Document of The World Bank

FOR OFFICIAL, USE ONLY Public Disclosure Authorized

Report No: 4 1898-AL

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT Public Disclosure Authorized IN THE AMOUNT OF SDR 12.2 MILLION (US$20 MILLION EQUIVALENT)

TO

ALBANIA

FOR A

SECONDARY AND LOCAL ROADS PROJECT

Public Disclosure Authorized May 5,2008

Sustainable Development Department South East Europe Country Unit Europe and Central Asia Region Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS

(Exchange Rate Effective March 3 1,2008)

Currency Unit = Albanian Lek (ALL) ALL78.48 = US$1 US$1.65 = SDR 1 US$1.58 = EUR 1

FISCAL YEAR January 1 - December 31

ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Work AADT Annual Average Daily Traffic ADF Albanian Development Fund ANTP Albanian National Transport Plan ARA Albanian Road Authority ARDM Albanian Road Design Manual BEEPS Business Environment and Enterprise Performance Survey CARDS Community Assistance for Reconstruction, Development and Stabilization CAS Country Assistance Strategy CBA Cost Benefit Analysis CEM Country Economic Memorandum CoEDB Council of Europe Development Bank CQS Selection Based on Cons’ Qualification DC Direct Contracting EBRD European Bank for Reconstruction and Development EA EnvironmentalAssessment EMF Environment Management Framework ESF Environment Safeguards Framework EM Environmental Impact Assessment EIB European Investment Bank ERR Economic Rate of Return EU European Union EMP EnvironmentalManagement Plan FA Financing Agreement FB S Fixed Budget Selection FM Financial Management FMM Financial Management Manual FMR Financial Monitoring Report FY Fiscal Year GDP Gross Domestic Product GNI Gross National Income GOA Government of Albania GRD General Road Directorate HDM Highway Development and Management Model IBRD International Bank for Reconstruction and Development IC Individual Consultant FOR OFFICIAL USE ONLY ICB InternationalCompetitive Bidding ICR Implementation Completion Report IDA InternationalDevelopment Association IFAC InternationalFederation of Accountants IFC InternationalFinance Corporation IF1 InternationalFinancial Institution IFR Interim Unaudited Financial Reports IPA Instrument for Pre-Accession ISDS Integrated Safeguards Data Sheet JBIC Japanese Bank for International Co-operation LCS Least Cost Selection LGU Local Government Unit LPP Law on Public Procurement LSMS Living Standard Measurement Survey MDGs Millennium Development Goals MIGA Multilateral Investment Guarantee Agency MLGD Ministry of Local Government and Decentralization MOEFWA Ministry of Environment, Forestry and Water Administration MOI Ministry of Interior MOTT Ministry of Transport and Telecommunications MoF Ministry of Finance MOP ADF Manual of Management, Financial, Administrative and Technical Procedures MoTAT Ministry of Territorial Adjustment and Tourism MPWTT Ministry of Public Works, Transport and Telecommunications MTEF Medium-TermExpenditure Framework MTPT Ministry of Territorial Planning and Tourism NCB National Competitive Bidding NSSED National Strategy for Social and Economic Development NSDI National Strategy for Development and Integration NPV Net Present Value OFID OPEC Fund for International Development OMA Operations and Management Agreement PEIR Public Expenditure and Institutional Review PIP Project Implementation Plan PIT Project Implementation Team PIU Project Implementation Unit PP Procurement Plan PPIAF Public-Private InfrastructureAdvisory Facility PPF Project Preparation Facility PPP Public-PrivatePartnership PVB Present Value of Benefits PVC Present Value of Costs QBS Quality-Based Selection QCBS Quality/Cost-BasedSelection REA Regional Environmental Authority RED Roads Economic Decision Model Rh4P Road Maintenance Project ROW Right of Way RPF Resettlement Policy Framework SCDP Southern Coastal Development Plan SEE South Eastern Europe

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. SH Shopping sss Single Source Selection TI Transparency International WG The World Bank Group

Vice President: Shigeo Katsu, ECAVP Country Director: Jane Armitage, ECCU4 Country Manager Camille Nuamah, ECCAL Sector Manager: Motoo Konishi, ECSSD Task Team Leader: Richard Martin Humphreys, ECSSD ALBANIA SECONDARY AND LOCAL ROADS

CONTENTS

Page I. STRATEGIC CONTEXT AND RATIONALE ...... 1 A . Country and sector issues ...... 1 B. Rationale for Bank involvement ...... 5 C . Higher level objectives to which the project contributes ...... 6 I1. PROJECT DESCRIPTION...... 7 A . Lending instrument., ...... 7 B. Project development objective and key indicators ...... 7 C . Project components ...... -8 D. Lessons learned and reflected in the project design ...... 10 E. Alternatives considered and reasons for rejection ...... 11 I11. IMPLEMENTATION ...... 11 A . Partnership arrangements ...... 11 B. Institutional and implementation arrangements ...... 11 C . Monitoring and Evaluation ofOutcomeslResults ...... 12 D. Sustainability ...... 12 E. Critical risks and possible controversial aspects ...... -13 F. Loadcredit conditions and covenants ...... 14 IV. APPRAISAL SUMMARY ...... 16 A . Economic and financial analyses ...... 16 B. Technical ...... 16 C . Fiduciary ...... 16 D. Social ...... 17 E. Environment ...... 18 .. F. Safeguard policies ...... 19 G. Policy Exceptions and Readiness ...... 19 Annex 1: Country and Sector or Program Background...... 20 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...... 26 Annex 3: Results Framework and Monitoring ...... 29 Annex 4: Detailed Project Description ...... 36 Annex 5: Project Costs ...... 40 Annex 6: Implementation Arrangements...... 41 Annex 7: Financial Management and Disbursement Arrangements ...... 43 Annex 8: Procurement Arrangements...... 48 Annex 9: Economic and Financial Analysis ...... 59 Annex 10: Safeguard Policy Issues ...... 65 Annex 11: Project Preparation and Supervision ...... 78 Annex 12: Documents in the Project File ...... 79 Annex 13: Statement of Loans and Credits...... 80 Annex 14: Country at a Glance ...... 81 Annex 15: Map No. IBRD 36133 ...... 83 ALBANIA

SECONDARY AND LOCAL ROADS

PROJECT APPRAISAL DOCUMENT

EUROPE AND CENTRAL ASIA

ECSSD

Date: May 5,2008 Team Leader: Richard Martin Humphreys Country Director: Jane Armitage Sectors: Roads and highways (100%) Sector ManagerIDirector: Motoo Konishi Themes: Rural services and infrastructure (P);Trade facilitation and market access (S);Other public sector governance (S);Other human development (S) Project ID: P107833 Environmental screening category: A (Full Assessment) Lending Instrument: Specific Investment Loan

[ 3 Loan [XI Credit [ 3 Grant [ ] Guarantee [ ] Other:

For Loans/Credits/Others: Total Bank financing (US$m.): 20.00 Proposed terms: Standard IDA credit, denominated in SDR, with a 20 year term, and a 10 year mace Deriod.

Source Local Foreign Total BORROWEIURECIPIENT 5.00 0.00 5.00 International Development Association 0.00 20.00 20.00 (IDA) OPEC FUND 0.00 15.00 15.00 Total: 5.00 35.00 40.00 Recipient: Ministry of Finance Tirana Albania Albania

Responsible Agency: Albanian Development Funb (ADF) Durresi street Albania Tel: 355 (4) 2348 85 eneidaaa-d-f.org FY 9 I 10 I 11 I 12 I 13 I

I Annual I 5.00 I 8.00 I 12.00 I 12.00 I 3.00 I I I I Cumulative1 5.00 I 13.00 I 25.00 I 37.00 I 40.00 I Project implementation period: Start September 1, 2008 End: June 29,201 2 Expected effectiveness date: August 29, 2008 Expected closing date: December 3 1,20 12 Does the project depart from the CAS in content or other significant respects? [ ]Yes [XINO Ref: PAD I.C. Does the project require any exceptions from Bank policies? Re$ PAD IKG. []Yes [XINO Have these been approved by Bank management? [ ]Yes [IN0 Is approval for any policy exception sought from the Board? [ ]Yes [IN0 Does the project include any critical risks rated “substantial” or “high”? [ ]Yes [XINO Ref: PAD III.E. Does the project meet the Regional criteria for readiness for implementation? [XIYes [ ]No Ref: PAD IK G. Project development objective Ref: PAD II,C., TechnicalAnnex 3 The Project Development Objective is to improve access to essential services and economic markets, via the provision of all weather roads, for the resident population in the hinterland of the project roads.

Project description [one-sentence summary of each component] Re$ PAD II.D., Technical Annex 4 The project proposes to achieve this objective through the (i)the improvement of priority sections of the secondary (regional) road network across Albania; (ii)the improvement of priority sections of the local road network across Albania; (iii)the introduction of the private sector in the maintenance of the secondary and local road network; and (iv) strengthening of the management of the secondary and local road network.

Which safeguard policies are triggered, if any? Re$ PAD IKF., Technical Annex 10 In accordance with the World Bank safeguard policy on Environmental Assessment (EA, OP 4.01) the project has been assigned “Category A”. This assignment is considered appropriate because even though the proposed road reconstruction and rehabilitation included in the project is envisaged to be entirely within their existing rights-of-way, some road segment sub-projects later in the program may trigger World Bank safeguard policies addressing forests (OP/BP 4.36) through exacerbating illegal logging, and/or natural habitats (OP/BP 4.04).

Significant, non-standard conditions, if any, for: Ref: PAD III.F. Board presentation: None Loadcredit effectiveness: The Subsidiary Agreement has been executed on behalf of the Recipient and the Project Implementing Entity.

Covenants applicable to project implementation: The Recipient shall take all action necessary on its behalf to ensure that the team responsible for Project implementation within the Project Implementing Entity is adequately staffed and provided with sufficient and timely financial, human and technical resources throughout the life of the project; The Recipient shall prepare and furnish to the Bank no later than forty-five days after the end of each quarter, progress reports for the Project covering the said quarter, in a form and substance satisfactory to the Association; The Recipient shall take all action necessary on its behalf to ensure that adequate funds are allocated in its annual budget to cover its annual contribution to the financing of the Project; The Project will not finance any road in the area of the Southern Coastal Development Plan (SCDP), until this plan has been formally approved by the Territory Adjustment Council of the Republic of Albania, or its successor thereof; The Project will not finance any road in the coastal area of the remainder of the Albanian coast unless a development plan that has been approved by, or has been submitted to, the Territory Adjustment Council of the Republic of Albania, or its successor thereof; and The MPWTT will prepare a Council of Minister’s draft decision satisfactory to the Association, to be passed prior to December 3 1,2008, to transfer the rights for the administration and management of all (secondary) regional roads from the regional councils to the General Road Directorate.

I. STRATEGIC CONTEXT AND RATIONALE A. Country and sector issues 1. Albania’s performance since it embarked on transition in the early 1990s has been impressive. The country has successfully built the foundations of a market-based economy, created democratic institutions and gradually built capacity in the public administration to cope with political and economic transformation. These efforts have resulted in a track record of macroeconomic stability, as well as some of the fastest rates of Gross Domestic Product (GDP) growth in South Eastern Europe (SEE), averaging almost 7 percent per year’. However, Albania remains one of the poorest countries in Europe with a Gross National Income per capita (GNI) estimated at US$2,960 in 2006, and widespread poverty, high unemployment, substantial regional disparities, and weak governance structures.

2. The Albanian population is also changing fast, but unemployment remains endemic. Although population growth and fertility rates have been falling, Albania still has one of the highest fertility rates and one of the youngest populations in Europe, although the portion of the population over 65 years of age is growing faster than the rest of the adult population.’ The population remains predominantly rural, although the cities, particularly Tirana, have grown very rapidly over the last 15 years. The labor force now displays a growing preponderance of males, and it is mostly rural (65 percent). Whilst overall unemployment has improved to 7 percent in 2005 (down from 10 percent in 2004, using the standard ILO definition), the main improvement has come in urban, rather than rural, areas. Growth in formal wage employment remains modest in both areas.3

3. Rural poverty remains a problem, despite recent improvements and a decade of sustained GDP growth. About 25 percent of the total Albanian PO ulation (780,000 individuals) had consumption levels below the poverty line in 2002B , but recent GDP growth has contributed to a significant improvement to 18.5 percent of the total population in 2005. Similarly, the extremely poor population, defined as those whose real consumption does not exceed US$3 1 (Or ALL 3047 at 2002 prices) per person per month (also valued at 2002 prices), decreased from about 5 percent to 3.5 percent. This finding was supported by other measures of poverty, such as the poverty gap and the severity of poverty, which also fell sharply. There has also been convergence in the incidence of poverty between regions; poverty rates in the mountain areas were 76 percent higher than the national poverty rate in 2002, but are now only 36 percent higher. However, the improvement is in large part due to higher internal and external migration. In addition, whilst the rate has declined, the gap between urban and rural poor has widened in absolute and relative terms5

’ World Bank (2007~). * Albania’s total population was estimated at 3.7 million by 2025. An estimated 0.8 - 1.0 million Albanians currently live outside of Albania. World Bank (2007~). Defined as when real consumption per person per month is below US$50 (Or ALL 4891 in 2002 prices). World Bank (2007~).

1 4. Poor transport infrastructure is considered to be the main cause of difficultiesfor many people living in rural areas. Over half (57 percent) of the Albanian population lives in rural areas, and over one-third (35 percent) ofthe rural population is estimated to live in povertyS6A qualitative survey7 of both poverty, and its causes, noted that, after employment and income, many Albanians considered infrastructure problems to be the main cause of their difficulties and a significant factor in their low standard of living. 49 percent of rural producers stated that a lack of adequate transportation, primarily good roads, was their biggest marketing problem. Rural inhabitants and leaders acknowledged that poor road access makes it difficult for farmers to reach markets, contributes to rural to urban migration, and affects the delivery of health and education services. One earlier study found that improved rural roads reduced transport costs by 80 percent and allowed farmers to increase their production by 50 percent.'

5. These links have been reaffirmed by recent work undertaken by the World Bank in the region, in particular the importance of investing in rural infrastructure as a critical intervention towards overcoming constraints to agricultural competitivene~s.~In recent poverty assessments in the region, the micro-economic constraints to agricultural growth are attributed in part to the low investments in infrastructure." Poor infrastructure and low market access are identified as having contributed significantly to declines in agricultural productivity; with farmers living in the mountainous areas being affected the most. More recent studies elsewhere have supported these findings and also report positive differences in school enrolment and frequency in use ofhealth services, between areas with and without all-weather roads. l1 The Challenges facing the Transport Sector 6. Transport demand is growing rapidly, reflecting the structural changes in the economy and the realignment of tradeflows in the region. The National Strategy for Social and Economic Development (NSSED) Progress Report for 200412 notes that the demand for transport grew by 10.1 percent in 2004, with the majority of the increase occurring in the demand for road transport. Furthermore, actual growth is likely to be much higher in and around urban areas, particularly in the Tirana - Durres area, which witnessed a remarkable pick-up in economic activities. As one indicator, the number of registered vehicles has grown at an annual average rate of nearly 14 percent for cars, (1 3 percent for all vehicles) since 1999, but the rate of vehicle ownership remains one of the lowest in Europe, at 90 vehicles per 1,000 head ofPO ulation, compared to the European average of600 vehicles per 1,000 head ofpopulation. p3

World Bank (2002). ' World Bank (2002). Evans, (1990). See World Bank. (2006b) and World Bank. (2007a). loWorld Bank (2007~). I' World Bank (2006a). Ministry of Finance, (2005) NSSED Implementation Progress Report for 2004, Tirana. l3Ministry of Public Works, Transport and Telecommunications (2007) Sectoral Strategy of Transport, Tirana.

