be measured against the agreed targets and compared to the defined baselines. Project progress reports, including monitoring indicators and reporting on the implementation of the requirements set forth in the Environmental Management Plans (EMP) and the Resettlement Policy Framework (RPF) will be prepared by the PIT on a quarterly basis and submitted for Bank review. Monthly progress reports prepared by the supervision consultants will be submitted by the PIT to the Bank for review.
49. An independent PAC, financed by the Project, will be procured to perform annual audits and results monitoring and evaluation. The PAC will review a random sample of about 20 percent of the civil works contracts and other activities under the project. Besides the random selection of contracts, the review may also include works or contracts believed to have sensitive environmental or social impacts or requiring special oversight as determined by the EIB and the Bank. For environmental management plans and abbreviated resettlement action plans, implementation will begin with a "prior review" approach, which will be followed until the Borrower and Bank agree that the PIT and other implementing parties have demonstrated sufficient understanding of requirements and capacity to meet them to shift to a post-review basis. The PAC will report on project implementation progress, compliance as defined in the POM and other project documents, shortfalls in performance if any, the reasons and actions to
For the EIB, this would technically be considered a disbursement, not an advance. Also while EIB typically advances funds for a six month period, it requires an annual cash flow to approve the first advance of the year.
13 remedy them. The PAC's review will cover engineering designs, social and environmental safeguards, procurement, quality assurance, contract management, quality of project supervision, review of traffic safety implementation and achievement of DLIs. The PAC's activities will broadly include the following: (i) verification of eligible expenditures under the Project, (ii) verification that roads are rehabilitated in accordance with contract documents; and (iii) verification that the DLIs have been met. The Bank will take the PAC's reports into consideration when reviewing the IFRs and approving disbursements.
50. In addition, semi-annual implementation progress reviews shall be carried out each year jointly by the Borrower, the Bank and EIB. These reviews will cover, inter alia: (a) progress in meeting the Project's objectives; and (b) overall Project performance against Project monitoring indicators. Best efforts will be made to coordinate the timing of supervision missions with all partners. For environmental and social requirements by EIB that go beyond the Bank's guidelines (such as health and safety-see paragraph 159), monitoring will be carried out by EIB. A Mid-Term Review will be undertaken in the first quarter of Calendar year 2016 to more comprehensively assess implementation progress and set out any measures to ensure continued efficient implementation and the achievement of the PDO by the Project's closing date.
C. Sustainability
51. While sustainability of the investment by the Project and the EBRD Project is considered a substantial risk, three factors alleviate this risk. First, until the recent economic challenges, the funding for maintenance had been fairly adequate, and would have been even more so if efficient methods for procuring maintenance were employed. Second, PERS has plans to modernize its maintenance practices by rolling out hybrid PBMC throughout Serbia. Hybrid PBMC were piloted in the Bank-supported TRP and introduced savings of as much as 40 percent in the winter season. PERS has recently submitted an application for a El.5 million IPA 1 2 grant to the EC to finance the development of a strategic plan for the wide application of PBMC and the preparation of associated tender documents. The Project will supplement EC funds if necessary. Tendering is expected to begin in late 2014, and contracts are expected to be 3 to 5 years long. Third, the disbursement of about 25 percent of the cost of civil works under the Project is attached to a DLI for the improvement of maintenance management practices.
12 Instrument for Pre-Accession Assistance
14 V. KEY RISKS AND MITIGATION MEASURES
A. Risk Ratings Summary Table
Stakeholder Risk Low Implementing Agency Risk Capacity Low Governance Moderate Project Risk Design Substantial Social and Environmental Moderate Program and Donor Moderate Delivery Monitoring and Sustainability Substantial Overall Implementation Risk Moderate
B. Overall Risk Rating Explanation
52. The Project has two substantial risks (prior to mitigation): (i) the sustainability of the Project's investments once completed--this risk is mitigated through a number of measures presented in Section C on Sustainability, paragraph 51); and (ii) the design risk due to the use for the first time in Serbia of DLIs based on post reviews. This risk is being mitigated through, among others, the design of a pragmatic and realistic DLI framework and support to the PIT during preparation and the early stages of implementation.
53. Moderate implementation risks include the governance risk due to the large size and scope of the Project which make it vulnerable to corruption and collusion and the donor coordination risk with EIB with respect to the use of one common set of guidelines and DLIs. The governance risk is mitigated through adherence to Bank procurement procedures, transparency by publishing the relevant documents regarding contract award and selection, and publicizing complaint- handling mechanisms. The donor coordination risk is mitigated by working closely with EIB (and EBRD) throughout project preparation. See the Operational Risk Assessment Framework (ORAF) in Annex 4 for more details.
VI. APPRAISAL SUMMARY
A. Economic and Financial Analyses
54. The Economic Internal Rate of Return (EIRR) of the first eighteen months' rehabilitation of RRSP subprojects is estimated to be 24 percent and varies between 16 percent and 53 percent for the road segments; the Net Present Value (NPV) at a discount rate of 12 percent and an evaluation period of 20 years is estimated to be C 112 million (E149 million for the first phase of NRNRP). In addition, sensitivity tests with respect to higher construction costs (+20 percent) and lower traffic growth rate (-20 percent) demonstrated the robustness of the results with an EIRR
15 for each section exceeding 12 percent. The estimated net benefits of RRSP are considered a lower bound estimate as they do not include the benefits of the reduction in traffic accidents and fatalities.
B. Technical
55. The Project will finance a tranche of the first phase of NRNRP. The Project comprises pavement rehabilitation and partial pavement widening, as well as periodic maintenance. The Project will also incorporate safety features (pedestrian crossings, guardrails, road signs, markings, lighting etc.). The road sections to be rehabilitated show considerable surface distress and a fair to poor roughness condition (IRI ranging between 2.5 and 6.1). Average annual daily traffic (AADT) on the different project roads ranged between 1,900 and 10,400 vehicles with a simple average of 5,200 vehicles. Rehabilitation works are expected to include asphalt concrete surfacing ranging in thickness between 50 and 120 mm. A total of 22 segments (grouped under 15 contracts) totaling 308 km have been identified for implementation in the first eighteen months (2013-2015) of the first phase of NRNRP. Of the 15 contracts, 11 covering a total length of 218 km will be co-financed by the WB, EIB and PERS; and 4 contracts covering 90 km by EBRD. The road segments vary in length from 8 to 40 km with an average of 20 km.
56. The detailed design activities for the 11 contracts identified for implementation in the first 18 months of the Project are expected to be completed by project effectiveness, with 2 - 4 works contracts possibly signed by then. In order to avoid weaknesses in the current tendering and approval processes for detailed design (see paragraph 40), the PIT carried out a field diagnostics of the road segments to be rehabilitated in the first 18 months to assess the current road conditions. The diagnostics formed/will form the basis for the ToR and bidding documents for road designs. An independent road safety audit of the design will be carried out, and improvements will be incorporated in the design on the basis of audit recommendations.
C. Financial Management
57. The PIT is adequately staffed for carrying out the financial management functions. Financial management is assigned to two members - a qualified finance officer and a finance assistant, both of whom already performed the required roles in the recently-closed TRP. Due to the size and nature of the first phase of NRNRP, modern and sophisticated accounting software is required for program accounting and financial reporting.
58. The Project has been designed to utilize the model of results-based disbursement. The planning and budgeting function will play a key role in this Project as the design of Bank and EIB financing is based on accurate rolling cash flow forecasts in support of project implementation. Therefore, advances and disbursements will be based on Interim Financial Reports (IFRs) and will include a rolling cash-flow forecast report for the following twelve months. The Bank's Task Team will, during supervision missions, review the IFRs and confirm that reported expenditures are exclusive of taxes. The use of six-month IFRs will allow for advances meant to provide liquidity for project implementation. The annual financial statements covering the Project (DLI-based components and non DLI-based components) and all sources of pooled-financing will be subject to a financial audit. The audit will be contracted to a private
16 sector audit firm and the audit report will be submitted to the Bank and EIB not later than six months after the end of the fiscal year/period audited. The financial audit will not serve the purpose of assessing whether DLIs were achieved or not. This will be covered by the PAC (see paragraph 49).
D. Procurement
59. The project is a SIL that uses a results-based approach, with IBRD financing a portion of the NRNRP together with EIB and RoS. Procurement for the Project will be carried out in accordance with World Bank Guidelines. Specifically, procurement will be carried out in accordance with: (i) "Guidelines: Procurement of Goods, Works, and Non-Consulting Services under IBRD Loans and IDA Credits & Grants by World Bank Borrowers, dated January 2011; and (ii) "Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits & Grants by World Bank Borrowers', dated January 2011; and (iii) the provisions stipulated in the Financing Agreement. The World Bank Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credit and Grants dated October 15, 2006 and revised on January 2011, would also apply.
The main procurement-related risks are potential corruption, confusion in the application of the new Public Procurement Law (approved on December 29, 2013), and project implementation delays due, inter alia, to contract management issues and potential loss of capacity by the implementation agency. The conclusions of the procurement risk assessment show that, although the procurement risk at the country level can be classified as high, the implementation agency has adequate knowledge and experience to implement procurement activities under Bank Guidelines; and procurement risk for the Project is moderate. Measures for risk mitigation consist, inter alia, of: (i) strengthening PIT's procurement and contract administration capacity via workshops and hiring a highly experienced consultant (firm or individual) to provide hands- on training, especially on management of Bank standard contracts; (ii) responsibility clauses in bidding documents; (iii) standard Bank prior and post review exercises, including additional contract reviews on-the-spot (frequency of such reviews will be determined based on the results of the first few reviews); and (iv) maintaining an effective system of communication with PIT.
E. Social (including Safeguards)
60. The Project is expected to have overall positive social impacts. The Project will improve access to markets, nearby towns and social services; and will also provide opportunities for temporary employment for local communities through civil works contractors as has been the experience with the recently-closed TRP.13
61. Some expropriation may be required. As some of the roads may not have sufficient land within the road's right of way, the implementation of the project may require minor land
13 The review of 5 works contracts under TRP indicated that significant employment was created during the construction period, as well as improved access to local roads, approaches to houses, facilities such as gas stations, restaurants, schools and police stations and improvements to such as repairs near schools, pedestrian paths, drainage, and protective ramps. Specifically, for these five contracts the total value of which was US$35 million, a total of 500 workers were employed and 1,882 person-months of employment was generated during the construction period. TRP-roads provided interconnection to about 60 local roads, approaches to 211 houses, and 18 other improvements. 17 acquisition and resettlement where realignments are necessary to address road safety and other enhancement measures such as sidewalks and drainage. The Bank will not finance land acquisition for the Project. To address these potential adverse impacts, PERS prepared a project- specific RPF consistent with the Bank's OP 4.12 and the other IFIs policies on Involuntary Resettlement. The RPF comprises the process of expropriation and management of social impacts - including the legal framework for expropriation and resettlement and restitution assistance, institutional arrangements, the social screening process, the social impacts monitoring process and the procedures for preparation of section-specific Abbreviated Resettlement Action Plans (ARAPs) and their implementation, grievance mechanisms, coordination with civil works, and certification procedures for payment of compensation and assistance. In addition, the RPF also covers ways to enhance the positive impacts of the project for local communities.
62. Disclosure and consultation. The draft RPF cleared by the Bank was disclosed on the PERS website on November 5, 2012, in the local newspapers on November 7, 2012 and in the Bank's Info Shop on November 12, 2012. The draft RPF was discussed in a stakeholder's consultation workshop on December 18, 2012, and suggestions from the workshop were incorporated in the final RPF. The final draft of the RPF was officially transmitted to the Bank on February 1, 2013.
63. Initial social safeguards screening is underway for RRSP and the first phase of NRNRP. A total of 22 roads segments covering about 308 km for the first phase of NRNRP have been identified for implementation in the first eighteen months. The initial social screening for these road segments is being undertaken by PERS to determine likely social impacts next to the road sections, due to close-by bus stops, schools, small shops or residential buildings, sidewalks, etc. In-depth social screening will be carried out by design consultants under the guidance of the PIT (including a complete assessment of the availability of land in the right of way, potential need for land acquisition, etc.) Based on the screening, ARAPs will be prepared if necessary to mitigate any adverse impacts.
64. Gender impact of the Project will be assessed. The Project is likely to have gender impacts particularly regarding the road safety component, and there is some scope to better mainstream gender issues through the Project. Gender-disaggregated data will be collected as part of a potential resettlement and expropriation monitoring process. When measuring the reduction in road traffic fatalities, the data collected will be disaggregated by sex, age, and category (i.e., pedestrian, bicyclist, driver, and passenger) to inform policy and address safety needs of drivers as well as non-motorized road users. As males, especially young men, are often more adversely affected by road traffic injuries than females, a small research study to identify perceptions and attitudes of young men on road safety behavior is being financed by the Bank to help inform the Project's road safety awareness campaigns and contribute to gender-sensitive awareness-raising of road safety behavior.
18 F. Environment (including Safeguards)
65. The operation is classified as Environmental Category B, since it will involve only rehabilitation of existing roads, with the possibility of minor alignment changes for safety purposes. It is not envisioned that any roads will be significantly widened (e.g. addition of more lanes) or upgraded to a higher category.
66. An Environmental Management Framework (EMF) and three site-specific EMPs were prepared prior to Project Appraisal, modeled on EMPs already implemented by the Borrower. The EMF outlines the environmental policy, legal, and administrative framework for undertaking the Project, presents environmental baseline information and potential environmental impacts and includes the range of available mitigation measures that may be adopted, based on each particular situation. The EMF also contains a description of the environmental management system and institutional arrangements to be applied as well as recommendations for capacity building measures in PERS during project implementation in order to ensure environmental sustainability. The EMF includes a generic sample environmental mitigation and environmental monitoring plans.
67. Disclosure and consultation. The draft EMF cleared by the Bank was disclosed on PERS's website and in the local newspaper on January 24, 2013. The draft EMF was discussed in a stakeholders' consultation workshop on January 31, 2013, and suggestions from the workshop were incorporated in the final EMF.
68. The draft EMP for section Uzice-Pozega-Kratovska Stena, cleared by the Bank, was disclosed on the PERS's website and in the local newspaper on October 30, 2012. In was further discussed in a stakeholders' consultation workshop on November 6, 2012, and suggestions from the workshop were incorporated in the final EMP for this section, which was disclosed on PERS website on November 6, 2012, and in the Bank's Info Shop on January 22, 2013.
69. The draft EMP for section Arandjelovac-Krcevac, cleared by the Bank, was disclosed on the PERS's website and in the local newspaper on December 5, 2012. The draft was further discussed in a stakeholders' consultation workshop on December 12, 2012, and suggestions from the workshop were incorporated in the final EMP for this section, which was disclosed on PERS website and local newspaper on December 12, 2012, and in the Bank's Info Shop on January 22, 2013.
70. The draft EMP for section Zabalj intersection- Zrenjanin, cleared by the Bank, was disclosed on the PERS's website and in the local newspaper on December 13, 2012. The draft was further discussed in a stakeholders' consultation workshop on December 20, 2012, and suggestions from the workshop were incorporated in the final EMP for this section, which was disclosed on PERS website and local newspaper on December 20, 2012 and in the Bank's Info Shop on January 22, 2013.
19 G. Other Safeguards Policies Triggered (ifrequired)
[Y] OP/BP 4.01 Environmental Assessment [N] OP/BP 4.04 Natural Habitats [N] OP 4.09 Pest Management [N] OP/BP 4.10 Indigenous People [N] OP/BP 4.11 Physical Cultural Resources [Y] OP/BP 4.12 Involuntary Resettlement [N] OP/BP 4.36 Forests [N] OP/BP 4.37 Safety of Dams [N] OP/BP 7.50 Projects on International Waterways [N] OP/BP 7.60 Projects in Disputed Areas [Y] OP Access to Information
20 ANNEX 1: RESULTS FRAMEWORK AND MONITORING
SERBIA ROAD REHABILITATION AND SAFETY PROJECT
Annex 1A: Results Framework
Project Development Objectives
PDO Statement The PDO is to improve the condition and safety of the National Road Network for road users by supporting the Republic of Serbia in the implementation of the first phase of its National Road Network Rehabilitation Program.
