The World Bank

Document of v 8 4t, 0 The WorldBank

FOR OFFICIAL USE ONLY Public Disclosure Authorized

ReportNo. P-2680-RO

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

TO THE

INVESTMENT BANK FOR ROMANIA

Public Disclosure Authorized WITH THE GUARANTEEOF

THE SOCIALIST REPUBLIC OF ROMANIA

FOR A

DANUBE-BLACK SEA CANAL PROJECT

December 26, 1979 Public Disclosure Authorized

This documenthas a restricteddistribution and may be used by recipientsonly in the performanceof their official duties. Its contents may not otherwisebe disclosed without World Bank authorization. CURRENCY EQUIVALENTS

Currency Unit : Leu. (plural Lei)

1. Official Rate

Lei 4.47 = US$1.00 Leu 1.00 = US$0.22

2. Tourist Rate

Lei 12.00 = U$l.00 Leu 1.00 = US$0.08

3. Conversion Rate for Traded Goods

Lei 18.00 - US$1.00 Leu 1.00 = US$0.06

The Official Exchange Rate of lei 4.47 per US$1 is used only for accounting purposes. The rate used for tourist transactions is lei 12 per US$1. Be- ginning in March 1978, a trading rate of lei 18 per US$1 has been used to convert the prices of all traded goods; this rate is considered representa- tive of the average cost of convertible foreign exchange.

Fiscal Year

January 1 to December 31

GLOSSARY OF ABBREVIATIONS

AFDJ - River Administration of the Lower Danube

DBSCC - Danube Black Sea Canal Central

DWT - Department of Water Transport

IEPC - Constanta Port Enterprise

MTTc - Ministry of Transport and Telecommunications

NAVROM - River Navigation Enterprise

ROMTRANS - Romanian Maritime Fleet FOR OFFICIALUSE ONLY

ROMANIA

DANUBE-BLACKSEA CANAL PROJECT

LOAN AND PROJECT SUMMARY

Borrower: Investment Bank of Romania

Guarantor: Socialist Republic of Romania

Beneficiary: Danube Black Sea Canal Administration

Loan Amount: US$100 million equivalent

Terms: Repayable in 15 years, including a 3-1/2-year grace period, through semi-annual installments, with interest at 7.95 percent per annum.

Project Description: The project would consist of the construction of a 64 km canal from Cernavoda on the Danube to South Constanta-Agigea on the Black Sea. It would include construction of three ports on the canal (at Cernavoda, Medgidea, and Basarabi), two locks and their operating equipment (at Cernavoda and Agigea), related ancillary works and equipment (such as service roads, rail connections, utilities, buildings, signalling and control systems), and replacement, reconstruction or relocation of existing transport, irrigation and other facilities affected by the construction of the canal. The benefits for the Romanian economy of using its low cost energy saving inland waterway system more fully for large volumes of bulk cargo movement would be considerable as would the benefits generated from savings in ocean freight costs as a result of using large bulk carriers. The project would also benefit other Danubian countries, and would become an integral part of the European waterway system when the Rhine-Main-Danube canal is completed in 1984. It would also help accelerate economic development in the relatively poor Dobrogea region through which the canal runs, and provide local irrigation and power benefits. The risk of the project not being completed on time is small. Our traffic assumptions on the value of imported materials transported on the canal are conservative and are based on production targets, planned plant location, raw material requirements and export estimates made during the recent subsector studies on the steel and chemical industries, the two principal users of the canal. The risk of a shoytfall in traffic is thus small.

|This documentha a restricteddistribution and may be usedby recipientsonly in the performance Iof their officialduties. Its contentsmay not otherwisebe disclosedwithout World Bank authorization. Cost Foreign x Estimates: Local Exchange Total F.E. ------7u( mMillon)…------

Civil Works Canal 679.4 310.9 990.3 56.6 Locks and Canal ports 97.0 78.0 175.0 10.0 Other 84.2 28.5 112.7 6.4

Equipment 58.1 13.4 71.5 4.0

Signalling and Control 3.7 0.7 4.4 0.3

Expropriation and Compensation 19.7 - 19.7 1.1

Other 114.4 - 114.4 6.6

Physical Contingencies 95.1 38.8 133.9 7.7

Price Contingencies 46.7 81.4 128.1 7.3

Total Project Cost 1,198.3 551.7 1,750.0 100.0

Foreign Financing: Local Exchange Total ------(US$ Million)------

State Budget 1,198.3 301.7 1,500.0 Cofinancing - 150.0 150.0 /1 IBRD - 100.0 100.0

TOTAL 1,198.3 551.7 1,750.0

/1 Notional amount.

Estimated Disbursements: US$ Million FY 1980 1981 1982 1983

Annual 5.0 55.0 27.5 12.5 Cumulative 5.0 60.0 87.5 100.0

Economic Rate of Return: About 25 percent

Appraisal Report: Number 2676a-RO; dated December 20, 1979 EMENA Projects Department REPORT AND RECOMMENDATIONOF THE PRESIDENT OF THE I]BRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE INVESTMENT BANK OF ROMANIA FOR A DANUBE-BLACKSEA CANAL PROJECT

1. I submit the following report and recommendation on a proposed loan to the Investment Bank of Romania, with the guarantee of the Socialist Republic of Romania, for the equivalent of US$100 million to help finance the Danube- Black Sea Canal Project. The loan would have a term of 15 years, including 3-1/2 years of grace, with interest at 7.95 percent per annum. Cofinancing of about $150-200 million is being sought from foreign commercial lending institutions.

PART I - THE ECONOMY 1/

2. The first basic report on Romania (Report No. 1601-RO, "The Indus- trialization of an Agrarian Economy under Socialist Planning") was circulated to the Executive Directors on April 20, 1978. As preparation for the production of a Country Economic Memorandum, an economic mission visited Romania during June 1979 to collect information on economic performance in 1978 and to discuss the 1979 Annual Plan and the new economic measures announced in February 1978. This part incorporates the mission's findings. Country social and economic data are given in Annex I.

3. Over the past 25 years the Romanian economy has undergone a radical transformation and has sustained one of the highest growth rates in the world. The level and diversification of industrial production has increased rapidly, providing the basis for the modernization and expansion of other economic sectors and a general increase in labor productivity and national income. With the transfer of labor from agriculture to industry, the population has become increasingly urbanized. Standards of living have increased substan- tially, not only because of the growth of personal incomes but also because of the provision through the state budget of expanded and improved education, medical services, housing and social expenditures of other kinds. Further- more, Romanian participation in the world economy has changed significantly as the level of trade has risen and its composition altered.

4. These changes represent the outcome of a development strategy designed to accelerate the rate of growth and to catch up, as quickly as possible, with the level and structure of development in the developed countries. The main features of the strategy can be summarized as: high and increasing rates of saving and investment; the creation of a broad industrial base; the development of local natural resources; the reorganization and modernization of agricult:ure;the balanced regional distribution of production and income; the expansion of foreign trade and international economic relations; and the development of human resources.

1/ This Part I is identical to that contained in the President's Report for the Covurlui Irrigation Project to be considered by the Executive Directors on the same date as the proposed project. -2-

5. The main instrument for carryingout the strategyhas been the system of comprehensivecentral planning and management. Economicmanagement is organizedalong socialistprinciples, which include state and cooperative ownership of almost all productiveresources and obligatory development planning coordinatedby the central party and government authorities. The national plan, drawn up on a five-yeartime frame and elaboratedeach year in an annual plan, sets out for the economy,by sector and branch and on a regional basis, specific tasks for economic and social units. It is drawn up through a combinationof central directivesand aggregationof individual enterpriseplans, any differencesbeing reconciled through discussionsbetween the entities involved. Over the past decade, Romania has undertakenmeasures to improve the planning and management system, to increase the responsibility of enterprisesin preparing and implementingthe plan and to orient the economy to a more efficientuse of resources (see para 20 for the latest changes).

6. The technicaland functionalMinistries are the State's chief agents for the administrationof economic activity. They are assisted by subordinate units known as Centrals,which coordinateand superviseactivities within a common branch or industry without being directly engaged in production. Enter- prises subordinateto the Centrals are responsiblefor productionwhich is controlledthrough a system of financialand physical production targets. In agriculture,large State farms and cooperativesare the predominantunits of production.

7. To achieve the objectivesof rapid growth and structural change, the Romanian authoritieshave made great efforts to mobilize domestic resources for developmentand to maintain a high rate of capital formation. Over the past 25 years, investmenthas grown at 13 percent per annum, and by the 1971- 75 Five-Year Plan, the proportion of national income utilized for accumula- tion 1/ had risen to 34.1 percent (equivalentto 27-28 percent of GNP). The sectoral allocation of investment throughout the period reflected the priority of industrializationand the creation of a broad industrialbase oriented towards self-sufficiency;approximately 50 percent of investmenthas been allocated to industry and, of this, by far the largest part has been directed to the producer goods sector. This has resulted in rapid growth of the industrialsector, over 13 percent per annum during the last decade, with the producer goods sector growing more rapidly than consumer goods. In 1978 industrywas the leading sector of the economy, accounting for 58 percent of national income, and employingapproximately 33 percent of the labor force compared with 14 percent in 1950. Heavy industry,led by chemicals,ferrous metallurgy,engineering and machine building, comprised64 percent of gross industrialproduction.

8. This industrializationstrategy has greatly increased the demand for raw materials and energy. Romania has concentratedon exploiting local resourcesof fuels, metals and minerals to be as self-sufficientas possible in these items. However, in spite of the rapid growth in productionof the

1/ That is, net investmentplus change in stocks. -3- wide range of raw materials found in Romania and recent efforts to conserve and economize on the use of raw materials and energy, Romania has become a net importer of many important items, particularly coal, iron ore and oil. The rapid growth of energy consumption,8.6 percent per annum since 1950, has out- paced the growth of domestic production. Having started to import oil in 1968, Romania became a net importer of energy in 1973 and in 1979 is expected for the first time to import more crude oil than is produced domestically. In response to those changing circumstances,the Government has recently published an energy program for the period 1980-2000,proposing the development of all energy resourcesand the restructuringof energy use to reduce reliance on hydrocarbons. This program, and the reassessmentof future petrochemicaldevelopment which is taking place within the context of the preparationof the 1981-85 five-year plan, indicates the substantialimpact upon the Romanian economy that the oil price increasesand the curtailmentof oil production in Iran are having. It is not possible to quantify the impact of the price increasesupon Romania's import bill because we have no information upon the contract prices; however, the impact was certainly exacerbated by the curtailmentof supplies from Iran (which supplied about 50 percent of imported oil) and the need for Romania to purchase oil on the spot market in the short-termwhile looking for new contracts.

9. Notwithstandingthe emphasis on industrialization,agriculture remains a key sector of the economy, still employing 33 percent of the labor force in 1978 (comparedwith 74 percent in 1950). Apart from supplying foods and other agriculturalproducts as inputs for agro-industries,the sector also supplies about 30 percent of the nation's convertibleforeign exchange earnings. Though agriculturaloutput almost tripled in the last 25 years, the faster growth of non-agriculturalsectors has reduced the share of agriculture in national income to about 15 percent by 1978. Over the past decade, agricultural performancehas improved with the increasedemphasis on agricultural developmentand the increased investment funds made available. However, the level and growth of production have remained below the sector's potential.

10. Romania's population growth is about 1 percent per annum. The rapid growth of industrial employment has thereforedrawn labor from the rural areas. The estimatedaverage GNP growth of approximately9 percent per annum since 1950, calculated on.the basis of official national income statistics, implies a percentage growth in output per head of about 8 percent per annum, with GNP per capita reaching an estimated $1,750 in 1978, using the Bank Atlas methodology.

11. The organizationof the economy is such that all labor is employed (indeed, required to work). There is, however, some seasonal labor surplus in agriculture. Income distributionis also relatively equal, through government policy controls over the level, growth and structure of wages. By law the maximum wage is limited to five and a half to six times the minimum. Monthly wages were increasedby 10.6 percent in 1978 to an average of 2,011 lei. The Government also promotes its income distributionpolicies through regional allocation of industrial investment.

12. The Government aims to give the population a basic needs package, partly by providing services such as education, health and housing. From this -4-

basic level, the Government has planned annual increases in living standards. Real incomes have risen at an annual rate of 6.6 percent since 1950, with the growth rate accelerating particularly in the last decade as more benefits of a rapidly expanding national income were channelled to consumption. Prices of essential consumer goods and services such as foodstuffs, rents and urban transport remain low and most social services, notably education and health care, are provided free of charge.