2 7. The institutional framework responsible for the regulation and execution of transport policy in Albania has changed recently. At the national level, the merger in September 2005 of the old Ministry of Transport and Telecommunications (MOTT) with the Ministry of Territorial Adjustment and Tourism (MoTAT), established the Ministry of Public Works, Transport and Telecommunications (MPWTT). The MPWTT is responsible for the policy and regulatory framework, together with the technical standards for the road, railway, civil aviation and maritime transport sub-sectors. The national road network is the responsibility of the General Roads Directorate (GRD) under the MPWTT, whilst secondary roads are the responsibility of the Regional Councils, and local roads are the responsibility of the road departments in the District Councils, both under the Ministry of Interior (MOI). Similarly, the approximately 2,500 km of urban roads are maintained by the road departments in the different Municipalities, under the Ministry of Territorial Planning and Tourism (MTPT). The Albanian Development Fund (ADF) currently supports the local government units in the implementation of the competitive grant funding from the central Government, and on a number of other donor financed projects, in all sectors including local roads. The project will be implemented by the ADF.

8. However, the performance of the institutions in the road sector remains poor. The GRD employs some 594 staff14, down from 800 at the start of 2007; 155 at the main office in Tirana, with the remainder at the seven Regional Road Directorates. This now equates to one employee for every 5.5 kilometers of road under the control of GRD (an improvement from 1:4 in 2007), compared to 1 employee for every 300 kilometers of road in the most efficient organi~ations'~.The reform of this organization is a key priority for the Government and the donor community, and an Action Plan has been prepared with Bank support. The Council of Ministers recently approved this Action Plan and implementation of the reform will commence shortly, with support from EU-financed TA to the MPWTT. The main aim of this reform process is to transform GRD into the Albanian Road Authority (AM) - a public enterprise run on commercial principles, with all maintenance contracted out to the private sector. Secondary (regional) roads are currently the responsibility of the Regional Road Units under the Regional Councils, which employ approximately 2,000 staff, mainly for administrative purposes - 1 member of staff for each 2 kilometer of road. The limitations in the current management and financing of the secondary and local roads sector in the region are summarized in the following text box:

14 A hrther decrease of 100 is expected in 2008. l5Heggie and Vickers, (1998).

3 Improving the management of the secondary and tertiary roads in the South East Europe Countries

The limitations in the current management andfinancing of the secondary and local road network in the Western Balkan countries were summarized in a recent study: (i)Unclear responsibilities:- There is a lack of a clear legal framework in many countries and where it exists, confusion prevails due to ambiguities in allocating road sections to central or local government or between ministries; (ii) Limitations in the planning framework:- This is associated with planning at the central government level without consultation at the local level. The planning process also suffers from not being comprehensive and coherent enough to weigh options, determine priorities resulting in neglected sections of roads and regions. This is especially manifest in the fact that the countries lack a clear policy framework for the rural roads sector; (iii) Inadequate local capacity:- many local government authorities and agencies responsible for the tertiary roads lack the necessary technical, planning and managerial capacity to adequately plan and maintain the road networks they are in charge of; (iv) Insufficient and uncertain maintenance funding:- in many cases, the sources of funding are erratic and unstable making the planning process difficult. At the same time, most allocations from the central government fall way short of the maintenance needs of the tertiary road network. In instances where resources are severely constrained, even with prioritization, many priority lengths of the road network will remain un-maintained; (v) Lack of incentives: - The need for maintenance is not usually felt until roads have reached a state of total dis-repair. For political reasons, the construction of new roads offers more visibility and is usually preferred to maintenance; (vi) Inappropriate design standards:- in many countries design standards for tertiary roads have been set at inappropriately high levels compared to the levels and type of traffic using them. As a result, later maintenance becomes expensive and difficult. Concurrently, the design and construction methods ought to be suited to the road class to avoid inefficient resource use; and (vii) no rural development strategy which explicitly considers the importance of transport. In many countries, rural transport policy is an integral part of the national transport sector policy.

9. Not surprisingly, the quality of the road infrastructure compares poorly to regional comparators. The overall length of the road network in Albania totals about 15,000 km. The network comprises 3,412 km of national, or primary, roads, and about 12,000 km of secondary and local roads. The overall quality of the road network is poor compared to regional comparators, with only 39 percent of the road network paved in Albania, compared to 52 percent in Bosnia and Herzegovina and 62 percent in Macedonia. In 2002, only 10 percent of the national road network was found to be in good condition, with an additional 22 percent in fair condition, and the remaining 68 percent in poor condition. l6

10. The priority given to the expansion of the road network in recent years has resulted in inadequate emphasis on maintenance and the neglect of the secondary and local road network. The problems facing the secondary and local road network were summarized in a recent study17: Little of the local road network is paved, and about 75-80 percent of both the secondary and local road networks are reported to be in a poor or very poor condition - with a number of sections of the latter impassable for much of the year. The decentralization to local governments of the responsibility for managing secondary and local roads has resulted in inadequate maintenance. Only about 40 percent of what is needed in maintenance expenditures is actually expended at present. One recent study estimated the maintenance needs (backlog, routine, winter and periodic) for secondary and local roads alone to be US$67 million per year. Using the 2006 datal8, there is a l6 World Bank (2004b). World Bank (2007b). Although, provisional figures for 2007, and planned 2008 both show a marked increase.

4 maintenance financing gap of ALL 4.4 billion (US$53 million) per year for the secondary and local roads.

11. After social assistance, the roads constitute the second major category of municipal responsibility. Prior to 2003, all road construction and maintenance was a central government responsibility. Local spending on road projects, if any, was financed through conditional grants. In 2003, rural local, communal local, and secondary roads were transferred to the local governments. Spending on road maintenance is now financed from local discretionary revenues. Spending on capital works continues to be financed through conditional transfer^.'^ Available resources are consumed by high administrative costs at the regional and district offices.20

B. Rationale for Bank involvement 12. There are three main reasons for the involvement of the World Bank in this sub- sector:

(a) Responding to the desire of the client to improve the management, financing, and condition of secondary and local roads in Albania. In 2006, the authorities established a task force, headed by the Minister of Public Works, Transport and Telecommunications, to act as a steering committee for a program to pave a significant proportion of the network2' and improve the management and financing of the network. The Albanian authorities recognize the importance of the secondary and local road network sector and have formally requested the assistance of the World Bank to prepare a project; (b) Supporting the introduction of the private sector in road maintenance on the secondary and local road network. Currently limited regular maintenance is undertaken on the secondary and local road network, and the little that is done is undertaken by force account. The sustainability of the investments on both the secondary and local road network will depend on the role to be played by the private sector in maintaining the subsequent roads. The project will contribute to the introduction of private sector participation for local road maintenance, at the community level, through the training of local residents to undertake simple routine maintenance. Secondary roads will be transferred to GRD and all routine and scheduled maintenance is to be contracted out from 2008; and (c) Acting as a catalyst for other donors in the sector. The Albanian authorities welcome the World Bank playing a leading role both in program preparation and attracting other international financing institutions to contribute, either within or in parallel to the project. Donors participating in this project include the Council of Europe Development Bank (CoEDB), the European Bank for Reconstruction and Development (EBRD), the European

World Bank (2007d). 'O World Bank (2007b). " Prime Ministerial Order no 224, issued on September 19" 2006.

5 Investment Bank (EIB), the Japanese Bank for International Co-operation (JBIC), the OPEC Fund for International Development (OFID), and the European Union (EU).

C. Higher level objectives to which the project contributes 13. The GOA has formally adopted the National Transport Plan as the Strategy and Policy for the Development of the Sector. The Albanian National Transport Plan (ANTP) was funded by the European Union, and completed in March 2005. The Government formal1 adopted this plan as its strategy and policy for the development of the transport sector? This study has also been endorsed by a number of development partners. The ANTP was clear on the need to develop a substantial Local Road Improvement Program over a 10 year period.

14. The GOA has finalized the National Strategy for Development and Integration flSD4 for 2007 - 2013. The strategy clearly underscores the importance ofdevelopment of road network for equal regional development and poverty elimination. The strategy defines the vision for the transport sector as serving the goal of national integration and stimulating regional development. Among the priorities for the road sector the NSDI proposes a major investment program on the local road network in cooperation with local government, on the basis of participatory study of rehabilitation needs, including priorities and annual investment requirements.

15. The World Bank Country Assistance Strategy for FY06-FY09 and Progress Report3. This fourth World Bank Group CAS for Albania (a joint CAS of IDNIBRD and IFC), covering the period FY06-FY09, outlines a program to support Albania’s efforts in improving governance, and focuses Bank assistance in two areas: (i) Continuing Economic Growth through Support to Private Sector Development; and (ii) Improving Public Service Delivery, particularly in the Social Sectors, and infrastructure improvement is central to the realization of outcomes in both pillars. The CAS is explicit in its support for the provision and maintenance of efficient transport infra~tructure.~~ The CAS also describes the problem of Project Implementation Units, which evidence has shown do little to build capacity in the host institution, as recognized by the GOA,and states explicitly that from FY05 all new WB funded projects would be implemented through existing government structure^.^^

16. The centerpiece of the CAS is the introduction of a ‘Governance Filter’ to guide all the Bank interventions in the country. The CAS program seeks to support Albania’s efforts in improving governance in the country. The CAS recognizes that more coherent efforts need to be made to address the challenge of poor governance and introduces a ‘Governance Filter’ comprising four core principles which will be used to ensure that governance considerations are mainstreamed into all of the activities supported by the World Bank: (i)Principle I:Seek greater transparency in the use ofpublic resources; (ii)

22 The ANTP was formally approved by the Cabinet of Ministers on the 10” May 2006. 23 The CAS Progress Report is to be presented to the Board in June 2008. 24 World Bank (2006a), Paragraph 57. 25 World Bank/IFC (2006) Paragraph 46, Page 18.

6 Principle 11: Support increased autonomy and de-politicization of key public sector counterpart organizations; (iii)Principle 111: Analyze the formal (and likely future) roles of local governments, and develop capacity -- and local mechanisms of accountability -- to enable local governments to effectively take on these roles; and (iv) Principle IV: Strengthen mechanisms for advocacy and increased involvement of citizens (including nongovernmental stakeholders) to encourage improved performance of public service delivery and policy-making bodies. In support of the Filter, this project is introducing, inter alia, a review and update of the categorization of the road network to make explicit the spending needs at all levels, the introduction of an asset management system to prioritize spending needs, and training for individuals in the communities to undertake maintenance, and for communes to hire and manage them. In addition, it is expected that additional monitoring of the poverty alleviation effects of the entire program will be undertaken with grant support from the Council of Europe Development Bank (CoEDB). The monitoring framework, the detail as to what the project will achieve, and the Governance Filter framework are presented in Annex 3.

17. The project also supports the implementation of conclusions of recent analytical work undertaken by the Bank. The project will also assist the Government in introducing the recommendations of the (FY08) regional Secondary and Local Roads Study, and the earlier Public Expenditure and Institutional Review.26 Key short-term recommendations from the latter for Albania include: (i)Undertake an inventory of the ‘active’ local road network; (ii)Identify the ‘lifeline’ regional and local road network; (iii)Revise the functional classification of the road network to reflect the above; (iv) Clarify the ownership and responsibility for secondary and local roads, passing responsibility for former back to GRD; (v) Formally adopt the reform plan for GRD; (vi) Create an integrated road database and asset management system for all roads, including the production ofcadastral maps ofroad network; (vi) Introduce necessary data collection processes to maintain the asset management system, collecting condition, traffic etc.; and (vii) Draft a rural developrnentkransport strategy. All are to be introduced by this project. The project is also consistent with the recommendations of the recent review of the transport sector by the Independent Evaluation which made the following relevant recommendations: (i)in a context of fiscal constraints - a programmatic approach allowing other donors to contribute may be the most effective; and (ii)projects that contribute to reducing the broader forms ofpoverty per se were especially important.

11. PROJECT DESCRIPTION A. Lending instrument 18. The lending instrument selected for this project is a standard IDA Credit, denominated in SDR, with a 20 year term, and a 10 year grace period.

B. Project development objective and key indicators 19. The Project Development Objective is to improve access to essential services and economic markets, via the provision of all weather roads, for the resident

26 World Bank (2007b). 27 World Bank (2007) A Decade ofAction in Transport, 1995-2005. Washington DC.

7 population in the hinterland of the project roads. The project proposes to achieve this objective through the (i)the improvement of priority sections of the secondary (regional) road network across Albania; (ii)the improvement of priority sections of the local road network across Albania; (iii)the introduction of the private sector in the maintenance of the secondary and local road network; and (iv) strengthening of the management of the secondary and local road network. Progress towards the attainment of the Project Development Objective will be assessed through the following priority indicators.

a) Proportional reduction in vehicle journey time in free flowing conditions on project roads; b) Number of communities with improved access to health and educational facilities and regional markets by the provision of an all weather road by end of project; c) Proportional increase in traffic volumes on project roads one year after scheme opening; and d) Proportional change in perception of road users regarding quality of project roads.

C. Project components 20. Project cost and components. The total cost of the World Bank Project is estimated at US$40 million (EUR 25.3 million), net of all taxes, with US$20 million equivalent (EUR 12.6 million equivalent) coming from an IDA Credit, and US$15 million (EUR 9.5 million equivalent) from the OPEC Fund for International Development (OFID), with the remaining US$5 million (EUR 3.2 million equivalent) being provided by the Government in counterpart financing.

21. The total program is expected to encompass between 1,000 - 1,500 km of secondary and local roads, implying a total program size of between US$200-300 million..28 Parallel financing has been discussed and provisionally agreed with a number other institutions -the Council of Europe Development Bank, the European Bank for Reconstruction and Development, the European Investment Bank, and the Japanese Bank for International Co-operation, and the Kuwait Fund. In addition, the authorities received Euro 8 million from the instrument for pre-accession (IPA 2008), with further allocations possible in subsequent years (IPA 2009, IPA 2010). There will be three main components in the project (A more detailed description of the individual components and their constituents is provided in Annex 4):

a) Component 1 - The civil works associated with the improvement of priority sections of the secondary (regional) road network [Estimated total cost - US$19.3 million (EUR 12.2 million equivalent)], Bank financed US$7.5 million equivalent (EUR4.7 million equivalent).The component will finance the civil works associated with improving selected priority sections of the secondary (regional) road network. Given the noted poor condition of this network, the interventions under this component are expected to be either rehabilitation or reconstruction. Under reconstruction, the whole pavement

Based on an average unit cost of US$200,000 per kilometer.

8 will be rebuilt with new asphalt and the necessary sub-layers. For rehabilitation, the works will constitute the construction of a new base and the provision of a new asphalt surface, where necessary road safety infrastructure will be included as well;

b) Component 2 - The civil works associated with the improvement of priority sections of the local (commune) road network [Estimated total cost - US$7 million (EUR4.4 million equivalent)], Bank financed US$1.6 million equivalent (EUR1 million equivalent). The component will finance the civil works associated with improving selected priority sections of the local road network. Given the noted poor condition of the local road network, the interventions under this component are expected to be either rehabilitation or reconstruction. Under reconstruction, the whole pavement will be rebuilt with new asphalt and the necessary sub-layers. For rehabilitation, the works will constitute ofthe construction of a new granular base and asphalt wearing course, where necessary road safety infrastructure will be included as well; and

c) Component 3 - Implementation and Institutional Support [Estimated total cost - US$13.7 million (EUR 8.7 million equivalent)], Bank financed US$lO.9 million equivalent (EUR6.9 million equivalent).The component will finance the provision of technical support, goods (including vehicles, computers, air conditioning units, a generator, and office furniture), training, study tours, conferences and the financing of Operational Costs to assist the Project Implementing Entity in the implementation of the Project, specifically for: (i)the selection and employment of consultants’ services to supervise the civil works and improve the design for the duration of the Project; (ii)the selection and employment of a technical assistant with a strong background in highway engineering for the duration of the Project; (iii)training ofthe Project Implementing Entity staff responsible for Project implementation; (iv) the carrying out of a review of the functional classification for all levels of roads; (v) an inventory of the core secondary and local road network; (vi) the preparation of a strategy and action plan for the development of the secondary and local road network; (vii) capacity building in the communities to contract and undertake maintenance; (viii) the establishment of an Asset Management System for secondary (regional) and local roads; and (ix) the preparation ofdesign and bidding documents for the first and second year ofProject implementation.