Project Development Objective Indicators . Cumulative Target Values Dataonorce/ifoResponsibility Data Source/ for
Unit of End Methodology Data Indicator Name Core Measure Baseline 12/2014 12/2015 12/2016 12/2017 Target Frequency Collection (10/2018) Reduction in road traffic accidents with PERS and fatalities on the Percentage 100.00 100.00 100.00 95.00 93.00 90.00 Annual Police reports Police improved roads in the first phase of NRNRP Improvement in road conditions measured by a Performance msredctonithIRI 5.42 5.56 4.41 3.53 2.5 2.5 Annual A e portPERS reduction in the Audit Report average IRI for the roads in the
21 first phase of NRNRP
Intermediate Results Indicators t TResponsibility Cumulative Target Values Dt ore o Data Source/ for
Unit of End Methodology Data Indicator Name Core Measure Baseline 12/2014 12/2015 12/2016 12/2017 Target Frequency Collection (10/2018) Road Condition E] Road Survey Survey Kilometers 0.00 0.00 2000 5000 7000 9000.00 Annual Consultant PERS Completed on National Roads Implementation E of a circular for the preparation None, of rehabilitation except for Imleme Implemen programs based Text on IFI Impleme tation of a Annual PERS PERS on socio- funded circular economic & projects regional considerations PBMC LPerformance Contracts in Kilometers 600.00 1,500.00 2,000.00 3000.00 Annual Audit Report PERS Implementation Roads Performance rehabilitated, Kilometers 0 119 543 834 1,000 1,125 Annual Audit Report, PERS Non-rural PERS Safety E] Inspection of PERS, National Roads Kilometers 0.00 200 400 700 1,000 Annual Performance PERS beyond the first Audit Report phase of
22 NRNRP Estimated Roads in good based on and fair Mid Term 2008. Road condition as a Percentage & End of Conditions PERS share of total Project Survey. National Roads Updated at Mid Term Size of the total classified Kilometers 9000.00 9000.00 PERS PERS network
23 Project Development Objective Indicators Indicator Name Description (indicator definition etc.) Reduction in road traffic accidents with fatalities on the The indicator measures the percentage reduction in the number of traffic accidents improved roads in the first phase of NRNRP. with fatalities starting from a base of 100% as the baseline. The baseline number of traffic accidents with fatalities is the average over the last three years. The reduction in accidents with fatalities was used instead of accident-related fatalities because some accidents have multiple fatalities and so using the number of fatalities could be misleading. The indicator measures the reduction on the improved roads under the first phase of NRNRP which includes both RRSP and the EBRD Project. The baseline data will be secured before construction starts. Improvement in road conditions measured by a reduction Improvement of the road conditions on the improved roads under the first phase of in the average IRI for the improved roads in the first NRNRP measured by the International Roughness Index (IRI). The average IRI prior phase of NRNRP. to improvement is about is 5.4.
Intermediate Results Indicators Indicator Name Description (indicator definition etc.) Road Condition Survey Completed on National Roads Standard road condition survey completed for 9000 km of National Roads. Baseline is zero km. The terms of reference for the survey will be agreed with the Bank. This indicator is also a DLI. Implementation of a circular for the preparation of The adoption and implementation of a circular via a Departmental Decision issued by rehabilitation programs based on socioeconomic & the General Director of PERS for the preparation of rehabilitation programs in a regional considerations budget-constrained environment, prioritizing rehabilitation works based on socioeconomic and regional considerations PBMC Contracts in Implementation Competitively tendered PBMC or hybrid PBMC for maintenance of roads for a duration of 3 years or more. The baseline is 600 km. This indicator is also a DLI. Roads rehabilitated, Non-rural Kilometers of all non-rural roads reopened to motorized traffic, rehabilitated, or upgraded under the first phase of NRNRP. Non-rural roads are roads functionally classified in various countries as Trunk or Primary, Secondary or Link roads, or sometimes Tertiary roads. Typically, non-rural roads connect urban centers/towns/settlements of more than 5,000 inhabitants to each other or to higher
24 classes of road, market towns and urban centers. Urban roads are included in non-rural roads. The baseline is zero km. Safety Inspection of National Roads beyond the first Road Safety Inspection is a systematic, on site review, conducted by road safety phase of NRNRP expert(s), of an existing road section to identify hazardous conditions, faults and deficiencies that may lead to serious injuries. This covers an additional 1000 kms beyond the first phase of NRNRP to increase the scope of the Project with regard to improving road safety. The baseline is zero km. Roads in good and fair condition as a share of total Percentage of the total national road network that is in good and fair condition classified roads depending on the road surface and the level of roughness.Classified roads are the roads that have been included in the roads legislation as National (public) roads. The baseline will be determined prior to the start of construction. Size of the total classified network Classified roads are the roads that have been included in the roads legislation as National (public) Roads.
25 Annex 1B Disbursement Linked Indicatorsl4
Total 12/2014 12/2015 12/2016 12/2017 disbursement Disbursement amount as a percent of (million total loan Euros) 1. DLI 1: Road Rehabilitation and Safety DLI I.1 DLI 1.2 DLI 1.3 DLI 1.4 Km of roads rehabilitated and 68 358 702 807 safety measures incorporated under Project (cumulative) Disbursement amount due (million Euros) / percent 11.25 10.08 9.05 3.99 34.375 46.58%
2. DLI 2: Road safety Actions DLI 2A.1 Road Safety DLI 2A.3 DLI 2A.4 DLI 2A.5 Inspection 500 km 750 km 1000 km Contract inspected & inspected & inspected & DLI 2A: Road safety Signed 250 km safety 500 km safety 700 km safety inspection contract signing; DLI2A.2 measures measures measures and km of roads covered by 250km implemented implemented implemented road safety inspection and low 2 med pm d p n cost road safety measures inspected implemented (cumulative) DLI 2B. 1 DLI 2B.2 awareness 20 persons amainsi trained to campaigns in DLI 2B : Capacity building undertake road 20 schools of and awareness campaigns safety the vicinity of audit/inspection ros roads Disbursement amount due (million Euros) / percent 5.63 5.04 4.53 2.00 17.19 23.29%
14 The disbursement amounts indicated in the table are due at the end of the calendar year but actual disbursement will take place the following calendar year.
26 3. DLI 3 Maintenance Management Reforms DLI 3.1 DLI 3.3 DLI 3.4 DLI 3.6 Adoption of PBMC for PBMC for an PBMC for an revised 1500 km additional 500 additional 1000 maintenance competitively km km & tendered competitively competitively rehabilitation tendered; tendered design standards; DLI 3.5 DLI 3.7 PBMC for PBMC for a DLI 3.2 1500 km in total of 2,000 Preparation of implementation km in strategic plan implementation for the introduction of PBMC
Disbursement amount due (million Euros) / percent 5.63 5.04 4.53 2.00 17.19 23.29%
Total Disbursement 22.51 20.16 18.11 7.98 68.75 93.16%
27 1 Road Rehabilitation and Safety This DLI will be met when a predefined number Dt ore of km is rehabilitated each year; and road safety Poetrprsaddt rprdb h measures recommended by an independent road Supervision Consultant for PERS; reports by safety auditor are incorporated in the design and the Performance Audit Consultant (PAC). implementation. Rehabilitation will also include observing social and environmental safeguards, Procedure: as defined by the relevant policy framework A comprehensive review will be carried out by documents and plans. In total, this DLI accounts the PAC on randomly-selected road sections. for about 47 percent of the IBRD loan and 50 For a sample of 20 percent of the contracts, the percent of the loan's results-based disbursements. PAC's review will cover engineering designs, All road sections to be rehabilitated will be social and environmental safeguards, agreed with EIB and the Bank in advance. This procurement, quality assurance, contract DLI is scalable to provide flexibility in management, review of supporting data such as disbursement to match implementation progress for variation orders, quality of project whether faster or slower than annual targets. supervision, review of traffic safety implementation. Besides the random selection of contracts, the review may also include works or contracts believed to have sensitive environmental or social impacts or requiring special oversight as determined by the EIB and the Bank. The PAC is expected to start work in November of every year and to certify that the DLIs have been fully or partially achieved, or exceeded. 2 Road Safety Actions This group of disbursement linked indicators accounts for 25 percent of the results-based disbursement (RBD) under the loan and 23 percent of the total IBRD loan.
DLI 2 is made up of DLI 2A and DLI 2B. In years in which disbursement is linked to both DLI 2A and DLI 2a, each will have half the disbursement weight. In years in which
28 disbursement is linked only to DLI 2A, DLI 2A will carry all the weight of DLI 2.
2A Road Safety Inspection (RSI) and The DLI will be met when a contract for RSI is Data Source: implementation of Low Cost signed, an RSI is performed for a predefmed Consultants RSI report prepared for the PERS, Measures number of km of national roads and low-cost implementation reports of low-cost measures safety measures are implemented by PERS as prepared by a National Roads Supervisor part of its regular maintenance program. The employed by the PERS maintenance 1000 km that will be covered by this DLI are not department. part of the first phase of NRNRP i.e. the 1000 km of national roads are in addition to those that will Procedure: be rehabilitated under the Project. According to Achievement of road safety activities will be Serbian Law on Traffic Safety (Article 156), RSI confirmed by the PAC based on a review of is an independent and systematic check, inspection reports and other related data (e.g. conducted by road safety expert(s) of an existing photos, videos), and an inspection of a 20 road section to identify hazardous conditions, percent random sample of low-cost safety faults and deficiencies that may lead to serious measures implemented. injuries.
DLI 2A. 1 is a binary-choice indicator of whether the RSI contract has been signed or not, while the other DLI 2A are scalable. DLI 2A.2 is based on kmeinspected; and DLI 2A.3 to 2A.5 measure both kmpof roads inspected and ky of roads for which low-cost road safety measures have been implemented. Equal weights are attached to the inspection and implementation parts of the DLIs. For example half the weight of DLI 2A.4 is attached to the inspection of 750 kmcand half is to implementing safety measures for 500 km.
The list of low cost measures is to be agreed with EIB and the Bank and will include signage, lane
29 delineation and road furniture.
2B Training on Road Safety Inspection Training and testing to be carried out according Data Source: and Audit; and Road Safety to prevalent EU directives until the equivalent Relevant PERS activity progress and Awareness Campaigns Serbian legislation is established. Road safety completion reports and progress. These will campaigns to pre-selected schools in the vicinity include names and positions of trainees; and of the roads to be rehabilitated under the first schools and students who participated in the phase of NRNRP. The terms of reference for the campaigns. training and the campaigns to be agreed with EIB and the Bank. The schools will be identified prior Procedure: to start of construction. DLI 2A and DLI 2B are The PAC will review the teaching and testing scalable. materials and records of the awareness campaigns. The PAC will also interview a 20 percent random sample of trainees and visit a 20 percent sample of the schools interviews students and school administrators. Implementation will be evaluated against the ToR. 3 Maintenance Management This group of disbursement linked indicators Reforms accounts for 25 percent of the results-based disbursement (RBD) under the loan and 23 percent of the total IBRD loan.
DLI 3 has one - two sub-indicators each year. The disbursement weight of DLI 3 will be equally divided among the number of sub- indicators.
30 3.1 Adoption of revised maintenance & The updated maintenance & rehabilitation design Data source: rehabilitation design standards standards have been prepared under the Transport The Decision letter issued by PERS General Rehabilitation Project and are under review by Director indicating the adoption of the standards PERS. Once the draft design standards are sent to the IFIs. finalized, the adoption will be through a Decision issued by the General Director of PERS. DLI 3.1 Procedure: is a binary-choice indicator. The PAC will review the relevant documents relating to the design standards and certify that a Decision was issued in accordance with the PERS statutes. 3.2 Preparation of strategic plan for the PBMC include hybrid performance based Data source: introduction of PBMC, including maintenance contracts for a duration of 3 years or The final consultant report on the strategic plan the drafting of tender documents more. The details of the strategic plan are including the draft tender documents and the and the training plan for PERS and described in the PERS December IPA grant training plans. other stakeholders. application to the EC. It includes the design of the performance based approach, the mechanism Procedure: for monitoring, the timetable for implementation, The PAC will review the final report against the ways to develop the local maintenance industry ToR and the consultant tendering and selection and tender approach to increase private interest procedures, verification of payment, and other and competition. DLI 3.2 is a binary-choice compliance reviews. indicator.
31 3.3 Tendering and implementation of Issuance of tender documents agreed by EIB, Data source: - PBMC. EBRD and the Bank by PERS and tendering of The approved tender documents submitted by 3.7 PBMC contracts. DLI 3.3 - DLI 3.7 are scalable. PERS, and implementation and progress reports by the PERS maintenance department.
Procedure: The PAC will review the tender documents and the bidding processes to certify that they were in accordance with PERS management decisions and statutes. In years 3 and 4 of the Project, the PAC will carry out field visits to sites under PBMC implementation to interview stakeholders including road users and contractors to evaluate results and certify DLI compliance.
32 PDO - Improved Conditions of the National Road Network
Input I Rehabilitation of National Road (Corponent 1)
'Km of National Roads Rehabilitated (DLO i.1, 1. 2, 1.3 & 1.4)
OttPut 5 1'Input 8 Output 6 PBM C Contract PBM C Implemented Competitively (DOI 3.5, 3.7, Tendered Intermediate (DL 3.3, 3.4, 3.6) indicator) PD0Indicator OtrtpuFt 2 !lInptut 4 Improved Conditions of Adoption of Updated the National Road Maintenance &measured asa Reeductionaiion Design Standards Output 4 fInput 7L (DL/3. ) PBM CTender Documentation (Conrponent2)
Inpt 2 Inpt 6 Updated (EU harmonized) Preparation of PBM C Maintenance &Rehabilitation Design Strategic Plan Standards (Conrponent2ZDL03.2) (Fundedunder Bank TRP project)
Ouftpuft 3 / Input 5 Input 3 Preparation of Annual/M ulti- Road Condition Survey Annual Work Programs (Conponent 2intermediate according to Economic and indicator) Regional Consideration (Conponent 2)
33 PDO - Improved Safety of the National Road Network
input I input 2 Rehabilitation of Roads Road Safety Campaignsin Incorporating Road SafetyAudit Schoolsinthe Vicinity of Recommendations Program Roads (Cononent f) (Conronent2) IptOtit
2 Rehabiliated Roads Road Safety iptit 3 with Road Safety Awareness raised Police Enforcement of Traffic Measures 2Laws& Regulations (CrroeU2 (OL/fJ1, 1 2, 1.3, S4) 2roec2)ad (i )(CorponenM2B.2)F
PDO Indicator Reduction of Road Traffic Accidentswith Fatalities on Improved Roads
Otilptl 6 Output 5 IInpid 7 Low Costs Safety Road Safety Inspections of the Outionotu 3 Measures Implemented National Road Network beyond Reducti Rof on the National Road the first phase ofNRNRP Traffc RuIe Network beyond the first (CorMonent2& DL/2A.2, 2A.3, Violations phase of NRNRP (DLJ 2A.4, 2A5 ftolermediate 2A. 3, 2A. 4, 2A,5) Idctr
Input 5 Otalptil 4 ' Inptg 6 biput 4 Road Safety Inspection 20 persons trained toTringoRadSft Contract Signed undertake Road Safety Inspectors &Auditors (Cortponent2& O Audit?Inspections (Corfponent2) 2A f) (DOL1 28.
34 ANNEX 2: DETAILED PROJECT DESCRIPTION
SERBIA ROAD REHABILITATION AND SAFETY PROJECT
SECTOR BACKGROUND
Introduction
71. Serbia is at the cross-roads of South East Europe and its transport network could be a significant contributor to economic growth. The international roads and railways crossing Serbia represent the shortest link between Western and South Eastern Europe and Greece, Turkey and further east. Corridor X of the Trans-European Network (TEN-T) connects Austria/Hungary, Slovenia/Croatia, Serbia and Bulgaria/Macedonia/Greece.