13. The value of Romania's trade grew at an average annual rate of 13 percent in the past 25 years, with a gradual acceleration in the last decade, reflecting not only the effects of international inflation but also an increase in the importance of trade, particularly industrial imports, to the economy. The level of imports rose in response to the need for capital goods and raw materials, reaching $8.64 billion in 1978. Exports have also grown rapidly, reaching a level of $8.06 billion in 1978, and the share of manufactured goods in total exports has increased to 50 percent, reflecting the progress of Romania's industrialization. Trade with LDCs and developed market economies has also been increasing rapidly in response to policies of diver- sifying sources of raw material supply and as a consequence of exports of more manufactured goods. In recent years, there has also been a tendency to move away from trade on a bilateral basis towards trade involving multilateral payments, within the framework of the general trade cooperation agreements signed with almost all of the country's trading partners. These agreements also cover cooperation in production, technical assistance and economic relations. In 1977 and 1978 the convertible balance of payments deteriorated, however, reversing the trend of the previous three years. After a surplus of $76 million in 1976, the trade balance experienced a deficit of $81 million in 1977 as a result of additional imports made necessary by the earthquake, the diversion of export goods to the domestic economy for reconstruction and continued weak demand in the developed countries for some Romanian exports. In 1978, the deficit increased to $560 million; to a large extent this was the result of poor agricultural performance, but it also reflected shortfalls in production in some industrial subsectors, continued weak demand in developed market economies for some Romanian exports and the need for supplementary imports of raw materials. With an increased deficit on the invisibles account of $219 million compared with $192 million in 1977, there was a convertible current account deficit of $779 million in 1978 compared with $273 million in 1977.

14. The structure of Romania's trade with the developed market economies is still characterized by exports of natural resources and imports of capital goods, although there has been a gradual increase in the share of exports in the form of manufactured goods. Because of the present low level of reserves, any instability in export earnings, as frequently arises from shortfalls in agricultural output or a softening in prices, tends to place the import program, largely sophisticated machinery and components and raw materials, in immediate jeopardy.

Recent Economic Developments

15. The current Five-Year Plan covers the period 1976-80. The high rates and the pattern of growth planned for this period suggest that the -5-

present decade has been viewed as the decisive period during which Romania should overcome the major constraintson its transformationfrom a developing country into a developed and technologicallyadvanced country. There have been substantialand comprehensiverevisions to the Five-YearPlan targets during 1977 to help accomplish this. In July, increased targets for standards of living were announced and in December, following the Eleventh Conferenceof the Romanian Communist Party (RCP), revised targets for all other areas of the Plan were announced. Also, in January 1978 important decisionswere taken to increase work incentivessubstantially by allowing workers to participatein sharing the profits of enterprises (see para 20).

16. According to the revised plan, national income is to grow at 11 percent per annum between 1976-80, practicallythe same rate as achieved between 1971 and 1975. Gross industrialproduction will increase at 11.5 percent, compared with the original target of 10.2-11.2percent, while gross agriculturalproduction is expected to grow at a rate of 6.9-9.0 percent per annum, which would require a significantimprovement over previous results in that sector. In addition, investmentis to increase by 12.7 percent per annum, approximatelythe same rate of growth as in the original plan. How- ever, the revised plan contains a larger number of investmentprojects, as new projects were added following a reexamination of existing projects which led to a reduction in investment costs of about 10 percent on average. This reexamination, which took place in 1976 and 1977 was part of the general campaign to increase utilizationof existing capacity and to economizeon the consumptionof raw materials and intermediategoods. The volume of foreign trade is to increase by 109.1 percent in real terms over the five years, a much faster rate of growth than in 1971-75when trade merely doubled in current prices. Furthermore,the Governmentplans to encourage the growth of exports so that it exceeds that of imports, so as to pursue its long-term objectiveof reducing external debt and allowing for the accumulationof reserves. While the rate of growth of consumptionwill remain below that of production, it will neverthelessbe increased under the revised plan. Real wages are now to increase by 32.3 percent over the five years compared with the previous target of 22 percent. As a result, targets for retail trade and services for the populationhave been increased.

17. Although the mcostrecently available figures published by the Gov- ernment indicate that the economy is expected to fulfill, more or less, the five-year plan targets, very high rates of growth of the major economic indicatorswill be required in 1979 and 1980 to make up for the relatively disappointingperformance in 1977 and 1978. In March 1977, the economy was dealt a serious blow when a violent earthquakeoccurred in the east of the country, causing damage valued at $2 billion and leading to a detrimental effect upon the balance of payments totalling $630 million during 1977 and 1978.

18. The Governmentorganized immediatelyan intensivereconstruction effort with the stated aim of avoiding any impact upon the implementationof five-yearplan targets. While these efforts enabled the economy to continue its growth, 1977 plan targets were only partially fulfilled. National income increasedby 8.6 percent compared to a plan target of 11.3 percent and an - 6 - increase in the previous year of 10.5 percent. Economic performance in 1978 also fell below plan, although the economy continued to grow at a relatively rapid rate. National income increased by 7.6 percent, compared with the annual plan target of 11-11.5 percent. Gross industrial production increased by 9.0 percent rather than the planned 10.6 percent, and there are sizable shortfalls in the production of several major products, particularly oil, coal, chemicals and food products. Gross agricultural production increased by only 2.4 percent compared with a plan target of 6.9-16.1 percent growth and most of the growth was in the livestock subsector. Arable output fell far below plan targets, partly because of climatic difficulties but also as a result of managerial weaknesses and shortages of inputs. The shortfalls not only affected the production of industries using agricultural raw materials but also resulted in lower exports than planned. Investment, on the other hand, increased almost as quickly as planned, 16.2 percent compared with a plan target of 16.8 percent; however, in absolute terms, it did not make up the shortfall brought about by the earthquake, despite the considerable physical and human resources introduced into the construction sector. The transfer of labor from agriculture to the non-agricultural sector increased faster than planned, and, indeed, the economy, as in previous years, showed relatively greater ability to create new production than to use existing resources more efficiently; the targets for increased labor productivity and reduced material expenditures could not be attained. While production targets were generally underfulfilled, consumption rose more or less as planned. Average monthly wages rose by 10.6 percent and real incomes of the population by 8.9 percent, one percent more than planned.

19. The Annual Plan for 1979 signals no significant deviation from the previous path. The growth rates published in the plan - 8.8 percent for national income, 11.5 percent for net industrial production (in keeping with the new economic measures, the 1979 Plan specifies industrial growth in net rather than gross terms), 5.1-5.6 percent for gross agricultural production, 16.6 percent for foreign trade, 9.1 percent for investment and 7.5 percent for real incomes - do not, however, fully reflect the high rates of growth expected by the Government during the current year. Early in 1979, the Gov- ernment announced that the shortfalls in production from 1978 should be made up in the last two years of the plan period, so that the economy may attain its 1980 plan levels. Thus, for the major indicators the real growth rates must be considerably higher than those included in the annual plan.

20. In February, 1978 the Government announced changes in economic and financial mechanisms designed to improve the planning and management of the economy, to stimulate improvements in labor productivity, in cost reduction and efficiency of production and also to make existing provisions for enterprise self-management more effective. The major change announced was the introduction of net production as a major plan target, both for inducing enterprises to fulfill plan objectives, particularly in the areas of increased efficiency and reduction of costs and as the basis upon which worker's wages and bonuses are paid. In future, enterprises are also to retain a higher proportion of profits, have increased responsibility for socio-cultural expenditures, be more concerned in the final stages of the annual plan preparation, be permitted to enter into longer term contracts to ensure a closer -7- correlation between the plan and actual contract provisions and will have more direct responsibilities for the achievement of foreign trade targets. The measures are still under detailed discussion, with further refinements being considered, although the major changes in planning, net output targets, profit- sharing and enterprises' financial responsibilities were introduced as of January 1, 1979. In early 1979, the Government announced that the measures for net output and profit-sharing would be extended to cooperative agriculture. In a complementary vein, the creation was also announced of approximately 700 Agro-industrial Councils which will coordinate the development of agriculture within a given geographical area and provide a forum for determining the most efficient use of resources in the sector. All these measures are designed to make the existing management and planning system operate more efficiently rather than to cause radical changes. However, they are a step in the direc- tion that the basic economic report suggested was desirable if the economy was to meet its objectives. Furthermore, they will set up new pressures between the various levels of the economy which may lead to more substantial changes in the future.

External Assistance

21. The expansion of Romania's trade with the non-socialist industrial countries has led to an increased need to obtain convertible currencies to pay for imports from those countries. Romania has met this need both by borrowing abroad and by mounting a major effort to expand exports and tourism earnings. In 1978, new commitments of convertible medium and long-term loans totalled $1,216 million and consisted mainly of supplier and financial credits with relatively short repayment periods. Gross disbursements of convertible medium and long-term loans during the year were $1,167 million. This repre- sented a net inflow of $585 million after accounting for the country's repayment obligations. There was also a net inflow of $456 million on short-term loans during 1978. After almost a decade of gradually reducing the size of outstanding short-term debt, the Government was compelled in 1977 to reverse temporarily its policy of reducing reliance on short-term debt, because of the additional financing needs generated by the earthquake. This action had to be continued in 1978 because of the size of the current account deficit, which could not be covered by medium and long-term sources, despite Romania's increased involvement in the Eurocurrency market.

22. As part of its effort to expand its foreign trade and cooperation relationships, Romania has also taken active steps to attract long-term private capital. A regulation passed in 1972 defines the conditions under which foreign firms can establish joint ventures with domestic enterprises, preferably in foreign exchange earning or saving industries. As of November 1978, ten joint venture agreements had been signed and a number of others announced. In contrast with the earlier ventures, which involved total direct foreign investments of only $10-15 million, the seventh agreement, signed in early 1977 with Citroen, involves a contract of FF 2.5 billion (about $500 million) and will lead to a total capital inflow of aproximately $250 million. The eighth agreement is f-ora joint production company with British Aircraft for the manufacture of commercial aircraft; the ninth is with Data-products Corporation, USA, for the manufacture of computer software; and the tenth is a -8- joint shipping company in cooperationwith Libya. However, negotiationshave been broken off by Romania and Kuwait for the constructionof a petro-chemical complexwhich would have cost $1.25 billion and involved a capital inflow of about $500 million. Many other joint ventures are at various stages of nego- tiation.

23. Romania also receives medium-term trade credits from the U.S. Exim- bank and trades under Government guaranteed supplier credit schemes, ECGD, COFACE, and HERMESwith the United Kingdom, France and the Federal Republic of Germany, respectively. During 1977, Romania became the first East European recipient of a Japanese Eximbank loan, receiving $80 million for the expansion of the port of Constanta. In 1975 Romania succeeded in securing a $100 million, eight-yearloan from Kuwait as part of a general cooperationagreement and also a $420 million loan from Iran on concessionaryterms. However, it is in its Eurocurrencyborrowings that the Governmenthas made most progress in improving its access to capital markets and in raising substantialsums at good and improving terms. During 1977, it negotiated two Eurodollar loans totalling $125 million. In January 1978, Romania negotiated a further $100 million on the Eurocurrencymarket and late in the year, a further borrowing of $300 million. The terms for the latter, an eight-year loan with four- years' grace, are 0.625 percent above LIBOR for the first three years and 0.750 percent for the remainingyears. As part of its strategy to secure long-term energy supplies, Romania has concluded a long-term contract with Occidental Petroleum for the purchase of coal from the U.S.; a banking consortium raised a $53 million loan in April 1978 to finance Romanian participation in the Island Creek coal mine in West Virginia. In March 1979, Romania secured a loan of $320 million from a consortium led by Canadianbanks to supplementa $650 million loan by the Export Development Corporationof Canada for the purchase of heavy-water reactors for the first nuclear power project in Romania. Finally, Romania has access to non-convertible currency investment credits from the International Investment Bank, Moscow.

24. Nonetheless,Romania's access to long-term finance in convertible currencies is still very restrictedas shown by the fact that, in 1977-1978, in spite of the above developments,short-term borrowing has been necessary. The IBRD remains the major source of long-termdevelopment finance, although Romania is making efforts to improve its access to financialmarkets. The Bank's presence on a significantscale, and its effort to associate Bank financed projects with co-financingthrough supplier or financial credits, has a positive influence in this regard and serves to build outside confidence in the country, thereby improving in the long-termRomania's independent access to the world's financialmarkets.

