Document of The World Bank Public Disclosure Authorized

Report No: 29844

IMPLEMENTATION COMPLETION REPORT (TF-27806)

ON A

GRANT

Public Disclosure Authorized IN THE AMOUNT OF US$3.0 MILLION

TO

KOSOVO, SERBIA AND MONTENEGRO

FOR A

PRIVATE SECTOR DEVELOPMENT TECHNICAL ASSISTANCE GRANT

Public Disclosure Authorized November 10, 2004 Public Disclosure Authorized CURRENCY EQUIVALENTS (Exchange Rate Effective October 22, 2004) Currency Unit = US$ 1 Euro = US$ 1.2670 US$ 1 = Euro 0.7892 October 22, 2004 FISCAL YEAR January 1 December 31

ABBREVIATIONS AND ACRONYMS

ACCA - Association of Chartered Accountants DJA - Department of Judicial Administration EAG - Economic Assistance Grant EC - European Commission ICR - Implementation Completion Report IDA - International Development Association IFAC - International Federation of Accountants IFRS - International Financial Reporting Standards ISA - International Auditing Standards GDP - Gross Domestic Product KBSFR - Kosovo Board on Standards for Financial Reporting MFE - Ministry of Finance and Economy MTI - Ministry of Trade and Industry NBR - Registry of Business Organizations and Trade Names of Kosovo OSCE - Organization for Security and Co-operation in Europe PBR - Provisional Business Registry PISG - Provisional Institutions of Self-Government PSD TA - Private Sector Development Technical Assistance REA - Regional Enterprise Agency SCAAK - Society of Certified Accountants and Auditors of Kosovo SEEPAD - South Eastern Europe Partnership on Accountancy Development SME - Small and Medium Enterprise TSS - Transitional Support Strategy UNMIK - United Nations Interim Administration Mission in Kosovo USAID - United States Agency for International Development

Vice President: Shigeo Katsu Country Director Orsalia Kalantzopoulos Sector Director/Manager Fernando Montes-Negret/Gerardo Corrochano Task Team Leader/Task Manager: Silvia Minotti

KOSOVO PRIVATE SECTOR DEVELOPMENT TECHNICAL ASSISTANCE

CONTENTS

Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 4 5. Major Factors Affecting Implementation and Outcome 10 6. Sustainability 12 7. Bank and Borrower Performance 13 8. Lessons Learned 14 9. Partner Comments 14 10. Additional Information 17 Annex 1. Key Performance Indicators/Log Frame Matrix 22 Annex 2. Project Costs and Financing 23 Annex 3. Economic Costs and Benefits 24 Annex 4. Bank Inputs 25 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 26 Annex 6. Ratings of Bank and Borrower Performance 27 Annex 7. List of Supporting Documents 28

Project ID: P071265 Project Name: PSD TA Operation Team Leader: Silvia Minotti TL Unit: ECSPF ICR Type: Core ICR Report Date: December 6, 2004

1. Project Data Name: PSD TA Operation L/C/TF Number: TF-27806 Country/Department: KOSOVO Region: Europe and Central Asia Region Sector/subsector: Central government administration (53%); Law and justice (30%); Vocational training (17%) Theme: Regulation and competition policy (P); Legal institutions for a market economy (P); Judicial and other dispute resolution mechanisms (P); Standards and financial reporting (P); Legal services (P)

KEY DATES Original Revised/Actual PCD: 01/16/2001 Effective: 04/01/2001 06/21/2001 Appraisal: 01/17/2001 MTR: 03/31/2002 11/12/2002 Approval: 03/05/2001 Closing: 06/30/2004 09/30/2003

Borrower/Implementing Agency: UNMIK/UNMIK-PISG, Ministry of Trade and Industry, Ministry of Finance and Economy, Department of Judicial Administration Other Partners:

STAFF Current At Appraisal Vice President: Shigeo Katsu Johannes F. Linn Country Director: Orsalia Kalantzopoulos Christiaan J. Poortman Sector Director: Fernando Montes-Negret Paul J. Siegelbaum Team Leader at ICR: Silvia Minotti Gerardo M. Corrochano ICR Primary Author: Silvia Minotti

2. Principal Performance Ratings

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: H Bank Performance: S Borrower Performance: S

QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: Yes 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: Background In 1989 the autonomy of Kosovo within the Federal Republic of Yugoslavia was abrogated and a decade of social and economic hardship began, leading to the 1999 spring conflict. During that decade, Kosovo did not make any progress towards a market-based economy. Albanian Kosovars were excluded from civic life, including university education, and many of them were forced to quit their public sector jobs. Most Kosovar judges and lawyers were unable to practice their profession. The accounting infrastructure was extremely poor and restricted to bookkeeping practices utilizing outdated standards and principles. On June 10, 1999, the UN Security Council approved resolution 1244 which authorized the deployment of an international security force (KFOR) and the establishment of a UN-managed civilian administration, the UN Mission in Kosovo (UNMIK). Under this resolution, Kosovo remains a province of Serbia, but has “substantial autonomy and self-administration”.

One of UNMIK's key objectives of the post-conflict situation was the establishment of a sound legal and institutional framework for the operation of a market economy and a business environment to enable private sector growth. With support from the Bank (e.g., Economic Assistance Grants) and other donors, new commercial regulations were promulgated and new institutions were created. In this context, in order to support the newly established tax administration and to gather data on the post-conflict economic activity, in 2000 UNMIK established the Provisional Business Registry (PBR) to “register” all the businesses active in Kosovo (Regulation 2000/8 "On Business Provisional Registration of Businesses in Kosovo"). The main objective of the provisional registration was to provide a form of identification of the entities in business rather than giving legal personality to the registrants. This was the first step towards the establishment of a new business registration system. In fact, UNMIK had planned to incorporate the PBR into a new modern business registry which - following the old business registration practice - was initially to be located at the commercial court. In 2001 UNMIK established the Kosovo Board on Standards for Financial Reporting (KBSFR) with the mandate of issuing accounting and auditing standards compliant with International Financial Reporting Standards (IFRS) and International Auditing Standards (ISA), and of licensing professional accounting and auditing associations.

Implementation of the new legal and institutional framework would require significant capacity building programs. The already limited local capacity was further constrained by Kosovo's unfamiliarity with the principles of the market economy underlying the new commercial regulations and newly established institutions. In this context, UNMIK and the Bank gave priority to create/strengthen the new market institutions that would support the newly created commercial legal framework.

Objective The objective of the Private Sector Development Technical Assistance (PSD TA) project was to improve the business-enabling environment for private sector growth. Specifically the project sought to: (i) support the establishment and operation of a modern business registry system; (ii) strengthen the capacity of the commercial and supreme courts and improve the quality of legal services; and (iii) support the development of basic accounting standards, provide training for local accountants, and assist in the establishment of an association of accountants.