72. GoS's priority in the road sector is to connect the Serbian road system to the TEN-T. The strategically important road sections are: * Corridor X: Ljublijana-Zagreb-Belgrade-Nis-Leskovac-Skopje-Thessaloniki * Corridor X, Section Xb: Horgos-Subotica-Novi Sad-Belgrade * Corridor X, Section Xc: Nis-Dimitrovgrad-Gradina-Sophia
73. Other road routes that are part of the SEETO Comprehensive Road Network and that are high priority for Serbia include: * Route 3: Bosnia border - Kremna * Route 4: Romanian border-Vrsac-Pancevo-Belgrade-Cacak-Uzice-Montenegrian border * Route 5: Bulgarian border - Zajecar - Paracin * Route 6: Montenegrin border - Ribarice- AP Kosovo and Metohija * Route 7: Nis-Prokuplje-Kursumlija-AP Kosovo and Metohija
74. The Government and the IFIs are financing the new construction of various segments of Corridor X. In the on-going Bank-supported Corridor X Highway Project (CXHP), the Bank is financing the construction of two southern sections of Corridor X: (i) a motorway between Grabovnica and Presevo near the Macedonia border (Corridor Xd) and (ii) a motorway between Nis and the border with Bulgaria (Corridor Xc). 15
75. The road network is a major asset for Serbia but connectivity and road conditions need improvement to support economic growth. The road network, estimated to have an asset value of US$13 billion, extends 40,800 km, including about 9,500 km of national roads. Road transport is the dominant mode in Serbia, with a share of 80 percent of total cargo transport and about 74 percent of total passenger transport. Despite the importance of the road network, the quality of road infrastructure appears to have declined in the past few years. While a 2010 survey of the National Road Network indicated that 48 percent of the network was in good condition, 16 the
15 See Project Appraisal Document June 12, 2009, Report No. 47069-YF. 16 The survey was conducted by the Faculty of Civil Engineering of the University of Belgrade.
35 2012-2013 Global Competitiveness Report (GCR) ranked Serbia 12 2nd out of 144 countries on road quality. While this represents an improvement from its 13 1s position out of 142 countries in the 2011-2012 GCR, it is a significant drop from the 2008-2009 GCR ranking of 83rd out of 134 countries. The poor quality of roads manifests itself in high vehicle operating costs and inadequate road safety; and reduces Serbia's overall trade competitiveness.
76. The backbone of the Serbian rail network is also along the Corridor X, about 870 km, with branches to the Hungarian and Bulgarian borders. GoS is in the process of upgrading the Corridor X rail line. However, the objective of increasing rail speed to 160 km/hour makes the proposed investment unattractive especially as freight traffic makes up more than 80 percent of all rail traffic where high speed is not necessary. It was also found that freight transit time could decrease dramatically if border-crossing delays are reduced even without major improvements of rail infrastructure.17
77. The quality of the rail network is poor, passenger traffic has declined significantly over the past decade but freight traffic has increased. Although the rail network of 3,809 km is part of the Pan-European corridors and connects Serbia to neighboring countries and regional rail lines, the railway infrastructure is aging and in poor condition.18 The 2012-13 GCR ranks Serbia 102nd out of 124 countries on the quality of its railroad infrastructure. The financial performance of Serbia Railways is weak, with 2011 operating loss of 6201 million, not including 6152 million in subsidies. The loss is primarily associated with passenger services where the traffic volume has decreased by more than 60 percent from its 2000 level. Over the same period, freight traffic has grown over 40 percent and the freight business earns a small operating profit. 19 The freight service operation, while still underperforming its peers, is closer to EU averages than passenger service operation.*20
78. Serbia's inland waterway network has tremendous potential for freight transport, but requires investment to be competitive. Serbia's navigable inland waterway network is about 1,300 kin, of which the three rivers, the Danube, the Sava and the Tisa, account for about 1000 km. Serbia has 13 ports, the most important being Belgrade, Pan6evo, Smederevo and Prahovo. Most of the waterway ports are connected, or close, to main railway lines and roads. The Belgrade and Pan6evo ports have container terminals, although container volumes are very low. The other ports offer various services and specialize in general and bulk cargo. The potential of inland transport is significant, but there is a large maintenance backlog. The lack of proper maintenance in the past decade has resulted in many bottlenecks, mainly on the Danube River but also on the Sava River with transported volumes dropping sharply. The volume of cargo transported by inland waterway transport dropped from about 25 million tons in 1988 to about 14 million in 2006. It is estimated that about 6290 million is needed for the rehabilitation and maintenance of the inland waterways system in the next ten years.
17The reduction in time was demonstrated by a test run along Corridor X carried out under the Cargo 10 initiative involving the railways of Croatia Serbia, and Slovenia. 18 The average age of the tracks is 40 years; only 1,070 km (28%) of the network has been overhauled in the last 30 years and only a small percentage of tracks is electrified (33%) or double tracked (7%). 19 About C3.2 million on an operating income of C86.5 million in 2011. 20 In 2010, freight traffic intensity (measured as freight ton km per rail route km) was 947,755 ton, about 60 percent of the EU average and productivity of active freight cars was 80 percent of the EU average; while passenger traffic intensity in terms of passenger km per rail route km was only 20 percent of the EU average. 36 Road Sector Institutional Framework
79. The road sector has undergone a number of reforms over the last two decades but still faces some challenges. The major reforms included the separation of sector policy from works execution for national roads by establishing the Public Enterprise Roads of Serbia (PERS) for planning and executing works while leaving the policy and regulatory functions in the responsible ministry. That period also saw the privatization of the regional road maintenance and construction organizations. While these indeed were important reforms, the challenges in financing maintenance have increased recently and a thriving local construction industry declined during the period in which Serbia faced economic sanctions.
80. Responsibility for road policy resides in the Ministry of Transport (MoT); while responsibilities for construction, maintenance, operation and management of the national roads lay with the PERS. The Serbia Roads Directorate (SRD) was transformed into a public enterprise - PERS in 2008, and the Ministry of Capital Investments (MoCI) was eventually transformed into MoT. In 2010 Corridors of Serbia (CoS) was established and placed in charge of management of road construction for projects of national strategic importance. In other words, PERS is in charge of maintaining the existing national road network, while CoS is responsible for investing in the new highway network. However, PERS is also conducting tasks that are currently not clearly under its responsibility, such as the expropriation of the land needed for construction projects managed by CoS.
8 1. The Central Government has recently devolved the responsibility for the maintenance of local roads from PERS to the local governments which are now responsible for a wide range of activities including the provision of both infrastructure and social services. Municipalities are responsible for urban streets, rural road construction and maintenance and public transport. Quality of the local road network varies depending on the financial strength of the local government and its institutional capacity. However, it is clear that local governments lack the capacity to tender and monitor large road infrastructure and maintenance works. Funds allocated to the regions were increased in 2012 in light of their new responsibilities. The Fiscal Council 21 estimates that maintenance of roads will cost municipalities roughly an additional E100 million annually but this figure will increase as a result of the reclassification of about 5,000 km of national roads into local roads.
Financing and Expenditures for the National Road Network
82. PERS revenue stream consisted mainly of fuel taxes and toll receipts. However, in 2011 GoS stopped the direct allocation of 20 percent of the fuel excise tax to PERS, replacing it with budgetary support. The budgetary allocation of 680 million in 2012 was less than 50 percent of the revenue that would have been allocated from the fuel tax. The rationale for the reduction in revenues is that under the new road classification, the National Road Network was reduced by about one third. Table A2.1 below shows PERS's income for the period 2006 to 2011.
21 The Fiscal Council is an independent state body, accountable to the National Assembly of the Republic of Serbia. Its mission is to assess the credibility of the fiscal policy in terms of compliance with established fiscal rules.
37 Table A2.1 EUR millions (with rate RSD/EUR) 79 92 95 103
PEPS Income Analysis on Roads of Serbia 2008-2011
Income Heading 2008 2009 2010 2011
Fuel Excise Tax 120.38 162.62 171.58 176.70
Other Revenue 223.77 161.55 182.23 177.97 Tolling 208.45 149.14 148.41 145.97 Foregin Trucks Registrateion 8.50 6.77 7.59 8.47 Permits for Commercial Objects 6.82 5.64 5.96 7.88 Oversized Transport fee - - 0.62 0.89 Other Income - - 2.43 1.18 Bank Account proceeds - - 17.22 13.59
Excise and Revenue 344.15 324.17 353.81 354.67
Other Income 13.76 3.12 8.74 42.46 National Investment Plan 11.90 0.03 Republic of Serbia Budget 0.84 -
Income not counting Credits 370.65 327.32 362.54 397.13
Credits 63.16 19.13
Income with Commercial Credits 370.65 327.32 425.70 416.26
IFI Credits - - 119.15 172.63
IDA 2.07 1.77 IBRD 12.31 33.35 EIB 72.28 107.37 EBRD 32.48 30.14
Commercial Credits
TOTAL 544.85 588.88
Exchange rate infor from PEPS for 2010 and 2011, from Oanda for 2008 and 2009 first commercial rates
83. Toll receipts accounted for about 43 percent of PERS's income (excluding IFI loan and credit receipts) in 2011 and are collected under the Law on Public Roads. The toll levels are set by GoS. Toll revenues dropped 28 percent from 2008 to 2009 and have largely remained at the 2009 level. Several reasons contributed to the decline in toll revenues: (i) a large reduction (almost 40 percent) in toll rates for foreign-licensed vehicles starting February 2009 to harmonize the toll rates for foreign and domestic vehicles as per EU regulations, (ii) a 25 percent reduction (approximately) in traffic flows due to the economic crisis, and (iii) the depreciation of the RSD and the lack of indexing of toll rates which are denominated in RSD and have not
38 changed since 2008. Measured in Euro, the toll rates are more than 40 percent lower than their 2008 levels.
84. PERS's expenditures have gone more towards routine maintenance and construction while rehabilitation expenditures have been declining. The first priority of GoS in its road strategy is investment in the main transport corridors (see paragraphs 72 and 74). Rehabilitation and Periodic Maintenance have been neglected due to low funding resulting in a large backlog. Table A2.2 shows the expenditures on national roads between 2006 and 2010. Using the 2011 budget figure of 690 million for Routine Maintenance, this translates into about 5,900 Euros per km22 which is relatively high by international standards. While exact comparisons between countries are difficult due to differences in the definitions of maintenance categories across countries, 23 it is reasonable to say that PERS could utilize its maintenance budget more efficiently (see paragraph 86).
Table A2.2 Expenditures on National Roads
In Euro Millions 2006 2007 2008 2009 2010 Routine Maintenance 154.1 178.9 205.3 149.3 127.9 Rehabilitation 186.6 154.9 109.6 97.7 53.4 IFI 40.0 18.6 10.8 45.7 36.0 Own Funds 127.9 101.8 80.2 52.0 17.4 Nat'l Investment Plan 18.6 34.6 18.5 0 0 Construction 80.6 79.2 85.4 132.7 143.7 Total 421.3 413 400.3 379.7 325.0
RECOMMENDATIONS OF THE 2011 REPORT ON PERS REFORMS
85. The Report on the Reform Action Plan for PERS completed in 2011 recommended a number of actions. 24 The institutional strengthening component of this Project will support PERS in implementing some of these recommendations. The report recommended that PERS: * Plan a procurement strategy, and use competitive bidding for road maintenance works; * Carry out new condition surveys for roads, bridges and tunnels to update the previous data from 2008; * Plan new Annual and Medium-term road maintenance programs using the data collected and set clear performance targets. Make a clear prioritization system and justify all investments using cost benefit analysis; * Improve the present Annual Planning process by facilitating the early approval of the Plan; * Introduce a Quality Management System; * Improve the control of the toll collection system by separating the collection and collection supervision into two sectors.
22 Based on the National Road Network size before reclassification. 23 Routine maintenance cost in Serbia might be high because of the poor conditions of the road network and that some routine maintenance might actually include rehabilitation and reconstruction works as well as winter maintenance. 24 This report is funded under CXHP and completed in September 2011.
39 * Introduce a more efficient Electronic Tolling system; and * Review the competitiveness of PERS staff compensation and set up fixed qualification and performance criteria.
PROJECT SUPPORT TO MODERNIZING MAINTENANCE MANAGEMENT
86. Maintenance contracting arrangements need modernization. For maintenance purposes, the National Road Network in Serbia is divided into 26 regions, with private companies responsible for one or more regions. In the last 20 years the regional maintenance companies were privatized following different paths by the privatization agency. Although these are now private companies, no system for competitive bidding for maintenance contracts has been introduced. All of these companies still operate in the same region(s) for which they were responsible before privatization through a simple extension of their previous contracts each year. PERS's current contract model for road maintenance was developed, and contracts were first signed, in the early 1990s. Under this traditional, unit price contract, PERS specifies the methodology for maintenance, materials to be used, deadlines for completion and other parameters so the contractor has limited flexibility in contract execution. Payments to contractors are made according to the quantities of the executed works and the official work's items price list.
87. World Bank-supported pilots for performance based maintenance contracting have reduced costs. TRP supported hybrid Performance Based Maintenance Contracts (PBMC) for 1,100 km on the National Road Network in the Macva and Kolubara regions which resulted in significant savings in comparison to the unit price approach described above and demonstrated the potential of this contracting approach.2 5 In the implementation of the PBMC pilots, the following problems were identified: * The contractors did not possess enough knowledge on this type of maintenance. * The contractors' staff was not adequately trained for implementing this type of contract. * PERS's staff was not adequately trained for supervision and monitoring of PMBC contracts.
88. Despite these problems, PBMC pilots introduced savings of up to 40 percent in winter season26 and demonstrated other advantages over the standard input based contract. These include: * Providing PERS with financial certainty of the final costs of the provided services. * Increasing competition among bidders and making the contract implementation process more transparent. * Increasing the responsibilities of the contractors on their service obligations and empowering them to play a more active role in the preservation of road assets. * Simplifying PERS's role in the control of quality and quantity of the executed works which requires less resources.
25 Bidding documents were developed through the Twinning Arrangements with the Swedish Road Administration (SRA), the award of the contracts was through open competition 26 Routine maintenance consists mostly of winter maintenance and such summer maintenance works that do not require significant civil works. Pothole patching usually is included in routine maintenance but larger repaving works are not.
40 * PBMC significantly reduces the costs of routine maintenance; decreases consumption of salt and solvents for winter maintenance due to the use of road weather information system.
89. While Serbia's National Transport Strategy is to reform public road maintenance, the PBMC pilots were scaled back once funding from TRP ended. Expanding PBMC would increase efficiency and transparency in Serbian maintenance practices and enhance the sustainability of road investments. The Project is designed using DLIs specifically to incentivize maintenance reform. While 92 percent of the actual project costs relate to civil works, a disproportionate amount of the disbursements, (23 percent), is linked to the modernization of maintenance practices and the expansion of PBMC coverage. At the close of the Project, a target 2,000 km of national roads would be under implementation using PBMC and an additional 1000 being tendered. See Annex lB for DLI details. Reaching these milestones is necessary for the project to realize the full disbursement of the loan. PERS has recently submitted an application for a E1.5 million IPA grant to the EC to finance the development of a strategic plan for the wide application of PBMC and the preparation of associated tender documents. Tendering is expected to start in late 2014. Contracts will be 3 to 5 years long. Given the importance of expanding competitive and modem maintenance contracting arrangements to Serbia, the Project will to support the implementation of PBMC and supplement the funding of EC if necessary. In addition, the Project will fund the PBMC training for staff of private contractors and PERS.
90. To improve maintenance planning, the Project will support updating the national road database and multiyear road planning and budgeting. Two major obstacles to sound road planning and contracting are outdated road data and the lack of multiyear maintenance/rehabilitation plans. PERS will not be able to bid out competitive contracts if future funding is not assured; and contractors will find it challenging to estimate the costs of maintenance if road condition data is unreliable. This risk will be factored in the price of the bids unnecessarily raising maintenance costs. Since the last condition survey was undertaken in 2008, the Project will fund a condition survey and provide training to PERS staff so that PERS can make full use of the information once collected and continue the data update in-house. The completion of this survey is a DLI as well as a Project intermediate indicator. While PERS has also installed a Highway Information Management System (HIMS), it has not yet used it for maintenance planning. The Project will support the use of this system as Pavement Management and Information Systems (PMIS), such as HIMS, offer a clear method for prioritizing works and the efficient use of funds.