Prospects

25. Romania has good potential for further economic growth. Endowed with importantnatural resources (fuels, some minerals, timber, rich soils and sources of irrigation water for agriculture,and a favorableclimate for agricultureand tourism) and located convenientlywith respect to its major internationalmarkets in the East and West, the country has built a broad industrial infrastructure(power, metallurgy, chemicals)which will serve as a base for the expansion of secondary manufacturing sectors such as machine building and consumer durables. Above all, Romania has a hard-working and increasingly skilled population. To attain its growth objectives, however, Romania will have to rely on a major expansion of exports of manufactured goods in order to finance modern foreign technology and an increasing dependence on imported raw materials and fuel.

26. Economic growth and structural change call for the introduction of new technologies, improvements in the quality of products, more efficient use of materials and factor inputs and reductions in production costs. The achievement of export targets requires improvements in the quality of products and responsiveness to customer demands, areas in which the economy appears to have lagged in past years. To keep up with these changes and requirements, large programs of education and manpower training have been mounted, investments in scientific and technological research have been emphasized, and efforts are being made to strengthen technical cooperation with industrialized countries and international organizations. The increasing diversity and complexity of Romania's economic structure also require continuing improvements in the efficiency of economic planning and coordination and further refinements in economic management.

27. The growth rate is expected to remain quite high by international standards during the next five-year plan period, although the latest figures published by the Government do indicate considerably slower growth between 1980 and 1985 than originally intended. The draft plan Directives published in July indicate an annual growth of national income of 6.7-7.4 percent compared with 8.6-9.5 percent in the guidelines for the plan published at the end of 1977. Targets for industry, investment and standards of living have been reduced correspondingly. The Government plans to achieve its targets by emphasizing, first, the utilization of the country's own resources and a large local investment effort, and second, more effective use of human, capital and natural resources. However, in order for Romania to attain its growth targets and its long term plans for creating a competitive industrial economy, it will have to attract foreign resources and technology and secure loans to support its development efforts.

Creditworthiness

28. As of June 30, 1979, Romania's total medium and long-term external debt amounted to $5,958 rmillion. Most of these debts ($5,817 million) were denominated in convertib:Le currencies, the major creditor countries being the Federal Republic of Germany, France, the United Kingdom (UK) and Italy. While the total debt does not appear excessive in relation to the volume and growth of external trade, average maturities are relatively short and convertible debt service payments are estimated to be in the order of $1,141 and $1,142 million a year in 1979 and 1980 respectively. The convertible medium and long-term debt service ratio was 19.4 percent in 1978 and is expected to be 19.9 percent in 1979.

29. The organization of economic activity in Romania, the pursuit of a development strategy involving high investment and saving rates, and rapid - 10 -

income growth ensure the effective use of foreign credits. Moreover, the country's major efforts to expand exports (particularly to convertible currency areas) are increasing the foreign exchange available for debt service. Convertible export earnings rose from $830 million in 1971 to $4,072 million (not counting $387 million in non-factor services) in 1978. The preferential trade status accorded to Romania by the European Community in June 1973 is facilitating the expansion of exports, as is the granting of most favored nation status by the U.S. Since the early 1970s, the Government has restricted the use of short-term credit from Western suppliers in an effort to improve the structure of the country's external debt, but in view of the earthquake's impact upon the balance of payments and the trade performance in 1978, short- term debt increased again in 1977 and 1978. Assuming a continuation of present export and debt management policies, we estimate that the debt service ratio in 1980 will be about 20 percent after which it will remain fairly stable. The country's present outward-looking posture, the success of both its domestic growth and foreign trade policies, and its potential for continued development all support the judgment that Romania is creditworthy for substantial Bank lending.

30. With the exception of certain Swedish claims, all pre-war foreign debts of the country had been settled. The Swedish claims concern public loans from the prewar period, nationalized Swedish property and other in- terests, such as concessions granted to Swedish companies before the Second World War. The eleventh meeting to discuss settlement of these claims was held in Bucharest in October 1976 and further discussions were planned at a date to be established through diplomatic channels. The Bank has been unable to obtain a consistent picture from the two Governments of the present status of this matter and has, therefore, urged the Romanian and Swedish authorities to clarify their respective positions directly with each other.

PART II - BANK GROUP OPERATIONS IN ROMANIA

31. The proposed loan and the proposed loan for the Covurlui Irrigation Project ($90 million) would bring total Bank commitments to Romania to $1,452.8 million for twenty-five loans in agriculture, industry, power and transport. Disbursements under the Bank's initial loans were slow during 1975, but this situation has improved considerably since 1976. Annex II contains a summary statement of Bank loans to Romania and notes on the execution of ongoing projects as of November 30, 1979.

32. Foreign exchange, especially in convertible currencies, continues to be a major constraint and one of the major objectives of Bank lending continues to be to help alleviate the country's shortage of foreign exchange by providing long-term external capital and by financing projects which will expand foreign exchange earnings or savings. The Bank has been assisting the Government by helping to mobilize cofinancing for appropriate projects. The Bank has helped to attract foreign commercial banks to provide a $100 million cofinancing for the Second Livestock Project for which a Bank loan of $75 million was approved by the Executive Directors in March 1979. Through their contacts with commercial banks with assistance from the Bank, and subsequent - 11 -

negotiations with those banks, the Romanian authorities now appear convinced of the positive value of cofinancing in the form of financial credits, and have indicated their intention to seek similar arrangements for future projects. Bank lending also aims at supporting the Government's efforts to introduce new industrial technologies, to improve the quality of products and production efficiency, to reduce production costs and to provide for necessary electric power development. Market aspects and marketing, especially for export goods, are also emphasized. Special attention is given to agriculture which is heavily dependent upon favorable weather and where productivity levels are still comparatively low.

33. A number of further loans are under consideration, including loans for projects for horticulture, irrigation, industry, power, and a fourth livestock project. The Government has also proposed that the Bank consider lending for an integrated road and rail transport project.

34. In addition to lending, the Bank (through EDI) has assisted Romania by conducting training courses on economic and financial evaluation and analysis methodologies in various sectors, including industry and transportation, for 165 Romanian officials in Belgrade in 1973 and in Bucharest annually since 1975 in collaboration with an academic institution in Romania. Addi- tional courses, including one for agricultural project appraisal, are under discussion with the Government. The methodologies taught in these courses are becoming more widely known in Romania and are expected to begin to supple- ment the methodology normally used by the Romanian planning authorities.

35. The projects, for which assistance has been committed or is being considered, represent only a small portion of Romania's total need for external financing of its total disbursed convertible debt. However, they will provide a substantial net addition to the inflow of convertible currency finance, and may set a pattern for obtaining longer-term convertible finance from other sources. The disbursed debt outstanding to the Bank is expected to constitute about 13 percent of Romania's total projected convertible currency debt in 1980; the Bank's share in Romania's debt service payments in 1980 would be about 4.5 percent.

PART III - THE TRANSPORT SECTOR

A. General

Organization

36. Romania is served by a fairly well-developed transport network which is uniformly distributed throughout the country. It includes 11,000 route-km of railways, and some 78,000 km of roads about two-thirds of which is gravel and earth surfaced. The Danube, which is navigable, flows through about 1075 km in Romania, mostly along its southern border. Pipelines have a - 12 - limited and specialized role. Ninety percent of the foreign trade is handled through the port of Constanta on the Black Sea, and the Constanta Bucharest transport corridor is the most important in the country.

37. The Ministry of Transport and Telecommunications (MTTc) is responsible for all transport, including common-carrier road services, but excluding aviation and pipelines. Aviation is the responsibility of a separate department directly subordinated to the Council of Ministers, and pipelines are the responsibility of the Ministry of Mines, Petroleum and Geology. MTTC's organization also includes construction and maintenance facilities. In general, it is well staffed with competent managerial and professional staff. Road fleets own transport, which are state owned, are operated by individual centrals or enterprises. Motor car ownership is the only private form of vehicle ownership in Romania.

Traffic

38 Rail and road are the most important modes of inland transport in Romania. For freight, rail is dominant in terms of ton-km in 1977 (81 percent) though its share is slowly declining, while the share of common carrier road services (12 percent) is rising; in tons, however, road services are dominant (63 percent). Common carrier road passenger services are growing rapidly, accounting for 45 percent of passenger km. Danubian river transport and pipelines account for about 3 percent and 5 percent of ton-km, respectively. Air and sea transport are relatively unimportant for domestic transport.

Performance

39. The Government plans transport services to make the most efficient use of resources, and they are operated within the framework of the national plan. Different modes complement each other, and roads from railway stations act as important distributors/collectors of considerable volumes of railway traffic. Given the nature of Romania's centrally planned economy and on the basis of its reviews of the sector to date, the Bank considers this approach to transport planning and management leads to reasonably efficient provision of transport services and modal allocation of traffic, although there is some evidence of underinvestment in highways in the past.

40. The railways are operated as a single organization subdivided into nine regions. They are in a strong financial position, the working ratio generally not exceeding 76 percent during the last five years and for the next seven-year forecast. This is due to the high traffic density and staff productivity (14.7 million gross ton-km per year and 568,000 traffic units per employee in 1978), well ahead of any other Bank client operating a general service railway.

41. One of MTTc's centrals administers 41 road transport enterprises, which operate passenger and freight services. The operations of each enterprise are carefully planned and controlled on the basis of performance indices, and there are special inter-enterprise arrangements to minimize empty running. The financial performance of each enterprise is planned on the basis of its traffic forecast, country-wide tariffs, and enterprise costs. - 13 -

Transport Coordination

42. The choice of mode is left in the first place to the transportuser, who makes his selection on the basis of tariffs and quality of service, in time for its inclusion in the plan for his chosen mode. Periodic administra- tive reviews are made to take into account changes in transportusers' requirements and the capacity of each mode; the latter is particularlyimportant because transportinvestments have been limited to provide little spare capacity.

43. In principle tariffs are cost-based,but discussionswith the Romanian authoritiesindicate that railway tariffs, and perhaps also road tariffs, tend to reflect country-averagerather than service-specificcosts. Again, road tariffs do not include a charge for the recovery of road infra- structurecosts.

InvestmentPolicy

44. The Romanian authoritieshave adopted hitherto a conservative approach to transport investment,in that transportcapacity was built up to meet demand arising from regional and industrialdevelopment, rather than being used as a tool to stimulate economic development. Thus they have concentratedprimarily on modernizationof the existing system by increasing capacity to eliminatebottlenecks rather than by extending the system. The main investmentcriterion has been the payback period, which has normally been limited to 10 years for transport.

45. As transport infrastructurehas a relativelylong life, the 10-year payback criterionhas tended to restrict transport investments,which historically has amounted to only 10 percent of Romania's total investments. In other countries transport investmentsaccount for some 18-25 percent of the total. However, Romania has had a high overall investmentrate, over 30 percent of the net national product, so that 3 percent of that product is allocated to transport,which is comparableto other countries. The Romanian authoritiesfeel that they have thereforebeen able to devote sufficient resourcesto the execution of high priority transport investments,but that they also exercised careful investmentdiscipline, for example resorting to staged constructionwhenever possible; thus, when double-trackinga railway line, relativelyshort sections were doubled as they approached saturation.

46. While the investmentsundertaken so far are sound, total transport investmentappears low. For example, the railways propose to overhaul 3120 km of track during 1981-85. Since Romania has some 15,000 km of track (exclusive of station and other sidings and marshaling yards) this means that overhaul is undertaken,on average, once every 24 years. This rate is low, especiallyin view of Romania'shigh average traffic density (about 15 million gross ton-km per year). Again, the returns on railway electrificationincrease with traffic density, yet only 215percent of Romania'sroute-km were electrifiedin 1977 and planned to increase to 20 percent by 1980 while in neighboring Yugoslavia,where the average traffic density was only about six million ton km per year, 25 percent of route km have been electrified,almost entirely as part of Bank projects. - 14 -

47. On roads, special attention had been given to structures and the elimination of level crossings. However, some main roads carrying relatively large traffic volumes, are still gravel-surfaced. Furthermore, in the past, when gravel roads were modernized, relatively lightly designed pavements were adopted, and this policy has resulted in high maintenance costs at the present time. One objective of Bank participation in highways would be to ensure that the design of project roads would be related to traffic.

48. The proposed Bank loan would be the first Bank Group operation for transport in Romania. A clearly defined Bank strategy to assist the transport sector has not as yet emerged, but the proposed project has provided the Bank with an introduction to the transport sector and its role in the economy in Romania, and an overview of the issues facing the sector in the future. The Bank could make significant contributions to sound and rational transport policies, project evaluation, investment programming and implementation in the sector. The Government has shown considerable interest in the Bank's cost- benefit analysis techniques, and several joint EDI-CEPECA (Romania's management and administration center) transport courses have been held in Romania for 75 persons involved in transport planning, investment and operations. Introduc- tion of these techniques would improve selection and design. This would give the Romanians practical experience with these techniques and would also permit them to test their validity as compared to the methods in general use in Romania. Discussion with the Government on this idea is continuing.