The project was a technical assistance operation financed by the Trust Fund for Kosovo administered by the International Development Association (IDA). The project's objectives were fully consistent with the Kosovo's Transitional Support Strategy (TSS), dated September 1999, and the TSS Progress Report, dated

- 2 - July 2000. The project was also fully in line with the Program for the Reconstruction and Recovery of Kosovo, dated November 1999, jointly prepared by the European Commission (EC) and the World Bank.

The project was an appropriate instrument to complement the policy framework supported by the Third Economic Assistance Grant to Support Private Sector Development (EAG III, 2001) which was anchored to a first set of approved commercial regulations (such as the regulation on business organizations, the regulation on contracts for the sale of goods, the regulation on pledges, and the regulation on foreign investment). The overall objective of these regulations was to allow economic actors to enter the market and operate within it. The PSD TA project became effective in June 2001, and, after being fully implemented (after a nine-month extension), it closed in June 2004.

3.2 Revised Objective: The project objectives were not revised.

3.3 Original Components: In order to achieve the stated development objectives, the project included the following four components:

Component 1: Development of a new fully-fledged business registry (US$1.36 million) This component was intended to support the establishment and operations of a modern business registry system which would allow businesses to register under the commercial court auspices. To that end, the component was to support the following activities: (i) advisory services to assist UNMIK in: (a) drafting the new legislative/administrative instrument establishing the new business registry, and (b) designing the transitional mechanism by which existing registration functions would be transferred to the registry under the commercial court; (ii) procurement of hardware, software and other management information system applications to implement the transfer of functions and the development of the new registry; (iii) advisory services on business registry application and database development; (iv) advisory services to develop a public information campaign on the new business registration system and training of key personnel at the commercial court; and (v) advisory services to assist UNMIK with the establishment of a new pledge registry using the resources of the newly fully-fledged business registration unit. Further donor funds were to be sought for this activity.

During project preparation, the location of the new business registry was a controversial issue. As mentioned above, the business registry was foreseen to be a semi-autonomous entity located in the commercial court under the authority of the president of commercial court of Pristina. During project implementation, with the full support from the Bank, UNMIK and the Provisional Institutions of Self-Government (PISG) finally decided to adopt for Kosovo an administrative business registration system which would eliminate any court involvement. With the Administrative Direction 2002/22, (implementing UNMIK Regulation 2001/6 "On Business Organizations"), UNMIK/PISG established the Registry of Business Organizations and Trade Names of Kosovo (NBR) as an independent executive agency under the Ministry of Trade and Industry (MTI).

Because other donors decided to provide total financing for the establishment of the new pledge registry, the above mentioned activity (v) was not financed under the Grant.

Component 2: Strengthening the capacity of the Commercial and Supreme Courts and improving the quality of legal services (US$0.89 million) This component was intended to finance:

- 3 - (i) emergency training for commercial judges and selected legal practitioners, including: (a) ad-hoc training aimed at understanding the recently approved commercial regulations and business environment, improving the technical skills of judges; (b) study tours and apprenticeship programs for commercial judges to neighboring countries with well-functioning court systems; (ii) establishment of law libraries in the commercial and supreme courts accessible to legal practitioners and provision of relevant legal literature, manuals, and collections of court opinions from neighboring countries; (iii) drafting of legal commentaries for the new package of commercial regulations; (iv) pilot legal aid program to finance a small group of legal professionals who will provide legal advice to small and medium businesses free of charge or for a reduced charge.

Component 3: Development of basic accounting standards, and provision of training, and establishment of an association of accountants (US$0.52 million) This component was intended to finance: (i) advisory services to establish minimum accounting standards; (ii) training program for local accountants in basic accounting principles; (iii) procurement of hardware and software for the training of accountants; and (iv) assistance in the establishment of an association of accountants.

Component 4: Project Implementation Support (US$0.23 million) During project preparation, a Grant Accounting Unit was established within the Ministry of Finance and Economy (MFE, ex Central Fiscal Authority) to provide financial management support to all the IDA-funded projects active in Kosovo and other donor-funded programs. In this context, the project was intended to finance: (i) a financial management/implementation specialist to manage and assist with financial management and reporting requirements of the project; and (ii) local assistants to assist in project implementation.

3.4 Revised Components: Project components were not revised.

3.5 Quality at Entry: The operation was not selected for a quality at entry assessment by the Bank's Quality Assurance Group. The Implementation Completion Report (ICR) rates the quality at entry of the operation as satisfactory because: (i) the project objectives and components were fully consistent with the TSS and UNMIK's priorities of creating or strengthening the institutions for encouraging private sector growth; (ii) risks were properly identified; (iii) the project objectives proved to be realistic, robust, and relevant to local conditions; and (iv) the consultation process was adequate and benefited from the catalytic role played by the Bank, particularly with the donor community. In addition, the operation was clearly consistent with the Bank's assistance program for Kosovo. In particular, the PSD TA Project supported a parallel Bank operation - the EAG III - which focused on the enactment of the first package of commercial legislation aimed at creating the basic legal framework for a functioning market-oriented economy. In this regard, the PSD TA project contributed to the sustainability of reform efforts supported by the EAG III.

4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: The project fully achieved its development objectives, and is rated Satisfactory.

- 4 - The NBR is fully operational. The NBR implements a business registration system in line with EU best practices. No court involvement is required; the registration process is simple and transparent; registration fees are set at levels aimed at encouraging new business development; all the necessary information is available (in Albanian, Serbian and English) on the web (www.arbk.org), including registration forms, number and sequence of procedures and their cost. Systems are also in place to ensure that NBR data are made available to the Tax Administration, Customs and Statistical Office. Such a registration system minimizes compliance costs for businesses, reduces the opportunity to extract bribe, and creates incentives for the businesses operating in the grey economy to become legal. In Kosovo time required for registering a business is much shorter than in any other part of the region. It takes only one day while - according to the World Bank 2005 Doing Business Survey - business registration requires 9 days in the Former Yugoslav Republic of Macedonia, 30 in Serbia and Montenegro, and 35 in Slovenia. Kosovo's business registration system - which compares extremely well with OECD countries - is expected to increase its attractiveness as a place for doing business both for domestic and foreign investors. Being registered also makes it possible for businesses to apply for commercial banks' loans. Improvement in business sector access to finance is already visible. Loans to private sector as a percentage of GDP increased from 6.8 in December 2002 to 17.7 in December 2003.

All the judges of the commercial courts and all the judges of the supreme courts dealing with commercial cases received extensive training on the new commercial legislation and principles governing the functioning of a market economy. Commentaries of important commercial laws (such as the law on immovable property, the law on liquidation and bankruptcy, and the draft company law) were drafted and widely distributed. Two new law libraries were established and equipped with relevant legal material and are open to the public. Selected law graduates were duly trained on commercial legislation and provided free of charge legal advice to micro and small enterprises throughout Kosovo on matters such as contracts and business registration. The pilot legal aid program supported the registration of 174 new businesses. The judges and legal professionals overall evaluation of the training program was positive and some improvements to the number of cases solved by the commercial courts are already visible.