PROJECT SUPPORT TO ROAD SAFETY
91. Serbian authorities are improving road safety but the social cost of traffic accidents remains high. The level of injuries and fatalities caused by traffic accidents is a growing social and economic cost for the country. In the years 2001-2010, there were almost 9,000 fatalities and about 190,000 injuries resulting from road traffic crashes in Serbia. While road fatalities have dropped significantly from 1,275 in 2001 to 656 in 2010, injuries have only dropped slightly over the same period from 20,000 to 19,300. According to the latest data of the World Health Organization (2009), the number of traffic fatalities in Serbia per 100,000 of population is about 9 which is high compared to EU countries such as the Netherlands, Germany and France which
41 are in the 3 to 6 range. While there is no official estimate of the socioeconomic costs of road accidents and deaths, some estimates suggest that the economic cost of road accidents in Serbia could be as high as 2.0 percent of GDP.
92. The Bank through TRP and CXHP has been supporting road safety initiatives in Serbia since 2004. TRP financed the removal of 18 blackspots and improvement of road safety design practices, and CXHP is financing and supporting the implementation of a comprehensive road safety program valued at US$2.9 million and involving all affected stakeholders. CXHP- financed activities include developing a National Road Safety Strategy, developing a road accident database, undertaking road safety audits and helping establish in 2009 the Road Traffic Safety Agency (RTSA) which is now fully operational. CXHP is also helping build the capacity of RTSA and is developing awareness campaigns and capacity building activities for the different stakeholders. During the past few years, GoS has also been earnest in institutional and policy road safety reform. The Road Safety Law (RSL), adopted on May 29, 2009, represents the first major update in legislation since the 1980s and addresses many aspects of the EU Transport Acquis Communautaireand the recommendations given in the Road Safety Capacity Review that was funded by the World Bank Global Road Safety Facility. In 2009, RoS passed legislation mandating an independent safety audit by an accredited road safety auditor in road design and before new roads are in operation. Coordination among the different agencies and levels of government, enforcement of traffic laws and establishing a reliable database are among the areas that need significant improvement, and that are being supported by CXHP.
PROJECT COMPONENTS
93. RRSP has three components. Disbursement for Components 1 and 2 will be dependent on meeting annual agreed DLI targets; while Component 3 will follow the traditional Specific Investment Loan (SIL) mechanism with disbursement against eligible expenditures for specified activities. Costs include price and physical contingencies.
94. Component 1: Road Rehabilitation and Safety Investments (Total cost (263.35 million, including IBRD financing of C67.97). This component will finance periodic maintenance and rehabilitation works, partial pavement widening, works concerning traffic signalization improvement and structure renewal as well ancillary road connections for 35 - 40 sections, totaling over 800 - 810 km in length. This component will also support the incorporation of road safety measures as recommended by road safety audits, and pursuant to criteria set forth in the Project Operations Manual (POM), in the design of the Project's road sections and their subsequent implementation as a way to institutionalize these practices for all road works.
95. Component 2: Institutional Strengthening (Total cost C3.45 million, including IBRD financing of f0.81). This component consists of:
96. Subcomponent 2A: Support to road safety (60.35 million). This subcomponent covers road safety inspections and the implementation of low cost road safety measures such as signage, traffic calming measures and road furniture for an additional 1000 km of national roads beyond what is covered in the first phase of NRNRP. The implementation of these measures will be covered out of PERS's annual maintenance budgets. The subcomponent also includes road
42 safety awareness campaigns, strengthening enforcement on the NRNRP-improved roads and training on road safety audits and inspections. Equipment for additional enforcement on the NRNRP-improved roads will be financed through the ongoing CXHP.
97. Subcomponent 2B: Strengthen road rehabilitationand planning processes (61.75 million). This subcomponent includes a road condition survey for the entire National Road Network, an update of the national road database, institutionalizing the development of multi-year maintenance plans based on clearly-defined economic, social and regional criteria; and the adoption and implementation of updated design standards for maintenance and rehabilitation.
98. Subcomponent 2C: Strengthening maintenance management (61.0 million). This subcomponent includes the development of a strategic plan for PBMC, the preparation of model bidding documents for PBMC, training staff and contractors on PBMC, and the provision of implementation support. The Project will not cover the cost of the PBMC contracts.
99. Component 3: Project Detailed Design, Project Supervision, Management, Monitoring and Audits (Total cost fl8.4 million, including IBRD financing of C4.83 million). This component consists of:
100.Subcomponent 3A: Design and supervision (614.8 million). This subcomponent covers the design and supervision costs for all the roads covered under phase 1 of NRNRP (both RRSP and the EBRD Project).
101.Subcomponent 3B: Project management support (62.25 million). This includes project management support and capacity building to PERS as may be necessary in procurement, financial management, environmental and social safeguards and annual program planning.
102.Subcomponent 3C: Project Audits (61.80 million). This includes: (i) the Integrated Performance Audit which will review engineering designs, management of social and environmental issues, procurement, quality assurance, contract management and compliance to agreed conditions, quality of project supervision, review of traffic safety implementation, and achievement of DLIs to trigger disbursement. (See paragraph 49 under Results Monitoring and Evaluation for more details on the Project Audit Consultant; PAC); and (ii) Project financial audit.
43 ANNEX 3: IMPLEMENTATION ARRANGEMENTS
SERBIA ROAD REHABILITATION AND SAFETY PROJECT
PROJECT INSTITUTIONAL AND IMPLEMENTATION ARRANGEMENTS
103. Public Enterprise Roads of Serbia will implement the Project. The Ministry of Transport has the responsibility for policy formulation while the Public Enterprise "Roads of Serbia" (PERS) is responsible for the construction, maintenance, operation and management of all national roads in Serbia. PERS is familiar with Bank procedures having implemented the Transport Rehabilitation Project (TRP) from 2004 to 2012, as well as with the procedures of EIB and EBRD. PERS's implementation track record on TRP has, in general, been satisfactory. PERS has seven departments (see Figure A3.1 below): (i) investments; (ii) maintenance; (iii) economic, financial and commercial affair; (iv) toll collection; (v) legal, staff and common affairs; (vi) strategy, design and development; and (vii) traffic control information systems. The departments for public relations and quality control report directly to the Director General. In total, PERS has approximately 1,200 staff, 900 of whom work in activities related to the tolling of roads. Serbia, as a part of the former Republic of Yugoslavia, has a history of public tolling of its road network.
104. A Steering Committee for overall Project Oversight. While PERS will be responsible for project implementation as explained below, given the results-based disbursement that the Project will use for the first time in Serbia, it is important that a Steering Committee including the Ministry of Finance and Economy (MoFE), the Ministry of Interior, the Ministry of Regional Development and Local Self-Governance in addition to MoT and PERS have oversight of overall project implementation to proactively identify and resolve issues that could delay disbursement, to ensure timely availability of counterpart budgetary allocations to the project and to confirm consistency of the Project's investments with regional development goals. Representatives of the Steering Committee members will attend the mission kickoff and wrap-up meetings and convene upon the invitation of PERS as may be necessary.
105. Project Implementation Team (PIT) within PERS will be responsible for day to day project implementation. PERS uses its own staff to implement IFI financed projects and organizes them within the Investments Department. The Director for Investments heads the PIT and reports to the Deputy Director General of PERS. The majority of current PIT members were involved in TRP implementation from 2008 to the project's closing and five other IFI-financed loans. The PIT is staffed with specialists to manage financial management, procurement, environmental, social and technical aspects. The key positions of the PIT are listed below and Figure A3.2 shows the structure of the PIT2 7
27 The criteria for these positions are: (i) professional qualification, (ii) experience working with IFIs, (iii) experience in positions similar to the one to be taken, (iv) primary and secondary areas of experience, (v) knowledge of domestic and international guidelines, procedures and standards, (vi) previous work performance and results, (vii) possession of licenses and certificates/degrees in the relevant field of work, (viii) computer literacy and (ix) knowledge of foreign languages. 44 FigureA3.1
MANAGEMENT BOARD ROADSNOFRSE S UPERVISORYBOA RD ROADS OF SERBIAl
Dircetor - Genertäl head office DIRECTOR GENERAL HEAD OFFICE Department for Public Relaitions l Quality De Sector for Serategy Sector for Sector for Maintenance ScIor for Traffic Control Sector for Toll Svctor for Legal, Sector for Economic, Designing and Investments of land !! Caegory Information Systems Collection Staff and Common Financial and nevelopmnent Public Hoad. Afalirs Commercial Affairs 1. lDepartcot for 1 - Departm~ för I - Deparimntr ir Ilghwy 1_ IlS IDcparment k.leparnent [r l _ Depanrmenm får l Lpartrei for Technical Pr.rin H3ridges Maintenamice and T1ollng Supervisin L-egal Allairs Accounlin Allirs 2. Dplýrn1ý srateic . Deartientfor2. Data BlaweDepartment I.I1. Divis Int rnal_vitics 2. Deparnncnz for Siamtegic 2. Deparment for- 2. Belndenai 2.epartlmente I mn' .1 DivisiftAn2.Deprtmntlur 2. Decpartment for Financini Planning. Sludies and Preparation Property Dpartnt 1.2. DiA F 2. 1.p-rt. rs Vido Nuvrismc PmpertyAffairs Aflairs Dcvzloprnenl2. Ris Dp c3 Depa narn for T,l. 2_1. i, kon fr CalcuII 3. Depatment for UzIce Dep partmen for Lalbr 2.2. Division frr 3. lepariment for 5roNo Department and StaflYAlTir, Financial Operai s Designing and Pilnning 5. Nvvi Sad Department 4. Department for Information 2. Depainient for 4. StantrhI3 f7onaem forauiug Documenlatiom 4. Department for 6. Kýonska Mitovica Syser Mainenance Oper.ive Tolling 4.aDeprtmentr Pl tDeptnme l nni Realization and Depr.ient Pi.mm and Dev ment, 4. Deparrnent for Manageent 7. Deparcr or Road 4.1. tDiison for Co-npier 2-1. kolling Diision Contracts Investment Operations TraTic Safety Strtiure Mainennce Equipmenm and and Foreign Lons and PreNeiork Mainicnance i. C f vint Department for 3.1. Diisin f., 5. ~nrimei far 7., Djisk>in for B-Jgc 4.2. Divisior fo TS Alfainn of the Retor Common Attajs Foreign lnS or,d iLDeparumnnemforevlion and Road Sitridge [Aipment Maintenatne 3,1 bi. mbl- 5.1. Division for Investrnent Operafions Environmteni Poleciton anRoadSo ',uiC '.01 Registry O'e 3.2. Division for Planning 7.2. iin Cid, nl id-s ,Sil R-ad ti- -1 aiA-1hi,v, 4. Depanmem for nt12 D rsnin alls 3 2 hV-~o R-r sldequegwlt 6. Deprtment Ir Godad,y Commnercial AfTairs 8. Iepurimeni for Electrical ti lLin Intstallntrons Maintenance331 to 9. Department fot ihi 1 Inios Technial Operations 3.4. Di,ILion fNr 5.1. ivisin for Road " and Prnevtion .srt! ofmne 0.2. Division for Special n Ssrotures Transpo4 45 * Project Director * Project Coordinator * Project Procurement Specialist * Project Financial Specialist * Environmental and Social Safeguards Specialist(s) * Road Safety Specialist * Road Rehabilitation Manager * Road Rehabilitation Specialists 106.Enhanced implementation arrangements for the Project's road safety interventions. Achieving improved road safety in a more holistic manner requires going beyond infrastructure improvements to address enforcement and education. Implementation arrangements for the road safety interventions have been designed to help ensure this goal. At a senior level, the Project's road safety interventions will be coordinated with the National Road Traffic Safety Coordination Body (NRTSCB) 28 through the Road Traffic Safety Department in MoT which acts as the Secretariat of NRTSCB. At the working level, one-two members from each of NRTSCB's Working Groups on Enforcement and Children's Traffic Safety, one-two members from the Road Safety Agency and one-two members from the Ministry of Transport will be part of PERS's PIT to strengthen implementation of the enforcement and awareness/education activities. (see Figure A3.3). 28 NRTSC was established by the 2010 Road Traffic Safety Law to harmonize, as well as initiate and oversee road safety efforts. It is composed of the ministers of transport, interior, health, labor, justice, education, and trade, and chaired by the Minister of Transport. NRTSC has seven working groups each covering a specific functional area of road safety. 46 Figure A3.2 Functionaland Organizational Chart of the Project Implementation Team OverallProject Management Projct(Director ProjetCoordindion PropctCooditor Fin.dA M.qa.mt ad RoadRdtilitiion Di.bur.eent Procurent M rnenmt Prod Sieguard. Fioocei Specilio RoedRehabitatoo MaogerM t Supportto FM ProjectProcurement EnvironmentalProtection RoadRehabilkation Managemen . c .t Prcre.ntSpeciaast Implementtion Eniron i/Speciaest RoadRetebakethnSecilots RoadSafety Management RoodSafety Specialiot EBRDProcurement Prccoreonet Specialst SocialSafegoardo Management EociISaf rdqSciIalt SupportaSSM PERS atpwftount (RAoPsprepaabo&n impomenttion) Figure A3.3 Implementation Arrangements for Road Safety 1-2 members appointed 1-2 members appointed 1-2 members appointed 1-2 members appointed 47 107. The capacity of the PIT was assessed and deemed adequate to prepare and implement activities for the first 18-month of the Project. However, given the size of the first phase of NRNRP and the innovative features of linking disbursement to preset indicators, the Project will finance consultants to provide project management support to the PIT during project implementation. They will support the PIT in, among others, the: (i) supervision of the implementation of civil works; (ii) environmental and social supervision of safeguards implementation; (iii) annual program planning and preparation including the economic analysis; and (iv) overall project management. In addition to the consultants, the PIT will draw staff members from other PERS departments as necessary. Prior to project start, the Bank together with EIB and EBRD provided a two-day training workshop for the PIT to manage the implementation of the Project. Due to the relatively large size of the Project, the Bank Team will provide extensive support to the PIT during implementation. CO-FINANCING WITH EIB AND PARALLEL FINANCING WITH EBRD 108.Definition of the first Phase of NRNRP and RRSP: RRSP (the Project) is a part of a larger IFI coordinated effort to support RoS in the implementation of the first phase of NRNRP (see the diagram below). The first phase of NRNRP refers to two projects: (i) the project co-financed by RoS, EIB and WB and (the Project or RRSP), and (ii) the project financed in parallel solely by EBRD (the EBRD Project). See Section C "Program Objectives and Phases" for more details on the first phase of NRNRP and the roles of the IFIs. National Road Network Rehabilitation Program (NRNRP) First Phase Future Phases The Project The Poject EBRD Project (GoS, EIB, WB) 109. Implementation concept for the Project. (a) Financing a tranche of Project. Unlike traditional transport projects where the Bank directly finances specific road sections and activities in a program, in RRSP the Bank will finance a certain percentage of all the activities under the Project. So for example, for the rehabilitation of the 35-40 road sections that will be financed under Component 1, the Bank will finance about 27 percent of each section. EIB and RoS would finance the balance of about 35 percent and 38 percent respectively. (b) The use of one set of guidelinesfor the Project. One set of guidelines will be used for the implementation of the Project and will be applicable to EIB, RoS and WB financing. An RPF and an EMF acceptable to RoS, EIB and the Bank, and consistent with the Bank's guidelines 48 have been prepared. The EIB will also follow the procurement guidelines of the WB. The EBRD will follow the same set of environmental and social guidelines in the implementation of its EBRD Project that is being financed in parallel. Throughout project implementation, RRSP will support RoS in strengthening project preparation and implementation capacity and processes. FINANCIAL MANAGEMENT, DISBURSEMENTS AND PROCUREMENT FinancialManagement 110. Risk analysis. The Inherent Risk of the Project is rated as substantial, while the Control Risk is moderate, therefore the overall FM Risk is assessed to be moderate, after taking into account mitigation measures that had been completed or will be completed by project effectiveness. The mitigation measures include having an implementing unit with substantial prior experience on Bank projects, already instituted acceptable arrangements in most areas (i.e., flow of funds, financial reporting, auditing etc.) and acquisition of acceptable accounting software by the agreed date. 111.Staffing. The PIT's financial management function is assigned to two team members - a qualified finance officer and a finance assistant, both of whom already perform these roles in the recently-closed Transport Rehabilitation project. Management of PERS's Department for Financial Affairs will play an advisory role to the PIT finance officers. Terms of Reference for the Financial Management Staff with detailed descriptions of duties already exist and will not change under this new operation. The PIT is responsible for the financial management arrangements for the Project and the entire first phase of NRNRP and will execute all activities related to accounting, financial reporting, disbursements, application of internal controls, and work with the external auditors during annual audits of financial statements. 