22. The selection of the priority roads has been undertaken in an open and transparent manner: The first stage involves ADF requesting that all the local government units identify and submit their priority projects, against a set of criteria published on ADF’s website, for consideration for financing under the project. These projects are then ranked by ADF against a wider set of published criteria (reproduced in Annex 9, similar to those used for the competitive grant program.29 The latter include the

*’The full list of criteria is provided in Annex 9.

9 expected impact of the project on economic development, the impact on poverty, the number of beneficiaries, and the participation of the community in decision making. In addition, local governments are required to commit to a multi-annual maintenance contract, as a pre-condition to any sub-project going ahead to ensure sustainability. The evaluation process and the ranking of the first and second year program are then to be published on ADF's website and conveyed to the different Local Government Units.30In addition, all roads to be valid for selection need to connect to a road in the same or a higher category in good condition. D. Lessons learned and reflected in the project design 23. The need to implement all projects through existing public sector structures. The earlier section noted the decision of the Government to implement, as far as possible, all new projects inside existing public sector structures, following the evidence that self- standing Project Implementation Units (PIUs) do little to transfer knowledge or build capacity in the host institutions. This project will be implemented entirely by the full-time employees of the ADF - a public body that was established to implement investment projects in rural areas.

24. Selection of secondary and local road sections needed to be participatory. The Implementation Completion and Results Report (ICR)31 for the recent Road Maintenance Project indicated the need for stronger participation of local communities in all stages of the project cycle to ensure ownership and enhance sustainability of interventions on the secondary and local road network. The selection of the sections of secondary and local roads in this project is undertaken in close consultation with communities and regional councils to ensure that local stakeholder views on the highest priorities are fully reflected. Also training will be provided to local residents to undertake the subsequent maintenance on the local roads improved under the project. The ICR also indicated the benefits of hybrid performance based contracts, introduced during implementation of the Road Maintenance Project (RMP), for small routine maintenance contracts.32

25. Centralization of procurement of works. Previous projects implemented by ADF have allowed the procurement to be undertaken by the respective local government units, with support fiom ADF. This has created problems in implementation including, inter alia, governance concerns, limited adherence to procurement guidelines at the local level, and difficulties in supervising works and ensuring quality and sustainability. These reasons, together with the scale of the program, support all procurement being undertaken centrally, with supervision of the civil works being undertaken by a firm of international consultants.

30 After the establishment of the Asset Management System and GIS database by the PPF funded consultants, the evaluation process and sub-project ranking can utilize actual poverty data and actual road condition. The process and the evaluation will still be published. 31 World Bank (2007e). 32 The approach is to be piloted on a larger scale in the ongoing Transport Project.

10 E. Alternatives considered and reasons for rejection 26. The following alternatives were considered during preparation ofthe Project: To only improve the condition of the secondary (regional) or local road network: With a network of about 4,500 km of secondary roads and 4,000 km of local roads, the majority of which are in poor or very poor condition, and the fact that secondary (regional) roads are currently the responsibility of the regional councils, and local roads the responsibility of the communes, one option was to focus the available credit resources on either the secondary or local roads. However, it was recognized that improving secondary or local roads, in isolation, would only realize a subset of the potential benefits to the communities and that both needed to be addressed at the same time; and

To consider other low cost surfacing options for the project roads, such as gravel, Otta seals, and single/double surface treatments. The current very poor condition of much of the local and secondary road network, and the limited design standards used in the original construction, the difficult terrain, and the preferences of the Recipient means that the selected interventions are full rehabilitation or reconstruction, rather than some ofthe lower cost surface options.

111. IMPLEMENTATION

A. Partnership arrangements 27. This project is being co-financed with the OPEC Fund for International Development and the Government of Albania. The OPEC Fund for International Development (OFID) will contribute US$15 million to formally co-finance the civil works for components 1 and 2, and will comply fully with World Bank safeguards, procurement and financial management requirements. Other donors, including the Council of Europe Development Bank, the European Bank for Reconstruction and Development, the European Investment Bank, and the Japanese Bank for International Co-operation, European Union, Kuwait Fund, Islamic Development Bank providing parallel financing in the project have also been requested to comply with World Bank safeguards, procurement and financial management requirements for their respective contributions. B. Institutional and implementation arrangements 28. Implementation will be undertaken by the existing staff of Albanian Development Fund (ADF). The project will be implemented by the ADF for all the components of the project. The detailed design for all secondary roads will be approved by the GRD Technical Council, and GRD will accept the reconstructed road at formal handover. ADF are very experienced in implementing World Bank projects, having implemented six since their inception in 1992. However, whilst ADF has considerable experience in rural infrastructure, it lacks the necessary capacity for a project ofthis scale and scope. Accordingly, ADF will receive technical assistance, in the form of an individual consultant, an international highway engineer, for the entire implementation

11 period of the project, together with external consultant supervision for the civil works. They have also acquired additional procurement capacity to assist in the implementation ofthe project. C. Monitoring and Evaluation of Outcomesmesults 29. Project monitoring will be undertaken by the ADF staff, supported when necessary by the steering committee chaired by the Minister of Public Works, Transport and Telecommunications and/or the Board of Trustees of ADF. The monitoring will take place both during and after project implementation. It will entail a review of procurement, implementation progress, and the monitoring of the defined Project Indicators for the duration of the Project. Baseline information will be collected by a consultant hired by ADF. All information for project indicators is either readily available to the ADF staff, or will be provided to them by Quarterly Reports from the consultants hired to supervise the civil works in the project. Project progress reports, including the Monitoring Indicators, will be prepared by the ADF on a half-yearly basis and submitted for Bank review. D. Sustainability 30. The sustainability of the project and investments made under the project will also depend on a number offactors: (i)the agreement of the Government to return the management of the secondary (regional) roads to a ‘reformed’ General Roads Directorate; (ii) the commitment to provide adequate future financing for road maintenance to the primary and secondary road networks; (iii)the commitment to introduce the necessary institutional reform to GRD to facilitate the management of the assets of the road sector in a professional manner; and (iv) the commitment of the respective local government units to multi-year maintenance contracts with a private contractor to undertake the maintenance on the local roads improved under the project. 3 1. In respect of the first, the MPWTT is preparing a Council of Minister’s decision to be passed by the end of December 2008, to transfer the rights for the administration of all secondary (regional) roads from the regional councils to the General Road Directorate. In respect of the second, the GOA agreed to the inclusion of a covenant in the ongoing Transport Project (P078949) to increase maintenance expenditures by not less than 5 percent each year, in real terms, from a baseline of planned 2007 expenditures, over the lifetime of that project.33 In respect of the third point, the restructuring of the GRD is a priority for the GOA, as reflected in the passage of the recent Council of Minister’s decision on a new structure and reform action plan,34which was prepared with support from the ongoing Transport Project (P078949). In addition, from 2008 all routine and periodic maintenance is now contracted out to the private sector, and the staff of GRD has been reduced from 800 at the start of 2007, to 594 at the end of 2007, with a reduction of a further 100 this year. The staff of the regional road units are expected to be reallocated to other tasks or re-trained35, but this is an individual Local Government Unit (LGU) decision.

33 For routine maintenance, planned 2008 expenditure is 23 percent higher than actual expenditure in 2007. 34 The relevant CoM Decision was passed on February 27,2008. 35 Training will be available within the project.

12 32. In respect of the last point, an Operational and Maintenance Agreement (OMA) will need to be signed and approved by ADF at the signing ofthe Investment Agreement (IA) for the sub-project between ADF and the responsible LGU. The OMA will include: (i)general principles for procuring and managing multi-annual maintenance contracts; (ii)confirmation that the costs of the multi-annual maintenance contract will be included in the LGU/GRD budget for the next five (5) years; and (iii)a draft multi-annual contract for routine maintenance for a five year period, to a standard consistent with the functional categorization ofthe road. E. Critical risks and possible controversial aspects 33. Overall risks within the project are considered to be modest. The nature ofthe project, together with the use of an established implementation agency, which has already implemented a number of World Bank projects means that the overall risks within this project are considered to be modest. The following represent the five main risks to the project : a) Governance issues - the first, and overarching risk, is the systemic problem of governance and corruption. The recent CAS noted that “. . .Survey results indicate that customs, courts and hospitals are the institutions with the highest perceived incidence of corruption, with analysis indicating that corruption of ofJicials in Albania exceeds the levels experienced in other countries in the region.36State capture is pervasive, and likely includes the infiltration of criminal elements in state entities.” In addition, in 2007 nine officials in the MPWTT and the GRD were arrested for collusion in bidding for domestically funded road contracts. The project will mitigate these concerns by using the ADF as the implementing agency, and centralizing all procurement. ADF has the freedom to set its own salary levels, and so the incentives for rent seeking, whilst still present are reduced. In addition, appropriate indicators to monitor project performance against the Governance Filter has been prepared and will be monitored during implementation (see Annex 3);

b) Inadequate maintenance on improved roads - Inadequate maintenance on the improved roads is a concern, given the limited nature of the current maintenance regimes, and the capacities of the institutions responsible for the roads. The project has been designed and will be implemented to mitigate these concerns in two ways (i)the secondary roads that are currently the responsibility of the regions, will be passed up to the GRD as mentioned in the previous section, and will form part of the ‘national’ network. In a country the size of Albania, it is not unreasonable to have the national road directorate responsible for primary and secondary roads37; (ii)for the local

36 The Government of Albania (2005) “Removal of Administrative Barriers: Ongoing Process to Improve the Business Climate”. Report of the Ministry of Economy, May 2005. 37 There is also a covenant in the ongoing Transport Project to provide a five percent increase, in real terms, in the budget for the maintenance of the ‘national’ road network. The planned increase from 2007 actual to 2008 planned is 23 percent.

13 roads, an Operations and Maintenance agreement will be signed in advance ofworks on any sub-project;

c) Inadequate ownership by the communities. Sustainability also depends on the involvement ofthe local communities in the project. The first response to try and mitigate this concern is the preparation of a communication strategy during the preparation phase, followed, both at that stage and during implementation, by local community participation, via the relevant Local Government Unit, at each stage ofthe project, where appropriate;

d) Inadequate capacity on the part of the implementing agency. The investment program could overwhelm the capacity ofthe ADF, both in terms of technical skills, and in terms of resources. Whilst ADF has experience in basic rural infrastructure via the Community Works Projects (Iand II),they lack the necessary highway engineering skills for a project of this type, and potential scale. Hence, the project will include technical assistance in the form of an individual consultant, an international highway engineer, for the entire implementation period of the project. In case of the latter, the Bank team will seek a commitment from the Albanian authorities (which will be covenanted in the project) that ADF is adequately resourced for the entire period of the project, to a level commensurate with the final scale of the project;

e) Risk of guilt by association. Another potential risk give the scale and scope of the project and program, is that land acquisition in any other government or donor financed road project conducted in a manner that contradicts Bank Safeguard Policy, could reflect in a pejorative way on the reputation of the Bank, if wrongly associated with the project. The team does not believe that this risk is substantial, however asked ADF to make public, on its website, in newspaper advertisements and via newsletters of the mayors and communes associations, which road sections are financed by the Bank, and how land acquisition has been conducted on these sections of the road. ADF was also asked to list on its website the financiers for each segment of roads to be rehabilitated under the entire program, and erect a notice-board at the site of each works indicating clearly the financier for the particular section; and

f) Diminished commitment to institutional reform in sector. The expectation in the project is that the rehabilitated secondary roads will be the responsibility of the GRD at the end of the project. Diminished enthusiasm for reform, which is a risk, would not unduly jeopardize project sustainability, as the roads will be reconstructed to assume a ‘limited’ maintenance regime subsequently, and from 2008 for the first time, all routine and scheduled periodic maintenance has been contracted out. F. Loadcredit conditions and covenants 34. Retroactivefinancing will be allowed for expenditures incurred after March 1, 2008, for an amount up to 20percent of the Credit (SDR 2,400,000), for initial and

14 interim payments for consultants’ services, goods, training, study tours, conferences and the operational costs ofthe project implementing agency. 35. Condition for Effectiveness: the Subsidiary Agreement has been executed on behalf ofthe Recipient and the Project Implementing Entity. 36. Project Covenants: (i)The Recipient shall take all action necessary on its behalf to ensure that the team responsible for Project implementation within the Project Implementing Entity is adequately staffed and provided with sufficient and timely financial, human and technical resources throughout the life ofthe Project; (ii)the Project Implementing Entity shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 4.08 of the General Conditions and on the basis of the Evaluation and Monitoring Indicators. Each such Project Report shall cover the period ofone calendar quarter, and shall be furnished to the Recipient not later forty-five after the end of the period covered by such report; (iii)the Recipient shall take all action necessary on its behalf to ensure that, starting with fiscal year 2009 and through fiscal year 20 13, adequate funds are allocated in its annual budget to cover its annual contribution to the financing ofthe Project;. (iv) the Recipient and the Project Implementing Entity shall take all measures necessary to ensure that no Sub- project proposal relates to, and no proceeds of the Credit are used to finance, a Sub- Project located: (a)in the area covered by the Southern Coastal Development Plan, until and unless such Plan has been formally approved by the Territory Adjustment Council; and (b) in the coastal area on the remainder of the Albanian coast, until and unless a development plan has been approved by, or has been submitted to the approval of, the Territory Adjustment Council; (v) the Recipient, through its Ministry of Public Works, Transport and Telecommunications, shall prepare a Council of Minister’s draft decision satisfactory to the Association, to be passed not later than December 31, 2008, transferring the rights for the administration and management of all secondary regional roads from the Regional Councils to the General Road Directorate. 37. Disbursement Condition: No withdrawal shall be made for Works (defined as Category 2 of the Financing Agreement), until and unless the Project Implementing Entity has submitted to the Association a written attestation for the Sub-project in respect of which the withdrawal is requested that: (i)the Sub-project does not require the submission, preparation and disclosure of a site-specific EIA, EMP or RAP, as the case may be; or (ii)the Sub-project does require the submission, preparation and disclosure of a site-specific EIA, EMP or RAP, as the case may be, and such requirements have been fulfilled to the satisfaction ofthe Association. 38. Financial Covenants: (i)The Recipient shall maintain or cause to be maintained a financial management system in accordance with the provisions of Section 4.09 of the General Conditions; (ii)the Project Implementing Entity shall maintain a financial management system and prepare financial statements in accordance with consistently applied accounting standards acceptable to the Association, both in a manner adequate to reflect the operations and financial condition of the Project Implementing Entity, including the operations, resources and expenditures related to the Project; (iii)the Recipient shall have their financial statements prepared in accordance with the provisions of Section 4.09 (b) of the General Conditions. The Project Implementing Entity shall have its financial statements audited by independent auditors acceptable to the

15 Association in accordance with consistently applied auditing standards acceptable to the Association. Each audit of the Financial Statements shall cover the period of one fiscal year of the Recipient, commencing with the fiscal year in which the first withdrawal under the Project Preparation Advance was made. The audited Financial Statements for each such period shall be furnished to the Association not later than six months after the end of such period and (iv) the Recipient shall prepare and furnish to the Bank no later than forty-five (45) days after the end of each calendar quarter, interim unaudited financial reports for the Project covering the quarter, in form and substance satisfactory to the Association. IV. APPRAISAL SUMMARY A. Economic and financial analyses 39. The appraisal of the priority sections of secondary (regional) and local roads have been undertaken using a two stage process involving multi-criteria analysis. The first stage involves the different local government units identifying and submitting their priority projects for consideration for financing under the project, which are then evaluated and ranked by ADF against a set of published criteria, similar to those used under for the competitive grant program.38 The selected sub-projects are then appraised using a traditional cost-benefit or cost-effectiveness approach, using the World Bank Roads Economic Decision (RED) Model. 40. The Cost-Benefit Analysis (CBA) is undertaken by comparing a defined base case (or “do minimum”) alternative to the proposed reconstruction alternative under the project (the “project scenario”). The results display an aggregate Net Present Value (NPV) ofUS$7 million (2008 value) at a discount rate of 12 percent for all road sections under the project, and an Economic Rate of Return (ERR) of 16 percent. B. Technical 41. The civil works interventions in the project are: the rehabilitation and reconstruction of priority sections of the secondary (regional) and local road network after longperiods of under or non-maintenance, The engineering designs for the first 400 km of secondary (regional) and local roads in the program will be prepared by the consultant procured to assist in the preparation of the project, based on guidelines prepared by the project team that reflect the current draft Albanian Road Design Manual (ARDM). The later designs will be prepared by consultants hired by the regional councils and communes, and checked by the ADF and the consultants hired to prepare the project, and later the supervising consultants. These arrangements will ensure that the project is run on a technically sound basis with improved knowledge transfer and better quality control of executed works to ensure value-for-money for the investment. C. Fiduciary 42. The financial management (FM) functions ofthe project will be handled by ADF, which will be responsible for the flow of funds, accounting, budgeting, reporting, and auditing.