The Society of Certified Accountants and Auditors of Kosovo (SCAAK) is fully operational. Over the life of the project, SCAAK has gained the capacity to independently organize and deliver training programs in accounting by relying upon well-qualified local staff. All the 18 International Financial Reporting Standards (IFRS) adopted by the KBSFR are incorporated in SCAAK's training programs. Over 1,200 persons have been trained in accounting. Training programs are delivered throughout Kosovo, including minority areas. Demand for SCAAK's training programs continues to be strong and is sustained by SCAAK's market reputation as an independent and professional accounting association. Not only has been SCAAK delivering training for becoming certified accountants, but it also provides - upon request - tailored training services to public sector institutions (e.g., the General Auditor Office) and Kosovo-based international organizations (e.g., OSCE). SCAAK has also opened a constructive dialogue with the local university for the updating of the accounting curricula. In early October 2004, SCAAK was also granted the license to deliver training programs for auditors. As for international integration, SCAAK has established professional cooperation with the British Association of Chartered Accountants (ACCA), the South Eastern European Partnership on Accountancy Development (SEEPAD), and the Chamber of Auditors of the Czech Republic. In November 2003, SCAAK gained associate membership to the International Federation of Accountants (IFAC). This makes SCAAK the only professional association in the region to have reached such an important goal in international integration. These achievements are remarkable given the development difficulties normally faced by young institutions. Their relevance further increases if the shortage of qualified accounting skills and the poor accounting knowledge which characterized post-conflict Kosovo are taken into account.

- 5 - 4.2 Outputs by components: Component 1: Development of a new fully-fledged business registry (US$1.36 million) Overall, the outcome and achievements of this component are Satisfactory, as assessed against the following project performance indicators: (i) number of registered enterprises and turnover time of registration process; and (ii) availability of information from the business registry for tax purposes.

In compliance with the 2000 UNMIK regulation, at the end of December 2002, 54,412 businesses had registered at the PBR. The re-registration of these businesses at the NBR, which gives legal status to businesses - started in April 2003. Since July 2003, business can continue to re-register with the payment of a penalty fee. Systems are in place to ensure that NBR data - which are updated weekly - are made available to the Tax Administration, Customs and Statistical Office.

As of June 30, 2004, businesses entered into the NBR amounted to 39,191, out of which 24,183 were the re-registered businesses, and 15,008 were the new ones. Since the re-registration started, 1,687 businesses have requested to be terminated as they are no longer operational. It is likely that the number of registered and re-registered businesses will continue to increase although at a slower pace. In fact, at the end of September 2004, total number of businesses registered at the NBR amounted to 43,372.

It is highly unlikely that the number of businesses entered in the NBR will ever get close to the about 54,400 businesses registered at the PBR. In fact, according to UNMIK regulation on business provisional registration, branches/business units of the same parent business required a separate registration. This contributed to increase the total number of provisionally registered businesses. In addition, it is believed that many of these businesses were "paper enterprises" that never became operational, and others went out of business but never de-registered their enterprise. Furthermore, according to the Tax Administration, in Kosovo since 2000 about 44,800 have paid taxes at least once, while in 2003-2004 businesses that have paid taxes at least once are about 36,850.

By comparing the businesses registered/re-registered at the NBR with those registered at the Tax Administration, it emerges that: (i) about 6,500 businesses representing 15% of the businesses registered/re-registered at the NBR have never filed taxes with the Tax Administration in 2003 and 2004; (ii) of the universe of about 54,400 provisionally registered businesses, about 9,000 businesses have never re-registered at the NBR or paid taxes. As of today, it is not possible to say with certainty whether these businesses are units of the same parent business, businesses operating in the grey economy, or businesses that are no longer operational but have not de-registered; and (iii) some businesses registered with the Tax Administration might have not registered/re-registered at the NBR.

In order to reduce these discrepancies, with the support from the Bank, the NBR and Tax Administration agreed upon an action plan. This plan is being implemented in two different stages. In the first phase, the parties crossed their data with the objective of isolating the group of businesses requiring additional investigation. Then, for the businesses so identified, the Tax Administration and/or NBR (as they case might be) are undertaking inspections to check if they are still operational and working in the grey economy. Following the Bank's recommendations, the NBR has hired new inspectors and its staff currently consists of nine inspectors (in addition to the Registrar, nine employees for the registration process, one for archiving, and one local consultant for IT maintenance and operations).

As for the turnover time, the registration, including issuance of the related certificate, is done within the

- 6 - same day of submission of the application at the Pristina office. Kosovo's institutional performance compares extremely well with best performing countries (See Section 10. "Additional Information").

Component 2: Strengthening the capacity of the Commercial and Supreme Courts and improving the quality of legal services (US$0.89 million) Overall, the outcome and achievements of this component are Satisfactory despite a major procurement setback which led to some delays in implementation and required an extension of the closing date of the project from September 30, 2003, to June 30, 2004. In fact, at the beginning of the evaluation process for the selection of the consulting company, owing to inexperience, the evaluation committee opened by mistake the financial proposal at the same time as the technical proposal in violation of World Bank procurement rules. For this reason, during project implementation the rating of the component was downgraded to "Unsatisfactory". In mid-2003, once the new procurement process was successfully finalized, the rating was upgraded and remained "Satisfactory" for all the remaining implementation period.

The achievement of the project component's development objectives is assessed against the following project performance indicators: (i) number of completed cases at the commercial court; and (ii) number of judges and lawyers completing the training programs.

The training for judges involved all the supreme court judges dealing with commercial disputes (5), all the commercial courts judges (10), and one commercial court assistant. Training for lawyers was delivered to 17 law graduates (15 Kosovar Albanians and 2 representatives of minority groups) selected in close coordination with the Kosovo Bar Association. Content of the training program was defined through training need assessments undertaken in the inception phase. Training covered several topics including contract law, mortgage law, bankruptcy law, pledge law, company law, property and business registration, case management, legal reasoning and writing.

The need to adequately train the judges in the new commercial regulations and principles of market economy (and to ensure the efficient and effective use of grant resources) would require judges active participation to and ownership of the program. To that end, and to guarantee full consistency with training needs, with support from the Bank, the Department of Judicial Administration (DJA) and the consulting company widely discussed all the activities foreseen under the component with the trainees. As a result, all the judges and law graduates undertook the training programs, and expressed a positive evaluation of the entire program. However, judges of commercial courts showed a stronger ownership of the program than the judges of the supreme court. In fact, their average attendance rate was 92.7% while that of the supreme court judges was only 41.5%.

Schedules and length of the training sessions and study tours had to accommodate as much as possible the judges' workload at the courts, as there is a clear trade-off against the time judges had to dedicate to their institutional work. For instance, training for judges included an eleven-week session (between September 2003 and February 2004) and was integrated by two study tours to Slovenia (four weeks) and Austria (one week) which were completed by mid-April 2004. Despite the fact that the effectiveness of the training program will only become visible in the medium term, some improvements in the cases solved by the commercial courts can already be observed. In the first quarter after the closing date of the project (July04-Sept04), the number of cases solved at the commercial courts (158) was the highest in the period 2002-2004.