112.Planning and Budgeting. Plans and budgets for all sources of financing under the first phase of NRNRP (government, the Bank, EIB, EBRD) will be supported by the new accounting software, that will be acquired prior to effectiveness. The planning and budgeting function will play a key role in the implementation of the first phase of NRNRP as the design of Bank and EIB financing is based on accurate rolling cash flow forecasts. Therefore, the planning function will be closely linked with contract management (procurement, planning and implementation/management of contracts) to ensure that forecasts and budgets are updated regularly. Variances of actual versus budgeted figures will be monitored on a regular basis, appropriately analyzed and corrective actions taken. 113.Accounting System. Due to the size and nature of the first phase of NRNRP, modern and sophisticated accounting software is required for program accounting and financial reporting as the existing system for accounting in PERS is insufficient to meet the needs of the program. The new software will enable the PIT to cope with the volume and amounts of transactions to appropriately manage all expenditures and transactions in multiple currencies and generate the financial reports for the first phase of NRNRP. The Terms of Reference and specifications for the software will be agreed between PERS and the Bank before the procurement process starts, and will ensure that it includes all relevant features for the accounting for the program. The 49 program will follow cash based accounting (cash based IPSAS), recording transactions when actual payment is done, rather than when they are incurred. 114.Accounting Policies and Procedures. PERS's financial statements will be prepared in accordance with prevailing local legislation which prescribes application of International Financial Reporting Standards (IFRS) for legal entities. The financial statements for the first phase of NRNRP will be prepared in accordance with cash basis IPSAS and presented in Euro currency. Accounting records will be kept up to date and all transactions will be accounted for within eight days after occurring. There will be appropriate back up of accounting records on external drives, as well as appropriate security regulation with regard to access and editing rights of financial information. Accounting policies and procedures have already been established for the recently-closed TRP and those have been instituted in the implementing entity and formalized in written manuals and rulebooks. 115.Internal controls. The system of internal controls already instituted within the PERS will continue to be used for the first phase of NRNRP; and to fill any gaps the system will be supplemented by additional controls and procedures which will be described in the Operations Manual for the Project. Some of the key internal controls which will be instituted and applied in the first phase of NRNRP include: * appropriate authorizations and approvals of all purchases, relevant documentation, transactions of payments etc.; * segregation of duties as different persons are responsible for different phases of a transaction; * reconciliations between project accounting records and other relevant sources of information (i.e., Client Connection, bank account statements etc.) performed at least monthly by the Finance Officer; and * original documentation to support all project transactions. 116. PERS publishes tenders and signs the contracts under the project. All relevant documentation is attached to the invoice enabling the authorized signatories to immediate evidence that the necessary controls, reviews and checks have been performed and is sent to the Finance Officer for final approval. The receipt of the approved invoice is registered ensuring that payment can be executed as per the contractual payment terms. After payments have been executed, the transaction is recorded in the accounting software and can be captured (and verified) through financial reporting. 117.Financial Reporting. IFRs which will include financial information relating to the entire first phase of NRNRP and all sources of financing, will be prepared. IFRs will be prepared for each calendar semester (six-month period) and will be due no later than 45 days after the end of each six-month period. The Bank's Task Team will, during supervision missions, review the IFRs and confirm that reported expenditures are exclusive of taxes. The semester IFRs will serve for program monitoring by PERS, the Bank and EIB, and will be the basis for annual financial statements. The annual financial statements will be subject to an external (independent) financial audit. The format of the IFRs will be agreed between the Bank, EIB and PERS and will be attached to the minutes of negotiation. To the extent possible, the IFRs will incorporate the 50 reporting needs/requirements of the Government of Serbia (Ministry of Finance and Economy) in addition to serving as management reports for PERS. 118. The IFRs are intended to comprise the following reports: * Cash Receipts and Payments, including comparison of budgeted versus actual amounts (including the Bank, EIB, EBRD29 and the govemment/PERS); * Uses of Funds by Activity (including EBRD financing); * Designated Account statement (pooled account for the Bank and EIB); * Cash Forecast (for Bank, EIB and government of Serbia financing); * Contract Management information - planned and current; * Accounting policies and explanatory notes. 119.ExternalAudit. Annual financial statements covering the whole program and all sources of pooled-financing will be audited in accordance with terms of reference acceptable to the Bank. The audit will be contracted to a private sector audit firm acceptable to the Bank, and the audit report will be submitted to the Bank and EIB not later than six months after the end of the fiscal year/period audited. The financial audit will be a complement to other initiatives (e.g., performance/technical reviews on road construction and rehabilitation and other Project activities) that form an integral part of the oversight and control framework of the first phase of NRNRP. The audited project financial statements of the Project will be posted on the PERS or Government website, within 2 weeks upon the issuance of audit report and acceptance of the report by the Bank. The annual cost of the audit will be covered by the project funds. The audit will be conducted in accordance with International Standards of Auditing issued by the IAASB and the Terms of Reference will be agreed between the Bank, EIB and PERS. 120. An entity audit of PERS is not a legal requirement under the first phase of NRNRP. However, the audit findings from the external private firm and the Supreme Audit Institution (SAI) will be reviewed by the team, and as necessary, PERS will be required to implement any recommended remedial actions. The Bank's task team noted that the SAI audit of PERS covering the financial statements for 2010 revealed certain weaknesses in PERS; however these weaknesses were not assessed to have significant influence on the design of the Project or the NRNRP first phase or with regard to the performance or implementation of financial management functions. These findings though, are being addressed separately by PERS. 121. The financial audit will not serve the purpose of assessing whether DLIs were achieved. With regard to verification of DLI compliance, independent external consultants (the Project Audit Consultant; PAC) will be hired to review and validate/verify whether disbursement linked indicators have been achieved at the end of each calendar year. 122.Funds Flow and Disbursement Arrangements. A foreign currency (Euro) designated account will be opened in the National Bank of Serbia. This will be the account to which funds from the World Bank and EIB will be withdrawn (deposited) and pooled. Funds from this 29 EBRD financing is executed in the form of direct payments to contractors and suppliers. EBRD financing is part of the first phase of NRNRP but is not part of the pooled-funding to which the Bank, EIB and the Government Serbia are contributing. 51 account which are needed for payments in local currency will be transferred to the PERS account within the Treasury according to Project's work program and as frequently as necessary (possibly daily) and using the exchange rate of the transfer date (separate sub-account will be opened for the program). The amount of the funds transferred is estimated to cover cash needs for that period. In the sub-account within the Treasury, the funds from the World Bank and EIB will be pooled with the Government contribution to the program. Payments in foreign currency to contractors based abroad will be executed directly from the foreign currency account. Figure A3.4 below describes the flow of funds and documentation for the program. 123. The Project has been designed to utilize the model of results-based disbursement.30 Therefore, advances and disbursements will be based on IFRs,31 actual expenditures reported and, for some advances, the achievement of DLIs, and will include a rolling cash-flow forecast report for the following twelve months. The use of six-month IFRs will allow for advances to provide liquidity for project implementation. Exclusively upon review and examination of the IFR that is produced at year-end, if the Bank and EIB agree with the reported implementation and use of funds, the previous advance will be accepted and converted into disbursements (accounting treatment for the World Bank). The IFR which is reporting on the use of the previous advance will also be the basis on which the Bank and EIB agree to advance additional funds, accounting for any unused portion of the previous advance as well analyzing the realism of the forecasted activities and contracts. It has been agreed that DLIs will be utilized, on an annual basis and in addition to expenditures reported through IFRs, to determine the amount of eligible expenditures being documented, that is, converted from advances into disbursements, to be charged to the relevant disbursement category. 124.Upon the declaration of effectiveness, the initial advance to be made will be based on a cash-flow forecast; this advance will cover two reporting periods and will provide sufficient liquidity for the project to begin a number of activities in earnest. The second advance (Semester 1 reporting) will take place at the end of the first semester (approximately mid-year 2014). This advance will be based on IFRs and other information that underpins the cash flow forecast and financing needs of the project. This second advance will not be linked to DLIs and IFRs produced at mid-year will not be used to convert prior advances into disbursements. 125. The third advance (Semester 2 reporting) will take place at the end of the second semester (approximately year-end 2014) and will be made on the basis of IFR-documented expenditures and confirmation of the achievement of DLIs (fully or partially) which will determine the amount of eligible expenditures that will be converted, for the period being reported, from advance into disbursements and charged to the relevant disbursement category in the Loan Agreement. DLIs will be utilized to, in retrospect, decide whether or not the amount of expenditures being reported for the period will be converted into disbursements in full (100% performance) or only partially. The validation and verification of DLI achievement will be carried out by the independent project audit consultant (which is separate and distinct from the financial auditor). The protocols for DLI measurement, verification and validation are presented in Annex lB and additional detail will be elaborated in the Project's Operational Manual. 30Except for some consulting services and technical assistance activities (about C18 million out of 6290 million) 31 While the Bank and EIB have different definitions and accounting treatments for advances and disbursements, the mechanism described and the use of reports underpinning analysis and requests for funding is constant for both the Bank and EIB. 52 126.As implementation progresses, the fourth advance (Semester 3 reporting) (approximately mid-year 2015) will follow the same process as the second advance noted in paragraph 124; the fifth advance (Semester 4 reporting) (approximately year-end 2015) will follow the process as the third advance described in paragraph 125. This pattern will be repeated throughout the remaining life of the project - one reporting semester period where only financial information is presented to the Bank (no DLIs will be included) and for which the IFRs will only be used to authorize further advances; and the following semester period where financial information and DLI verification will be presented and for which IFRs will be used both for advances and, along with the achievement of DLIs, for conversion of prior advances into disbursements. 127. With regard to the achievement of DLIs, some are straight-forward in terms of determination of achievement (yes/no) (e.g., DLI 2A.1; DLI 3.1; DLI 3.2). Therefore if these DLIs have been determined to have been fully met (yes/no), then (i) the full financial value of the prior advances related to the DLIs will be recognized as eligible expenditures and converted into disbursements. If these DLIs are not met in the originally envisioned time period, the Bank will not recognize the prior advances as eligible expenditures or convert them into amounts disbursed; these amounts will be carried forward as [undocumented or outstanding] advances. Additionally, the Bank may also reduce the amount of subsequent advances requested. PERS will submit an action plan with a revised schedule to achieve the targets. Once the targets have been met, and information is provided that validates and verifies that these DLIs have been fully met, the Bank will then proceed to recognize the full amount of expenditures as eligible and as disbursed and will grant the full amount of requested advances to resume. 128. Other DLIs are scalable (downward/upward scalability - including DLI 1; DLI 2A.2, DLI 2A.3; DLI 2A.4; and DLI 2A.5) which allows for flexibility if the targets have either been partially met or exceeded. In the event that targets have not been fully met (i.e., downward scalability), the Bank will only proportionally (proportionally means using the same percentage of achievement of the DLI relative to the baseline target as presented in Annex 1B) recognize and convert prior advances into eligible expenditure and disbursements. Also, the subsequent advance may also be reduced if information in the IFR (including contract management information) demonstrates that the implementation schedule cannot be maintained. The amount of the prior advances that are not recognized and converted into disbursed amounts will carry forward as [undocumented or outstanding] advances until the DLIs have been verified as having been fully met. For the DLIs that have not been fully achieved in the originally envisioned period, PERS will also submit an action plan (time-bound) to the Bank that will present a new schedule to meet the original targets. Once these DLIs have been met, PERS can submit documentation (in the IFR as well as through the independent project audit consultant) to convert the remaining portion of advances into eligible expenditures and disbursement. Also, the Bank will resume with the authorization of granting the full amount of requested advances. 129. On the other hand, if any of the targets of the scalable DLIs are exceeded (i.e., upward scalability) relative to the baseline targets (see Annex 1B), the Bank will recognize that the baseline has been met and will recognize the marginal amount of the target that has been exceeded. This will be counted against the future year targets - see Annex lB. The Bank will recognize the full amount of prior advances as eligible expenditures and convert these amounts 53 into disbursements. The Bank will also recognize, proportionally and relative to the marginal difference that the baseline target had been exceeded, an additional amount of expenditure of the prior advances as eligible and convert this into amounts disbursed as well. 130. The overall cap of financing per DLI category (50% for DLI 1; 25% for DLI 2; and 25% for DLI 3) will be regularly monitored and reconciled at the end the project. Due to the involved nature of monitoring the achievements of DLIs and the impact on the amounts to be converted into disbursements for some reporting periods, the Bank's task team will closely monitor (i) the overall cap (ii) the determination of achievement (yes/no) and (iii) the upward and downward scalability of the applicable DLIs, and will provide clear guidance to PERS, at the end of each reporting period, in regards to the amount of eligible expenditures that the Bank will accept and the consequences on conversion to disbursements and subsequent advances. Additional instructions and procedures are elaborated in the Project's Operational Manual. 131. Table A3. 