38 The hll list of criteria is provided in Annex 9.

16 43, Financial Management Risk at the Project Level. The FM arrangements ofADF have been reviewed periodically as part of the on-going project supervision and found satisfactory. The FM arrangements for the Secondary and Local Roads project were assessed to be satisfactory for the project implementation. The FM arrangements of the Secondary and Local Roads project are going to be the same as for the on-going projects which are acceptable to the Bank. The overall FM risk for the project before and after mitigation measures is moderate.

44. Financial Management Risk at the Country Level. The corruption in Albania remains a serious and widespread problem, and the corruption risk is considered high (around 60% of businesses surveyed consider corruption as a problem doing business) according to the 2005 BEEPS report and also in the Transparency International (TI) report. Adequate mitigation measures are incorporated in the project, and Bank staff will closely monitor performance during implementation. These mitigation actions can be summarized as follows: (a) the project will establish a formal internal control framework described in the Financial Management Manual (FMM); (b) funds flow mechanism agreed will be enforced; (c) the project financial statements will be audited by independent auditors and on terms acceptable to the Bank; (d) regular FM supervision and procurement prior and post reviews will be conducted to look for any indication of the corruption risk. 45. Procurement. The initial procurement risk has been rated high due both to the increase in the number and size ofcivil works contract to be procured, and to the Country and sector environment. The procurement risk would evolve to moderate during the first year with the implementation of mitigation measures including reinforcement of the capacity of ADF procurement unit and training. For procurement activities, the procurement unit ofADF, already staffed with two procurement specialists, has recruited an additional procurement officer experienced in the procurement of civil works under World Bank Guidelines, and started to implement a training plan. However, the complex country environment characterized by endemic government issues, and the potential risk of interference in the procurement process, are likely to remain valid concerns for the duration ofthe project. D. Social 46. The project will improve access of rural population to various livelihood opportunities by improving road conditions. It will also strengthen the institutional framework for the management of the local and secondary road networks and thereby contribute to the long term sustainability of investments and the improvement in access. The project will also have a positive impact in strengthening the empowerment of local citizens through a participatory approach used in the selection of project local roads and road maintenance. Communes will be trained to hire local citizens for the routine maintenance of local roads, and the project will also train individuals to work as contractors, thereby generating secure sources oflocal employment.

47. It is anticipated that the project will not require large scale acquisition of private land or demolition of assets. Most civil works to be carried out will be road maintenance within the existing Right of Way (ROW). Accordingly, no physical

17 relocation of households is anticipated and any impacts are of a minor scale, if at all. However, encroachment into the public ROW has been observed, especially within or near settlements, where fences have been erected to enlarge residential compounds, small structures have been established for commercial activities, and vegetables have been planted. Accordingly, a Resettlement Policy Framework (RPF) has been prepared that sets out policies and procedures that will apply to the project consistent with the relevant national legislation and World Bank safeguards policy on land acquisition (OP 4.12). E. Environment 48. In accordance with the World Bank safeguard policy on Environmental Assessment (EA, OP 4.01) the project has been assigned “Category A”. This assignment is considered appropriate because even though the proposed road reconstruction and rehabilitation included in the project is envisaged to be entirely within their existing rights-of-way, some road segment sub-projects later in the program may trigger World Bank safeguard policies addressing forests (OP/BP 4.36) through exacerbating illegal logging, and/or natural habitats (OP/BP 4.04).

49. Accordingly, an Environmental Safeguards Framework (ESF) document acceptable to the World Bank has been prepared. This document outlines the procedures to be used by the Recipient for the preparation and approval of a sub-project specific environmental assessment (EA) and/or an environmental management plan (EMP) for any road segment where there are found to be environmental issues of a type and scale sufficient to trigger the World Bank safeguard policies. The ESF defines the content of the EA and/or EMP as well as the public consultation and disclosure procedures to be followed and is consistent with both the Albanian legislation and World Bank EA regulationdsafeguard policy requirements. Specific road segments to be financed for the entire project have been determined at appraisal, and will be “Category B” sub-projects. For these subprojects a general EMP was prepared.

50. The draft ESF was disclosed on the ADF website as part of the public consultation and subsequentlyfinalized. The final ESF was based upon the outcome of the second consultation using the draft ESF document as a basis of discussion. No changes to the draft ESF were necessary after the second public consultation. The draft ESF was disclosed on March 13, 2008 at ADF website. Notification of the disclosure was also placed in three national newspapers on the same day. The second public consultation was held on March 27, 2008 in Tirana at a meeting of representatives of all Communes and Regional Councils. An English language version of the ESF was sent to the World Bank and disclosed in the Infoshop on March 21, 2008. A summary of the ESF is presented in Annex 10 Section A.

51. For the general EMP, a public consultation was held on March 13, 2008 via posting on ADF’s website, and advertisement took place in three national daily newspapers at the same time. An English language version of the general EMP was sent to the World Bank and was disclosed in the Infoshop on March 21, 2008. The English language version of the general EMP is presented in Annex 10 Section B.

18 F. Safeguard policies

Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.0 1) [XI [I Natural Habitats (OPBP 4.04) [XI [I Pest Management (OP 4.09) [I [XI Physical Cultural Resources (OP/BP 4.1 1) [ XI [I Involuntary Resettlement (OP/BP 4.12) [XI [I Indigenous Peoples (OP/BP 4.10) [I [XI Forests (OPBP 4.36) [XI [I Safety of Dams (OP/BP 4.37) [I [XI Projects in Disputed Areas (OP/BP 7.60)' [I [XI Projects on International Waterways (OP/BP 7.50) [I [XI

G. Policy Exceptions and Readiness 52. The Project complies with all applicable policies of the Association and is ready for implementation. Engineering design and bidding documents for first-year activities have been prepared to allow tendering for works to commence on the first sections as soon as possible.

* By supporting the proposedproject, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas

19 Annex 1: Country and Sector or Program Background ALBANIA: SECONDARY AND LOCAL ROADS

A. COUNTRY BACKGROUND39

53. Albania’s performance since it embarked on transition in the early 1990s has been impressive. The country has successfully built the foundations of a market-based economy, created democratic institutions and gradually built capacity in the public administration to cope with political and economic transformation. These efforts have resulted in a track record of macroeconomic stability, as well as the fastest rates of GDP growth in South Eastern Europe (SEE). However, Albania remains one of the poorest countries in Europe with a Gross National Income per capita (GNI) estimated at US$ 2,960 in 2006, and widespread poverty, high unemployment, substantial regional disparities, and weak governance structures. The program of the present Government, which took office in September 2005, seeks to focus on improving governance and the rule of law, reducing corruption and breaking monopolies, improving the business environment, accelerating rural development, and fostering the development of human capital.

54. The Albanian population is also changing fast, but unemployment remains endemic. Although population growth and fertility rates have been falling, Albania still has one of the highest fertility rates and one of the youngest populations in Europe, although the portion of the population over 65 years of age is growing faster than the rest of the adult p~pulation.~’The population remains predominantly rural, although the cities, particularly Tirana, have grown very rapidly over the past 15 years. The labor force now displays a growing preponderance of males, and it is mostly rural (65 percent). Unemployment remains widespread (officially estimated at 14.4 percent in 2004, down from 15 percent in 2003), especially in urban areas despite marked declines in registered unemployment in the last decade.41

55. Poverty remains a problem, despite recent improvements, and a decade of sustained GDP growth. About 25 percent of the Albanian population (780,000 individuals) had consumption levels below the poverty line in 2002, and although recent work suggests a significant reduction42 in this number, it remains a problem. The distribution of consumption suggests that a large number of individuals are clustered around the poverty lines. But little extreme poverty - defined as the proportion of the population with a monthly income of no more than ALL 3,050 (the food poverty line) - exists. In 2002, only 5 percent of the population was estimated to be extremely poor.43 A

39 This section draws heavily on the recent Country Assistance Strategy for 2005 - 2009 (World Bank, 2006a). 40 Albania’s total population was estimated at 3.1 million in 2004 and is projected to increase to 3.7 million by 2025. An estimated 0.8 - 1.0 million Albanians currently live outside of Albania. 41 Between 1993 and 2003, registered unemployment fell by 46 percent. 42 World Bank (2006~)Zbid- suggests 235,000 have been lifted out of poverty since 2002. 43 World Bank (2003) “Albania Poverty Assessment”. Report No. 262 13-AL; Human Development Sector Unit, Europe and Central Asia Region.

20 recent survey noted that most ofthe poor people are concentrated in the mountain region: Almost one-half ofthe population in this area is poor and one in five (20 percent) cannot meet basic food needs; and finally, within the individual prefectures, Dibra, Kukes, Lezhe and Shkodra exhibit the highest levels ofhead count poverty, with more than one-third of their respective populations living below the poverty line.

56. The Country Assistance Strategy“ noted that future growth will be increasingly reliant on higher investment levels on infrastructure. The business environment is plagued with considerable administrative barriers, weak governance, corruption, and ambiguities in property and land rights. In addition, the poor quality and high cost of infrastructure and utilities combines to inflate the cost of doing business, which together with limited access to credit and financial services, form significant barriers for business, despite improvements in entry/exit reg~1ation.s.~~The current poor state of infrastructure was also noted in the earlier Country Economic Mem~randum~~(CEM) “...to lower the marginal productivity of private capital in Albania, discouraging the involvement of the private sector. ” The Global Competitiveness Report 2007-200847 ranked Albania 109th out ofthe 13 1 countries surveyed, with inadequate infrastructure one of the major issues raised. The more recent Logistic Performance Index4*ranks Albania 139 out of a total of 150 countries.

B. TRANSPORT SECTOR BACKGROUND

The Challenges facing the Transport Sector 57. Transport demand is growing rapidly, reflecting the structural changes in the economy and the realignment of trade flows in the region. The NSSED Progress Report for 200449notes that the demand for transport grew by 10.1 percent in 2004, with the majority occurring in the demand for road transport. Furthermore, actual growth is likely to be much higher in and around urban areas, particularly in the Tirana - Durres area, which witnessed a remarkable pick-up in economic activities. As one indicator, the number of registered vehicles has grown at an annual average rate of 14 percent for cars, (1 3 percent for all vehicles) since 1999.

58. The institutional framework responsible for the regulation and execution of transport policy in Albania has changed recently. At the national level, the merger in September 2005 ofthe old Ministry of Transport and Telecommunications (MOTT) with the Ministry of Territorial Adjustment and Tourism (MoTAT), established the Ministry of Public Works, Transport and Telecommunications (MPWTT). The MPWTT is responsible for the policy and regulatory framework, together with the technical standards for the road, railway, civil aviation and maritime transport sub-sectors. The national road network is the responsibility of General Roads Directorate (GRD) under the

44 World Bank (2006c), Paragraph 3 1. 45 World BaMIFC (2005) “Doing Business in 2005: Removing Obstacles to Growth”. A joint publication of the World Bank, International Financial Cooperation and Oxford University Press. 46 World Bank (2004) “Sustaining Growth Beyond the Transition”, ECA PREM. 47 World Economic Forum, (2007) “Global Competitiveness Report, 2007-2008”, Davos. 48 World Bank (2007) Connecting to Compete: Trade Logistics in the Global Economy, Washington DC. 49 Ministry of Finance, (2005) NSSED Implementation Progress Report for 2004, Tirana.

21 MPWTT, whilst secondary (regional) roads are the responsibility of the regional road units under the regional councils, and local roads the responsibility of the road departments in the District Councils, both under the Ministry of Interior (MOI). Similarly, the approximately 2,500 km of urban roads are maintained by the road departments in the different Municipalities, under the Ministry of Territorial Planning and Tourism (MTPT).

59. However, the performance of the institutions in the road sector remains poor. The GRD now employs some 594 staff”; 155 at the main office in Tirana, with the remainder at the seven Regional Road Directorates. This equates to one employee for every 5.5 kilometers of road under the control of GRD, compared to 1 employee for every 300 kilometers of road in the most efficient organizationss1.Under the Albanian National Transport Plan (ANTP), road sector reforms were proposed including the restructuring and reforming of the GRD. A strategy and Reform Action Plan has been prepared under another World Bank project. The main objective to transform GRD into an Albanian Road Authority (ARA) - a public enterprise that runs efficiently on commercial principles. It is then anticipated that the national road network (Le. the maidprimary and secondaryhegional roads) would then all be under the remit of the new more efficient ARA with all works being contracted out to the private sector. Under this arrangement, the local roads would stay under the management of the communes and municipalities. The reform of this organization is a key priority for the Government and a Council of Ministers decision was passed on February 27, 2008 confirming the structure and implementation plan.

60. The road infrastructure compares poorly to regional comparators. The overall length of the road network in Albania totals about 15,000 km. The network comprises 3,412 km of national, or primary, roads administered by the Ministry of Public Works, Transport and Telecommunications (MPWTT) and directly managed by the General Roads Directorate (GRD), and about 12,000 km of secondary and local roads. The overall quality of the road network is poor compared to regional comparators, with only 39 percent of the road network paved in Albania, compared to 52 percent in Bosnia and Herzegovina and 62 percent in Macedonia. In 2002, only 10 percent of the national road network was found to be in good condition, with an additional 22 percent in fair condition, and the remaining 68 percent in poor conditions2.

61. Mortality and morbidity from road traffic crashes is a serious and increasing public health issue. The rapid growth in vehicle ownership, poor observance of traffic signals and rules by drivers, particularly in and around urban areas, are contributing to an increase in the number of road traffic accidents, underlining the fact that road safety is becoming a significant social and economic issue in Albania. On average, recent research has estimated the costs to amount to between 1-2 percent of GDP. Whilst the annual fatality rate, based on official statistics, which reflect a considerable amount of under- reporting, has been slowly decreasing over the past six years, the fatality rate per million

” This figure reflects the reduction of 420 staff employed at the regional offices. 51 Heggie and Vickers, (1998). ” World Bank (2004b).

22 vehicle-km in 2000 at 7.8 was still the highest in Central and Eastern Europe and about eight times the average rate in the EUl5 countries (e.g. UK, 1.0, Sweden 0.8), as noted in the recent NSSED Annual Progress Report53.

The Local Road Sector

62. The Ministry of the Interior (Mol) is the sector ministry for the secondary (regional) and local government units in Albania. Regional (Secondary) roads also referred to as district roads are under the management of the 12 Regional Road Authorities (Qarks). Management of the local roads is under 65 municipalities (in the urban areas) and 309 communes (in the rural areas). Staffing levels at present are approximately 1814 at the regional road authorities and an undetermined number at the municipalities and communes. The secondary and local road network consists of: (i) 4,411 km of district (or secondary) roads, which provide rural links of district importance and are maintained by district road departments on behalf of the Ministry of Interior (MoI); (ii)4,980 km of communal roads, including private access roads, which provide rural links of communal importance and are maintained by commune road departments on behalf of the Ministry of Interior (MoI); and (iii)2,500 km of urban or municipal roads, which are maintained by the Municipal road departments on behalf of the Ministry of Territorial Planning and Tourism (MTPT)54.

63. After social assistance, the roads constitute the second major category of municipal responsibility. Prior to 2003, all road construction and maintenance was a central government responsibility. Local spending on road projects, if any, was financed through conditional grants. In 2003, rural local, communal local, and secondary (regional) roads were transferred to the local governments. Spending on road maintenance is now financed from local discretionary revenues. Spending on capital works continues to be financed through conditional transferss5.