Under the component, law graduates were trained in contract law, mortgage law, the law on registration of

- 7 - immovable property, and customs procedures and regulations. Through the Regional Enterprise Agencies (REAs) network -a project supported by the European Agency for Reconstruction- these law graduates offered free of charge services in Pristina, Peja, Gjlan, Prizren and Mitrovica. The pilot legal aid program was also available through a hotline and a web-site from which inquiries could be directed to competent experts. Legal advice focused on contractual matters and business registration, and resulted in the registration of 174 new businesses. Upon request, legal support is currently available at the REAs.

The component also supported the establishment of two libraries, one at the commercial court and one at the supreme court. The libraries - which count about 1,000 law texts each - are operational, connected to internet, and open to the public. For their operations, the DJA appointed two librarians who were trained under the project. Also, under the component, over 1,000 copies of three commentaries for the laws on immovable property, liquidation and bankruptcy, and draft company law were drafted in Albanian, Serbian and English and distributed to relevant parties such as Law Faculty, Kosovo Law Center, Kosovo Judicial Institute, Kosovo Chamber of Advocates, and all the judges dealing with commercial cases.

Component 3: Development of basic accounting standards, and provision of training, and establishment of an association of accountants (US$0.52 million) The achievement of the project component's development objectives is Satisfactory, as assessed against the following project performance indicators: (i) establishment of an association of accountants; and (ii) number of trained accountants.

SCAAK was established as a non-profit organization on May 16, 2001, and is the only accounting and auditing association licensed in Kosovo by the KBSFR. SCAAK is a self-regulated institution independent from the Government, and relies upon a well-trained local staff. During project implementation, SCAAK's statute, bylaws, and governance rules were amended and brought closer to internationally recognized best practices for professional accounting associations.

In order to address Kosovo's poor accounting knowledge, SCAAK decided to develop two categories of accountants: the accounting technician and the certified accountant, and two correspondent types of training programs (pre-professional/professional) and exams (pre-professional/professional). A person becomes an accounting technician if successful in the pre-professional exam. Then, to become a certified accountant, the accounting technician with three years of relevant experience in accounting, must attend a professional training program and pass the related exam. With support from an international consultant funded under the Grant, the delivery of the first round of pre-professional training started in March 2002. So far, about 1,200 persons undertook or have been receiving training in accounting, of which 236 have passed the pre-professional exam and became accounting technicians, and 93 have successfully completed the professional program for becoming certified accountants.

Achievements exceeded targets. In fact, SCAAK has developed the capacity to deliver training programs and administer exams without relying upon international consultants. SCAAK's programs - which incorporate all the 18 IFRS adopted by the KBSFR - are delivered throughout Kosovo, including minority areas such as Mitrovica and Prizern, and despite such activities are not cost-effective. Upon demand, SCAAK also provides training programs tailored to clients' needs (e.g., General Auditor Office, and OSCE). In early October 2004, the KBSFR granted SCAAK the license for training for auditors. Related training programs are scheduled to start in mid-November 2004. All the relevant information about SCAAK's activities, including its statute and bylaws, training programs, and fee structure are available in its website (www.scaak-ks.org). SCAAK has also intensified its cooperation with the Faculty of Economics of the University of Pristina and taken the initial steps for updating the curricula in accounting

- 8 - and finance. As for international integration, as mentioned above, SCAAK has gained associate membership to IFAC, and has established professional cooperation with ACCA, SEEPAD, and the Chamber of Auditors of the Czech Republic.

SCAAK has also achieved important results for its financial self-sustainability. In the first quarter after the closing date of the project, actual revenues and local operating costs amounted respectively to Euro 70,341 and Euro 50,041 representing 41% and 25% of the total revenues and costs of the previous 12 months, or 20.3% and 11.2% of the total revenues and costs of the three-year project implementation period. Financial estimates for the year July 2004-June 2005 indicate a surplus of about Euro 80,000, that would be invested to further strengthen SCAAK's institutional capacity.

Building on the remarkable results achieved in the past three years, efforts to bring Kosovo closer to internationally recognized accounting and auditing best practices continue. SCAAK's solid market reputation and efforts to further develop accounting and auditing practices have been well-recognized by relevant stakeholders, including UNMIK/PISG, the Banking and Payments Authority of Kosovo, and the donor community. This has helped to create a consensus over Kosovo's need to continue to develop the accounting and auditing infrastructure along with EU best practices. In this process, the Bank has played a catalytic role. A few months ago, UNMIK/PISG decided to allocate some of the funds resulting from the sale of the IDA-funded line of credit - Pilot SME Line of Credit - to further develop the institutional capacity of SCAAK and the KBSFR. Following the Bank's invitation, UNMIK and PISG attended the Brussels conference jointly organized in June 2004 by the Bank and the EC to present the South East and South Central Europe program for accounting reform and institutional strengthening. At the conference, the Kosovar authorities reiterated their full commitment to continue to develop the accounting and auditing framework of Kosovo. They were also willing to consider possible participation in the proposed Bank regional project.

Component 4: Project Implementation Support (S$0.23 million) The outcome and achievement of this component are Satisfactory. During project implementation the Grant Accounting Unit provided financial management and reporting requirement support for all active IDA grants. The staff of this unit consisted of two local consultants and one international consultant who were all paid under the Grant until September 30, 2003. In July 2003, the international consultant started training the local staff of the MFE to build locally the required financial management capacity. Additional training was also provided by the Bank. As of today, with some guidance, the Grant Accounting Unit continues to fullfill financial management requirements for donor-funded projects.

4.3 Net Present Value/Economic rate of return: Not Applicable

4.4 Financial rate of return: Not Applicable

4.5 Institutional development impact: Overall, the institutional development impact of the project is rated High.

The institutional development impact of the business registry component is rated High. The NBR - which is considered a permanent pillar of the Kosovar market economy - has been successful in implementing an administrative business registration system which is in line with Western European best practices, and is designed to support the legalization of unregistered businesses. The rating is also supported by the fact that

- 9 - the business registration is implemented by NBR' s staff which is entirely local.

The institutional development impact of the judicial component is rated Substantial. The project strengthened commercial judges understanding of the new commercial regulations and increased their familiarity with the principles underlying the functioning of any modern market economy. Also, under the pilot legal aid scheme, the legal services provided by the selected law graduates resulted in the registration of 174 new businesses.

The institutional development impact of the accounting component is rated High. SCAAK is also considered an important institution of the Kosovo's economy. Thanks to a well-trained and motivated staff, SCAAK has developed into a professional institution with a good reputation both in the domestic market and in the region. SCAAK's market reputation is supported by its associated membership in IFAC, and is demonstrated by the strong demand for SCAAK pre-professional, professional and tailored training programs. Finally, the actual data available for the first quarter after the closing date of the project confirm the increase of SCAAK's revenues experienced over project implementation, and its potential to further grow.