1shows the cost-sharing arrangements and the envisaged financing percentages for the RoS, the Bank and EIB based on the project cost net of the interest during construction and the front fee. The net cost is C285.6 million (C290 million - C4.4 million). The financing percentages do not vary across component, DLI or activity. They could however vary from year to year but will hold at the end of the Project. For example, if the EIB loan were to disburse a few months after the effectiveness of the IBRD loan, the advances and subsequently the disbursements for RoS and IBRD will be higher than the overall financing percentages in Table A3.1 below because the EIB loan has not yet disbursed. Once the EIB loan starts disbursing, EIB will initially disburse a larger amount for the period than decided by its overall financing percentage (with RoS and IBRD cutting back) to restore the overall financing percentages to the values in the table below. The team, through the IFRs, will also monitor the overall share of financing across the three sources of financing (World Bank, EIB and Government of Serbia) in order to ensure that the financing percentages are maintained as envisioned in the PAD's Project Financing Data (page ii). Table A3.1 Financing Percentages RoS 39.2 EIB 35.0 IBRD 25.8 132.Disbursement Documentation. Payments from the designated account will be executed by means of payment orders. Requests for disbursement are sent from MoFE/PERS to the World Bank and EIB loan departments for replenishment of eligible expenditures reported by PERS. After all the procedures with respect to flow of documents, verifications and authorizations described in internal controls section are applied, payment order signed by designated signatories will be submitted to the NBS where the designated account is opened for payment. The Director General of PERS will state the disbursement linked indicators that were met and the disbursement percentage requested. The full documentation will be kept by PERS, to be verified by auditors on a regular basis. Documentation requirements for replenishment would follow standard Bank procedures as described in Disbursement Handbook. 54 Figure A3.4 Fund Flow Diagram 1. Withdrawal application based on semi-annual IFRs including cash forecast World Bank, EIB 2. Advanced funds in EUR for the coming six months based on cash forecast 3. Conversion of funds and Designated Acct in FUR requests payment ------>at the NBS PEPS 4. Foreign currency payments 5. Conversion of State Budget funds based on (Government needs on bi- contribution to the weekly basis program) 6. Transfer of funds PEPS RSD account within Treasury (separate sub-account for the program) 7. Local currency payments Invoices --nvoice- Contractors/Suppliers K ey: ______0 Flow of documents Flow of funds 55 133.Action plan. The following action needs to be implemented for the financial management arrangements to be fully acceptable. Description Responsible entity Date Acquisition and installation of an PERS Condition of Effectiveness acceptable accounting software Procurement 134. Procurement for the proposed Project will be carried out in accordance with World Bank Guidelines. Specifically, procurement will be carried out in accordance with: (i) "Guidelines: Procurement of Goods, Works, and Non-Consulting Services under IBRD Loans and IDA Credits & Grants by World Bank Borrowers, dated January 2011; and (ii) "Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits & Grants by World Bank Borrowers', dated January 2011; and (iii) the provisions stipulated in the Financing Agreement. The World Bank Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credit and Grants dated October 15, 2006 and revised on January 2011, would also apply. 135. The management of procurement activities under the Project will be the responsibility of the Project Implementation Team (PIT), which will be staffed with at least two full time procurement staff who were assigned by PERS for the implementation of TRP and supplemented by external experienced consultants (firm or individuals) on an as-needed basis. 136. The Senior Procurement Specialist assigned to the project conducted an assessment of the implementing agency to implement procurement during the period [insert dates] as well as used PRAMS to assess the procurement risk. The project risk is "moderate". The potential risks of corruption, misapplication of the Bank's procurement and consultants' guidelines, loss of procurement capacity by PERS's PIT and implementation delays will be addressed via (i) strengthening PIT's procurement and contract administration capacity via training and workshops, including the possibility of hiring external consultants or a firm with experience on Bank standard contract clauses to conduct on-hands training during the implementation period; (ii) a detailed preparation of the technical specifications and the bidding documentation, especially the clauses regarding contractor responsibility and liability, based on experiences in earlier projects such as TRP and CXHP, (iii) standard Bank prior and post review exercises, including additional contract reviews on-the-spot (frequency of such reviews will be determined based on the results of the first few reviews); and (iv) the Bank team's permanent availability to quickly respond to requests for assistance. 137. Procurement of civil works. This includes basically pavement rehabilitation and other related works. Thresholds per method are: on a pilot basis, ICB greater than $4 million, NCB less than US$4 million (these thresholds may be revised during project implementation based on the PIT's performance). 56 138. Procurement of goods and non-consultant services. This includes software and equipment for road safety. Thresholds per method are: ICB greater than US$500,000, NCB less than or equal to US$500,000, Shopping less than or equal to US$100,000. 139. Consultants' Services. They will comprise, mainly, studies, training, design, supervision, monitoring, audits, surveys, certification, institutional strengthening, project management and advisory services. Consultancy services to be provided by eligible firms will be procured though the following methods: Quality and Cost Based Selection (QCBS); Quality Based Selection (QBS); Selection under a Fixed Budget (FBS); Least Cost Selection (LCS) for specific cases of very standard and routine technical nature where the intellectual component is minor; and, Selection Based on Consultants' Qualifications (CQS) for small assignments estimated to cost below US$300,000, for which the need for issuing an RFP, and preparing and evaluating competitive proposals is not justified. Short lists for services estimated to cost below US$250,000 equivalent may be composed entirely of national firms. Individual consultants' services will be procured as per Section V of the Consultants Guidelines. 140.Procurement review of contracts by the Bank. The prior review threshold for civil works contracts starts at US$8 million on a pilot basis (this threshold may be revised depending on PIT's performance); also the first two ICB and NCB contracts will be subject to prior review by the Bank. All direct contracting shall be subject to prior review by the Bank. The prior review threshold for goods and non-consultant services contracts starts at US$500,000; also the first two NCB contracts and the first shopping contract will be subject to prior review by the Bank. All direct contracting shall be subject to prior review by the Bank. Consultancy contracts with firms estimated to cost US$250,000 and up will be subject to prior review, as well as the first contract per method. All sole source (direct contracting) contracts are subject to the Bank's prior approval. 141. All other contracts will be subject to post review. Routine post reviews will be conducted at least once a year. Additional reviews of contracts will be also conducted by the Bank's Procurement Specialist in the field. 142. Physical inspection will be conducted for at least 10 percent of all contracts subject to post/prior reviews by the technical specialist. 143. The thresholds and review frequency may be revised during the Project's mid-term review or when it may be necessary taking into consideration the implementing agency capacity and performance. 144. PERS has prepared an initial procurement plan covering the first 18 months of Project's life. The procurement plan will be published on the Bank external webpage as per the requirement in the guidelines. A summary of the procurement plan is included below. 145.Records keeping and filing: The PIT will keep procurement documentation safe and well protected at their premises. 57 Civil Works and Goods Review a Estimated WB+EIB+P WB+EIB+Pby -SERS Selection by Submission/ Name of Assignment/Contract M Cost/Actual ERS Bank Evaluation Contarct ( Conversio Method Readiness &Recomm. Siganture a (mil. EUR) Financing ntmi.Prior/ (mil. EUR) n tUoSmil. Post 214/2013 17:37 4 6 7 8 9 10 11 15 18 Component 1: Road Rehabilitation and Safety Investments Works Pavement rehabilitation upgrading on the state road lB 23, Section: Arandjelovac 3-Krcevac, W-1 2.897 2.897 3.752 NCB Prior 1-Jul-13 23-Sep-13 11-Nov-13 1=8.650 km Pavement rehabilitation upgrading on the state road lB 27, Section: Vlasotince-Svodje, 1=12.730 W-1 5.818 5.818 7.534 ICB Prior 1-Aug-13 24-Oct-13 12-Dec-13 km Pavement rehabilitation upgradingonthestate W-1 2.168 2.168 2.808 NCB Prior 1-Jul-13 23-Sep-13 11-Nov-13 road lB326, Section: Stavai-Susica, 1=8.900 km Pavement rehabilitation upgrading on the state road lB 23, Section: Lazarevac 4-Arandjelovac 1, W-1 5.248 5.248 6.796 lCB Prior 1-Aug-13 24-Oct-13 12-Dec-13 1=13.670 km Pavement rehabilitation upgrading on the state road lB 13, Sections: Iriski Venac-Ruma 2 (Putinci) / Irig 2 (Vrdnik)-Ruma 2 (Putinci) W-1 5.546 5.546 7.182 ICB Post 1-Oct-13 24-Dec-13 11-Feb-14 Ruma 2 (Putinci)-Sabac 6 / Ruma 2 (Putinci)-Ruma 1 (motorway), 1=15.706 km Pavement rehabilitation upgrading on the state road IA4, Sections: Uzice 3-Pozega, Pozega- W-1 11.500 11.500 14.893 lCB Prior 1-Oct-13 24-Dec-13 11-Feb-14 Kratovska stena 1=31.290 km Pavement rehabilitation upgrading on the state road lB 16, Sections: Topola 2-Cerovac, Cerovac- W-1 8.673 8.673 11.232 ICB Prior 1-Nov-13 24-Jan-14 14-Mar-14 Kragjucevac 5, 1=29.500 km Pavement rehabilitation upgrading on the state road lB 13, Sections: Pozeda-Arilje, Arilje-lvanjica, W-1 10.264 10.264 13.292 ICB Prior 1-Nov-13 24-Jan-14 14-Mar-14 1=40.342 km Pavement rehabilitation upgrading on the state road lB 13, Sections: Paragovo-Iriski Venac, Iriski W-1 2.437 2.437 3.156 NCB Post 1-Oct-13 24-Dec-13 11-Feb-14 Venad-Paragova, 1=8.036 km Pavement rehabilitation upgrading on the state road 1B 23, Section: Zavlaka 2 (Likodra)-Valjevska W-1 11.888 11.888 15.395 lCB Prior 1-Dec-13 23-Feb-14 13-Apr-14 Kamenica, 1=24.750 km Pavement rehabilitation upgrading on the state road lB 14, Section: Kladovo-Brza Palanka, W-1 9.036 9.036 11.702 lCB Prior 15-Jan-14 9-Apr-14 28-May-14 1=24.280 km Component 2: Institutional Strengthening Goods 58 Consulting Serices E WB+EIB+ WB+EIB+P Revie Road Rehabilitaiton and Safety Project Estimated PERS ERS Selection w by Technical Contract Completio 16 Budget/IFnni ovri ehd Bn Adof E01 NameofAssignment/Contract B Financin Conversio Method Bank Evaluation Signature n Au g (mil. n to mil. Prior/ > (mil. EUR) EUR) USD Post 2/412013 16:28 4 6 7 8 9 10 11 17 21 23 Component 2: Institutional Strengthening Road Safety Inspection on roads out of RRSP CS-2 0.150 0.150 0.194 CQS Prior 1-Dec-13 NA 25-May-14 24-Nov-15 Awarenesas campaigns in schools in vicinityof CS-2 0.100 0.100 0.130 CQS Post 1-Dec-14 NA 25-May-15 project roads Certifcation of Road Safety Auditors (RSA training CS-2 0.100 0.100 0.130 CQS Post 1-Dec-14 NA 25-May-15 23-Nov-16 and certtfcation) Road network condition surveying CS-2 1.600 1.600 2.072 QCBS Prior 1-Sep-13 26-Jan-14 6-Apr-14 6-Apr-16 Preparation and addaption of annual rehabilitation program circular based on clear economic and CS-2 0.100 0.100 0.130 CQS Post 1-Dec-14 NA 25-May-15 24-Nov-15 regional considerations Adaptionof revised maintenance and rehabilitation CS-2 0.050 0.050 0.065 CQS Post 1-Mar-14 NA 23-Aug-14 22-Feb-15 design standards Preparation of strategic plan for introduction of PBMC, completion oftender documents forPBMC, CS-2 1.000 1.000 1.295 QCBS Prior 1-Sep-13 26-Jan-14 6-Apr-14 7-Jul-15 training staff on PBMC monitoring and contacting of PBMC agreed km Performance monitoring CS-2 1.750 1.750 2.266 QCBS Prior 1-Apr-13 26-Aug-13 4-Nov-13 31-Oct-18 Component 3: Project Detiled Design, Supervision, Management and Monitoring Supervision withEnironmental and Safeguard CS-1 12.700 12.700 16.447 QCBS Prior 1-Apr-13 26-Aug-13 4-Nov-13 3-Feb-18 monitoring (2 contracts) Design preparation CS-1 9.161 4.725 6.119 Prior Road SafetyAudit CS-1 0.217 0.114 0.148 CQS Post 1-Nov-13 NA 25-Apr-14 1-Mar-16 TA to PIT (Project Management Assistance) CS-2 2.000 2.000 2.590 QCBS Prior 1-Sep-13 26-Jan-14 6-Apr-14 6-Apr-18 Project Financial Auditing CS-2 0.050 0.050 0.065 LCS Prior NA NA 2-Sep-14 31-Dec-18 59 Environmental and Social (including safeguards) Social Management and Safeguards 146. The Project triggered the social safeguard policy OP 4.12 on Involuntary Resettlement, 3 2 but the impact is expected to be minimal. The road rehabilitation is mostly restricted to within the road's right of way area. Some expropriation may be needed in case of realignment for sidewalks, drainages and safety measures. The RPF will guide the assessment and mitigation of adverse impacts associated with Involuntary Resettlement. The social screenings will confirm the potential adverse impacts and based on the result of the social screenings abbreviated Resettlement Action Plans (ARAPs) will be prepared as needed. The Bank team together with EIB and EBRD assisted PERS in formulating a suitable RPF in line with the provisions of OP 4.12 Involuntary Resettlement and with the EIB and EBRD social and resettlement policies. Since the expropriation related impacts will be minimal, social screening check lists were incorporated in the RPF which are being used for the initial social screening of every road section as part of the road diagnostics (e.g. indicating social impacts along the road section through identification of settlements, residential and commercial structures, bus stops, dangerous places, cycle lanes, access roads, sidewalks, parking etc.). Based on the screenings, ARAPs will be prepared - if needed prior to the invitation of bids. Implementation of ARAPs will be completed prior to commencement of civil works. The draft RPF cleared by the Bank was disclosed on the PERS website on November 5, 2012, in the local newspapers on November 7, 2012 and in the Bank's Info Shop on November 12, 2012. The draft RPF was discussed in a stakeholder's consultation workshop on December 18, 2012, and suggestions from the workshop were incorporated in the final RPF. The ARAPs, if prepared, will be disclosed on the PERS website and other suitable places accessible to the local people and other stakeholders. 147.PERS has been involved with land acquisition and resettlement issues in ongoing Bank- funded transport projects and has the capacity to manage expropriation-related impacts. PERS has designated a Social Safeguards Officer in PIT to coordinate various tasks related to expropriation and related impacts. Most of the tasks will be carried out through various consultancy services. The legal department of PERS will provide support on the expropriation process for individual roads and preparation of individual ARAPs. 148.Lessons learned in social safeguards and reflected in the Project design. The key lessons learned in the implementation of social safeguards in CXHP and appropriately incorporated in the preparation of the Resettlement Policy Framework (RPF) for RRSP include: (i) the need for hands-on support to the client for timely mitigation of expropriation-related impacts; (ii) an independent grievance committee to deal with complaints from Project Affected People (PAPs) has a positive impact on social safeguards implementation outcomes; and (iii) certification of completion of expropriation and payment of compensation prior to commencement of civil works ensures payment of compensation and assistance to PAPs. All these lessons are 32 The project does not trigger on Indigenous People (OP4. 10) as this policy is not applicable in South East European countries and in ECA region. 60 appropriately incorporated in the RPF which serves as the basis for assessment and mitigation of expropriation related impacts in this project. 149. Gender impact of the Project will be assessed. The Project is likely to have gender impacts particularly regarding the road safety component, and there is some scope to better mainstream gender issues through the Project. Gender-disaggregated data will be collected as part of a potential resettlement and expropriation monitoring process. When measuring the reduction in road traffic fatalities, the data collected will be disaggregated by sex, age, and category (i.e., pedestrian, bicyclist, driver, and passenger) to inform policy and address safety needs of drivers as well as non-motorized road users. As males, especially young men, are often more adversely affected by road traffic injuries than females, a small research study to identify perceptions and attitudes of young men on road safety behavior is being financed by the Bank to help inform the Project's road safety awareness campaigns and contribute to gender-sensitive awareness-raising of road safety behavior. Environmental Management and Safeguards 150. The operation is classified as environmental Category B, since it will involve only rehabilitation of the existing roads, with the possibility of minor alignment changes for safety purposes. It is not envisioned that any roads will be significantly widened (e.g. addition of more lanes) or upgraded to a higher category. 151. An Environmental Management Framework (EMF) and three section-specific EMPs have been prepared prior to Project Appraisal, modeled on EMPs already implemented by the Client. The EMF outlines the environmental policy, legal, and administrative framework for undertaking the project, presents the environmental baseline information and potential environmental impacts and includes the range of available mitigation measures that may be adopted, based on each particular situation. The EMF also contains the description of the environmental management systems and institutional arrangements to be applied as well as recommendations for the capacity building measures to be implemented in PERS during project implementation in order to ensure environmental sustainability. The EMF includes a generic sample environmental mitigation and environmental monitoring plans. 