B. Waterways and the River Danube Navigation System

49. In pursuing its policy objective of energy conservation, the Govern- ment has begun to work towards a more intensive utilization of the inland waterway network. This is centered on the Danube river system, which plays only a small role in the country's transport system, accounting for 0.9 percent in tonnage and about 3 percent in ton km; it is confined mainly to bulk transport to and from industrial complexes along the Danube. Its potential for providing energy efficient transport of low value bulk commodities is considerable. Improvement of other rivers would become economic with the development of large traffic volumes generated by linking the Danube river with deep-water port facilities.

50. Historically, the River Danube has been important for transport in all its riparian countries, who continue to use it for both local and international traffic. Romania has tended to locate industrial enterprises needing large volumes of bulk raw materials on or close to the lower reaches of the Danube. Within Romanian territory there are 25 river ports, most of which have road and rail connections. However for the reasons described below, most of these ports are underutilized. At present barges of up to 1000 dwt. capacity can be used on the river, and oceangoing ships drawing a maximum of 7 meters can navigate through the Sulina Ship Canal and about 175 km up river to Galati and Braila where cargoes are transshipped to barges.

51. The fuller transport utilization of the Danube is limited by the physical conditions of its delta and by the capacity of the 61 km Sulina Ship Canal. This was constructed 100 years ago and traverses the delta from -15 -

Sulina on the Black Sea itoTulcea. It is not practicableor economicalto improve the situationby constructinga deep-waterport at or near Sulina, because of the extended shallow "berm" created by siltation from the Danube and the effect of the southerly flow of the littoral drift. Romania has for many years been considering the possibility of constructinga new deep-water port and a barge canal in order to bypass the now uneconomic lower Danube. Work began in 1976 on the proposed project, and about 15 kms of the total length have already been completed. Above the delta, with fairly minor improvementsin depth and curvature, the river could accommodateconvoys of six barges of 3000 dwt. capacity each propelled by one pusher tug for which the canal is designed. This would provide energy efficientand cost effective transportation.

52. All waterways transportationis administeredor operated by enterprises responsibleto the Department of Water Transport (DWT) in the MTTc. The principal enterprisesare: the Romanian Maritime Fleet (ROMTRANS);the River Navigation Enterprise (NAVROM) responsiblefor all barge and tug operations on rivers, for port services at all ports on rivers, and for operating the 3 river ports for oceangoing ships at Galati, Braila and Tulcea, and for river passenger transport services; and the River Administrationof the Lower Danube (AFDJ) responsiblefor operating the Sulina Ship Canal and for providing pilotage services on the Lower Danube. These and the other enterprises controllingwaterway traffic are covered by a comprehensivetariff structure, excluding freight charges, published in 1971. Individualtariff charges are fixed by law and normally remain in force for five years.

The Borrower

53. The borrower for the proposed loan would be the Investment Bank, which is the specializedagency, under the Ministry of Finance, for investment projects in all sectors of the economy except agriculture (includingwater resources)and food processing. It has a large technicaland economic staff with branch offices in all districts of the country. The Investment Bank's involvementin investmentprojects begins with preparation;its staff appraises all major investmentprojects technicallyand financiallyand recommends for or against their financing to the Government. When a particular project and its financial plan have been approved by the Council of State, all funds are channelled through the Investment Bank in accordancewith the approved financial plan. All payments for the executionof a project must be authorizedby the Investment Bank, which keeps separate accounts for each category in the financialplan for every enterprise. The Investment Bank is required to ensure that a project is executed according to the financial and technical data included in the final technical and economic study approved by the Council of State. Its inspectors check whether the project is proceeding according to the schedule approved in the Plan.

54. While the Investment Bank's supervisionand control function is thus rather strong during implementationof a project, its functions are much more limited during operation of a project. Although it has the right and obligationto verify that an enterprise is meeting the targets set in the - 16 - investment plan, it has no legal authority to influence directly the management of the enterprises or to force the enterprise directly to take operational actions which it considers necessary. In practice, however, it can request such actions very effectively by reporting through the Ministry of Finance to the Government.

55. The Investment Bank is the channel for all sources of major domestic investment financing other than in agriculture, but its own funds for onlending as credits are relatively small. The primary source of its funds is the State Budget. The Government would ensure the availability of sufficient funds including foreign exchange requirements for the implementation and operation of the project (Section 2.02, Guarantee Agreement). The Government would also ensure that the Investment Bank can meet the debt service on the Bank loan (Section 2.01, Guarantee Agreement).

The Beneficiary

56. Because of the size and complexity of the undertaking the Government established a new enterprise, the Danube Black Sea Canal Administration, to operate the canal. The enterprise was legally established on May 12, 1979 by Presidential decree, and a nucleus of top staff has been recruited and is in training. It will be fully operational by the time canal operations are expected to begin by the end of 1982. Provisionally and until the new enterprise takes over, construction of the project is the responsibility of the Constanta Port Enterprise (IEPC), which is an autonomous enterprise responsible for the operation of the present port of Constanta, and which is subordinated to the DWT in the MTTc. It created a special unit whose responsibilities are supervision of construction, purchase of equipment for operations and maintenance, staff recruitment and training, financial control, preparation of operating, navigational and staff regulations, and general responsibility to ensure that the Canal Administration is competent to operate the canal when the traffic starts using it. The Canal Administration is now taking over these responsibilities and is in the process of absorbing the special unit.

57. The Danube Black Sea Canal Administration is a fully established organization with full legal authorities and jurisdictions as normal under Romanian law. Decision making power at the enterprise level formally belongs to the Enterprise's General Assembly which includes all the workers and normally meets twice a year. A Working People's Executive Committee, chaired by the enterprise's General Director and consisting of elected workers' representatives and some members of the management, is responsible for operations. The General and Technical Managers of the enterprise are responsible for implementing the decisions of the Executive Committee. It is expected that its financial position and performance will be satisfactory (see para. 65).

PART IV - THE PROJECT

58. The project was first discussed by the Bank and the Romanian Govern- ment in the spring of 1975. A formal request for Bank financing was made in March 1977, and following receipt of adequate preparation data, a preparation - 17 - mission visited Bucharest in March 1978. The project was appraised in February/March and July 1979. Negotiations were held in Washington in December 1979. The Romanian delegation was headed by Mr. Ratoi, Senior Vice President, Investment Bank and included representatives from the Investment Bank and the Ministry of rransport and Telecommunications. A report entitled "Staff Apprais±! Report Danube Black Sea Canal Project" (No. 2676a-RO) dated December 20, 1979 is being distributed separately to the Executive Directors. The main features of the project are summarized in the Loan and Project Summary and in Annex III.

Project Description

59. The project would consist of the construction of a 64 km barge canal from Cernavoda on the river Danube to South Constanta-Agigea on the Black Sea. The canal would be 70-90 meters wide at the bottom, and 95-135 meters wide at water surface. Its design takes into account adequate safety and operational requirements which are in accordance with prevailing international standards. It would also consist of the construction of three ports on the canal (at Cernavoda, Medgidia and Basarabi), two identical locks (at Cernavoda and Agigea) each with two chambers 310 m long and 25 m wide and provision of equipment for operating the locks. It would include the construction of two service roads, one on each side-of the canal, construction of railway connections, installation of utilities, buildings, signalling and control systems (radar and radio equipment, lights and buoys, etc.). It would also include the replacenment, reconstruction or relocation of existing transport, irrigation and other facilities that have to be moved or destroyed as a result of canal construction, as well as expropriation and compensation costs for 600 ha of unreplaced agricultural land, and for reclamation of 2,800 ha of land to replace 5,200 ha to be occupied by the canal (of this total 1,800 ha are now non-productive). It would also include miscellaneous facilities, such as concrete mixing plants and worker housing, needed to implement the project. Financing for the project: would include substantial cofinancing from foreign commercial lending institutions. This feature is significant in our work with Romania since this is only the fourth time it has been included in a Bank financed project in the country. Construction of the canal began in 1976, and 15 km. had been completedi by July, 1979. The project will be fully completed by the end of 1984 although the canal will be open to through barge traffic by the end of 1982. The Government has established a schedule satisfactory to the Bank for on site delivery of all construction equipment and materials as well as the permanent equipment for the project which would be financed by the Bank to ensure that the project would be completed within the planned implementation schedule (Loan Agreement, Section 3.02).

Project Objectives

60. The Danube Black Sea Canal is the major component of a larger program which also includes construction of deep-water facilities at the port of South Constanta-Agigea, adequate to handle large bulk carriers, expansion of certain river ports and improvements in depth and curvatures of the river Danube, and an expansion in and introduction of new types to Romania's barge - 18 - and tug fleet to accommodate the anticipated traffic increase. The Government would complete these other projects to the extent necessary for the canal to handle forecast traffic from the time it will be opened to through traffic (Loan Agreement, Section 4.01(b)). The Government has informed the Bank that Romania will operate the canal in a non-discriminatory manner. The Canal is technically sound and well prepared. The 64 km canal and the new deep-water facilities would eliminate the restrictions imposed by the Sulina Ship Canal and Lower Danube Navigation reaches on cargo movements and would shorten the distance to the sea by about 360 km. Under the terms of the Danube Conven- tion, the Government will maintain the Sulina Ship Canal and Lower Danube Navigation reaches to accommodate existing levels of traffic. The project would enable Romania to use its cost efficient energy saving inland waterway system more fully for the movement of large volumes of bulk cargo mainly consisting of imported raw materials. The project would add significant additional transport capacity needed for the growing economy and, with an estimated 14 percent of total traffic being international transit traffic by the year 2000, would also benefit other Danubian Countries, including Austria, Yugoslavia and the Federal Republic of Germany by efficient movement of their imported raw material requirements as well as their exports. The project, moreover, would become an integral part of the European waterway system after the completion of the Rhine-Main-Danube Canal in 1984. Completion of the project would also make it economical to improve several of the tributaries of the Danube and incorporate them into the waterway network. The Canal would also help accelerate the economic development of the Dobrogea region, through which it runs, one of the poorer regions of Romania. The benefits of the Canal are well indicated by its economic return (see para. 68). The project is particularly suitable for Bank financing because it benefits other riparian countries and is a large project with an international aspect, which makes it attractive for cofinancing. The Bank's participation in the preparation of this project has helped to ensure that the most efficient construction equipment configuration has been found to enable on-time project implementation and has made a contribution to Romanian project management techniques. It has also provided the Bank with an introduction to the transport sector in Romania. The Bank's insistence on international competitive bidding would expose the Romanian construction equipment and materials manufacturers to international competition.

Project Implementation

61. The project is being constructed by the Danube Black Sea Canal Central (DBSCC), the Romanian Construction Trust established especially for the project under contract with the legal but provisional beneficiary, the Constanta Port Enterprise (IEPC) (see para. 56). DBSCC's Director-General is a Deputy Minister (of the Ministry of Transport and Telecommunications) who has overriding powers over all government agencies related to the construction of the canal and who reports directly to the President of Romania. DBSCC employs a labor force of 15,000, including 1,000 qualified engineers; these will be increased to a peak of 30,000 and 1,500 respectively by 1980. It carries out most of the construction work directly but does subcontract specialized works. DBSCC is well organized, its performance is good, and is only hindered by the present shortage of earth-moving equipment. - 19 -

Project Cost and Financing

62. The estimated total project cost, excluding interest during construction is US$1,750 million equivalent, with an estimated foreign exchange component of US$551.7 million. The costs of equipment and materials have been estimated at prices prevailing as of November 1979. Physical contingencies have been estimated at 9 percent of the base cost. Price contingencies on foreign exchange costs are based on an annual increase of 7 percent for imported equipment during the construction period. Due to very low inflation under the Romanian system of administered prices, price contingencies on local costs have been calculated at one percent per annum.

63. The proposed Bank loan of US$100 million would finance 18.2 percent of the estimated foreign exchange costs of the project. The proposed loan to the Investment Bank would have a term of 15 years, including 3-1/2 years of grace, with interest at 7.95 percent per annum, and would be guaranteed by the Government. The Investment Bank would carry the foreign exchange risk on the Bank loan. Of the balance of the foreign exchange costs, US$229.5 million has already been expended by the Government. The remaining balance of US$222.2 million would be financed partly by cofinanced financial credits, and the balance by the Government from the State Budget. The Investment Bank is expected to arrange cofinancing of about US$150-200 million. In the unlikely event that this does not materialize, the outstanding balance would be financed from the State Budget, which has already planned funds to be available for this purpose. All the local currency funds required by the project would also be financed from the State Budget.