The institutional development impact of the project implementation support component is rated Modest as the local capacity has been developed only recently.

5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: A good policy dialogue with the authorities led to the adoption of a business registration system with no court involvement.

The implementation and outcome of the judicial component benefited from strong donor coordination which contributed to the identification of a proper network for the delivery of the legal aid services to the business sector. Also, the genuine commitment of the consulting company was critical for the successful implementation of the component activities.

In the early stage of project implementation, SCAAK's institutional building program was negatively affected by significant difficulties in attracting and retaining well-qualified international consultants. The risk of a high turnover of international consultants - which had been, inter alia, clearly identified during the project preparation - resulted in some delays in SCAAK's capacity building program. With support from a resident advisor with significant working experience and genuine motivation, SCAAK has achieved remarkable results that have substantially contributed to strengthen its local capacity to carry out its mandate. SCAAK also experienced difficulties in attracting and retaining well-qualified persons for the positions of trainers. The implementation and outcome of this component benefited from excellent donor coordination that facilitated SCAAK's development into a professional association. In particular, through the Kosovo Business Support project, USAID provided significant support to SCAAK in the delivery of training programs, especially in early stage of project implementation. Close World Bank-USAID coordination and a good policy dialogue with the authorities also contributed to the development of SCAAK's market reputation as an independent and professional association.

Finally, the overall outcome/impact of the accounting and judicial components was negatively affected by the rigid and relatively hermetic "hierarchical structure" which characterizes the Kosovar society and its systems (e.g., judiciary system, education system). This reduced the possibility for open dialogue and effective transfer of knowledge and experience between different "hierarchical levels". For example, within

- 10 - the training program, judges participation to discussions was more active when law graduates were not present and viceversa. In the same way, commercial court judges appeared to participate less actively in debates when their colleagues from the supreme court would attend the session. With regard to accounting, in Kosovo accounting professors are still reluctant to embrace IFRS. Such reluctance to changes is demonstrated by the fact that university accounting curricula still reflect outdated principles and only one professor has so far attended SCAAK's training programs. However, efforts are underway to improve the curricula (See para 5.3).

5.2 Factors generally subject to government control: Overall, the implementation and outcome of the project were positively affected by UNMIK and PISG (MTI, MFE, and DJA) commitment to improve the business enabling environment for private sector growth. This also contributed to a strong ownership of the project.

The implementation of the business registry component benefited from the strong support from the Minister of Trade and Industry. The NBR was provided with adequate budget and staffing, and relied upon the good network of MTI regional offices for the business re-registration.

The implementation and outcome of the judicial component benefited from DJA's commitment to ensure a successful implementation of the capacity building program and to actively involve judges and legal professionals in design and implementation of the sub-component activities.

The implementation and outcome of the accounting component benefited from a balanced relationship between SCAAK and PISG/UNMIK. Not only have UNMIK/PISG never interfered in SCAAK's operations, but they also agreed to further support its institutional development by making available to SCAAK (and the KBSFR, inter alia) some of the proceeds of the sale of the Interim Credit Union's loan portfolio, - the IDA-funded Pilot SME line of Credit which closed in December 2003.

5.3 Factors generally subject to implementing agency control: Overall, all the three project implementing entities/recipients of the technical assistance were fully committed to implement their respective project components. Such a strong commitment positively affected project implementation and outcome.

The implementation and outcome of the business registry component benefited from MTI's strong support. A well-qualified and dedicated Registrar supported by motivated staff ensured smooth operations of the NBR.

The implementation of the judicial component was negatively affected by the weak procurement capacity locally available in early stage of project implementation. As mentioned above, the mis-procurement of the consulting contract for implementation of the component's activities resulted in some implementation delays that required a nine-month extension of the closing date of the project. Once the contract was procured, implementation proceeded smoothly and benefited from the excellent working relationship between DJA and the consulting company, and from DJA's commitment to fully involve judges and legal professionals in the design and implementation of the training program. DJA also financed the salary of the librarians and the internet connections of the law libraries established under the project.

The implementation and outcome of the accounting component benefited from a capable Executive Director who has created an excellent working environment and a good incentive system. Also, with support from the Bank and other donors, SCAAK's has been successful in creating and keeping a good dialogue with the main stakeholders, including MFE and representatives of the business and academic communities. Such

- 11 - policy dialogue has positively contributed to SCAAK's efforts to develop a reputation as an independent and professional association with a clear mission of improving accounting and auditing practices in Kosovo. SCAAK has also sought to update university curricula in accounting, closer to EU standards. SCAAK's reputation has also facilitated donor funding from the Canadian International Development Agency for a resource center and from Swiss-Contact for the launch of SCAAK's quarterly “Accounting Professional Magazine”.

5.4 Costs and financing: The project was entirely financed by a Grant from IDA, acting as Administrator of the Trust Fund for Kosovo. The total cost of the project - which was estimated in USD3 million- included contingency funds for USD210,000. Some of these funds were used to finance additional activities requested for the establishment and operations of the NBR, including a short-term contract for a local IT expert for the maintenance and operations of the system. Some contingency funds were also allocated to cover the foreign exchange fluctuations arising from the different currency of the Grant (USD) and the currency (Euro) of the consulting contract for the implementation of the judicial component. Such an allocation was requested to address the significant appreciation of the Euro against the US Dollar experienced during project implementation. As of November 3, 2004, 96% of the Grant had been disbursed, and the balance of about USD117,000 was cancelled.

6. Sustainability 6.1 Rationale for sustainability rating: Overall, the sustainability of the results achieved under the project is rated Likely.

Thanks to a well-trained local staff, it is highly likely that the NBR will continue to successfully implement a business-friendly registration which - by requiring only one day - compares extremely well with best performing countries. This rating is also supported by the demonstrated capacity of the NBR to successfully undertake a demanding global re-registration exercise and to adapt the registration system to evolving market demand (e.g., web-site access to information). Finally, the rating is supported by a sound regulation according to which the NBR receives an annual appropriation from the Kosovo Consolidated Budget to cover its operational expenses and registration fees charged by the NBR are payable to the Kosovo Consolidated Fund.

The sustainability of results achieved under the judicial component is rated likely as all the judges currently working at the commercial and supreme courts and selected legal professionals have been trained in the new commercial legislation and reached a good understanding of the functioning of a market economy. Such rating is supported by judges and law graduates positive evaluation of the entire capacity building program, and their overall active involvement in the project activities. However, sustainability is negatively affected by the average age of the judges trained. It is expected that some of them will retire over the next 5-7 years. Nevertheless, these judges still represent the engine of the courts of Kosovo.