152. Three site/section-specific EMPs were developed by the Client during the project preparation phase. These cover sections Uzice-Pozega-Kratovska Stena; Arandjelovac-Krcevac, and Zabalj intersection-Zrenjanin - and focus on development of specific environmental mitigation measures, as applicable. Since the selected sections belong to group of commuter roads - and hence no significant increase of traffic as a result of road rehabilitation activities is expected, and bearing in mind that these sections are over 30-40 years old, the main potential negative impacts have been identified in the areas of waste management, health and safety of both workers and general population alike, noise impact on urban area during construction works and dust/vibration impact. Although the site-specific EMPs indicate that rehabilitation works will not have any impact on nature-protected areas and cultural heritage objects, the EMPs nevertheless contain measures and/or procedures to be employed in case of archeological chance finds. The applicable procedures for works in the nature-sensitive areas (if found at later stages) are presented in the EMF and will be further elaborated in the Project Operation Manual 61 (POM). Each EMP contains a specific Mitigation Plan and Monitoring Plan, together with the sample Health and Safety Monitoring Report (as required by EBRD environmental procedures). 153. The technical documentation related to civil works under the Project will include measures to minimize and/or mitigate potential adverse environmental impacts and damage, by including section-specific EMP(s) as an integral part of the bidding documents. The EMPs will be disclosed locally and public consultation will be held separately for each road section to be rehabilitated. All site-specific EMPs will be prepared and reviewed by PERS and endorsed by the responsible environmental institution in Serbia (if relevant) and submitted to the Bank for approval. The POM will detail the procedures to prepare, disclose and approve site-specific EMPs. Monitoring and compliance in accordance with EMF and site specific EMPs, including monitoring of implementation of site-specific measures on each sub-project/section during project implementation will be undertaken by PERS and its implementation unit, and reported in writing to the Bank on semi-annual basis. An environmental specialist will be appointed to the project by PERS to ensure quality in the implementation of EMPs. Monitoring and Evaluation 154. Monitoring of Project Results: Annex 1 lists the main outcome indicators, the intermediate indicators as well as the disbursement linked indicators for the Project. These will serve as the basis for monitoring. The PIT will be responsible for the collection of the data required for monitoring and evaluation which will in turn be reviewed by PERS. Indicators will be measured against the agreed targets and will be compared to the defined baselines. Project progress reports, including monitoring indicators and reporting on the implementation of the requirements set forth in the Environmental Management Plans and the Resettlement Policy Framework, will be prepared by PIT on a quarterly basis and submitted for Bank review. Monthly progress reports prepared by the supervision consultants will be submitted by the PIT to the Bank for review. 155. Performance Audit: An independent PAC will be procured to perform annual audits and results monitoring and evaluation. The PAC will be funded by the Project to review a random sample of 20 percent of the civil works contracts as well as other project activities. Besides the random selection of contracts, the review may also include works or contracts believed to have sensitive environmental or social impacts or requiring special oversight as determined by the EIB and the Bank. The percentage of contracts covering other activities that will be reviewed by the PAC will be based on the Project Appraisal Document and the Project Operations Manual (POM). The PAC will report on project implementation progress, compliance as defined in the POM and other project documents, shortfalls in performance if any, the reasons and actions to remedy them. The PAC's review will cover engineering designs, social and environmental safeguards, procurement, quality assurance, contract management, quality of project supervision, review of traffic safety implementation and achievement of DLIs. The PAC's activities will broadly include the following: (i) Verification of eligible expenditures under the Project 62 This aspect of the work is to determine that expenditures under the Project are eligible for reimbursement and have been incurred in compliance with the planning, safeguards and procurement arrangements provided for under the project. The tasks include: * Audit of planning and project preparation * Audit of procurement process * Audit of contract management works * Audit of social safeguards * Audit of environment safeguards (ii) Verification that roads are rehabilitated in accordance with contract documents The technical audits will focus on the examination of the quality of works, to verify if the road works comply with the technical specifications and standards described in the bidding documents. The tasks include: * Design review of road rehabilitation * Review of road safety audit * Audit of works executed * Audit of road safety improvements (iii) To verify that the DLIs have been met The PAC is responsible for determining the extent to which the DLIs have been met and to make an assessment of the amount of funds to be disbursed. The tasks are as follows: * Review the performance of PERS in achievement of the disbursement as per agreed targets. * Review the constraints, if any, faced by PERS in achievement of the DLIs. * Based on review, proposed action plans that can be implemented for timely achievement of the DLIs. * Provide an assessment of the disbursement amount in light of progress in meeting the DLI targets. (iv) The Bank will take the PAC's reports into consideration when reviewing the IFRs and approving disbursements. 156. Regular Implementation Supervision: In addition, semi-annual implementation progress reviews shall be carried out each year jointly by the Borrower, the Bank and EIB. These reviews will cover, inter alia: (a) progress in meeting the Project's objectives; and (b) overall Project performance against Project monitoring indicators. Best efforts will be made to coordinate the timing of supervision missions with all partners. For environmental and social requirements by EIB that go beyond the Bank's guidelines (such as health and safety-see paragraph 159), monitoring will be carried out by EIB. A Mid-Term Review will be undertaken in the first quarter of Calendar year 2016 to more comprehensively assess implementation progress and set out any measures to ensure continued efficient implementation and the achievement of the PDO by the Project's closing date. 63 Role of Partners (if applicable) 157. The first phase of NRNRP is expected to include about 50 - 55 sections totaling 1,125 km of which about 35 - 40 sections, will be financed by RRSP and 15 - 20 sections by the EBRD Project. EIB, IBRD and RoS will co-finance RRSP; while EBRD will provide parallel financing. EIB and EBRD will contribute C100 million each to the first Phase of NRNRP. The detailed design, construction supervision, project management and monitoring for the entire first phase of NRNRP (both RRSP and the EBRD Project) will be financed by RRSP. See paragraph 35 for the expected contribution to the first phase by each partner. 158. Co-financing with EIB and parallel financing with EBRD have been discussed in paragraph 108. EBRD, EIB and the World Bank have worked closely with PERS in the preparation of the first phase of the NRNRP. 159. EBRD, EIB and the World Bank will have joint missions. While the World Bank team will provide oversight of implementation to ensure that the World Bank's guidelines, to the extent that there are different regulations/guidelines followed by EIB and/or EBRD such as those concerning labor, health and safety standards, EIB and/or EBRD will be responsible to ensure for the compliance of these regulations. 64 ANNEX 4: OPERATIONAL RISK ASSESSMENT FRAMEWORK (ORAF) Operational Risk Assessment Framework (ORAF) Serbia: ROAD REHABILITATION AND SAFETY PROJECT (P127876) Stage: Appraisal Stakeholder Risk Rating Low Description: Risk Management: and Energy (now Minister of -Bank has requested official letter from the Minister of Infrastructure for the entire Project. In the decide eect gvenmen may Transport) requesting confirmation of the use of the Bank's guidelines dec idpeantuing the ank'segudel(Ines event that Government does not provide requested letter, program can be redesigned with the Bank for implementing the entire Project (EIB, (and EIB) financing road identified sections the traditional way. WB and Government). Resp: Client Stage: Prepa Recurrent: 0 Due 15-Aug-2012 Frequency Status: Compl - Increase in driving speeds as a result of ration Date: eted improved road conditions could result in Risk Management: more road accidents and possibly turn certain stakeholders against the project. (i) Include road safety considerations in the design of the sections to be rehabilitated, (ii) Include certin takholersagaist he rojct. certified road safety audit services in the scope of the technical auditor whose report will be used as a (EIB/EBRD-related risks are listed under basis for disbursement, (iii) Ensure that road safety recommendations are incorporated before the Program & Donor) section is handed over to PERS, (iv) Enhance enforcement of traffic laws on Project-improved roads; and (v) Conduct road safety awareness campaigns. Resp: Stage: Recurrent: Due Date: Frequency Status: CletohQuarterly In Progress Capacity Rating Meoderate Description: Risk Management: Component 3 to finance: (i) procurement and supervision consultancy services for civil works; (ii) insuffienttincaaiomnaPrg m consultancy services for project management support including environment and social as necessary; and (iii) training of PIT staff. 65 such a large size and scope. Although Resp: Bank Stage: Both Recurrent: Due Frequency Qua Status: Not PERS, the implementing agency for the Date: rterl Yet project, has significant experience with y Due Bank projects and procedures since 2004, Risk Management: given the large size and scope of the new project, PERS may experience some PERS to strengthen the PIT team with additional staff (e.g., on-site project managers). The exact difficulties in adequately managing and number of additionally needed staff will be determined based on the project design and number of implementing the Program including the sections that will be rehabilitated each year. Bank to approve the staffing of PIT. social and environmental aspects with the Resp: Client Stage: Imple Recurrent: Due Frequency Year Status: Not current staff In addition, given that the menta Date: : ly Yet project implementation team (PIT) consists tion Due primarily of regular PERS employees, they 0 may have other institutional responsibilities beyond the project. Governance Rating Moderate Description: Risk Management: Ensure PERS continued commitment to the Program; and that PIT has a committed and qualified - Risk of sustaining an adequate level of management, particularly if PERS management changes after the government elections. commitment and accountability from PERS Resp: Client Stage: Prepa Recurrent: Due 30-Sep-20 12 Frequency Status: Compl management and the PIT to the Program ration Date: eted after the government elections. In theeach_year. Bank_to_approve_the staffingofPIT. current settings and under the current Resp: Client Stage: Both Recurrent: Due 30-Jun-2013 Frequency Status: In management, there is a strong commitment m Date: Progres to the Project and the overall Program. ______Given that the PIT consists primarily of Risk Management: PERS's employees, without strong internal support from all departments and senior Conduct a thorough review of variation orders management, implementation could suffer. Resp: Both Stage: Imple Recurrent: Due Frequency Qua Status: Not GiventotProject the recognized an teovrllPrgams importance of the menta Date: rterl Yet road sector in Serbia, it is highly unlikely tion y Due that a change in senior managementR following the elections will reduce the commitment to the Program. Design e wrbstantial Ratel 66 Description: Risk Management: - Too ambitious and/or unrealistic Design a DLI framework that provides the right incentive and is both realistic and pragmatic working Disbursement-linked Indicator (DLI) closely with EIB and EBRD framework that negatively affects Resp: Both Stage: Prepa Recurrent: Due 19-Nov-2012 Frequency Status: Compl disbursement. ration Date: eted Risk Management: - The use of disbursement-linked indicators for the first time in Serbia based on post During preparation and the early stage of implementation, provide support to PIT on the fiduciary and reviews could create some risks and delay safeguard aspects and review documentation prior to implementation to further strengthen the capacity disbursement in the early phases of of PIT. implementation. Resp: Bank Stage: Both Recurrent: Due 31 -Jul-2014 Frequency Status: In o Date: Progres s Social and Environmental Rating Moderate Description: Risk Management: The Resettlement Policy Framework (RPF) will be adopted to include provisions for mitigation of mechanisms. expected to entail major environmental and potential impacts to non-title holders and other encumbrances and also grievance redress expcted tofenai majore envi enl a Bank to carry out prior reviews of a sample of EMPs and ARAPs (if needed) and based on the social safeguards issues, but the . satisfaction with the plans could switch to post reviews. overstretched environmental and social ______safeguards capacity of PERS due to the Resp: Bank Stage: Prepa Recurrent: Due 28-Feb-2013 Frequency Status: Not size and scope of the program could result ration Q Date: Yet in non-compliance with Bank safeguard Due policies during implementation (mitigation Risk Management: measure covered under 3. 1: Capacity). Carry out safeguards capacity assessment of PERS to determine the need for additional staff and - Minor expropriation mostly for specialized training, and follow up as necessary. unavoidable safety considerations may lead Resp: Bank Stage: Prepa Recurrent: Due 24-Sep-2012 Frequency Status: Compl to procedural delays. Additional delay may ration O Date: :_eted be due to economic crises and GoS's financial resources for expropriation costs Risk Management: The audit of specific EMPs and RAPs as part of the integrated performance audit for a selected sample - Insufficient attention to the mitigation of of rehabilitated roads will help ensure that the agreed guidelines have been followed. potential minor impacts to non-title holders Resp: Both Stage: Imple Recurrent: Due Frequency Year Status: Not and other encumbrances due to absence of menta Date: ly Yet 67 provisions in local laws. tion Due Management: - Disbursement could be adversely affected Risk if post reviews of the implemented Completion of expropriation and mitigation of other social impacts will be linked to commencement of Environmental Management Plans or works through certification. Abbreviated Resettlement Action Plans - Resp: Both Stage: Imple Recurrent: Due Frequency Qua Status: Not ARAP (if needed) for the selected sample menta 0 Date: : rterl Yet of road sections indicate problems in the tion y Due implementation of the plans. Risk Management: The supervision consultant will monitor the mitigation of social impacts and deal with non-compliance situations, if any. In addition, PERS will have a social safeguard specialist to oversee the mitigation of impacts and engage consultations with the local people. Resp: Client Stage: Imple Recurrent: Due Frequency Mon Status: Not menta 0 Date: : thly Yet tion Due Program and Donor Rating Moderate Description: Risk Management: - EIB decides against participating in the Close partnership very early-on in project preparation, with joint IBRD-EIB-EBRD mission in early preparation stage. financing of a proportion of the Project in p [ae favor of the traditional financing of a pre- Resp: Bank Stage: Prepa Recurrent: Due 24-Sep-2012 Frequency Status: Compl identified road sections (as will be followed ration O Date: :_eted by EBRD) which would require the Risk Management: redesign of the program and Project. Design the project in such way to allow for both: co-financing or parallel financing. - Disagreement with EIB or EBRD over the Resp: Bank Stage: Prepa Recurrent: Due 27-Aug-2012 Frequency Status: Compl "common" set of environmental/social ration Date: eted guidelines; or with EIB over DLIs to be followed for the implementation of the 0 entire Project requiring the redesign of the program and Project. Delivery Monitoring and Rating Substantial Sustainability Description: Risk Management: 68 The Bank loan will finance independent integrated performance audits of the Project on an annual basis - Insufficient funding for maintenance of to monitor the overall implementation of the Project DLI framework and agreed procedures under the newly rehabilitated roads particularly that Project. The review will include technical, procurement, FM, management of environmental and social road maintenance has been underfunded for aspects, road safety, contract management, quality of project preparation and engineering supervision. several years, resulting in a large Resp: Both Stage: Imple Recurrent: Due Frequency Year Status: Not maintenance backlog (mitigation measures menta 0 Date: : ly Yet listed under 2.2: Sector Risks). tion Due - Monitoring for disbursement purposes Risk Management: will be demanding given the use of the Assist PERS in bidding document preparation and contract management; and encourage the Client to DLIs for disbursement for the first time and introduce "control" milestones in the contract defining the amount of work that should be performed by the need to carefully verify them. certain points in time. - The experience under past and ongoing Resp: Both Stage: Both Recurrent: Due Frequency Year Status: In projects shows limited capacity in contract Date: ly Progres management and inability of the client to s respond decisively with respect to the non- 0 performance of contractors particularly with respect to large variation orders associated with low bids Other (Optional) Rating Description: Risk Management: Resp: Stage: Recurrent: Due Frequency Status: o Date: Resp: Stage: Recurrent: Due Frequency Status: o Date: Implementation Risk Rating Moderate Comments: Sustainability of the Project's investments due to severe government fiscal and budgetary constraints; and the design of the project with disbursement linked indicators for the first time in Serbia combined with the need to coordinate with other IFis constitute the two main risks to implementation and beyond (sustainability). The risk of the former is mitigated through the use of DLIs associated with asset preservation and a continued dialogue with the government. The design risk is mitigated through the use of pragmatic DLIs and close collaboration with the IFIs on project design throughout project preparation. The technical risk of the project is low as the engineering design for rehabilitation is relatively 69 standard. Based on lessons learned from previous and on-going road projects in Serbia, PERS with Bank support will institute new measures to ensure design quality and reduce the risk of low priced bids. The safeguards risk is moderate as this is a category B project and land acquisition is not anticipated except if required for traffic safety measures; and an RPF has been prepared to handle this situation. PERS is a competent and experienced Implementation entity but the capacity of the Project Implementation Team (PIT) could be stretched due to the large size of the Project. This risk is mitigated by the fact that PERS will add more staff to the PIT which will also be supported by Project funded external consultants, as necessary. The project team is mostly field based so close supervision is planned. 