64. The local road network has suffered particularly from the neglect in maintenance. Little of the local road network is paved, and about 75-80 per cent is reported to be in a poor or very poor condition - with a number of sections impassable for much of the year. The decentralization to local governments of the responsibility for managing local and municipal roads has compounded the problems of inadequate maintenance. Local revenue sources, such as vehicle registration charges, are insufficient - reflecting both the unfunded mandate created through decentralization, and the excessive level of administrative costs at the regional and district offices. The weak management and planning, generally undertaken without any consideration of the broader regional planning dimension also undermines the efficiency of spending in other

’’ Republic ofAlbania, Council of Ministers (2006) 2005 Annual Progress Report, Tirana. 54 The proposed project will only consider the first two categories of local roads, the districtlsecondary roads and the commune roads, reflecting the significant differences in the problems facing roads in urban areas. 55 World Bank (2007) Albania: Assessment ofInter-Governmental Fiscal System.

23 sectorss6; improving roads potentially realizes savings in education and health budgets and improves quality, through facility centralization.

65. Road maintenance for secondary (regional) and local roads is under-funded. The maintenance needs (backlog, routine, winter and periodic) for secondary and local roads is estimated at ALL 5.2 billion (US$67.5 million) per year. Using the 2006 data, there is a maintenance financing gap of ALL 4.4 billion (US$53 million) per year for the secondary and local roads. Central government budget support has been erratic and--the report argues--local governments have limited resources and have tended to devote what little they have to other sectors, or to general administration. A recent studys7undertaken for the World Bank reveals that many of the LGUs have unnecessarily large administrative labor forces, which consume nearly their entire maintenance budget. The ANTP report58recommended the creation of a separate roads fund at the national level, into which road-user-related taxes would be placed and used to finance expenditures in the sector. Whilst this is also an option for the local road sector, in both cases, it reduces the flexibility of democratically elected bodies to choose their spending priorities.

66. Poor transport infrastructure is considered to be the main cause of difficulties for many people living in rural areas. Over half (57 percent) of the Albanian population lives in rural areas, and over one-third 35 percent) of the rural population is estimated to live in poverty.s9 A qualitative survey66 of both poverty, and its causes, noted that, after employment and income, many Albanians considered infrastructure problems to be the main cause of their difficulties and a significant factor in their low standard of living. 49 percent of rural producers stated that a lack of adequate transportation, primarily good roads, was their biggest marketing problem6’. Rural inhabitants and leaders acknowledged that poor road access makes it difficult for farmers to reach markets, contributes to rural to urban migration, and affects the delivery of health and education services. One earlier study found that improved rural roads reduced transport costs by 80 percent and allowed farmers to increase their production by 50 percent62.

67. These links have been reaffirmed by recent work undertaken by the World Bank in Albania and in the region, in particular the importance of investing in rural infrastructure as a critical intervention towards overcoming constraints to agricultural competiti~eness.~~In recent poverty assessments in the region, the micro-economic constraints to agricultural growth are attributed in part to the low investments in infra~tructure~~.Poor infrastructure and low market access are identified as having

” World Bank (2006) Op Cit. 57 World Bank (2007) Improving the Management of Secondary and Tertiary Roads. 58 Louis Berger (2005), Volume 3, pp. 3-24. 59 World Bank (2003) Poverty Assessment. 6o World Bank (2002b). World Bank (2002b) Page 27. 62 Evans, (1990). 63 See World Bank. (2006b) “FYR Macedonia: Agriculture and EU Accession: Achieving FYR Macedonia’s Agricultural Potential” Washington DC; and World Bank. (2007a) “Albania: Strategic Policies for a more competitive agricultural sector.” Washington DC. 64 World Bank (2007~).“Albania: Growth, Migration and Poverty Reduction.” Washington DC.

24 contributed significantly to declines in agricultural productivity; with farmers living in the mountainous areas being affected the most. More recent studies elsewhere have supported these findings and also report positive differences in school enrolment and frequency in use ofhealth services, between areas with and without all-weather roads.65

'' World Bank (2006).

25 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ALBANIA: SECONDARY AND LOCAL ROADS

68. The total amount of donor financing (including recent commitments) over 1990-2007 amounts to EURO 640 million and US$263 million. Table 1 provides a breakdown ofthe support by each donor in the sector over the period:

Donor Currency Amount of Financing I European Union I EURO I 136.9 I I The World Bank I US% I 156.8 I I EBRD I EURO I 148.4 I I EIB I EURO I 209.2 I I Government of Italy I EURO I 108.7 I Islamic Development Bank US$ 26.8 OFID US$ 20.7 UEA US% 5.0 CEI EURO 11.7 I US Government I US$ I 12.0 I I Government of Japan I US$ I 1.9 I I Government of Greece I EURO I 26.0 I I KuwaitFund I US$ I 40.0 I

69. Over the period, supportfrom the donor community has supported all the major modes of transport: (i)the rehabilitation and reconstruction of major national road corridors, North - South and West - East, together with trade and transport facilitation transport and border crossing points with neighbor countries; (ii)Improving the physical infrastructure of the Albania main ports, Durres, Vlora and Saranda, preparing the Durres Port Master Plan, and establishing the maritime administration; (iii)implementation of the air traffic control system, and improving the airport infrastructure and construction of new facilities; and (iv) limited investment in improving the signaling and railway infrastructure, together with sector studies.

70. The support of the European Institutions. The support of the European Union and the EBRD and EIB to the sector has been considerable. The following table summarizes the support of the different European institutions over the period 1990-2007.

26 Table 2 : EU support to the Transport Sector in Albania 1990 - 2005 Project Name I Financing(EUR0 I Status

West-East Road Corridor: 56.8 Satisfactory implemented Vore-Sukth 15.0 completed in 2002 Durres Rrogozhine 20.5 completed in 2001 Korce- Kapshtice 21.3 completed in 2002 North - South Road Corridor 37.9 Satisfactory implemented Rrogozhin@-Lushnje 19.4 completed in 2002 Kakavije-Gjirokaster 13.0 completed in 2002 Gjirokaster-Tepelene 5.5 to be completed in 2007 Levan - Tepelene 2.3 To be completed in 20 10 Border Crossing points with Greece 3.8 Satisfactory implemented - Completed in 2002 Durres Ferry Terminal Quay 4.5 Satisfactory implemented - completed in 2002 Durres Port Master Plan - Study - ongoing DesigdSupervision of Road Works/TA to the 23.4 Satisfactory implemented, Project Management Unit and to the MPWTT 2.0 Ongoing 2.0 1 Ongoing

71. The World Bank has financed several transport projects during the last 15 years (total US$156.8 million). Most ofthem were focused on the road sub-sector - about US$136.9 million or 86 percent of the total financing, followed by Ports with US$21.5 million or 14 percent. No separate projects have been financed for the railway and aviation sub-sector (see the table below). Table 3 : World Bank support to the Transport Sector in Albania 1990 - 2007

Transport Project 25.0 Ongoing - To be completed in 201 1 Total 156.8

72. The World Bank Is currently implementing the (FYO7) Transport Project. The project, which became effective in August 2007, is progressing well. The project includes: (i)the construction of the 26 kilometer section of the Milot to Rreshen road, thereby

27 contributing to a reduction in journey time for road users and an improvement in access to one of the poorest parts of Albania; (ii)the introduction of innovation in road maintenance on a pilot basis through the testing of output and performance based road maintenance contracts in two pilot regions; and (iii)institutional development and support to improving road safety in Albania.

73. The International Finance Corporation (IFC) and Public Equity Partnership in Southeast Europe (PEPSE) are currently assisting the authorities to concession the container terminal in the Port of Durres. The work is progressing and, if successful, the terminal is scheduled to be in the hands ofthe private sector in September 2008.

28 Annex 3: Results Framework and Monitoring ALBANIA: SECONDARY AND LOCAL ROADS

Results Framework

To improve access to essential The number of communities that Information will be used to assess services and economic markets, have improved access to markets, the extent to which the project via the provision of all weather social services and administrative development objective has been roads, for the resident population centers, via the provision of an all attained (the impact that the in the hinterland of the project weather road, by the end of the project has had). roads. project

Proportional increase in traffic volumes one year after project road sections improved or rehabilitated

Change in road user perception of road quality

Reduction in travel time on project road sections in free flowing conditions Intermediate Outcomes Use of Intermediate Outcome Monitoring Component One: Component One: Component One:

Improvement and rehabilitation Number of km of road improved Information will be used by ADF of secondary roads or rehabilitated and the MPWTT to monitor imdementation Droixess. Component Two: Component Two: Component Two:

Improvement and rehabilitation Number ofkm of road improved Information will be used by ADF of local roads or rehabilitated and the MPWTT to monitor implementation progress. Component Three: Component Three: Component Three: Management Information System Essential Technical Assistance in place and functioning Information will be used by ADF and the MPWTT to monitor Number of people trained to implementation progress. undertake maintenance

Number ofpeople in the communes trained to procure contractors to undertake maintenance

Increase in annual recurrent maintenance budget: (i)for National roads; (ii)for Local Roads.

29 I

9 9 9

0 0 2: N m s El ::

0v) s

El 0N 0 - El El N0 0

c3 'VI 0 0 0 0 0 q 0 0 0 e, Annex 3 - Results Framework

Implementing the Governance Filter

74. The centerpiece of the World Bank 2006 Country Assistance Strategy (CAS)66for Albania is an innovative attempt to tackle governance challenges in the country through the introduction of a ‘Governance Filter’ to guide all the Bank interventions in Albania. The 2006 CAS program seeks to support Albania’s efforts in improving governance. It recognizes that more coherent efforts need to be made to address the challenge of poor governance and introduces a ‘Governance Filter’ comprising four core principles which will be used to ensure that governance considerations are mainstreamed into all ofthe activities supported by the World Bank:

0 Principle I:Seek greater transparency in the use of public resources;

Principle 11: Support increased autonomy and de-politicization of key public sector counterpart organizations;

Principle 111: Analyze the formal (and likely future) roles of local governments, and develop capacity -- and local mechanisms of accountability -- to enable local governments to effectively take on these roles; and

Principle IV: Strengthen mechanisms for advocacy and increased involvement of citizens (including nongovernmental stakeholders) to encourage improved performance ofpublic service delivery and policy-making bodies.

75. The filter is intended to underpin the design of the projects, the substance of Analytical and Advisory work (AAA) support, the reform agenda in the Development Policy Loan (DPL) series, policy dialogue, and the supervision, monitoring and implementation ofprojects,

76. The Objectives of the Four Guiding Principles of the Governance Filter. The World Bank recently produced some guidelines on the implementation of the Governance Filter in Albania67. The Guidelines stress the need for all Bank interventions to mainstream governance considerations and improve governance outcomes through a number of identified modalities. The selection of the particular tools and modalities for any particular project or sector is left to the discretion of the team. However, the Guidelines offer the following objectives of the four guiding principles ofthe Governance Filter: A. TRANSPARENCYINTHE USE OF PUBLIC RESOURCES Implementation of transparent integrated planning and budgeting processes with improvements in alignment of the annual and medium-term budget allocations with the NSSED priorities;

66 The CAS, approved on 10 January 2006, covers FY06-FY09. See http://www.worldbank.org.al. 67 The World Bank (20060.

31 Increasing transparency in the allocations and use of resources and project selection, improving anti-corruption measures and institutions and strengthening lines of accountability; Fostering wider participation in resource allocation and enabling better access to information; and Strengthening of internal capacity and effective oversight bodies for public finance, audit and procurement and transparent financial reporting.

B. INCREASEDAUTONOMY AND DE-PoLITICIZA TION OF THE PUBLICADMINISTRA TION Support the delineation (as well as checks and balances) between the political and administrative function and the creation of a professional, merit-based, public administration; and Expansion of the merit-based bureaucracy to all line ministries and in local government; Building capacity in public administration through implementation of all projects by relevant government structures rather than reliance on Project Implementation Units (PIUS). c. SUPPORTING DECENTRALIZATION Enhance role of local government in service delivery by building capacity and strengthen accountability mechanisms at local levels; and, Solid understanding of the constraints faced at local government level. D. STRENGTHENING MECHANISM OF ADVOCACY AND CITIZEN PARTICIPA TION Mechanisms of voice to be harnessed and strengthened, especially in delivery of services; Empowering communities to the extent practicable, especially in service areas such as the management of schools and service delivery by hospitals; and, Strengthened stakeholder involvement is required as a corollary to decentralization.

The Application of the Governance Filter in the Project

77. The Application of the Governance Filter in the Project. This project has been designed to fully reflect the principles of the Governance filter:

78. In the case of the first pillar, the project will provide direct assistance to achieve the following objectives:

Undertaking an update of the functional categorization of all roads and a condition survey to make explicit the spending needs and responsibilities at all levels; 0 Supporting the introduction of contracting for maintenance on secondary and local roads and the ending of use of ‘force account’; and Establishing an asset management system for secondary and local roads -to make explicit the prioritization of national and local roads on an objective basis.

32 79. In addition, the project will support indirectly, as part of the normal policy dialogue and via the ongoing Development Policy Operations, the use of the full cycle of project identification, preparation, and appraisal, consistent with the guidelines on public investment management, produced by the Ministry of Finance. The same dialogue will also support the authorities, and the EU funded TA, in establishing the process by which the ANTP is revised and updated, to inform the Medium Term Budget Program.

80. In terms of the second pillar, the project will provide direct assistance to achieve the following objectives:

0 Contribute through the provision of an asset management system to the autonomy of recurrent and capital expenditure decisions of the reformed General Road Directorate; Contribute through the provision of an asset management system to the transparent and objective investment decisions on the local road network; and Establishing a transparent process to identify and prioritize investments on the secondary and local road networks, involving community participation, for all capital investments, domestic or donor.

8 1. In addition, the project will support indirectly, as part of the normal policy dialogue and via the ongoing Transport Project, the transformation of the GRD into a ‘commercial’ Road Authority.

82. In terms of the third pillar, the project will provide direct assistance to achieve the following objectives:

Strength the capacity of the communes to procure and manage private contractors to maintain the local roads under their responsibility.

83. In terms of the fourth pillar, the project will provide direct assistance to achieve the following objectives:

0 Provide training to individuals within the communities to compete and be selected to undertake maintenance on the local road network; and 0 Establish a transparent process to identify and prioritize investments on the secondary and local road networks, involving community participation.

84. The following matrix details the monitoring indicators to measure progress towards the realization of these objectives:

33 + c ..a 2 P f d r C i c .e s C

C2 .e e C c 4 I L c r 5 4 c e C f c 0 0 0 4 f Q. C C C .r c C c 5 aE 5

.LE P f C C

.rr L c 5 I &

v) m

I Annex 4: Detailed Project Description ALBANIA: SECONDARY AND LOCAL ROADS

85. Project cost and components. The total cost of the World Bank Project is estimated at US$40 million (EUR 25.3 million equivalent), net of all taxes, with US$20 million (EUR 12.6 million equivalent) coming from an IDA Credit, and US$15 million (EUR 9.5 million equivalent) from the OPEC Fund for International Development (OFID), with the remaining US$5 million (EUR 3.2 million equivalent) being provided by the Government in counterpart financing.