It is likely that SCAAK will continue to deliver highly specialized training programs, and further develop accounting and auditing profession and practices in Kosovo. This view is supported by the strong demand for SCAAK's activities, and steps made towards the updating of the university accounting curricula. Financial estimates for the period July 2004 and June 2005 are also promising signals for SCAAK's self-sustainability. The rating is also supported by PISG/UNMIK strong commitment to further bring Kosovar accounting and auditing practices closer to internationally recognized best practices. UNMIK/PISG's decision to use some of the proceeds of the recent sale of the IDA-funded line of credit to further strengthen the accounting and auditing capacity goes to this direction. Finally, as mentioned above,

- 12 - at the June 2004 conference jointly organized by the Bank and the EC in Brussels, both UNMIK and PISG reiterated their strong interest in participating to the regional program for accounting reform and institutional strengthening.

The sustainability of the project implementation support component is rated Likely. The Grant Accounting Unit continues to provide financial management and reporting support to ongoing IDA and other donor-funded projects.

6.2 Transition arrangement to regular operations: Not Applicable.

7. Bank and Borrower Performance Bank 7.1 Lending: The Bank's performance in the Kosovo's preparation of the project is rated Satisfactory. The Bank and UNMIK worked closely with other donors in the design and preparation of the project. The project design was fully consistent with development strategy and priorities to move towards a market-based economy. As mentioned above, the PSD TA was designed to build the capacity necessary to implement the new set of commercial regulations supported under the EAG III. Project design benefited from the valuable support from the PSD consultant based in the World Bank's office in Pristina.

7.2 Supervision: The Bank's supervision of the project is rated Satisfactory. Bank supervision materialized in frequent and well-staffed supervision missions. Project supervision was also supported by the Bank PSD consultant based in the Bank's office in Pristina. She did exceptional work in providing useful and prompt inputs and policy advice to all the project counterparts and technical assistance recipients. With her extremely valuable supervisory support, she gave a significant contribution to the successful implementation of the project. Close supervision also ensured good quality activities. As a quality control mechanism, the proposed content of the judges training sessions and legal material for the libraries were also reviewed by the Bank. The excellent working relationship between the Bank team and local staff responsible for project implementation contributed to prompt identification and solution of problems. It also favored a good policy dialogue with the authorities. The Bank procurement and financial management specialists provided extremely valuable support during project implementation. Prompt procurement advice helped the successful finalization of the procurement of the consulting company for the judicial component. In May 2004, "in recognition of valuable contribution and continuos support to the Association", the Bank team was awarded a certificate of appreciation from SCAAK.

7.3 Overall Bank performance: The Bank's overall performance is rated Satisfactory on the basis of the aforementioned factors and the other elements of the Bank's work described elsewhere in this report.

Borrower 7.4 Preparation: The recipient's performance in project preparation is rated Satisfactory. UNMIK contributed effectively to the formulation and design of the project, and clearly recognized the importance of technical assistance activities to complement the EAG III.

7.5 Government implementation performance: The Authorities performance in project implementation is rated Satisfactory. Both UNMIK and PISG

- 13 - demonstrated a clear commitment to the project and took all the actions necessary to ensure its successful implementation and outcome.

7.6 Implementing Agency: The performance of all the recipients of the technical assistance is rated Satisfactory. The NBR, SCAAK and DJA were very effective in carrying out the project's activities and despite their recent creation they have established themselves as credible entities with demonstrated competence and commitment in the delivery of their mandate. Performance of the Grant Accounting Unit is also rated Satisfactory.

7.7 Overall Borrower performance: The recipient's overall performance is rated Satisfactory on the basis of the strong performance, as described above and in other parts of this report.

8. Lessons Learned The most significant lessons learned from the project are the following: l Government's strong commitment to the reforms supported by a technical assistance project is a decisive factor in its success; l Technical assistance operations are likely to be more successful if clearly linked to adjustment operations; l Project implementation and outcomes benefit from a simple project design and a limited number of components, especially in presence of a weak implementation capacity; l The implementation of a project involving different counterparts increases supervision and coordination efforts; l Institutional capacity building programs carried out by developing and/or strengthening local skills result in increased ownership and sustainability of the project outcomes; l Close donor coordination and good policy dialogue with the authorities help newly established institutions build their market reputation as independent and professional entities, and facilitate adoption of internationally recognized best practices; l The efficient and effective use of the project funding requires trainees' strong participation in and ownership of training programs. Trainees' recognition of the need to receive training affects their participation to and ownership of the training program; l Effectiveness of training programs can be fully assessed only sometime after their completion; l In Kosovo as well as in other transitional realities, the hierarchical structure of the society and its systems (e.g., judiciary system, education system) is particularly strong and rigid, and relatively hermetic. This negatively affects the possibility to open a constructive dialogue and to foster knowledge and experience exchanges between different hierarchical levels (e.g., judges vs. young law graduates; supreme court judges vs. commercial court judges; accounting professors vs. accounting professionals). It also results in an overall reluctance to embrace changes; l Locally-based World Bank support plays a crucial role in ensuring good project design, effective supervision, and good policy dialogue with relevant stakeholders, including donors.

9. Partner Comments (a) Borrower/implementing agency: Upon request from the Bank, a meeting was held in Pristina on November 9, 2004 to discuss this ICR with project counterparts and implementing entities. The meeting was co-chaired by the project team leader and the PSD consultant based in Pristina and was attended by UNMIK Pillar IV, the Permanent Secretary of the Ministry of Finance and Economy (MFE), the Head of the Department of Judicial Administration (DJA), the UNMIK advisor to the DJA, the training officer of the DJA, the Head of the New Business

- 14 - Registry (NBR), and the acting Chief Executive of the Society of Certified Accountants and Auditors of Kosovo (SCAAK).

The parties consider the main conclusions of the meeting as the recipients and implementing units’ comments to the ICR. The below section summarizes the results of the meeting and was endorsed by each participant.

The objectives of the meeting were to discuss: (i) achievement of the project development objectives; (ii) sustainability of the results achieved; (iii) project impact on institutional development; (iv) lessons learned, and; (v) overall ratings and performance of the Bank, UNMIK, PISG and implementing entities (NBR, SCAAK, DJA, Grant Accounting Unit).

The Bank team made a presentation of the ICR, which also included some background information describing the context in which the project was prepared and its rationale. Such presentation was deemed necessary as none of the participants to the meeting had been personally involved in the project design and preparation. The Bank team also presented the achievements of each project component and explained the performance indicators against which the project achievements had been assessed.

(i) Achievement of the project development objectives The meeting expressed a consensus about the achievement of the project development objectives. In particular, satisfaction was expressed for the remarkable results accomplished under the business registry and accounting components, also supported by the extremely short time required to register a business in Kosovo, and SCAAK’s associate membership to the International Federation of Accountants (IFAC).

(ii) Sustainability of the results achieved Overall, the meeting agreed with the ratings of the sustainability expressed in the ICR.