Financial Analysis of the Danube Black Sea Canal Administratrion

64. The new Danube-Black Sea Canal Administration is an integral part of Romania's centrally planned economy under which all enterprises conform to national development plans which are financed very largely from the State Budget. As concerns Romanian traffic using the canal, which would be 86 percent of total estimated traffic in the year 2000, the great bulk of the financial benefit accrues to the State in all cases. For this reason, the financial performance of the new canal enterprise cannot be viewed in isolation from the rest of the economy and financial performance is meaningless as an indicator of investment performance, which is provided by the economic rate of return. Nevertheless a proforma financial analysis was undertaken to obtain an idea as to its financial position and performance.

65. Since the canal enterprise is a new entity and will not operate until after the project is completed, no past or present financial data are available. The financial analysis, therefore, is a proforma one and is based on the principles that the enterprise would be financially and economically viable and would be self :Liquidatingover its economic life of 65 years. The canal is a highly capital--intensiveinvestment. Pricing policy for the canal would ensure that canal dues would be established at levels that would not only cover actual cash operating costs, which are very small, but would recover the total cost of the investment over 65 years (the equivalent of depreciation), and interest on external financing, in equal annual parts, to loan maturity. Within the context of the Romanian system, this approach is satisfactory to - 20 - the Bank. This approach to canal dues compares most closely with normal practice accepted in Romania and would ensure that the financial position and performance of the enterprise would be satisfactory. The Government has agreed that this is the approach it would establish (Loan Agreement, Section 4.01(a)(ix)).

Procurement

66. Equipment to be incorporated into the project, including the lock gates, with a total estimated cost of $25 million, construction materials (bitumen and reinforcing steel) with a total estimated cost of $35 million and construction equipment with a total estimated cost of $40 million, together equivalent in cost to the proposed Bank loan ($100 million) would be procured according to ICB under the proposed loan. There would be no retroactive financing or advance contracting under the proposed loan. Items costing $100 million including contingencies would be procured following international advertising and competitive bidding in accordance with the "Guidelines for Procurement Under World Bank Loans and IDA Credits - March 1977." Romanian manufacturers and suppliers would be allowed a preference of 15 percent or the applicable customs duty, whichever is lower. It is estimated that foreign suppliers would win contracts estimated to cost about $5 million principally for specialized machinery and equipment for the lock gates. Other items to be procured through ICB (about $95 million) are available domestically and, based on experience with previous Bank-financed irrigation and power projects, it is expected that Romanian manufacturers and suppliers would be successful in bidding for most of these items. Cost estimates are based on the conversion rate of US$1 = lei 18. The balance of equipment and construction materials would be procured under Romanian procedures and would not be eligible for financing under the proposed Bank loan. The Bank would not be financing construction works under the project which would be carried out by the Romanian Construction Trusts which are familiar with local conditions, methods and regulations.

Disbursements

67. The proposed Bank loan of $100 million would be disbursed for (i) 100 percent of foreign expenditures for imported equipment, spare parts and construction materials procured through international competitive bidding; and (ii) 100 percent of the ex-factory price of equipment, spare parts and construction materials manufactured or supplied locally and procured through international competitive bidding.

Benefits and Risks

68. The total program as described in para. 60 would enlarge and improve transport capacity in the most critical and important transport corridor in the country (see para. 36) by establishing a direct canal link between the Danube and the new deep-water facilities at the port of South Constanta-Agigea which will be able to handle bulk carriers. Other alternatives were carefully considered, but were rejected as being infeasible or less attractive economically than the proposed project. The benefits for the Romanian economy of using its low cost energy saving inland waterway system more fully for the movement of large volumes of bulk cargo mainly consisting of imported raw materials would be considerable; as would the benefits generated from savings in ocean freight costs as a result of using large bulk carriers. Completion of the project would make it economical to improve several of the tributaries of the Danube within the borders of Romania and incorporate them into the waterway network. As noted in para. 60 the project would benefit other Danubian countries, includiingAustria, Yugoslavia and the Federal Republic of Germany, and with the completion of the Rhine-Main-Danube Canal in 1984, the project would become an integral part of the European waterway system. The project would also help accelerate the economic development of the Dobrogea region through which the Canal runs--one of the poorer regions of Romania--and provide local irrigation and power benefits. In 1985, it is estimated that about 51 million tons of traffic would move through the canal, of which about 7 million tons would be international transit traffic. By 2000, total traffic would rise to about 100 miLlion tons, of which about 14 million tons would be international transit traffic. These estimates are based to a great degree on specific projects which are already under or will begin construction in the near future. They reflect the expected growth and diversification of the Romanian economy in the 1980's, as well as Romania's growing dependence on the external sector in the future. Because projected traffic volumes predominantly consists of bulk cargo, barge transport is inherently the most effective mode. Moreover, in Romania alternative transport modes are treated as complementary rather than competitive, and MTTc is responsible for modal allocation of traffic. Given the clear cost and energy saving advantages of barge transport, MTTc will allocate the traffic to the project facilities. In addition, the available alternative transport facilities, essentially rail, along the routes to be served by the project are already operating near full capacity and could not handle the projected traffic. For the purposes of the economic evaluation, the complete works, including the project which the Bank would help finance, as well as the other works described in para. 60, were considered. The economic evaluation of the project was carried out in two stages. A least cost analysis compared the cost of constructing the canal to the cost of constructing railway capacity additional to the present double track railway line, which was the "next-best" alternative. The canal was found to be the least cost approach for discount rates at or below 24 percent excluding sunk costs and 16 percent including sunk costs. This result held true even when its traffic volumes and cost estimates were varied in a manner adverse to the canal alternative. The second stage was to estimate the economic rate of return for the project. This is estimated at 25 percent excluding sunk costs and 19 percent including sunk costs. The sensitivity analysis shows that a 20 percent reduction in project benefits reduces the economic return to 18 and 12 percent respectively. However our assumptions with respect to traffic projec- tions are conservative (see para. 69), and this outcome is considered unlikely. This compares very favorably with return expectations for similar investments in other countries.

69. The clear economlic justification for the project and the planned nature of the Romanian economy which helps ensure that traffic forecasts will be realized reduce the risks that otherwise might be expected in this project. - 22 -

One risk to the project is the uncertainty of the export prospects of its principal user industries - steel and chemicals. The future of these two industry subsectors has been the subject of a separate examination by the Bank. The conclusions of this work indicate that the risk is small in the case of the steel industry, whose exports will be largely in the form of manufactured goods, which will not use the canal for shipment out of Romania. For the chemical industry, the risk of export shortfalls is much greater. But these are expected to be only a small portion of the forecast traffic and in the event that they did occur, these items would be consumed domestically and a proportion of them would be transported on the canal to meet market demand in the Dobrogea region. A second risk to the project would be a shortfall in the volume of imported raw materials transported on the canal to Romanian destinations. Our traffic assumptions with regard to this are conservative and are based on production targets, planned plant location, raw material requirements and export estimates made during the separate examination of the two subsectors, which estimates themselves are conservative. We expect that physical implementation will be completed and will not be subject to serious delay since construction is well underway, and that the canal will be efficiently run once it is open to traffic.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

70. The draft Loan Agreement between the Bank and the Investment Bank of Romania, the draft Guarantee Agreement between the Socialist Republic of Romania and the Bank, and the report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement are being distributed to the Executive Directors separately.

71. Features of the project of special interest are listed in Section III of Annex III. 1

72. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank.

PART VI - RECOMMENDATION

73. I recommend that the Executive Directors approve the proposed loan.

Robert S. McNamara President by I.P.M. Cargill

Attachments December 26, 1979 Washington, D.C. - 23 - ANNEX I Page 1 of 5 pages

SAJLE 3A ROMANIA- SOC3 INDICATORS DATA SHEET

REFERENCEGROUPS (ADJUSTED AXERAGES LAND AA (TOUSAND A - OST RECENT ESTIMATE) - TOTAL . 237.5 SAME SAME NEXT HIGHER ACRICULTURAL 149.6 MST RECENT GEOGRAPHIC INCOH1 INCOHE 1960 /b 1970 /b ESTIMATE /b REGION Ic GROUP/d GROUP1.

GNP PER CAPITA (US3) 180.0 510.0 1750.0 2906.3 1942.6 3075.3

ENERGYCONSUMPTION PER CAPITA (XILOGRABSOF COAL EQUIVALENT) 1342.0 3013.0 4036.0 2033.2 1646.7 2518.6

POPULATIONAND VITAL STAISNS)ICS POPULATION,DID-YEAR (MTLLIONS) 18.4 20.4 21.6 UEJA1 POPULATION(PERCENT OF TOTAL) 33.7 40.8 44.0 56.3 51,2 72.1

POPULATIONPROJECTIONS POPULAtION IN YEAR 2000 (MILLIONS) 26.0 STATIONARY POPULATION(MILLIONS) 30.0 YEAR STATIONA9Y POPULATIONIS REACIED 2095

POPULATIONDENSITY PER SQ. EN. 77.0 85.0 91.0 81.5 28.2 33.5 PER SQ. KM. AGRICULTURALLAND 126.0 135.0 144.0 138.8 100.5 91.3

POPULATIONAGE STRUCTURE(PERCENT) 0-14 YRS. 28.2 25.9 26.0 25.6 35.4 33.3 15-64 YIS. 65.1 65.5 65.0 62.9 56.3 57.5 65 YES. AND ABOVE 6.7 8.6 9.0 10.2 5.1 5.7

POPULATIONGROWTH RATE (PERtCENT) TOTAL 1.2 1.0 0.9 0.9 1.7 2.1 URBAN 3.8 2.8 2.5 2.6 3.0

CRUDE 3tRSTHRATE (PER THOUSAND) 20.0 20.0 19.0 18.5 27.5 31.4 CRUDE DEATHRATE (PER THOUSAND) 9.0 9.0 9.0 9.2 9.2 8.2 GROSS REPRODUCTIONRATE 1.2 1.3 1.2 1.2 1.8 1.9 FAMILY PLANNING ACCEPTORS, ANNUAL(THOUSANDS) ...... USERS (PERCENT OF MARRIEDWOMEN) ......

FOODAND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 85.6 89.0 140.0 115.7 102.0 98.7

PER CAPITA SUPPLY OF CALORIES (PERCEYT OF REQUIREMENTS) 105.0 118.0 123.01L 134.2 120.8 112.7 PROTE1NS (GRAMS PER DAYI 81.0 92.0 96.719 95.4 80.9 70.3 OF WHICH ANIMALAND PiULSE 24.0 28.0 .. 45.4 31.3

CHILD (AGES 1-4) MORTALIY RATE 3.0 2.4 1.0 1.3 5.1 2.5

HEALTH LIFE EXPECTANCYAT 8IRTH (YEARS) 64.0 69.0 70.0 70.0 65.6 68.7 INFANT MORTALITYRATE (PER THOUSAND) 75.7 49.4 31.0 31.5 45.5 20.8

ACCESS TO SAFE UATER (PERCENT OF POPULATION) TOTAL ...... 69.4 73.9 URBAN ...... 85.1 94.6 RURAL ...... 43.0 64.6

ACCESS TO EXCRETADISPOSAL (PERCENT Of POPULATION) TOTAL ...... 70.1 URBAN ...... 88.3 RURAL ...... 33.2

POPULATIONPER PHYSICIAN 780.0/f 840.0/i 750.0 661.6 1343.2 981.8 POPULATIONPER YURSING PERSON 620.0/f .. 590.0 677.1 765.0 397.8 POPULATION PER HOSPtTAL ISED TOTAL 130.01f 120.0 108.0 180.1 197.6 240.6 UR8AN 5so.67? 50.0 60.0 ., 260.2 RURAL 620.07f 770.0 730.0 .. 1055.0

ADIUlSSIONS PER HOSPITAL SED .. 23.0 .. 15.3 17.3 19.2

HOUSING AVERAGEStZE OF HOUSEHOLD TOTAL .. 3.2/h .. .. 4.7 URBAN .. 2.8/h .. ,. 4.4 RURAL .. 3.4/h .. .. 5.1

AVERAGENU8BER OF PERSONS PER ROOM TOTAL .. 1.4/h .. .. 1.1 URBAN .. 1.3/h .. . 1.2 RURAL .. 1.4/h .. . 1.2

ACCESS TO ELECTRICITY (IERCENT OF DWELLINGS) TOTAL .. 49.0/h .. .. 66.0 URA8N .. 86.0Th .. .. 85.1 RURAL .. 27.075o .. -24 - AMNEXI Page 2 of 5 pages TASLE 3A ROMANIA - SOCIAL LIDICATORS DATA SHLET