86. The total program is expected to encompass between 1,000 - 1,500 km of secondary and local roads, implying a total program size of between US%200-300 million.68 Parallel financing has been agreed with a number other institutions -the Council of Europe Development Bank, the European Bank for Reconstruction and Development, the European Investment Bank, and the Japanese Bank for International Co-operation. In addition, the authorities have received Euro 8 million from the instrument for pre-accession (IPA 2008), with further allocations possible in subsequent years (IPA 2009, IPA 2010). There will be three main components in the project:

87. Component 1 - The civil works associated with the improvement of priority sections of the secondary (regional) road network [Estimated total cost - US$19.3 million (EUR 12.2 million equivalent)], Bank financed US$7.5 million (EUR4.7 million equivalent). The component will finance the civil works associated with improving selected priority sections of the secondary (regional) road network. Given the poor condition of this network and the limitations in the original designs of these roads, the interventions under this component are expected to be either rehabilitation or reconstruction. The provisional proposal is that the secondary (regional) roads would be reconstructed with a paved 2-lane carriageway of width in the range 6.0 to 7.5 meters with, respectively, a paved shoulder on either side ofwidth between 1.25 and 1.5 meters. In urban areas, paved footways would be substituted for the shoulders, where necessary road safety infrastructure will be included as well. These designs are broadly consistent with Volume 2 of the Draft Albanian Road Design Manual (ARDM), currently being prepared with support from the European Union. Typical cross-sections for the three typical cross-sections (Rl, R2 and R3) proposed for secondary (regional) roads are provided in Figure 1. Determination of appropriate type classification will be dependent on the level of traffic, importance of road in the functional hierarchy e.g. roads intended for handover to the General Roads Directorate (GRD). The selection between R1 and R2 will be dependent on relative traffic levels. Justification in the choice of road type will have to be made on engineering and economic grounds.

68 Based on an average unit cost of US$200,000 per kilometer.

36 Figure 1: Typical Secondary (regional) Road Cross-Section RURAL AREAS URBAN AREAS I

Note 1 - For details of footway construction, see Figure 4.1 Note 2 - Footway profile shown with broken line applies 1.o in urban area when constraints in space can not allow for both shoulder and footway widths probision

88. Roads that are deemed at the preliminary design stage as falling in the “fair” category and therefore not requiring full-scale reconstruction may warrant cost-saving rehabilitation intervention works (Le. rebuilding only the base and wearinghurface course). In making the justification for appropriate intervention actions, design engineers will be expected to include a description of existing road conditions and justify the recommendations made in final designs for incorporation in tender documents.

89. The nominal pavement cross sections proposed under the works for secondary (regional) roads are as shown in Table 4 below (all dimensions in mm).

Table 4 : Secondary (regional) Roads Pavement Cross Section Details Course Regional Type R1 Regional Type R2 Regional Type R3 Surface course Asphalt 40 Asphalt 40 Asphalt 40 Binder course Asphalt 40 n/a n/a Roadbase 150 150 150 Sub-base 200 200 200

90. Component 2: The civil works associated with the improvement of priority sections of the local (commune) road network. [Estimated total cost - US$7 million (EUR 4.4 million equivalent)], Bank financed US$1.6 million (EUR1 million equivalent). The local roads would be reconstructed with a paved one-lane carriageway of 3.5 meters and 1.0 meter paved shoulders on each side. In urban areas, paved footways would be substituted for the shoulders. These proposed designs are both broadly consistent with Volume 2 of the draft ARDM, currently being prepared with support from the European Union. The typical local road cross-section is as shown in Figure 2.

37 Figure 2 : Typical Local Road Cross-Section

RURAL AREAS URBAN AREAS 1

I

91. Component 3 - Implementation and Institutional Support [Estimated total cost - US$13.7 million (EUR 8.7 million equivalent)], Bank financed US$10.9 million (EUR6.9 million equivalent). The component will finance: (i)the procurement of a firm of international consultants to supervise the civil works for the duration ofthe project; (ii) a technical assistant with a strong background in highway engineering for the duration of the project; (iii)A contribution to the cost of study tours and necessary training in ADF; (iv) the preparatory work funded by the consultants hired to prepare the project under the Project Preparation Facility (PPF); (v) necessary goods, (in the form of vehicles, office equipment and furniture); (vi) a contribution to the operational costs of ADF (including salaries, social contribution, fuel); (vii) assorted individual consultants to assist ADF in project implementation.

92. The scope of the preparatory work funded by the PPF: The work of the PPF funded consultants has two broad phases: Phase 1 involves: (i)a review and proposals to update the current functional and administrative classification and network length of all classes of roads; (ii)the undertaking of a road inventory survey of the defined ‘active or core’ secondary (regional) and local road network; (iii)the preparation of travel demand forecasts for the defined appraisal period; (iv) the establishment of reliable cost estimates of the proposed solution, estimating quantities and determining unit prices from recently completed projects in similar conditions, both in Albania and the region; (v) the establishment of a Road Management System for all active secondary and local roads; (vi) necessary consultations and stakeholder participation, together with the Client, to ensure that local communities are involved in the process; (vii) the preparation of a framework document to manage any environmental impacts engendered by the project; and (viii) to select the priority roads, and rank them using defined criteria agreed with counterparts, on an objective basis, using the World Bank HDM4 and the Roads

38 Economic Decision (RED) Models. Phase 2 involves the preparation, together with the local community representatives and representatives of the Implementing Agency, the detailed engineering design and tender documentation for a defined program, a draft strategy for the local road sector, which will include recommendations on financial sustainability ofthe sector, necessary policy reforms, necessary capacity building, and the definition of a five (5) year investment program for the project. In addition, necessary training would be provided during the preparation phase, and implementation phase, to undertake the training of counterpart staff, both in the implementing agency, and the commune administration to allow them to both supervise the implementation and ensure the sustainability of the investments (procuring and managing private contractors for implementation and maintenance).

39 Annex 5: Project Costs ALBANIA: SECONDARY AND LOCAL ROADS

Local Foreign Total Project Cost By Component andor Activity US $million US $million US $million

Component 1: Reconstruction of Secondary Roads 1.8 17.5 19.3 International Development Association 7.5 OPEC Fund for International Development 10.0

Component 2: Reconstruction of Local Roads 0.4 6.6 7.0 International Development Association 1.6 OPEC Fund for International Development 5 .O

Component 3: Implementation and Institutional 2.8 10.9 13.7 support International Development Association 10.9

Total Project Costs 5.00 35.00 40.00 (includes all physical and price contingencies)

Total Financing Required 40.00

93. All contracts to be financed under the project will be subject to VAT at a rate of 20 percent. The Government has agreed to finance the VAT portion of all invoices to be paid under the project from its own resources.

94. Identifiable taxes and duties are US$3.6 million, and the total project cost, net of taxes, is US$40.00 million. Therefore, the IDA share of total project cost net of taxes is 50 percent.

40 Annex 6: Implementation Arrangements ALBANIA: SECONDARY AND LOCAL ROADS

95. The project will be implemented by the Albanian Development Fund (ADF), supported where necessary by the steering committee chaired by the Minister of Public Works, Transport and Telecommunications and/or the ADF Board of Trustees. The implementation of the project will be streamlined within the existing structures of the ADF. ADF are very experienced in implementing donor financed projects projects including, inter alia, the following: (i)Community Works I1project funded by IDA, CEB and the Italian Government for a total ofUS$16 million; (ii)Social Investment Fund I1 & Supplemental funded by KfW for a total of EUR 2.55 million; (iii)Social Investment Fund I11 funded by KfW for a total of EUR 2.51 million; (iv) Rural Water Supply Program funded by KfW for a total ofEUR 9.9 million; (v) Community Works I11 funded by CEB for a total of 14.38 million. ADF are also implementing activities financed by the GOA to the extent of US$2.5 million in 2007 and a planned US$5 million in 2008, together with the listing and supervision of project financed by the Competitive Grant mechanism, and IPA funds administration for the Local Communities Development Program under Decision ofCouncil ofMinisters decision of September 2007.

96. The ADF was established by a Council of Ministers decision69 in 1993 as a Rural Development Foundation and its status is to be clarified. A statute attached to the decision defined the “Rural Development Foundation” as a legal person with administrative, technical and financial autonomy, under the supervision of the Council of Ministers. The decision did not mention the legal basis, but in June 16, 1993, the Foundation was registered in Tirana Court as a ‘legal’ person under Law No. 7512, dated August 8, 1991 “Per sanction and protection of private proper@ free initiative, independent activities and privatization”. In Decision No.427, dated September 8 , 1994, the Council of Ministers changed the Statute of the “Rural Development Foundation”, based this time explicitly on Law No. 7695, dated April 7, 1993 “For Foundations”. The decision also changed the name of the foundation into the “Albanian Development Fund”. ADF Board of Trustees has recently approved a draft Law to consolidate ADF’s status as a public legal entity with broad management, administrative, financial and technical autonomy.

97. The ADF has 56 employees, of which 55 employees are full-time and the Financial Control Specialist is the only part-time employee. The Infrastructure Department of ADF has a noted total of 21 staff. The top echelon of management includes the Director and his Assistant. For operational efficiency, the country has been divided into 4 areas (North, Central, South-East and East). The day-to-day technical affairs are run by 4 regional inspectors (located at the headquarters) and 11 technical inspectors (spread in districts under the area divisions). These are supported by a Project Control Unit (2 staff) and an Internal Audit Unit (2 staff). The staff have been assessed and are considered adequately qualified and experienced to carry out their duties,

69 Decision No.12, dated January 9, 1993.

41 supplemented by an international technical assistant (a Highway Engineer), and a team of international consultants to supervise the project.

98. The implementation of the Secondary and Local Roads Project. This project is structured in such a way that the local communities are actively involved in the identification of potential sub-projects, which they submit to the regional councils based on a number of explicit criteria which have been publicly advertised”. The identified projects are then submitted to the Regional Councils, which submits the highest priority ones to the ADF. ADF then prioritizes the submitted projects by ranking them based on scoring the published criteria and sub-criteria: (i)each road must have substantial development potential (agricultural potential, production, tourism); (ii)they must have substantial current or potential use; (iii)they must have a significant number of beneficiaries (population, poverty); and (iv) there must be no significant negative impact on the environment or the population living in the hinterland ofthe roads. The ADF will then establish the feasibility of proposed projects using the World Bank Roads Economic Decision Model, and assist the communities in preparing the necessary technical documentation e.g. preparing the design, carrying out joint supervision of implementation, monitoring progress, and providing general project and audit review controls.

99. Once a specific sub-project has been selected, an Investment Agreement (H) will be signed between ADF and the applying LGU. This IA shall define the obligations of each party for implementation ofeach sub-project, maintenance commitments after the completion of the project as defined the Operations and Maintenance Agreement (OMA), and the environmental management plan, and resettlement action plan, where necessary. The maintenance commitment will be defined in a separate Operations and Maintenance Agreement (OMA), which will be completed and signed by ADF and the LGU at the time the IA is signed, and will contain: (i)general principles for maintenance on the defined road; (ii)confirmation that the costs of the required multi-annual maintenance contract will included in the LGU budget for the next five years; and (iii)a draft contract for a private contractor to undertake the maintenance for the next five years. The procurement of the latter will commence upon completion of the sub-project. The detailed implementation arrangements for the project are provided in the prepared Manual of Operations for the project which is available for download on the ADF website.

’O The published criteria are: (i) each road must have substantial development potential (agricultural potential, production, tourism); (ii)they must have substantial current or potential use; (iii)they must have a significant number of beneficiaries (population, poverty); and (iv) there must be no significant negative impact on the environment or the population living in the hinterland of the roads.

42 Annex 7: Financial Management and Disbursement Arrangements ALBANIA: SECONDARY AND LOCAL ROADS

100. Country Issues. The latest Country Fiduciary Assessment (CFA-August 2006); Public Expenditure and Institutional Review (PEIR - July 2006) and Public Expenditure and Financial Accountability Report (PEFA - July 2006) confirm that improvement is required to increase public spending efficiency and accountability by improving planning, budgeting, and executing public investment projects; strengthening lines of accountability, including enabling better access to information by all stakeholders; building stronger monitoring and evaluation systems; and establishing competitive and transparent frameworks for government purchases (procurement).

10 1. The assessment of the country financial management arrangements concluded that the public financial management has improved significantly during the last few years in areas such as budgeting, internal control, internal and external audit, though from a relatively weak base.

102. Corruption in Albania remains a serious and widespread problem, and the corruption risk is considered high (around 60% of businesses surveyed consider corruption as a problem doing business) according to the 2005 BEEPSreport and also in the Transparency International (TI) report. Adequate mitigation measures are incorporated in the project, and Bank staff will closely monitor performance during implementation. The mitigating fiduciary actions can be summarized as follows: (a) institute appropriate complaints handling mechanism; (b) the size of procurement packages and the frequency of the Bank's prior review will be determined in a way that it allows an appropriate level of control while attempting to avoid unnecessary reviews which could cause delays; (c) enhanced disclosure and transparency of project-related information; and (d) enhanced use of financial reporting and external audit.

103. The Project will rely extensively on the various elements of ADF financial management systems, including: (a) Budgeting - the project budgets approved annually by the Supervisory Board of ADF; (b) Internal controls - the project will use the existing internal control framework within the ADF with some additional procedures developed for this Project; and (c) Accounting and reporting - this project will rely on the ADF accounting system.

Conditions of Risk FM Risk Mitigating Measures Residual Negotiations, Risk Risk INHERENT RISKS

Country level. High corruption risk, H ADF is to maintain independent FM system, use S No though public financial management are of private auditors and use of Central Bank for improving. Weak institutions (additional designated account.

43 Conditions of Risk FM Risk Mitigating Measures I Residual Negotiations, Risk information are included in country issues) - Entity Level. Risk of political S Any changes to the structure and key staffing in M No interference in entity’s management. the implementing agency will require agreement - with the Bank Project LeveL Project is medium sized, M Adequate control mechanism for payments have S No one implementing agency and is not been agreed and included in the project complex operational manual, the flow of funds arrangement has been agreed with the Central Bank; and ADF’s experienced FM staffwill be involved in making operational the agreed funds - flow diagram; OVERALL INHERENT RISK S CN No

1. CONTROL RISKS - Budget. Budget is prepared in much L No additional mitigation measure is required L No detail for monitoring the project. Accounting. The accounting system is No additional mitigation measure required. L No adequate and staff has extensive experience in the Bank’s procedures for disbursement and FM, including IFR preparation. Adequate accounting software used. Internal Controls. Internal controls of Additional procedures are included in the FM M No the ADF are acceptable chapter of the operational manual and independent auditors to monitor the project implementation and results verification. Funds flow. Two designated accounts No significant issues identified during M No would be opened in the Bank of Albania. implementation of other projects via Bank of Albania. Financial Reporting. With the ADF specified in the FMM and enforces proper M No implementation of the new accounting control procedures ensuring that the IFRs are software there are no inconsistencies submitted to the Bank on time with consistent observed in the timeliness and quality of quality control procedure over financial the on-going projects submitted to the reporting.

Auditing. The ADF has selected the auditor for FY 2007 M No with the reports to be submitted by due date. The ADF will ensure that future audit selection is commenced well in advance. The audits are carried out by independent auditors acceptable to the Bank. M OVERALL CONTROL RISK

- S RESIDUAL RISK RA TING I MI 105. Strengths. The strengths that provide a basis of reliance on the project financial management system include the (i)significant experience of the ADFs management and FM staff in implementing Bank-financed projects for past several years; and (ii)adequate

44 accounting software utilized by the ADFs provides additional basis of reliance to the project financial management system, and finally, FM arrangements similar to the Second Community Works project currently being implemented by ADF and found to be acceptable.

106. Weaknesses andAction Plan. There are no major weaknesses identified in ADF.

107. Implementing Entity. Implementation will be undertaken by the existing staff of Albanian Development Fund (ADF), supported by the steering committee established under the Minister of Public Works, Transport and Telecommunications. The proposed project implementation will be streamlined within the existing structures ofthe ADF.

108. Budgeting. ADF has acceptable budgeting and planning capacity. The financial manager, head of procurement and department managers are responsible for budget preparation, which is approved by Supervisory Board. This budget will fonn the basis for allocating funds to project activities and for requesting funds from the government for counterpart contribution and for payments via banking system as appropriate. The risk is low.

109. Accounting. Staffing. 7he financial management unit of the PMU is adequately staffed with 5 Finance Specialist, including also the Economic Director with satisfactory qualifications and experience in implementing WB-funded projects. The ADF’s executive director will perform the authorization and the control of payments after these has been cleared by the Economic Department. In addition, he will work closely with the Economic Department to ensure that quarterly interim un-audited financial reports (previously called Financial Monitoring Reports, FMRs), annual financial statements and other progress reports are submitted timely to the Bank reflecting the implementation status ofthe project. The risk associated with staffing is assessed as low.