The meeting also discussed next steps to further enhance project achievements. In particular, according to the Head of the NBR, major activities to be undertaken in the near future would include on-line business registration, and implementation of a full one-stop-shop system (i.e., that would use a unique business identification number). These activities will require new legislation governing e-signature, and the review and restructuring/upgrade of the Tax Administration and Customs registration systems. Finally, as soon as the new company law is approved, the NBR will have to reflect any new legal requirement in the business registration process.

As for the accounting component, SCAAK reiterated its commitment to carry out its institutional mandate and continue to work with the University for updating the accounting curricula. SCAAK also urged the KBSFR’s adoption of new IFRS so as to bring Kosovo closer to EU countries. The MFE recognized the important achievements reached by SCAAK and its critical role in filling the accounting vacuum in post-conflict Kosovo, when all the Authorities efforts were focused on other priorities. The MFE also indicated that SCAAK’s results and activities will help Kosovo fulfill the Standards for Kosovo [released by UNMIK in December 2003 with the broad support of the Kosavar institutions]. Finally, the MFE expressed the view that the success of the accounting component –which was supported by SCAAK’s good market reputation - was due to the success in building SCAAK’s local capacity.

As for the project implementation support component, UNMIK Pillar IV expressed doubts about the

- 15 - sustainability of the Grant Accounting Unit, and difficulties in communicating in English with the Unit’s staff. The MFE informed the parties about the intention to further strengthen the Unit’s capacity so as to ensure Kosovo’s fulfillment of financial management requirements for all donor-funded projects. The Bank reiterated that fulfillment of financial management requirements is the grant recipient responsibility and not the donors.

The Bank team expressed full support for all the above mentioned next steps and expressed its availability to promote their implementation with the Authorities and donor community.

(iii) Project impact on institutional development The DJA was satisfied with the training impact on judges. The head of the DJA emphasized that the program had a greater impact on the judges of the commercial courts than on those of the supreme court. In particular, this was explained by: (i) the stronger attendance of commercial courts’ judges to the training program; (ii) the higher average age of the supreme court judges that constrained their participation to the program activities; and (iii) the higher number of training opportunities available to the supreme court judges. Notwithstanding, the DJA considered the overall outcome of the training program as fully satisfactory. The head of DJA expressed a strong satisfaction with the results of the training to the young law graduates and emphasized the significant impact that such training had on the business community. As for the libraries, the DJA reported that the president of the supreme court is reluctant to keep the library open to the public and that he complained about the limited number of legal texts available. Also, the DJA added that it would not have the budget to purchase additional books. The Bank recommended DJA to revitalize the contact with the Law Library of the Law School of the University of Vienna that –during the study tour – had expressed the intention to donate the previous editions of its law texts to these two libraries. All the parties agreed that although the libraries would not receive the last edition of these books, this was a great opportunity that should not be missed. The UNMIK representatives expressed their availability to follow up with the University of Vienna. The DJA could cover transportation costs as necessary.

(iv) Lessons learned The participants agreed on the "Lessons learned" highlighted in the ICR and stressed the following: · implementation of the judicial component was a good learning opportunity for the DJA as the PSD TA project was one of the first projects implemented by the Department following the transfer of powers from UNMIK to PISG; · the supreme court judges' weak recognition of the need to receive training on new commercial regulations negatively affected their participation to and ownership of the training program; · in Kosovo hierarchy between supreme and commercial courts’ judges and between judges and young law graduates is extremely strong. It constrains transfer of knowledge and impedes an open and constructive dialogue between parties; · achievements of the judicial component benefited from the strong commitment and sincere motivation of the consulting company implementing the component activities; · a Kosovo-based World Bank support is critical for the successful implementation of the project activities.

(v) Overall ratings and performance Overall, the participants expressed less conservative ratings that those appearing in the ICR. In particular, the performance of the implementing entities (NBR, SCAAK, and DJA) and of the Bank were considered Highly Satisfactory.

- 16 - (b) Cofinanciers: Not Applicable.

(c) Other partners (NGOs/private sector): Not Applicable.

10. Additional Information

Table 1: Businesses Registered at the NBR (cumulative) December-03 May-04 June-04 September-04 Number of registered businesses 17,669 33,877 39,191 43,372 out of which: Re-registered Businesses 12,108 20,389 24,183 25,948 New Businesses 5,561 13,488 15,008 17,424 Number of businesses terminated 404 1,534 1,687 1,964 Source: NBR

Table 1B. Type of Business registration

Administrative Process Judicial Process Kosovo X Albania X Romania X Serbia and Montenegro (*) X Hungary X Bosnia-Herzegovina X Bulgaria X Croatia X Czech Republic X FYR Macedonia X Slovenia X

Australia X Canada X Denmark X France X Italy X United States X

Source: 2005 Doing Business, The World Bank (*) In the process of adopting legislation for an administrative registration

- 17 - Table 1B. Type of Business registration

Administrative Process Judicial Process Kosovo X Albania X Romania X Serbia and Montenegro (*) X Hungary X Bosnia-Herzegovina X Bulgaria X Croatia X Czech Republic X FYR Macedonia X Slovenia X

Australia X Canada X Denmark X France X Italy X United States X

Source: 2005 Doing Business, The Workd Bank (*) In the process of adopting legislation for an administrative registration

Table 2. Loans, deposits and investment (2000–03) (in thousands of Euro)

2000 2001 2002 2003 Loans to the private sector 3,148 25,916 86,498 232,773 Loans to private sector as a % of GDP 0.42 2.25 6.76 17.67

Private sector's deposits 106,085 486,676 413,542 501,179 Private sector deposits as a % of GDP 14.22 42.17 32.33 38.05

GDP (in millions of Euro) 746 1,154 1,279 1,317 GDP real growth (%) … 21.2 3.9 4.7

Investment as a % of GDP 66.9 57.7 48.3 40.5

Source: Banking and Payments Authority of Kosovo and IMF estimates.

- 18 - Table 3: Number of persons enrolled in SCAAK's training programs (*)

2002 (**) 2003 2004 (***) Persons enrolled in the pre-professional stage 392 461 313 Persons passed the pre-professional stage 26 130 80 Persons enrolled in the professional stage 11 78 122 Persons passed the professional stage 9 55 29

Source: SCAAK (*) Data do not include SCAAK's tailored training programs to the General Auditor Office, OSCE, etc. (**) Training programs started in March 2002 (***) Data are referred to September 30, 2004

Table 3A: Geographic distribution: Accounting Technicians

2002 2003 2004 (*) Pristina 18 86 150 Prizren 2 28 32 Gjakova 0 5 5 Peja 2 10 10 Gjilan 0 3 5 Mitrovica 4 17 17 Ferizaj 0 7 17

Source: SCAAK (*) Data are referred to September 30, 2004

Table 3B: Geographic distribution: Certified Accountants

2002 2003 2004 (*) Pristina 9 55 87 Prizren 0 0 4 Mitrovica 0 0 2

Source: SCAAK (*) Data are referred to September 30, 2004

- 19 - Table 3C: SCAAK's revenues and operating costs (Euro) July 01-June 02 (*) July 02-June 03 July 03-June 04 July 04-June 05(**)