NEFERENCE CROUPS (ADJUSTED 'AMERAGUS ROMANIA - MOST RECENT ESTIMATE) '& SAME SAME NEXT HIGHER HGSTRECENT GEOGRAPHIC DNCOME 04CfXE 1960 /b 1970 /b ESTIMATE /b REGION /c GROuP /Id CROUP /0 EDUCATION ADJUSTED ENROLLMENTRATIOS PRIMARY: TOTAL 98.0 113.0 109.0 105.7 101.7 107.6 MALE 101.0 112.0 110.0 107.1 110.0 FEMALE 95.0 114.0 108.0 104.5 92.8

SECONDARY: TOTAL 24.0 45.0 *62.0 65.9 51.2 39.7 IALE 27.0 51.0 65.0 70.3 56.4 FEMALE 22.0 38.0 59 0 62.2 43.7

VOCATIONAL ENROL. (2 OF SECONDARY) 54.0 58.0 70.0 20.4 18.3

PUPrL-TEACHZR RATIO PRIMaRY 25.0 21.0 21.0 26.7 27.1 SECONDARY 16.0 18.0 19.0 .. 25.3

AD3LT LITERACY RATE (PERCENT) .. . 98.0 *- 86.1

CONSUMPTION PASSENGER CARS PER TNOUSAND POPULATION ...... 105.5 53.4 68.1 RADIO RECEIVERS PER THOUSAND POPULATION 109.0 152.0 146.0 233.7 225.9 210.3 TV RECEIVERS PER THOUSAND POPULATION 3.0 73.0 120.0 148.0 102.6 117.7 NEWSPAPER ("DAILY GENERAL INTERESTI") CIRCULATION PER THOUSAND POPULATION 147.0 169.0 129.0 .. 78.5 CiNEMA ANNUALATTENDANCE PER CAPITA 9.0 9.8 8.7 6.4 3.6

LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 9600.0 9900.0 10200.0 FElALE (PERCENT) 44.9 45 44.6 32.3 24.5 27.2 AGRICULTURE (PERCENT) 64.5 49.o 3414 25.8 28.9 23.8 INDUSTRY (PERCENT) 20.5 23.0 32.7 33.1 30.6

PARTICIPATION RATE (PECENT) TOTAL 57.1 56.0 55.9 37.6 33.8 40.1 MALE 64.5 63.3 62.8 57.0 51.3 55.7 FEMALE 50.1 49.0 49.1 28.0 16.3 24.7

ECONOMIC DEPENDENCY RATIO 0.7 0.7 0.7 1.0 1.3 1.0

INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY RICHEST 5 PERCENT OF HOUSEHOLDS ...... HIGHEST 20 PERCENT OF HOUSEHOLDS ...... 47.9 57.6 LOWEST 20 PERCENT OF HOUSEROLDS ...... 5.0 3.4 LOWEST 40 PERCENT OF HOUSEHOLDS ...... 15.4 11.0

POVERTY TARGET GROLUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN ...... RURAL ......

ESTIMATED RELATIVE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. 378.0 .. 550.0 RURAL *- '- 378.0 436.1 403.4

ESTIMATED POPULATION BEM.OWABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN ...... RURAL ......

Not available Not applicable. NOTES

/a The adjusted group averages for each indicator are population-eighted geomecric means, excluding the extresm values of the indicator and the most populated country in each group. Coverage of coumtries among the indicators depends on availability of data and is not uniform.

/b Unless otherwise noted, data for 1960 refer co any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1974 and 1977.

/c Europe; /d Upper Middle Income (51136-2500 per capita. 1976); /e Nigh Income (over $2500 per capita. 1976); /f 1962; LE Av. 1972-74; /b 1966; /L WHO estimate.

Mosc Recent Estimate of GNP per capita is for 1978.

AuguSt, 1979 -25- ANNEX'I =Tmn OF $WI" nrAn Page 3tTf 5 pages tineAlnsishthe ate rab fina cercese sunrelir JsdS the ant inthoitatie end remlleI, it absld ejas be Lacted noat tbq Lw not be interma- t1 i earbehras fthe 1.0k of stamdardiand defletiane id amcenptused by diffeint c0atin.t L. eolleti.g the dt.. The data are, momsthelean, useful to describe orders of maiistde, indimle trame, ned charastemne certain -Jov dlfferwsens hotessa countrien. The p4pflgdgrepewrmp for neck indicator ens mopalemi"e-wigtnd gnomestricsass, excluding the esine uan of thnidctredi. . uuan ccunijWiUj9ijZ~hIito lark of data, group scenges,o all indicsatrs for Capital lUIrpis Oil Exportnrs aed of indicators of Accessto Waterand borate Disposal, Mosains, woranDictribtion and Fwenty fon othe otey apsm nraopsletion-weidttnd geometrio mmmsi~iit t eb-imb of the estram Xcuiinad the moet poPaIted retry. Biase the of orut mine: the imad4atw M,its - emelabilit. of date -adis not aicecaution miniberarcoied inrelatian_e.r be cuie r a) uso_n_a5ao~_onohrieful asym imaitian or eixsrtnd- " Mins ynb CannnEnf the rabiesofa indicator at a tiNE pM the etntrar end refereo* Wasps. iAnS AliA (thnsuesd sq.h.) Acewes to borate iwsl(eoo o ouain. otl rs dsr ~TtTotal_sorterarea rnqsr 'on lend are.a nd inijmd waters lie fpol ttl ob,nd7nl evd yeesadson WMutsri-ttrncst ci..t.-.u of Wgirultsral .r.e used tmeprarily per.og.t.s of noair repecti-e pyoplations. berets disposal ap Inolsds on pessatly for crops, peatures, marist end knithon gerd or to the collection end disposal, win or without treattent, of luame scenstn im. fallos. sod cats-water by wtatr-bone synstes or the ass of pit privies and s.iler casta.llatioo.. glaMCMA rA 7(MA - GPEPpr.capita setimaten at correal nerirt prices., 9p4lpp 4in-Ppulation divded by -encr of prsotiriog plysictaea iliIiad Wii" "oorcson method as Wonld Isak Atlas (1976-78 basic); jtflUNiYod~e school at Zni-rety leve. 196., 1970, sod 1978 data. poaslati"o"e larsise Torsos - Population divided by -ster of preeticiag aIr SPlITY ClZRUNTRfIOPEP CAPITA - Annual o-suptis of oc. srial ... rgy cAn fsaLl gredcte -isee, practical cures., ad assistant mirses (coa oen lignite, peirolere, natural go end hydro-, onecsr -d- ab Pnfleticai sr Hospital bed - total, obs. an oeral - Papuintios (total, orbio, tis-In cloatricity) in kilgruec of coal equtrleot Pci' capita; 1960, an -Ial)divided by their rnpective asr f hopitl beds asiabri 1970, and 1976 data. poblir and privatc gorra1 and specili.ed bontpit:! asd e-ibilitatios rice Hcspita.ls arc retablisins.to perenet]y staffed by at least cu iecso. PORUIATIONIAll) VITAL STATISTICS Estails -et. providing prioripafly cutodial -e er sot inluded. Rural Total ?i,.tn idya illi.o..( Ac of Jo]4' 1; 1960, 1970, end b.hopitas occ,mmi cliedndclonrsntprnetj tfe 1977 dt,by aphsiciso, (but by a endoaLl assistant, curs, eidifc, etc.) which of fc Ulbce oplto (Rreto ttl atio of bris to total popultioc; in-peticnt accoindation and provde a liaitr9 range of erdical facilitie.. diLffvc t dcA.fitio of etFrti acssay nff-t conpn-billty of data Adnissiion pr Hospital Red - Total senior of edmissions to or discinrgca free sag oetrici; 1960, 1970, and 1975 data. heit dicidod by tic ounher of hedu. PrisoletionPrj ectibon Popultoni ea c-fecet popilotioc projectiiin err based on HOUSING 1975 tota jpopulation by ag sod cc sod thric euctlity sod fertility Avre leoin ~Hseii hl prsons ver b-uoh.1d) - total. ric and meal - eae.Poetion peran.ror foe sortality ratcs c-speic of threc AiecidosIseof a grop of individuals soc shars living quince and Ic-ei ausesig I fc vopccten at bitth inteussci cootry's turic sain arelo. A boarder or lo.c my or ay not Be in-iuded In tic PIre cpito in _c1cc,nd fesalo life ropctanoy tibilisiga cohl o tatiotoa prec.. 75ar.Thc parat.re for fcrtility ratc also ihr three Ice_lo Aeeg nosir'of ocor..v. on-ttl,ubn n oal-Araensc a-cendg Zicoio in fertility nccording to moan ls-c sod past oprsPuper mo i al ubnadrral oecpivd convecilsoa duiliogo, fsnily ol nnog poefrnnec. Each coutry is then aissigned onc cf three reipctecl. oding coelde non-peesanet itructur and u-occpicd psrto. nie ombinatioso of sociality ci f-ettlity trcnde for projectionAcest tlcerilit (croc-t of dwvllinao) -toa.ib,ndral-C- pirpos...ctional deliligs cth electricity in liringqate ccp etage of Stttionc p.pooclation - to a utatiocury popeitioc three is no grooth total, uric, sod cora dellinga -vp-tiv-ly. sues the birth rate ie etesi to thc death atc, soi also tic oge strocturt rtais contant.Tis if achievd only after fertility rateo EMATIl9N dellio toti repacevt lviofeuot rcproductioc rate, oh.a Aj-cted Enrolnment Patios "hc g"ncrtioc ofroi epinces atcclf .... ctiy. 'T'i etationa.cy po.o- Friay school - total, mai sod freale - dec.. total ale sod frea-Le -uoi- muonill ca v..itiatd'on tic bacic of tie projoeted ciara,t.reitiec _tn of all ages at tic priser lcvc as pvrocotcgc o rpo iorpemry of the popu1ctio in tic yce. 2000, sod tin rate of decilor of f-ctility c-hool-oge popeitic.Ic; n_wlly includes ciidreo gcci 6-li yvc hocb rate to repl=oert I-vi.' adjcted for diffeern lengtho of prieury education; for couctriv. cith Y.a. sta,tionar oultion Ii reheahd - The yec sirs tationcry population niversal cId_ation socoat sa coce.d itO poroct noe0c puptil sloe ins hero ecacici. cc~~~~~-ieloc or c-iic the official sciol agc. Population iccoity Pvc~~~~~~~~llondsotschooli- total, nair and fecair - Conputd as i c; ecod Pv4 =. a.-Mld-yno population per oqurec kiloevte, (110 hrotsees) of edctotcqie cI...ot for year of app-cod ey.p. itorolo; total ar_ p-oidee g-nral coctiona.l, or tearher training icat-utoi- foe popslr Per no.h.q ngrieultera1 lan - Cosputd no sio for ogriculto..lland usualy of 12 to 17 yvaro of ngv; -orcpoodvec -oun- a.. gcnvralip