1 10. Information systems. This new project will utilize the existing accounting system. The accounting system is locally developed software that is able to produce the reports required by the Bank (IFRs and the Statement of Expenditures). This system is specifically designed for the World Bank financed projects and has adequate security levels. It meets the minimum requirement of the Bank and produces reliable FMRs. The risk associated with information systems is low.

1 1 1, Accounting Policies and Procedures. 7he accounting books and records will be maintained on a cash basis and project financial statements will be presented in United States Dollars. The project will follow the ADF’s policies and procedures for the processing of payments. The chart of accounts currently used is adequate and could be adapted for the purposed ofnew project. The risk associated with accounting policies and procedures is considered as low.

112. Internal controls and Internal Auditing. ADF has adequate internal control procedures which are documented in the FMM. The project will utilize existing internal controls within the ADF and supplement these with additional controls to ensure that funds are used effectively and efficiently for the purposes intended. The internal controls

45 include (i)procurement controls - World Bank procurement procedures will apply, (ii) accounting controls - additional appropriate controls will be implemented, (iii)quality controls - on site supervisors will verify all bills before payments are made, (iv) management controls - project coordinator will be appointed to coordinate and provide general oversight, (v) audit controls - an independent acceptable audit firm acceptable to IDA will audit annually the project and ADF’s financial statements, based on audit terms of reference acceptable to IDA; and (vi) supervision controls - the World Bank team will regularly carry out supervision of the project. The FM Manual reflects also the internal structure relevant to the project, administrative arrangements, internal control procedures, including procedures for authorization of expenditures, maintenance of records, safeguard of assets, segregation of duties to avoid conflict of interest, monthly reconciliation of Bank statements with the project records, monthly reconciliation of disbursement summaries of the World Bank with project records, bank signing mandate (to include at least two signatories), regular reporting to ensure close monitoring of project activities.

113. As the capacity of the internal audit is generally still low no specific reliance on the internal audit is planned for this project. The risk associated with internal controls and internal audit after risk mitigating measures is considered as moderate.

114. Financial Reporting. ADF’s produces all financial reports for the Bank with the existing accounting software. The Interim Un-audited Financial Reports (IFRs) will be used for project monitoring and supervision and the indicative formats of these will be included in the ADF operational manual. The Economic Department will prepare a full set of IFRs every three months throughout the life of the project. Draft formats of these IFRs will be agreed upon before and during the negotiations. The IFRs include the following tables: (a) Project Sources and Uses of Funds; (c) Components as per cost categories; (d) Donors Designated account (IDA and OPEC) reconciliation statement; and (e) Contract Expenditure reports for technical services, civil works and goods. The risk associated with financial reporting is moderate.

115. External Auditing. As of the date of this report, the ADF do not have any overdue audit. The project’s and the ADF’s financial statements will be audited by independent auditors and on terms ofreference acceptable to the Bank commencing with the accounts for the year ending December 3 1, 2009. The following chart identifies the audit reports that will be required to be submitted by the project implementation agencies together with the due date for submission.

Audit Repori Due Date Entity financial statements Within six months of the end of each fiscal year and also at the closing of the project Project financial statements (PFS) for the project, Within six months of the end of each fiscal year including SOEs and designated accounts. The PFS and also at the closing of the project include sources and uses of funds by category, by components and by financing source; SOEs, Statement of designated account, notes to financial statements, and reconciliation statement.

46 1 16. External Auditing. The risk associated with external audit is moderate.

117. Flow of Funds and Disbursement Arrangements. The project funds will flow from the IDA and OPEC via two foreign currency-denominated designated accounts (previously called special account) in Bank of Albania (BOA) from which the funds will be transfened to a commercial bank account. Counterpart funds are transferred through the Treasury system directly to the suppliers. Project funds will flow from: (i)the Bank, either via a single Designated Account which will be replenished on the basis of SOEs or by direct payment on the basis of direct payment withdrawal applications; or (ii)the Government, via the Treasury at the Ministry of Finance (MOF) on the basis of payment requests approved by the Treasury Department of the MOF directly to the local supplier for VAT and other taxes. The ceiling for the IDA Designated Account would be Euro 1,600,000. Applications for replenishment of the Designated Accounts will be submitted quarterly or when one-third of the amount has been withdrawn, whichever occurs earlier. Documentation requirements for replenishment would follow standard Bank procedures as described in the Disbursement Handbook. Counterpart-funding will be executed through Treasury accounts. The risk associated with funds flow and disbursement is considered as moderate.

118. Supervision Plan. During project implementation, the Bank will allocate up to 3 staff weeks for the financial management supervision. The Bank supervise the project’s financial management arrangements in two main ways: (i)review the project’s the quarterly interim un-audited financial reports as well as the project’s annual audited financial statements and auditor’s management letter; and (ii)during the Bank’s supervision missions, review the project’s financial management and disbursement arrangements (including interim reports (IFR) and movements on the Designated Account) to ensure compliance with the Bank’s minimum requirements. As required, a Bank-accredited Financial Management Specialist will assist in the supervision process.

47 Annex 8: Procurement Arrangements ALBANIA: SECONDARY AND LOCAL ROADS

A. General

119. Procurement for the proposed Project would be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004 and revised in October 2006 (Procurement Guidelines); and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004 and revised in October 2006 (Consultant Guidelines) and the provisions stipulated in the Financing Agreement (FA). The various procurement actions under different expenditure categories are described in general below. For each contract to be financed under the FA, the various procurement or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame have been agreed between the Recipient and the Bank in the Procurement Plan (PP), The PP will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

120. Advertisements: A General Procurement Notice (GPN) will be published by the end of June 2008 in UNDB on-line as well as in its printed version. Specific Procurement Notices (SPN) will be published as the corresponding bid documents become available.

121. Debarments: The Recipient will respect debarment decisions by the Bank and will exclude debarred firms and individuals from the participation in the competition for Bank-financed contracts. Current listing of such firms and individuals is found at the following web site address: http://www.worldbank.org;/debarr.

122. The Project represents mostly works adding up to about US$26 million. These are generally to rehabilitate, reconstruct and maintain secondary and local roads all over the country, and were not already covered under the previous Transport Project or by means of other investments funded by the Government and/or other financiers. Most of the existing roads appear to be needing maintenance, repairs or need to be replaced. The main intended bidding approach is summarized as rationalized packaging of road-works lots within a reasonable distance, and using National Competitive Bidding (NCB) or International Competitive Bidding (ICB) according to the estimated cost per contract of works.

123. It is most important that for each year list of proposed sites and approval procedure, all feasibility and design studies be ready in time and produce sufficiently detailed technical information such that bidding under acceptable levels of risk from the bidders' point of view will be possible. In some locations, it may become necessary to arrange for additional investigations and geotechnical analyses to supplement information in the prioritization process, feasibility and design studies. For these reasons, the road works program is only detailed for the forty eight months. These circumstances will be reflected in the Procurement Plan (PP). Detailed engineering design has been prepared for the first part by the Recipient, will be prepared for the second by the Project

48 Preparation (PPF funded) Consultants, and for the third part by the Supervision consultants and the Recipient.

124. Procurement of Goods: Goods contracts to be procured would include vehicles, furniture, IT equipment and off-the-shelf software, AC and generator equipment. The procurement will be done using the Bank’s SBDG for all ICB procurements, NCB documents satisfactory to the Bank and the Shopping method for goods estimated to cost less than US$100,000 equivalent.

125. Procurement of Works: Works procured under this project would include: rehabilitation, reconstruction and maintenance of secondary and local roads. Out of a total program of 1500 km Bank would finance (excluding additional financing) 8 segments (total about 80 km) of local roads, and 3 segments (total 24 km) of secondary or regional roads. The procurement will be done using the Bank’s applicable SBD for Works for all ICB procurements and NCB documents satisfactory to the Bank. The bidding documents which will be approved by the Bank, as specified in the Financing Agreement, will explicitly state all the applicable procedures under NCB. Prequalification would not be used at all with regard to the size of civil works contracts (the largest of road-works contracts described above is estimated to cost less than US$ 3.5 million). Only on an exceptional basis will the use of Shopping procedure for works be considered under this project, because road repair contracts estimated to cost less than US$lOO,OOO equivalent are not foreseen at this point in time.

126. Technical (nun-consulting) Services: Only one potential need for mapping, topographic and geotechnical services has been identified so far, in a small amount, estimated to cost less than US$lO,OOO. However part of it at least might have to be awarded under direct contracting method due to a ‘de facto monopoly’ for existing aerial viewdmaps of specific areas.

127. Selection of Consultants: There will be about half a dozen procurement actions for consulting services contracts, including a large one estimated to cost about US$5.5 million for design, supervision of reconstruction and maintenance of roads, small TA to ADF, training activities, monitoring and evaluation study etc.. Short lists of consultants for services estimated to cost less than US$lOO,OOO equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. Individuals will be selected in accordance with section 5 of the Consultants guidelines.

128. Training, study tours and attendance of conferences: Several such activities are foreseen in the Procurement Plan.

129. Operating Costs: All incremental operating costs (IOC) in support of the day-to- day management of the Project to be carried out by the implementing agency would be financed under the FA. These expenses (estimated at US2.3 million dollar equivalent) comprise the salaries (including social charges) of ADF staff in charge of project implementation as well as customary office expenses including costs for communications

49 and travel. The Bank will review and agree to detailed itemized budgets covering ADF expenses.

130. The procurement procedures and SBD to be used for each procurement method, as well as model contracts for works and goods procured will be described in the Project Implementation Manual.

B. Assessment of the Agency’s capacity to implement procurement

131. The Bank team has carried out assessment(s) of the procurement capacities of ADF in November 2007 and April 2008. The assessment(s) have taken into consideration the current capacity of ADF including a review ofthe organizational structure of ADF as well as the necessary interaction between ADF staff responsible for procurement and various other departments inside ADF, including their respective units for administration and finance. The assessment(s) conclude that (i)ADF has demonstrated good grasp of procurement concepts and practices in the limited procurement undertaken so far under several earlier Bank financed projects, mostly for goods and consultants services (ii)the procurement capability for a wide portfolio of road works is largely untested so far therefore the team will monitor ADF very closely at start, and (iii)a number of actions need to be taken by the ADF agency in order to be deemed capable of handling the upcoming procurement challenges which go, for Works, beyond what it experienced so far. The actions are described below and are summarized in Table 5.

132. Overall procurement responsibility within the ADF will be borne by the procurement unit of the Infrastructure Department led by ADF Deputy Executive Director. The “Chief ofunit” is the lead procurement officer. This unit is staffed, among others, by one procurement officer, a former member of the team which carried the responsibility for implementing the now completed Bank funded Projects, and the ongoing one, “Community Works Project 11.” At present, the unit comprises 3 staff positions. Most of these staff is working on procurement on a full time basis and assigned to implement the project.

133. In view of the specific additional work load, as suggested by the Bank to reduce one of the two main procurement risks, further procurement capacity has just been added in February 2008 through selection (based on G.L Section V.) of a procurement officer, experienced in the procurement of Works under Bank financed projects. He has been recruited between the two Bank missions, in order to achieve loan effectiveness and mitigate the risk of existing procurement team becoming potentially overwhelmed by the large number ofnew road-works contracts.

134. The unit also has the (part time) on-demand technical support ofthe Infrastructure Department including regional and technical inspectors -mostly engineers - currently preparing local procurement and supervising in the field small works carried out by local govenxnents (rural communes and urban municipalities), and of the Project Control unit staff, including a project design. A computerized contracts implementation Monitoring Information System (MIS) is installed and operational (daily bused) for works contracts

50 follow up in the Monitoring and Evaluation unit of ADF. This system might be upgraded to incorporate more functions.

135. Furthermore, it has been agreed to implement a training program for the unit procurement staff to be allowed to assume full responsibility for procurement and supervision of contracts implementation. This program will start in the second half of April 2008 with a training session animated by Bank procurement staff and should include further training in procurement under Bank Guidelines in ILO Torino center.

Table 5: Time-bound Action Plan

rocurement officer

ent under Bank’s

The key issues and risks concerning procurement for implementation of the project are summarized below in 136. Table 6Table 6 together with measures which aim at mitigating the risks.

Table 6: Summary Risk Assessment

Item I Risk Risk Mitigation 1 I (MAIN RISK No 1) ADF Procurement Recruitment before effectiveness of a qualified unit might be initially overwhelmed additional procurement officer experienced in the with the number or size of new road- procurement of Works under Bank Guidelines. works contracts to procure. Early training and training by doing.

2 (MAIN RISK No 2) The country Dissemination of Bank’s procurement and procurement environment, more anticorruption rules and practices to procurement particularly in the transport sector, is and administrative staff related to the Project; characterized by recent cases of application of Transparency provisions ofthe questionable practices under Bank Guidelines. Training programs, supervision investigation and a significant political and review mechanisms. Regional (WB) follow up interference risk. It will remain a of CPAR

51 Item Risk Risk Mitigation system. 3 Feasibility and Design studies do not Add in Supervision contract TORSfocusing on provide all data to permit early drafting design parameters for secondary and local road of Design bidding documents, and works contracts. Extend contracts for FS constmction/maintenance documents consultants in case they will produce insufficient which do not unduly expose contractors data. to risk Add needed field investigations such as drilling, pumping tests, and water analysis. 4 Insufficient number of qualified and Advertise contract opportunity widely and set capable contractors (local). realistic aualification criteria Clients and CM firm do not agree on Consultant Supervision firm organize briefing design parameters and/or measures work-shop for ADF and local staff on CM aimed at controlling time and costs approach and effective CM approach and effective CM management techniques.

Start of 1st phase implementation is Risk mitigation under (1) in the main project risk delayed section, and under (3) is aimed at dealing with possible delays in start-up. Investments require more time than Procurement schedule (i)gives priority to most envisaged urgent investment needs such as contracts for which design is ready or included in PPF consultant contract, and less to areas which need substantial environmental or public consultations such as category A sites, and (ii)includes design support services in Supervision contract. This should mitigate negative impacts to the population, in case investment delays will materia1 i7e ADF could come under political and/or Bank team will follow very closely early commercial pressure related to the collaboration between Consultants and clients and selection of sites, outcome of bid will attempt to intervene with a view to resolve or evaluations and contract award and are remove obstacles hindering or slowing down inclined to disregard provisions implementation regarding evaluation procedures or reiuctant/slow to make decisions 7 Bidding approach (many works Early training by Bank staff and others to prepare contracts) require familiarity with large ADF staff for what is coming before Board number of works contracts and presentation. More training to be provided by ICB/NCB Works bidding documents on consultants and ILO during drafting of first sets of the part of procurement unit who had BDs of each type (PQD, SBDW under ICB/NCB). no such experience at present Further training will be “on-the-job.. .” 8 Late or slow start-up of the Project due Bank team will propose to deliver Project Launch to ADF being preoccupied with many Workshop of one week after Board approval and other matters or having new priorities before loan effectiveness

137. The overall Project risk for initial procurement risk has been rated initially high due both to the increase in the number and size of civil works contract to be procured, and to the Country and sector environment. This procurement risk would evolve to moderate during the first year with the implementation of mitigation measures including reinforcement of the capacity of ADF procurement unit and training. For procurement

52 activities, the procurement unit ofADF, now staffed with 2 procurement specialists set to implement a training plan. However, the complex country environment characterized by endemic government issues, and the potential risk of interference in the procurement process, are likely to remain valid concerns during the life of the project. The Bank will maintain close oversight using its staff in HQs and the Tirana Office. Prior review of all major contracts in agreement with the thresholds given in Section F at the end of this Annex will be carried out by the Bank team.

C. Procurement Plan (PP) 138. The PP has been prepared, agreed during negotiations, and was made available at the ADF offices in Tirana and on the ADF web site (without the cost estimates c~lumn).~' It will also be made available on the Bank's external website (without cost estimates). The PP will be updated in agreement with the Project Team annually or as required, to reflect actual project implementation needs and improvements in institutional capacity.