70 ANNEX 5: IMPLEMENTATION SUPPORT PLAN SERBIA ROAD REHABILITATION AND SAFETY PROJECT A. Strategy and Approach for Implementation Support 160. The Bank's Implementation Support (IS) strategy lays out the activities that the Bank team will implement, as well as the project design and monitoring features that it will adopt, in order to mitigate the most significant risks identified in the ORAF. These risks relate to: (i) the sustainability of Project's investments; (ii) the design of the Project, particularly in terms of the use of the DLI mechanism for the first time in Serbia and the need to coordinate with the IFIs on DLI use; and (iii) PERS's capacity to implement a project of this size and scope. The IS strategy relies on Project design features and technical assistance as enabling tools for risk mitigation. The IS for mitigating the three key risks is addressed below. 161. The sustainability of investments: The Bank will (i) provide technical support to PERS to help mainstream more efficient asset preservation practices and (ii) incentivize the mainstreaming of these practices through the use of DLIs. The technical support provided under this Project will build on the successful piloting of hybrid PBMC under the Bank-supported TRP in two regions. PERS has recently submitted an application for a El.5 million IPA grant to the EC to finance the development of a strategic plan for the wide application of PBMC and the preparation of associated tender documents. The Project will supplement EC funds if necessary or provide the financial support if necessary as well as provide technical support during the preparation of the strategic plan and tender documents. The project includes a DLI according to which about 25 percent of the cost of civil works under the Project will be disbursed only when certain target with respect to the implementation of performance based maintenance contracts are met. Finally, the Bank team will continue to build support for modern maintenance practices by sensitizing senior policymakers in MoFE among others of the potential savings. 162.Project design: The fact that the model of results-based disbursement will be used for the first time in Serbia brings some uncertainty and increases implementation risks and the potential for delays. While realistic and pragmatic DLIs were selected in the project design, implementation risks still exist. To help mitigate these risks, the Bank team will provide extensive support to PERS during the initial stages of implementation to help ensure that DLI targets are met in a timely manner and more importantly ensure adherence to the Bank's procurement guidelines and the agreed environmental and social guidelines. The presence of the majority of the Bank team in Serbia helps in ensuring the necessary support. The Project will also finance technical assistance to support PERS in project management and the achievement of the DLIs. The Bank will continue to work closely with EIB on coordinating the use of the DLIs. A Project Audit Consultant, used to review all aspects of project progress will be also used to certify achievements under the DLIs. 163.PERS' capacity to implement the Project: Despite PERS's familiarity with the Bank's procedures and the experience of its project implementation team, given the large size and scope of the RRSP, PERS may experience some difficulties in adequately managing, implementing, 71 and monitoring the Program with the current staff. Consequently, the Bank will provide support through Component 3 of the Project which will finance: (i) supervision consultancy services for civil works; (ii) consultancy services for project management support; and (iii) training of the PIT. PERS will also provide the PIT with additional staff (e.g., on-site project managers) as may be necessary. The exact number of staff to be added will be determined based on the project design and number of sections that will be rehabilitated each year. It will be required that the Bank provide its no objection to any changes in the staffing of the PIT. B. Implementation Support Plan 164. The Bank will support project implementation using its own staff as well as consultants, both international and local. The Bank team supporting the Project will be sourced from Bank offices in Washington DC, Serbia and other countries in ECA. Due to the use of DLI mechanism for the first time in Serbia, formal supervision and field visits will be carried out at at least three times, possibly more during the first year of implementation. In addition, the Bank team will provide support to PERS as required. The number of staff weeks envisioned for the first year is 43, with an additional 128 for the following 4 years for a total of 171. Task Team Skills Mix Requirements for Implementation Support Time Focus Skills Needed Resource Team Leadership Project management 9 SW Financial Management (FM) FM Specialist 2 SW training Road rehabilitation and asset Highway Engineer 4 SW preservation Road Safety Road Safety Specialist 5 SW First 12 months Environmental management Environmental 2 SW Social management and Social Scientist / resettlement Resettlement Specialist Day to day coordination Operations Officer 10 SW Operational Support Program Assistant 4 SW Procurement Support Procurement Specialist 4 SW Economic evaluation/ HDM-4 Economist/HDM-4 1 SW support Specialist 72 Time Focus Skills Needed Resource Team Leadership Project management 12 SW Financial Management (FM) FM Specialist 8 SW training Road rehabilitation & asset Highway Engineer 16 SW preservation Road Safety Road Safety Specialist 20 SW 12 - 60 Environmental management Environmental 8 SW months Social management and Social Scientist / resettlement Resettlement Specialist Day to day coordination Operations Officer 32 SW Operational Support Program Assistant 4 SW Procurement Support Procurement Specialist 16 SW Economic evaluation/ HDM-4 Economist/HDM-4 4 SW support Specialist 73 ANNEX 6: ECONOMIC AND FINANCIAL ANALYSIS SERBIA ROAD REHABILITATION AND SAFETY PROJECT 165. The economic analysis focused on the road rehabilitation under Component 1 of the Project. The benefits associated with road safety interventions and the increased use of more efficient asset preservation practices were not estimated in the analysis. As such the estimate of the Project's benefits should be considered a lower bound value. 166. The economic analysis was undertaken for the entire length of the first eighteen months of road works financed by the World Bank, EIB and EBRD. The economic analysis was done using the Highway Development and Management Model (HDM-4) using the conventional approach of comparing the estimated road user and agency benefits and costs in the "do- something" scenario, when the road is rehabilitated, against the "do-minimum" scenario, representing the continuation of the current maintenance regime. The main project benefits are savings in vehicle operating costs and passenger time costs. 167. The first 18 month (2013-2015) program of first phase of NRNRP covers 22 homogeneous road sections grouped under 15 prospective contracts with a total length of 308 km amounting to E103.3 million of investment value. This length implies 27 percent of the total length of sections stated for rehabilitation under the first phase of NRNRP (2013-2018). All sections belong to the priority list from the Program of Works 2012-2016 study that was used to select the first 18 month program together with additional information on completed works during the last two years and/or the works that are currently in progress and the desire to group homogeneous sections to attract regional (international) contractors. 168. Table A6.1 presents the description of first 18 month program road sections that have an average length of 20.5 km per contract. Of the 15 contracts, 11 covering a total length of 218 km will be co-financed by the WB, EIB and PERS; and 4 contracts covering 90 km by EBRD. 74 0 0 CD c o o C, CD -t aa o o - - .oo - NCD CD - o o O e - e IO " -zr 0 -o N CD0 te tC N N'Ne - reo o N O -N n - W' n 2 j c) 0 t00 0 o oHa - a oI -to flÞ ~ -to Co c mc 0e 2 0-0 0 C d p c CD D il il ril ri ri rl rl il rri rr rr ri ri ri ri rr 0, . -- 0 - - - - 0DC CD- DC ______fl o CD-~~ Table A6.2: Road Roughness and Traffic 2010 2010 Annual Roughness Daily Traffic Trucks and Buses Road Section (IRI, (AADT, vehicles Code m/km) per day) Percent (%) M-4S (0218-0219) 5.3 4,100 16% M-21V (0441-0443) 4.2 9,677 18% M-21V (0444-0450) 3.7 9,831 22% M-5S (0252) 3.4 10,371 16% M-5S (0253) 4.0 8,450 18% M-9S (0365) 6.1 3,593 13% M-23S (0619-0621) 4.5 4,319 13% M-23S (0622) 5.7 8,468 9% M-4S (0212-0215) 6.0 3,082 7% M-21V (0439) 5.7 4,918 22% M-21V (0440) 4.0 4,918 22% M-21.1S (0481) 3.7 5,990 8% M-21.1S (0482-0483) 4.0 5,695 8% M-8S (0342-0343) 4.9 2,640 14% M-4S (0188-0191) 6.1 2,318 13% M-24V (0664) 4.0 4,800 22% M-25S (0702-0703) 5.0 1,914 15% M-7V (0312) 3.5 8,220 20% M-1V (0003) 3.3 3,349 23% M-1V (0004) 2.5 3,349 23% M-21S (0471) 3.4 9,135 12% M-21S (0470) 4.2 9,382 12% M-25S (0719-0722) 4.7 2,950 12% Total 4.5 5,758 15% 170. Table A6.3 presents the average traffic composition. An average annual traffic growth rate of 4.2 percent per year was used in the analysis. Table A6.3. Average Traffic Composition Vehicle Type Percent Car 85% Bus 2o Light Truck 3% Medium Truck 3% Heavy Truck 2% Articulated Truck 5% Total 100% 171. Table A6.4 presents the vehicle fleet characteristics and economic unit costs adopted on the economic analysis. 76 Table A6.4: Vehicle Fleet Characteristics and Economic Unit Costs New New Fuel Lubricants Maintenance Vehicle Tire (E per (E per liter) Labor (E) (E) liter) (E per hour) Car 10,000 50 0.68 3.10 5.70 Bus 100,000 230 0.61 3.10 5.70 Light Truck 20,000 150 0.61 3.10 5.70 Medium Truck 30,000 180 0.61 3.10 5.70 Heavy Truck 60,000 220 0.61 3.10 5.70 Articulated Truck 90,000 260 0.61 3.10 5.70 Crew Working Non- Time Time Working Cargo (Cper Overheads (Cper Time Time hour) (E) hour) (Cper hour) (Cper hour) Car 0.00 500 5.00 0.70 0.20 Bus 11.40 5000 5.00 0.70 0.20 Light Truck 5.70 1000 0.00 0.00 0.20 Medium Truck 5.70 3000 0.00 0.00 0.20 Heavy Truck 11.40 3000 0.00 0.00 0.20 Articulated Truck 11.40 4000 0.00 0.00 0.20 Kilometers Hours Service Number Gross Driven Driven Life Passengers Weight (km/year) (hours/year) (years) (#) (tons) Car 12,000 500 12 2.00 1.30 Bus 100,000 2,500 12 35.00 13.00 Light Truck 50,000 2,000 12 0.00 2.55 Medium Truck 50,000 2,000 12 0.00 8.45 Heavy Truck 55,000 2,000 14 0.00 19.15 Articulated Truck 100,000 2,000 12 0.00 30.41 172. Table A6.5 presents the resulting unit road user costs (vehicle operating costs plus passenger time costs) function of road roughness, in Euro per vehicle-km. Table A6.5: Unit Road User Costs Function of Roughness (Euro per vehicle-km) Roughness (IRI, m/km) 2 4 6 8 10 Car 0.27 0.28 0.28 0.31 0.34 Bus 2.36 2.46 2.62 3.01 3.57 Light Truck 0.26 0.28 0.29 0.32 0.35 Medium Truck 0.40 0.42 0.45 0.48 0.53 Heavy Truck 0.78 0.81 0.86 0.92 1.02 Articulated Truck 1.05 1.11 1.19 1.27 1.39 173. The proposed road works will rehabilitate the pavement and partially widen the carriageway width to 7.2 meters if needed. The rehabilitation works with a 50 mm asphalt concrete overlay surface have an average cost of Euro 302,000 per km and with a 120 mm asphalt concrete overlay surface have an average cost of Euro 470,000 per km. Table A6.6 77 presents the proposed road works and financial costs per road section. Financial costs have been converted into economic costs by eliminating VAT and other taxes and duties, adopting an economic cost conversion factor of 0.75. The without project alternative corresponds to performing routine maintenance over the evaluation period and reconstruction when the road roughness reaches 10 IRI, m/km. Table A6.6: Road Works Description and Costs Financial Cost Road Work Road Section including over (Euro Code lay million) (Euro/km) M-4S (0218-0219) AC Overlay d=120mm 3.4 386,667 M-21V (0441-0443) AC Overlay d=70mm 3.3 352,197 M-21V (0444-0450) AC Overlay d=50mm 2.3 353,125 M-5S (0252) AC Overlay d=50mm 6.1 260,522 M-5S (0253) AC Overlay d=70mm 3.6 458,481 M-9S (0365) AC Overlay d=120mm 7.2 570,394 M-23S (0619-0621) AC Overlay d=100mm 7.8 343,902 M-23S (0622) AC Overlay d=120mm 2.3 325,668 M-4S (0212-0215) AC Overlay d=120mm 10.5 767,445 M-21V (0439) AC Overlay d=120mm 1.5 343,721 M-21V (0440) AC Overlay d=70mm 1.0 258,649 M-21.1S (0481) AC Overlay d=70mm 2.8 228,306 M-21.1S (0482-0483) AC Overlay d=70mm 7.4 266,416 M-8S (0342-0343) AC Overlay d=100mm 1.9 207,978 M-4S (0188-0191) AC Overlay d=120mm 13.0 523,105 M-24V (0664) AC Overlay d=70mm 9.0 371,852 M-25S (0702-0703) AC Overlay d=120mm 6.1 250,496 M-7V (0312) AC Overlay d=50mm 4.5 333,333 M-lV (0003) Mill and Replace 50mm 4.5 333,333 M-lV (0004) Mill and Replace 50mm 2.2 344,000 M-21S (0471) AC Overlay d=50mm 3.8 451,176 M-21S (0470) AC Overlay d=70mm 6.1 257,839 M-25S (0719-0722) AC Overlay d=100mm 110.3 358,445 Total 3.4 386,667 174. Total cost and benefit streams, the Economic Internal Rate of Return (EIRR) and economic Net Present Value (NPV) were computed for each road section of the first phase of NRNRP. The adopted evaluation period was 20 years and the discount rate 12 percent. The EIRR for the overall first year program is estimated to be 24 percent and the NPV is estimated to be Euro 148.7 million corresponding to a NPV per Investment ratio of 1.3. The EIRR and NPV for RRSP were estimated to be 23 percent and E 112.5 million respectively. Compared to the "do-minimum" scenario, the present value of economic road agency costs will increase by Euro 82.7 million, while the present value of road user costs will decrease by 231.4 million, thus road users will save around three Euros for every Euro spent on the project roads. The EIRR for the investments in the individual road projects ranges between 16 and 53 percent. Table A6.7 presents the economic appraisal summary. 78 Table A6.7: Economic Appraisal Summary EIRR NPV NPV/Investment Road Section (Euro Code (%) million) (ratio) M-4S (0218-0219) 27% 5.6 1.7 M-21V (0441-0443) 37% 10.1 3.1 M-21V (0444-0450) 37% 6.3 2.8 M-5S (0252) 34% 14.7 2.4 M-5S (0253) 31% 2.9 0.8 M-9S (0365) 20% 5.2 0.7 M-23S (0619-0621) 24% 10.1 1.3 M-23S (0622) 53% 13.1 5.8 M-4S (0212-0215) 16% 3.4 0.3 M-21V (0439) 35% 3.4 2.3 M-21V (0440) 30% 2.3 2.4 M-21.1S (0481) 25% 3.8 1.3 M-21.1S (0482-0483) 32% 15.1 2.0 M-8S (0342-0343) 28% 3.0 1.6 M-4S (0188-0191) 19% 7.1 0.5 M-25S (0702-0703) 21% 6.4 0.7 M-7V (0312) 25% 12.5 2.1 M-lV (0003) 17% 4.1 0.9 M-lV (0004) 17% 3.8 0.8 M-21S (0471) 24% 3.0 1.3 M-21S (0470) 28% 7.3 1.9 M-25S (0719-0722) 21% 5.6 0.9 Total 24% 148.7 1.3 175. In addition, sensitivity tests with respect to higher construction costs and lower traffic growth rate were conducted. The results show acceptable economic returns that are robust to the specified variation in the key parameters of the project, with all the selected road sections returning an EIRR that exceeds the 12 percent discount rate. If construction costs increase by 20 percent and traffic growth rate decreases by 20 percent, the overall first year program EIRR is estimated at 22 percent. Table A6.8 presents the EIRR sensitivity analysis results. 79 Table A6.8: EIRR Sensitivity Analysis A: B: Traffic Base Costs Growth + Road Section Code Case 20% - 20% A & B M-4S (0218-0219) 27% 24% 26% 23% M-21V (0441-0443) 37% 33% 36% 32% M-21V (0444-0450) 37% 32% 35% 31% M-5S (0252) 34% 30% 32% 29% M-5S (0253) 31% 28% 30% 27% M-9S (0365) 20% 18% 19% 17% M-23S (0619-0621) 24% 21% 22% 20% M-23S (0622) 53% 47% 52% 46% M-4S (0212-0215) 16% 14% 15% 13% M-21V (0439) 35% 31% 34% 30% M-21V (0440) 30% 27% 29% 26% M-21.1S (0481) 25% 22% 23% 21% M-21.1S (0482-0483) 32% 28% 31% 27% M-8S (0342-0343) 28% 25% 27% 24% M-4S (0188-0191) 19% 16% 18% 15% M-25S (0702-0703) 21% 18% 20% 17% M-7V (0312) 25% 22% 24% 21% M-lV (0003) 17% 16% 16% 15% M-lV (0004) 17% 16% 15% 15% M-21S (0471) 24% 21% 23% 20% M-21S (0470) 28% 25% 27% 24% M-25S (0719-0722) 21% 19% 20% 18% Total 24% 22% 23% 21% 80