Revenues from training 40,040 135,050 170,837 281,364 Local operating costs 48,000 196,717 200,401 200,164 Surplus -7,960 -61,667 -29,564 81,200 Revenue growth (%) NA 237.3 26.5 64.7 Cost growth (%) NA 309.8 1.9 -0.1

Source: SCAAK (*) Training programs started in March 2002 (**) Estimate based on actual revenues and costs for the quarter July 04-Sept 04

Table 4. Cases at the Commercial Courts

Year Year Year 2002 1Q03 2Q03 3Q03 4Q03 2003 1Q04 2Q04 3Q04 2004(*)

Judges (**) 10 10 9 9 9 9 9 9 9 9 Cases completed 370 103 142 113 145 503 110 121 158 389 Cases received 414 153 117 117 166 553 120 109 194 423 Cases incomplete 94 142 107 111 132 132 140 128 164 164 Completed cases per judge 37 10 16 13 16 56 12 13 18 43

(*) Data referred to September 30, 2004 (**) Since 2Q2003 one judge has been temporarily assigned to the Special Chamber of the Kosovo Trust Agency

Source: DJA

Table 4A. Attendance rate to the training program %

Commercial Courts' Judges 92.7 Supreme Court's Judges 41.5

Table 5A. Pilot Legal Aid Program: Legal services offered (Nov 03-April04)

- 20 - Legal Services

70 58 60 50 47 45 40 35 35 30 30 20 10 0 Nov Dec Jan Feb Mar Apr

Table 5B. Pilot Legal Aid Program: Type of legal services offered Period Number of Advice on business Registration of Total contracts drafted registration businesses

Nov-03 0 30 22 30 Dec-03 1 34 25 35 Jan-04 7 51 43 58 Feb-04 7 40 29 47 Mar-04 5 40 30 45 Apr-04 6 29 25 35 Total 26 224 174 250

- 21 - Annex 1. Key Performance Indicators/Log Frame Matrix

Outcome / Impact Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate Number of registered businesses and 33,877 total registered businesses of which 43,372 total registered businesses of which turnover time of registration process 20,389 re-registered and 13,488 new 25,948 re-registered and 17,424 new Average registration time: 1.02 days Average registration time: 0.93 days

Availability of information from the Business Accomplished. Information is available to the Accomplished. Registry for tax purposes Tax Administration, Customs and Statistical Office

Number of completed cases at the In 2Q2004, cases completed were 121. In 3Q2004, cases completed were 158. Commercial Courts

Number of Judges and Lawyers that have Accomplished. All the supreme court judges Accomplished. completed the training program dealing with commercial cases (5) , all the commercial court judges (10), one commercial court assistant, and 17 law graduates completed the training program.

Improved compliance with accounting All the 18 IFRSs adopted by the KBSFR are All the 18 IFRSs adopted by the KBSFR are standards reflected in SCAAK's accounting certification reflected in SCAAK's accounting certification training programs. training programs.

Output Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate Fully-fledged business registry fully Accomplished. Accomplished. operational

Launch of registration process Accomplished in April 2003. Business Accomplished. re-registration is an ongoing process which continues with the payment of a penalty fee.

All commercial judges trained Accomplished. Accomplished.

Legal libraries operational Accomplished. Two libraries (one at the Accomplished. supreme and one at the commercial court) are fully operational.

Regulation's commentaries published Accomplished. 1000 copies of Accomplished. commentaries on the laws on immovable property, liquidation and bankruptcy, and draft company law were published and distributed to relevant parties.

Legal aid center operational Legal support available upon request at the Legal support available upon request at the REAs. REAs.

Establishment of an accounting body Accomplished. Accomplished.

Number of trained accountants As of June 30, 2004, accounting technicians As of October 1, 2004, accounting and certified accountants were, respectively, technicians and certified accountants were, 212 and 67. respectively, 235 and 93.

1 End of project

- 22 - Annex 2. Project Costs and Financing

Project Cost by Component (in US$ million equivalent) Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Component US$ million US$ million Development of a new fully-fledged business registry 1.26 1.35 111 Strengthening of the capacity of the courts and improving 0.78 0.84 111 quality of legal services Development of basic accounting standards, provision of 0.52 0.52 100 training, and establishment of an association of accountants Project implementation support 0.23 0.17 87 Total Baseline Cost 2.79 2.88 Physical Contingencies 0.10 0.00 0 Price Contingencies 0.11 0.00 0 Total Project Costs 3.00 2.88 Total Financing Required 3.00 2.88

- 23 - Annex 3. Economic Costs and Benefits Not Applicable

- 24 - Annex 4. Bank Inputs (a) Missions: Stage of Project Cycle No. of Persons and Specialty Performance Rating (e.g. 2 Economists, 1 FMS, etc.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 10/16/2000

Appraisal/Negotiation 01/17/2001 02/22/2001 Supervision 06/15/2001 3 PROGRAM TEAM S S LEADER (1); FSD SPECIALIST (1); PSD SPECIALIST (CONS) (1); 10/08/2001 6 PROGRAM TEAM LEADER S S (1); TASK TEAM LEADER (1); JUDICIAL COMPONENT (1); FMS-ACCOUNTING COM (1); PROCUREMENT (1); REGISTRY SPECIALIST (1) 05/23/2002 3 PSD SPECIALIST (1); PSD S S CONSULTANTCONS (1); SR COUNSEL (1) 11/19/2002 2 TASK TEAM LEADER (1); S S PSD SPECIALIST (1) 06/07/2003 3 TASK TEAM LEADER (1); S S PSD SPECIALIST (1); PSD CONSULTANT (1) 19/12/2003 2 TASK TEAM LEADER (1); S S PSD CONSULTANT (1) 06/18/2004 2 TASK TEAM LEADER (1); S S PSD CONSULTANT (1) ICR 06/18/2004 2 TASK TEAM LEADER (1); S S PSD CONSULTANT (1)

(b) Staff:

Stage of Project Cycle Actual/Latest Estimate No. Staff weeks US$ ('000) Identification/Preparation Appraisal/Negotiation 48 (*) 157,770 (*) Supervision 86 279,755 ICR 6 20,000 Total 140 457,525 (*) It includes identification/preparation

- 25 - Annex 5. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA

Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA

- 26 - Annex 6. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

6.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU

6.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU

- 27 - Annex 7. List of Supporting Documents l Project Appraisal Document - Kosovo, Federal Republic of Yugoslavia (Serbia and Montenegro) Private Sector Development Technical Assistance Grant - Report No: 21893-KOS l Transitional Support Strategy, October 7, 1999 l Transitional Support Strategy: Progress Report, July 2000 l Trust Fund Grant Agreement between the United Nations Interim Administration Mission of Kosovo and the International Development Association, June 21, 2001 l Aide Memoires and Back-to-Office Reports l Financial Management Reports l Project Status Reports

- 28 - - 29 -