SouainMtrootue rrpoct) - Childre (0-14 yvcs(), cociig-age Vont ioca -orolac- occnt -fdncci ) -Vo.ation..I -ototui- ioolode (15-64yvacs,and ctire (65 yarn ad cove) a- preovoingr of sid-ycur trohaial oretia,coticer prgr_s och operete i.d.perd.ntlyora population; 1760, 1970, sod 1977data. depryatic of seodary icetitutions. Poultion tGoh Onty (pverovt) - total - Annua growth rairo of total eid- Ppnil-tcahic ratio - cenary. and ar...iary - Total ctudeoto -iro1i ii yvc: popu.lntono for 1990-hO-, 1960-70, -i 1970-.77"t prisao'y and nccd-ry le,els dicidvd by numbero of t-ahies. - the cen Ponultlon Grocth Rtot (pe-ct) - urba - Annel growth eaten of urban pending lcenl.. pooitio_ for 1950-it, 1960-70 and 1970-75. Adult lit-eray rate )pvrcvnt) - Liteecte odo1to (able to rod nod ucite)a CdBithate I P.tiohc ai- -Anul live hirtt. peri thooad of aid- apore_tcgc of total sdit populatio aged 15 pec- and core. jibo7Polatiiill 071970 and 1977da. Crude loath Rntv cce tohour-n - Anea ictbho per th-undi of rid-yea- lltlRId ppito;19 0, 1970,7 c- 1977 data"ioS Pa-ng I C- (perr th . .a.d puua.tio-) - Pacceogee -c -up-oo ator- c Proc Perdoi.otio Rate - ieAge onhvr of diugt-ru ncoac cull bc orstiog leic than eight pe-uno; vocludco onhlance, iv--v and nilitary iher -o1a epeoductioc period If ab _operivooi pemi age- veicl_ opecifcfvrtlity rte,; uually ive-year -owrgv vodiog in 1960 Radio P-ee-ev (per thioucod populntitn) - ill typro of r-o-ocr for r.idL 0970, ad 1975. iro.icacto to gonro .. lrprtocndo ooalc colde- uclic-ed Fsoily flaning -A-Pcto-c.A-..Il)thouoand.)- A. L -b oof, eoIoIaooutie nin yeusnioitoccfrLiotuti ocopt-re of bieth-ecteol diico under onpicen of otionolt fcnily iffect; datn for -eet yra- sq ncctbe copa...hie ci-o -t.0 cooctri p-ianohi poges.. abolicied lice-oig. Foly lnnn dec ' prcn f e,ined.cos-ee -iPerooctage of carried TV Peceiv-c (per itneani popultioc( TV rcie~ for broodoant to geocra conof- hl-bcig g (i-iyer) u bbiiti,-cntrol dviccob uiii pee thnecadpoeti; ecluvo nicenoe,dfTVecicr iccountrie to all curied coven in cane agc group. ad ic ypvc che regiotratton ofTV Itm _cinff eti. Nrospaper Ciroolation (per tihoradipopltin-lcetcovrgoscaic FOOD AND NTifTRITTCN of 'al eea io etoeppR, teiac2tn hpreithoci puhica ilo Indie of Focd Production per Ccpita (19691-71=1 - Ind- of pvec-piti devoted priacily to recording geoal ccci.n fItcconaid-red to he 'doi1y" anolprodutilc of all fooZ osdie.Pod uct)ton vcludec ccc ad if it eppears at leatI ou ti-ecacek, fcv sd iicccaendar yecr Idc. Coaoi ti. c-vee pricory goode Ci-em AnounI Atteticoc per Capote -e Pear - B-od cc tic l-eur h fti-keto (e.g.ouaae instead of.sugar) thlci-arc dilte and cootoinoocrie-t i-1i doriog tie year, -ocldiog adti-c.. to drive-ic cionao i-i noble (eg coffe Ined tea are ccc drd). Ag grrrte production of cool coutry mt iu btoed or net ioa aveag producer price clghts. Per ccci~to oppiY o ceois (percet of esui--tenc) - Computed from LABORcPOtCO v-rgy equiv.leot of net food -uppliec -vilbile in country p-ee cpita Totalblhr Piece(tihoca-ic - E-n-mi-aly -ct-c perroc ocuo acd per day. A_eilbhe cuppliec _onprio doar~ti Leprod_ction, ap_to Illo force, cd un-picyrd lo cooding hou-ivoc_, otodtets, etc lefio'it__o roport,, and hangre irstock. Net ouppliec coolode anical feed, reed,, Lcevairi-o ctri-o aretcot ocarII. untiticcued cc foci proceos_g, ad licc.. i d-tbteiotlo. Reqeire- Penn l _erceoltr) - Penile Pucel force t peceotage of ti to1 lat. force veete cere ecticiaed bp PhF he cc phyiological cre1do"foe coca 9geltrce .pcpeo L oreIcfmn,forctry, hunting and acilviaod heathn cocterioc rde 'unetca tropertr, o 4 -eghto, fichiog co percentage of toto1 1hbe force. agean 1oro ditr,ibtic-o, f popooti-, and al11-log 10 peeceot for Induotry (percnt) - Lour force in ain,g, cotc -),nao tcorieg aid nateIat Iouhld le_v. electr-itp, enter and gao I. peec-tage oftotlIcbe force. Per tpt opp o protect (g-un per day) - P-cte,e-t-et .' poe, Peocnloht pret oa,ae n cie-Peiio no capita -ct -uppl f foo peay. Ne~t cupl f fodc cl naticityl entertare copoted Iu totl r0 o eoriirfrcet pr ab-oc. hequir--ee foe ali oc-utrie- 1c toPblYohed ipUSA pro-lde foe a -ctaget of total, nile andfial popuicicc of cliage "eieot%olp;I nioiesccs aluce, of £0 gec of totol p-ri.ti per dy and 2P grae of 1)60, 191,ad 1975 dat.Th-ei cc 11,0't pcntccipctconrateoreflccte anice cd po1ue protein, of hcih 10 g-sn ohould be animal protein. ge-c_ot-utor of.thepopulation, and long tie teend. A fec ettinatec Tece taad-- are -eer tban tione of 75 gron of total protein and ar frococolo.il oco_e,. PS ean of -ne prot eco I to a_erge for the -1d, propoced bp PAP fnrocnl Peeiny Ratlc - tiOl cf popoltioc under iS and 65 cod over to ic tie Ticd Woreld ood Porvy. tie laborfcdrocinc age group of 15-hi yer.- Per _cipttprotein -upepy Peon noinl and pule - Foteic -opply of foci derce rm n i so uc,i rn e a.INCO0M DISTRIBUTIPP Chl .oe1I_) Sisettltyht pethdad(- An-ua dentho prtho-cad Percentage ofPrvt[coe(o 00ahanhid - Pecovdh ihe in age groo pi_-pea,., to children in tii g rop u ont dcccl poecc-t, richeat Pt pIernt, poorest 20 pere..et, and pcoreut 40 percent opiog ... ontriec dote d-rtoed fror life toitoc. tf tosholde.

ILEALT POVERTYTARdbFT GRO10S Life Eporet-ey at B-rth (y-a,p - AIvrgo rnter df yeco of life Elumnted A-iclte Poveetp Ticcoo Icede 01$ per ospi to) - orba nod rurl1 reaon t birth; i196, 1970, and 1977. dita. Abcolote povety iocoso level I thait incca 1e-vl hello ohih i ni.iil infant Mortali ty Rite (per thouand( _-Anua deatho of ifanto under one -utr-tih..aily edequate diet plus ec-etia1 con-foodeculrn cc noct pec of ago per thcu-sd lice tirtoc. affo_dbte. dArst, ufCoe proto popolatioc - totl uric end,road - Fetimated Poitic- P-oerty In-oc leonl (ul$ per -apt) - -bIrha and c-ci Nmeofpeopl 'tocel, ore an ua ithreasnalacrs t PRat- catv po-tyrip -oelel is ann-thirdo aegepreenpita ratrspply - iclodec treated orf-ce enters or anrae u ennibon ftecIty eanlclI eoe eothe r-r1 le-c osotoninted -toer such no that from protected crb-hl-r, upringr, ccit ad-ut-ct fcr hIgher cost of lvn cuhncc, and celtery cello) as pre-ttage of thei r,ecpertio popslnti...u. In ta ted Pcltc ro mide s ty Incom Leve ( ct' - uri and anurc rc public fountnin or scandpo loae ntsrehnrul- Perevnt of ppulotico (rine andrual sh -e ahe-lte por" 200 cotorofro L_ Icuee may he -ocdere,d a cn recnabl Ic-co f that house.Inorlcas erosvcale owrc_oud inPly that tie hcuecie or "nv", of the bu-child do tot hi-r to ipeed E.i...occ and local Data Di--n dhuprcp i'tir parIt of the day sn fetotbog tic fnity'. ceter iredo O-o-ii d-ly-s and Pr-pecct-n Pepacteot -26- ANNEX I Pg 2 -of 5 pages

ECONOMICINDICATORS

GROSS NATIONALPRODUCT IN 1978

US$M1n. % 1961-65 1966-70 1971-75 1975-78

GNP at Market Prices 36,040 100.0 9.0/ 7.71/ 11.32' 9.1I Gross Fixed Domestic Investmrent 10,905 30.3 11.3 11.2 11.2 11.9 Gross National Saving 10,126 28.1 Current Account Balance -779 2.2 22 Export of Goods, RFS 8,639 24.0 9 . OV3 10. 049 23.6'vI1..5v Imports of Goods, NFS 9,174 25.5 10 .7 VJ31 12.7W / 2 2 . j?3 2

OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1978

National Income-" Labor Force N.I. Per Worker US$Bln. S Min UBU_ S

Agriculture 4.46 15.3 3.36 32.7 1,327 46.8 Industry 16.87 57.9 3.41 33.2 4,947 174.6 Construction 2.97 10.2 0.92 8.9 3,228 113.9 Other5- 4.83 16.6 2.59 25.2 1,865 65.8

Total/Average 29.13 100.0 10.28 100.0 2,834 100.0

GOVERNMENT FINANCE IN 1978

Central Government Lei Billions % of GDP

Total Receipts 300.8 52.4 Total Expenditures 299.3 52.1 Total Surplus 1.5 0.3

MONEY, CREDIT AND PRICES (in billions of Lei, end of year)

1975 1976 1977 1978

Money Supply 176.4 201.4 207.5 232.5 Short-Term Bank Credit 170.2 194.0 194.5 212.8 Retail Prices (1975 = 100) 103.9 104.4 105.0 107.3 Percentage Changes in Retail Prices 0.2 0.5 0.5 2.2

AJ Growth rate of national income ENENA CP1D 2/ In current prices 3/ Growth rates of exports and imports only. it System of material production methodology. December 18, 1979 5/ Includes net output of the non-productive sector. - 27 - ANNEX I Page 5 of 5 pages

BALANCEOF PAYMENTS(Convertible Currencies) MERCHANDISE EXPORTS 19T8 All Currencies)

1971 1978 US $ Mln % (Millions US $) Exports of Goods and NFS +944 3,983 4,459 Capital goods 2,289 28 Imports of Goods and NFS -988 4,080 5,018 Consumer goods 1,405 17 Resource Gap (deficit = -) -44 -97 -559 Foodstuffs 784 10 Intermediate goods 667 8 Interest Payments -40 -195 -168 Raw materials 2,911 37 Other Factor Payments (net) -25 +19 -52 Industrial 2,538 32 Balance on Current Account -109 -273 -779 Agricultural 373 5

Total 8,056 100 Direct Foreign Investment Net MLT Borrowingi! Disbursements +312 +928 1,167 EXTERNAL DEBT (June 30, 1979) Amortization -190 -561 602 Subtotal +122 +367 +565 US $ Mln Export Credits Extended3/(net) 2/ -171 -186 Short-Term Credit (net) -20 +156 +441 Total M and LT 5,359 Net Errors and Omission - - -1 of which convertible Increase in Reserves (+) -7 +32 +49 currencies 5,817

Fuel and Related Materials Imports 635.6 2,622.1 3,346.5 of which Oil and Oil Products 36.6 875.4 n.a. Exports 425.5 1,463.0 1,800.2 DEBT SERVICE RATIO % of which Oil and Oil Products 143.0 688.1 n.a. Convertible currencies only 19.4

EXCHANGE RATES

1. Official Rate

Before August 1971 6 lei:US$1 August 1971-February 1973 5.53 lei:US$l February 1973-March 1978 14.97lei:US$l Since March 1978 :4.47 lei:US$l

2. Tourist Rate

Before August 1971 18 lei:US$l August 1971-February 1973 16 lei:US$l February 1973-October 1974 114.35lei:US$1 Since October 1974 12 lei:US$l

3. Converstion Rate for Traded Goods

July 1973 - March 1978 20 lei:US$l Since March 1978 18 lei:US$l

/ Includes use of IMF credit. EMENA CP1D V Included in M and LT Capital. / Includes S, M and LT credits extended. December 18, 1979 28- ANEX II Page 1 of 6 pages

STATUSOF BANK GROUP OPERATIONS IN ROMANIA STATEMENT OF BANKLOANS (A of November 30, 1979

us$ Million Amount (less cancellations) Loan Number Year Borrower Purpose Bank TW IDA Undisbursed

Three loans fully disbursed 150.0 -

Ln. 1020-RO 1974 Investment Bank Fertilizer 60.0 5.0

Ln. 1027-RO 1975 Investment Bank Special Steel 70.0 .6

Ln. 1083-RO 1975 BAFI a/ Agricultural Credit 30.0 3.4

Ln. 1169-RO 1976 BAFI Flood Recovery 40.0 1.9

Ln. 1242-RO 1976 Investment Bank Hydropower 50.0 14.3

Ln. 1247-RC 1976 BAFI Irrigation 6o.o 15.6

Ln. 1368-RO 1977 BAFI Irrigation 6o.o 29.6

Ln. 1436-RH 1977 Investment Bank Bearings 38.0 25.1

Ln. 1447-RO 1977 Investment Bank Glass Fiber 18.3 2.0

Ln. 1448-RO 1977 Investment Bank Polyester 50.0 20.1

Ln. 1479-RO 1978 BAFI AgriculturalCredit 71.0 45.1

Ln. 1509-RO 1978 BAFI Irrigation 40.5 39.4

Ln. 1536-RH 1978 Investment Bank Tire 85.0 77.4

Ln. 1581-RO 1978 Investment Bank Post Earthquake 6o.o 47.0

Ln. 1634-RO 1979 InvestmentBank Chemicals 40.0 33.9

Ln. 1651-RO 1979 Investment Bank Pipe 40.0 40.0

Ln. 1652-RO 1979 Investment Bank Thermal Power 70.0 63.8

Ln. 1669-RO 1979 BAFI Livestock 75.0 67.1

Ln. 1670-RO 1979 BAFI Irrigation 70.0 70.0

Total 1,177.8 c/ 601.3 of which has been repaid 7.3

Total nov outstanding 1,170.5

Amount sold 19.8

of which repaid 5.9 13.9

Total now paid by Bank b/ 1,156.6

Total undisbursed 601.3

a/ Bank for Agriculture and Food Industry b/ Excluding exchange adjustments c/ In addition, a $85 million loan for the Third Livestqck Project was approved by the Executive Directors on October 30, 1979, and was signed on December 17, 1979. Also a $100 million loan for the Danube-Black Sea Canal Project is to be considered by the Executive Directors on the same date as the proposed project. - 29 - ANNEX II Page 2 of 6 pages

B. PROJECTS IN EXECUTION 1/

Ln No. 1020 Bacau Fertilizer Project; US$60 Million Loan of June 28, 1374; Date of Effectiveness: December 31, 1974; Closing Date: September 30, 1980

The project is proceeding satisfactorily after initial delays due to changes in site and project scope, and delays in design and construction. Procurement is virtually complete, and construction is nearing completion. Most plants have been commissioned, and the urea plant is expected to be the last one to be commissioned, probably before mid-1980. The final project cost is expected to be close to the appraisal estimate.

Ln No. 1027 Otelinox Special Steel Project; US$70 Million Loan of July 10, 1974; Date of Effectiveness: April 3, 1975; Closing Date: December 31, 1979

Execution of the project was delayed about one year, primarily because of the complexity of two large bid packages, the Romanians' lack of familiarity with international competitive bidding procedures under the Bank's Guidelines, and lack of interest and competition among suppliers. More recent delays have been caused by late delivery of Romanian manufactured equipment. The cold mill was commissioned in July, 1979 and construction on the bar mill is progressing in accordance with contracted schedules with commissioning expected in February, 1980. Total project costs are expected to be essentially equal to appraisal estimates. The project is now expected to be completed in 1980.

Ln No. 1028 Turceni Thermal Power Project; US$60 Million Loan of July 10, 1974; Date of Effectiveness: November 6, 1974; Closing Date: June 30, 1979

Delays in construction due to late delivery of equipment and skilled labor shortages are likely to result in a fifteen month delay in commissioning of generating units. Prcoject execution is otherwise according to plan and satisfactory. Training of future operational staff is in hand. The loan is now fully disbursed.

1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution and, in particular, to report any prob- lems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. - 30 - ANNEX II Page 3 of 6 pages

Ln No. 1083 Sadova-Corabia Agricultural Credit Project; US$30 Million Loan of February 6, 1975; Date of Effectiveness: April 29, 1975; Closing Date: December 31, 1980

Progress continues to be satisfactory in implementing subprojects. Construction of the pre-mix feed mill is satisfactory and final project procurement has been carried out under contracts tendered internationally. Disbursements amounted to US$26.6 million as of November 30, 1979 or 89 percent of the loan amount.

Ln No. 1169 Flood Recovery Project (Agricultural Component); US$40 Million Loan of November 12, 1975; Date of Effectiveness: December 2, 1975; Closing Date: December 31, 1980

Project execution is proceeding well. Equipment procured under international competitive bidding has been delivered and only small quantities of spare parts remain to be procured. Delivery of flood warning equipment is expected to be completed in 1979 and installation will extend into 1980. Disbursements as of November 30, 1979 totalled $38.1 million or 95 percent of the loan amount.

Ln No. 1242 Riul Mare Retezat Hydropower Project; US$50 Million Loan of April 28, 1976; Date of Effectiveness: July 26, 1976; Closing Date: December 31, 1981

Due to shortage of manpower, tunneling works have been delayed and mechanized excavation methods will begin early in 1980. Project execution is currently about one year behind schedule. Civil works for the dam and under- ground power station are well underway, and 100 percent of the loan amount has been committed.

Ln No. 1247 Rasova-Vederoasa Irrigation and Agriculture Development Project; US$60 Million Loan of April 28, 1976; Date of Effectiveness: November 3, 1976; Closing Date: June 30, 1981

Construction of pumping stations, canals, and other project works is progressing satisfactorily. Out of 11 dairy farms, four farms are completed and contracts for purchase of 9,130 imported heifers (100 percent of total) valued at over US$8 million have been awarded. Procurement contracts for all equipment have been awarded. The feedmill and silo in Negruvoda is near to completion and will be operational by the end of 1979. Work on soil erosion control and the land levelling is behind schedule. Disbursement as of November 30, 1979 amounts to $44.4 million or 74 percent of the loan amount.

Ln No. 1368 Ialomita-Calmatui Irrigation Project; US$60 Million Loan of March 2, 1977; Date of Effectiveness: June 23, 1977; Closing Date: June 30, 1982

Contracts for all equipment and materials have been awarded. Some construction equipment and about 35 percent of pipe has been delivered. - 31 - ANNEX II Page 4 of 6 pages

Construction of project works is underway, progress is satisfactory, and are about 40 percent complete. In 1979 about 18,000 ha have been irrigated. Works on surface and tile drains are behind schedule. Disbursements as of November 30, 1979 amounted to $30.4 million or 51 percent of the loan amount.

Ln No. 1436 Brasov Bearings Project; US$38 Million Loan of June 15, 1977; Date of Eff'ectiveness: August 11, 1977; Closing Date: December 31, 1982

Contracts on most major packages have now been signed and implementation of the project is proceeding satisfactorily. Project costs are expected to be close to, or slightly over, appraisal estimates, according to the initial cost data and overall economic aspects of the project look some- what more favorable due to the improved market outlook, improved product mix, and changes in project design to achieve lower product costs.

Ln No. 1447 Bucharest Glass Fiber Project; US$18.3 Million Loan of June 15, 1977; Date of Effectiveness: August 11, 1977; Closing Date: June 30, 1980

Project implementation is progressing satisfactorily. The Bank has reviewed the procurement of roving machines and has decided that procedures undertaken by the Borrower were inconsistent with those required under the Loan Agreement. Therefore the portion of the loan (US$197,080) that would have otherwise been eligible for disbursement has been cancelled. The procurement of equipment for Section II (Spinning) financed by the Bank is nearly completed. However, start-up of this section is now expected before end of March, 1980 with about 12 months delay behind appraisal estimate. This is mainly due to civil construction delays because of severe winter conditions and also delays in imported equipment delivery and erection. Commissioning and three-shift operation is targeted for June 1980.

Ln No. 1448 Cimpulung-Muscel Polyester Project; US$50 Million Loan of June 15, 1977; Date of Effectiveness: October 3, 1977; Closing Date: March 31, 1981

The main supply contract has been signed, and execution of the project is proceeding satisfactorily with production still expected to begin in the second quarter as planned.

Ln No. 1479 Pig Production and Processing Project; US$71 Million Loan of July 15, 1977; Date of Effectiveness: September 28, 1977; Closing Date: June 30, 1982

The project represents the Bank's first participation in Romania in a development plan on a nationwide basis. It provides for the development of a large multiplier herd, establishment of testing and selection centers, expansion of industrialized swine production, and provision of slaughtering and processing facilities. Project implementation is proceeding satisfactorily. Construction materials and slaughterhouse equipment procurement under ICB is almost complete. Disbursements as of November 30, 1979 were $25.9 million or 36.5 percent of the loan amount. - 32 - ANNEX II Page 5 of 6 pages

Ln No. 1509 Viisoara Irrigation Project; US$40.5 Million Loan of January 27, 1978; Date of Effectiveness: May 15, 1978; Closing Date: December 31, 1983

Bids for all procurement contracts were received in November and December, 1978, and almost all contracts have been awarded. Construction of project works is proceeding satisfactorily, and about 25 percent of irrigation works have been completed. Disbursements as of November 30, 1979 were $1.1 million.

Ln No. 1536 Tires Project; US$85.0 Million Loan of March 30, 1978; Date of Effectiveness: June 9, 1978; Closing Date: December 31, 1981

Construction of the Zalau plant (truck tires) is slightly behind schedule with expected completion in the first quarter of 1980. The Turnu- Severin plant (off-the-road tires) has been delayed 17 months mainly as a result of difficulties in obtaining adequate responses from prospective suppliers of the main technology and equipment package. The Romanian Govern- ment has recently begun negotiations with prospective suppliers for the OTR package.

Ln No. 1581 Post Earthquake Construction Assistance Project; US$60.0 Million Loan of June 12, 1978; Date of Effectiveness: September 5, 1978; Closing Date: June 30, 1981

Procurement is proceeding satisfactorily. Disbursements have lagged because the amount of advance contracting has been greatly reduced, because of the use of terms which extend payments far beyond what was envis- aged, and because of delays in submitting withdrawal applications. They are expected to accelerate later this year.

Ln No. 1634 Craiova Chemical Project; US$40.0 Million Loan of January 15, 1979; Date of Effectiveness: May 2, 1979; Closing Date: December 31, 1982

Initial procurement and execution of the project are proceeding satisfactorily, and the final commissioning is expected by end 1981, as scheduled.

Ln No. 1651 Roman Seamless Pipe Project; US$40.0 Million Loan of February 26, 1979; Date of Effectiveness: July 30, 1979; Closing Date: December 31, 1982

After an initial delay of six months procurement and construction are proceeding satisfactorily, and it is expected that a contract for the main technology package will be signed very soon. - 33 - ANNEX II Page 6 of 6 pages

Ln No. 1652 Second Turceni Thermal Power Project; US$70.0 Million Loan of February 26, 1979; Date of Effectiveness: June 29, 1979; Closing Date: December 31, 1982

The project is expected to be delayed by about one year because of delays in Tuxrceni I and the necessary sequential arrangements for implementation of bothl projects. Orders for the three Bank financed 330 MW thermo- electric units have been placed.

Ln No. 1669 Second Livestock Project; US$75.0 Million Loan of April 16, 1979; Date of Effectiveness: July 6, 1979; Closing Date: June 30, 1984

Progress in project implemaentation is satisfactory. Draft tender documents for procurement of construction materials were received and review comments have been communicated to the Borrower for incorporation in the revised bidding documents. Disbursements as of November 30, 1979 were $7.9 million or 11 percent of the loan amaount.

Ln No. 1670 Mostistea and Calmatui Irrigation and Drainage Project; US$70 Million Loan of April 16, 1979; Date of Effectiveness: July 16, 1979; Closing Date: June 30, 1984

Initial preparatory works are proceeding satisfactorily. Draft bidding documents for procurement of equipment and materials under ICB were received and review comments have been communicated to the Borrower for incorporation in the revised bidding documents. - 34 - ANNEX III

ROMANIA

DANUBE BLACK SEA CANAL PROJECT

SUPPLEMENTARY PROJECT DATA SHEET

Section I: Timetable of Key Events

(a) Time taken by the country to prepare the project: Not known

(b) Agency which prepared the project: Ministry of Transport and Telecommunications (MTTc)

(d) Date of first Bank mission to consider the project: March 1978

(e) Date of departure of Appraisal Mission: February 18, 1979

(f) Date of completion of negotiations: December 14, 1979

(g) Planned date of effectiveness: Within three months of loan signing

Section II: Special Bank Implementation Actions

None.

Section III: Special Conditions

(a) The Government of Romania would operate the canal on a non- discriminatory basis (para. 60);

(b) The Government of Romania would complete the other major projects it is carrying out in association with the proposed project to the extent necessary for the canal to handle forecast traffic from the time it will be opened to through traffic (para. 60);

(c) The Government of Romania has established a schedule satisfactory to the Bank for on site delivery of all construction equipment and materials as well as the permanent equipment for the project which would be financed by the Bank to ensure that the project would be completed within the planned implementation schedule (para. 59); and

(d) The Government of Romania would establish canal dues on the basis described in para. 65. 14312 ______~~ ~ ~ ~ IBRD

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