D. Frequency of Procurement Supervision and retroactive financing. 139. In addition to the prior review supervision to be carried out by the Bank team, the capacity assessment of the Implementing Agency recommends supervision missions every six months during first year of implementation, and once every subsequent year. Post reviews will be carried out regularly with a minimum sampling ofone into ten.

140. Retroactive financing is envisaged under this project, mostly for consulting services procured following bank guidelines. The procedure to check that procurement was undertaken in a manner consistently compatible with the Bank Guidelines is very similar to post review procedure.

E. Details of the Procurement Arrangements Involving International Competition 141, Procurement methods and thresholds: The FA will define the procurement methods available for use for various procurement actions. Thresholds for procurement methods and prior review requirements are indicated below on the basis of the Bank's assessment of the capacities of the ADF agency responsible for procurement. The risks of corruption in the country and the capacities of the manufacturing, construction and consulting industries in Albania have also been taken into consideration. The PP will specify for each procurement action whether it will be subject to prior or post review.

1. Goods, Works, and Non-Consulting Services (a) List ofcontract packages to be procured following ICB and Direct Contracting (DC) (all cost estimates72are in thousand US$ equivalent): Please see draft Procurement Plan below.

(b) All ICB and DC contracts, if any, will be subject to prior review by the Bank.

'' Contract cost estimates will not be disclosed to the public '* All cost estimates will be removed before dissemination to the public

53 tr W 0E d E4

n4 'Iz4 ci cl 0 R

wE H 3 2 CII 3 2 2 2 2 d, L L t: t: E T Y Ta a a k c, c, d 6 4 2 c,

W 00 W m m m 0 0 s 0 0 ? ? s + U A cu $ % % -a il z 6 8 LL LL c, 4 c,

W W 01 m m m 0 0 0 2 2 U C) 4 4 4- 8 8 % % 9 6 m m88 c, c, L LL B -

W W W 03 m Q\ 0 0 ? 0 0 0 J ? 44 3 Y8 m d n : : 6

00 #) W m m Q\ 0 0 m 0 0 A ?44 J ? J J 8 Qa 8 8 8 -Ka c,=m m c, v) v) c,

Y W W W m m m m 8 0 Q\ ? 0 a 4* J ? B 0 a 8 8 8 Y 9 B1 a - sc, m m c, d < c, c, - - 2 2 2 2

m m m m m m Y Y YY Y Y

I I

9 d IA > 4 i .-i? > 2 U a8

01 0 0 N Y d

W 0 L 4

W 0 L 4 -

2 2 zd

vl m 5 &

P 9

3 I I 2. Consulting Services

(b) Consultancy services estimated to cost above US$lOO,OOO per contract for firms, US$50,000 for individuals and all single source selection of consultants (firms and individuals), if any, will be subject to prior review by the Bank.

(c) Short lists of consultants assignments estimated to cost less than US$lOO,OOO equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines.

F. Procurement and Prior Review:

142. The following thresholds for prior review apply for the first year:

Goods: The following contracts are subject to the Bank’s prior review as set forth in paragraphs 2 and 3 of Appendix 1 to the Guidelines:

125. ICB: all contracts regardless of value 126. NCB: the first contract regardless of value as well as all contracts estimated to cost the equivalent of US$200,000 or more 127. SH: the first contract, and contracts estimated to cost the equivalent of US$80,000 or more.

Works: The following contracts are subject to the Bank’s prior review as set forth in paragraphs 2 and 3 of Appendix 1 to the Guidelines:

1. ICB: all contracts regardless of value 2. NCB: the first contract regardless of value as well as all contracts estimated to cost the equivalent of US$1,600,000 or more 3. SH: the first contracts.

Consulting Services: Contracts for services with firms estimated to cost the equivalent of US$100,000 or more and contracts with individuals estimated at US$50,000 or more as set forth in paragraphs 2 and 3 of Appendix 1 to the Guidelines. CQS may be used for contracts estimated to cost less than US$lOO,OOO equivalent.

Training: For all training events and activities estimated at US$50,000 or more, criteria for selection of trainees and training institutions as well as arrangements for the conduct of training will be given prior review.

All other contracts are subject to post review; to be reviewed in a ratio of one contract in five.

57 Table 7: Summary of Procurement and initial Prior Review Thresholds (all amounts in thousand US$)

Procurement I Method I 1. Goods I ICB I NA I All contracts I 1-66- I NCB I 200 IFirst contract and all > 180 I I SH I 100 IFirst contract I

4. Training AP NA ]Allevents and activities > 50

58 Annex 9: Economic and Financial Analysis ALBANIA: SECONDARY AND LOCAL ROADS

Summary

143. The methodology for the economic appraisal of the project was defined after careful consideration of the ‘perceived’ conflict between the narrow objective of maximizing the economic benefits in the form of current road user costs, which would support focusing resources on those roads which had the highest current and projected traffic, and the second and equally important objective of alleviating poverty in its wider forms and facilitating access for remote impoverished communities. Often in the latter cases, both on secondary and local roads, current traffic volumes have no bearing on potential traffic, if the roads were in good condition and passable year round. In these cases, the traditional approaches used economic appraisal, with the emphasis on user costs, are acknowledged to be inap~ropriate.~~Approaches used in previous World Bank financed local roads projects in other countries have involved methodologies that either focus on a detailed, or disaggregate, assessment of the change in outputs, or market prices, received, with and without the project (the producer surplus approach), or that focus, broadly, on the cost-effectiveness of an investment, assuming implicitly that a minimum level of service is a ‘social right’.

144. A third approach is to use multi-criteria analysis (MCA), specifying a number of criteria, and rating each potential sub-project against each criteria, and then seeking to select those interventions with the highest aggregate score. This is the approach used in this project, using a defined set of criteria and sub-criteria, which are detailed in the subsequent section, to identify and prioritize the different sub-projects, ranking them by allocating a score (between 1-5 on a simple numeric scale for each criteria or sub-criteria), to identify the highest ranked projects74. The prioritized projects are then appraised and validated using cost-benefit analysis for secondary roads, using the Road Economic Decision (RED) model, which is most appropriate for low traffic volume roads. The cost-benefit analysis is carried out by comparing several maintenance and rehabilitatiodreconstruction alternatives (the “project scenarios”) to a base case (or “do minimum”) alternative. The results ofthe cost-benefit analysis indicate that the total Net Present Value (NPV) for all road sections considered in this project amount to US$7 million (in 2008 value) at a discount rate of 12 percent, and the Economic Rate of Return (ERR) at 16 percent. In addition, all sections yield positive NPV, and the ERR per section is higher than the assumed discount rate confirming the suitability of this project. It should be noted that current investment costs estimates are slightly on the higher side, and are expected to decrease after detailed design, resulting in higher economic returns for the project.

A. The Criteria used for Project Selection 145. The maximum scores that a project proposal may achieve are 140 points according to the scoring table detailed below:

73 World Bank (200 1) “Design and Appraisal ofRural Transport Infrastructure”, World Bank Technical Paper no 496. 74 This is consistent with the approach used by ADF for assessing priorities for the distribution of the grant money from the Ministry of Finance to the Local Government Units.

59 Number Criteria Weight

First Rate of expected impact in the socio-economic development; rate of 40 compliance with the localhegional priorities of the national development Second Impact level on poverty reduction and access growth at the basic services 15 Third Number ofdirect or indirect beneficiaries 25

Fourth The existing conditions of the roads, roughness, possible time-savings 20 and danger Fifth Participation level of the community in decision making and Pre-condtion for contributions for the projects ofthe road infrastructure the evaluation Sixth commitment to provide a multi-annual maintenance contract Pre-condition for the evaluation

146. The results ofthe multi-criteria analysis for the project sections are presented below:

No. Region Project name Category Length (km) Total Score I 1 I Fier I Sheq-Qafa e Marinzes I Local I 11.5 I 71 I Cuke-fshati Pllake Regional 9.1 71

Ura e Farkes-Ura e Erzenit- Qender fshat Regional 6.5 69

Kuben-Perroi IKapsit Local 10 66

Lezhe Lezhe-Kallmet Local 11 66 *6 Kukes Domaj-Ura e Lapave Local 10 63 7 Shkoder Vau i Dejes-Nenshat Local 11.6 61 I 8 I Korce Kryqezim Podgorie-Korite I Regional 8 60 I 9 I Elbasan Belsh-Fierze I ~ocal 59 Ura e Gorices-Fshat 10 Berat Mbreshtan Local 8 58 I 11 I Gjirokaster Valare-Erind I ~ocal 6.5 45 I I I I I I I

60 B. Assumptions and Inputs for the Cost Benefit Analysis

147. A Cost Benefit Analysis (CBA) was performed for the candidate sections under the project covering about 100 kilometers of regional and local roads. The evaluation was done mainly using the Road Economic Decision (RED) model which is most appropriate for road classes with relatively low traffic volumes75. RED simulates life cycle conditions and costs and provides economic decision criteria for low traffic road construction and maintenance activities in accordance with the World Bank operational guidance for the economic evaluation of investment operation^.^^,^^ RED estimates the net discounted benefits of each proposed intervention, in terms of the associated reduction in vehicle operating costs, passenger travel time, and road construction and maintenance expenditures.

148. The economic analysis was undertaken by comparing the net economic benefits from the proposed project, the ‘project scenario’, against a ‘do nothing’ scenario’, which is essentially the continuation of the current maintenance and rehabilitation regime. The project scenario consists of: 0 The upgrade and reconstruction of all proposed roads to paved roads, starting in 2009; and The execution ofyearly routine maintenance works, starting in 2009.

149. The do nothing scenario consists of the continuation of the current maintenance regime for secondary and local roads in Albania whereby some routine maintenance, consisting mainly of grading, grass cutting and ditch cleaning is carried annually. The appraisal period was defined at 15 years, which best accounts for the economic life of the reconstruction and upgrade activities proposed under this project. A discount rate of 12percent was assumed for the analysis.

150. The input data for the CBA were provided by ADF and derived from basic data collection and experts’ judgment, particularly with regard to traffic and road condition. Traffic estimates on project sections range from as low as 60 Average Annual Daily Traffic (AADT) to about 500 AADT. Due to the lack of accurate traffic data, traffic composition was assumed uniform on all sections, with cars, buses, and trucks accounting for 70, 20, and 10 percent of traffic respectively. Traffic growth has been assumed at 8percent on the basis of an income elasticity of 1.2. The same income elasticity was used to estimate generated traffic, i.e the additional traffic resulting from increased demand due to road improvement and the associated decrease in road user cost. The project sections and their respective length, traffic, and condition are given in Table 9.3.

151. Vehicle operating costs were computed in the RED model as a function of the road condition, while time values of US$2.5 and US$2 were assigned to passengers traveling in cars and buses respectively. Works unit costs were based on estimates prepared by ADF in accordance with the proposed works. It should be noted that current investment costs estimates are slightly on the higher side, and are expected to decrease after detailed design. These costs

75 World Bank (200 1) “Design and Appraisal of Rural Transport Infrastructure”, World Bank Technical Paper no 496. 76 OP/BP 10.04 - Economic Evaluation of Investment Operations, The World Bank, 1994. 77 Handbook of Economic Analysis of Investment Operations, The World Bank, 1998.

61 include the following: pavement works and off-carriageway works such as shoulders, footpaths, safety devices; road marking, land acquisition, etc. A summary of the adopted works unit costs is given in Table 9.4 below.

Traffic Length (AADT) Region Project Name Category (km) 2008 Condition’* Terrain

Fier Sheq-Qafa e Marinzes Local 11.5 300 Very Poor Flat

Vlore Cuke-fshati Pllake Regional 9.1 200 Very Poor Flat Ura e Farkes-Ura e Erzenit- Tirane I Qender fshat I Regional I 6.5 I 500 I Very Poor I Flat Diber I Kuben-Perroi IKapsit I Local I 10 I 350 I Poor I Mountainous

-5 Lezhe Lezhe-Kallmet Local 11 150 Poor Hilly

6 Kukes Domaj-Ura e Lapave Local 10 100 Very Poor Mountainous

Shkoder Vau i Dejes-Nenshat Local 11.6 70 Very Poor Hilly

Korce Kryqezim Podgorie-Korite Regional 8 300 Poor Hilly

Elbasan Belsh-Fierze Local 9 200 Fair Hilly Ura e Gorices-Fshat Berat Mbreshtan Local 8 100 Fair Mountainous

Gjirokaster Valare-Erind Local 6.5 70 Very Poor Flat

Table 9.4 Investments and Maintenance Financial Unit Costs (US$, 2008 value)

Regional Roads Local Roads Average Investment Cost ($b) 500,000 250,000

Routine Maintenance under 2,000 1,000 Droiect scenario ($/km) I I I Routine Maintenance under 10,000 5,000 ‘do nothing’ scenario ($b)

152. Financial costs of the undertaking constitute the sum ofmarket prices of materials, labor and equipment, and conditions (taxes, subsidies, legal formation of the level of remuneration, etc.) for respective assortments of works covered by the undertaking being implemented. Economic costs represent the real costs, net of all transfer payments, assumed at 80percent of financial costs.

78 Fair, poor, and very poor correspond roughly to ranges ofIRI of [6-91, [9-121, and [ 12-16] respectively.

62 C. The Results of the Cost-Benefit Analysis

153. The CBA demonstrate that the project scenario will result in an NPV of US$7 million (2008 value), and an Economic Rate of Return (ERR) of 16 percent (Table 9.5). The road sections perform well with regard to the standard criteria for measuring the performance of an investment: All road sections lie well above the 12 percent rate ofreturn threshold, with positive NPV values confirming the suitability of the project. It should be noted that current investment costs estimates are slightly on the higher side, and are expected to decrease after detailed design, resulting in higher economic returns for the project.

154. In addition, sensitivity analysis has been undertaken to assess the robustness of the results to unforeseen variation in key parameters of the project, which in this case, were identified as the investment costs and the forecast rate of traffic growth. The analysis tested the impact on the performance criteria of a 20 percent increase in investment cost, a 20 percent reduction in the forecast growth of traffic on the roads, and both occurring at the same time. The results of the sensitivity analysis (Table 9.5) reveal that the project is sensitive to the specified variation in the key parameters, particularly the investment cost. While the project remains overall economically viable with ERR above 12 percent, several road section yield an ERR below the assumed discount rate for this analysis. Nevertheless, it should be noted that while traffic growth forecast can be subject to upward or downward variations the investment costs adopted in this analysis fall in the high range and are expected to significantly drop once detailed engineering designs are produced. In addition, several economic benefits, such as reliable access and market integration, are not accounted for in this analysis. Finally, given the important social and poverty alleviation dimension of regional and local roads programs, it is appropriate to re- emphasize that these programs should be viewed in a broader scope than just the maximization of economic benefits in the form of reduced road user costs derived from a strict cost- benefit analysis.

63 Table 9.5: Project scenario to base alternative summary of economic indicators

ERR Traffic NPV ERR ERR -20% traffic No. Region Category Length (2008 (million -20% +20% &+20% costs

1 Fier Local 11.5 300 2.4 28 27 26 25

2 Vlore Regional 9.1 200 0.1 12 10 9 7

3 Tirane Regional 6.5 500 1.9 23 21 19 18

4 Diber Local 10 350 1.8 22 21 20 19

8 Korce Regional

9 Elbasan Local

10 Berat Local

64 Annex 10: Safeguard Policy Issues ALBANIA: SECONDARY AND LOCAL ROADS

155. The Social Safeguards. The Project will carry out the rehabilitation and reconstruction of secondary and local roads. Only the first year program is expected to be identified at appraisal, with the remaining year program identified during project implementation. No large scale acquisition of private land or demolition of assets is anticipated under the Project. Most civil works to be carried out will be road maintenance within the existing Right of Way. However, on the initial visits to some proposed roads, some encroachment into the public ROW was observed, especially within or near settlements, where fences are erected to enlarge residential compounds, small structures are put up for commercial activities, and vegetables are planted as a source of livelihood. No physical relocation of households is anticipated, and almost all impacts are expected to be of a minor scale.

156. A Resettlement Policy Framework (RPF) has been prepared that sets out policies and procedures that will apply to the project in accordance with national laws and OP 4.12. Gaps between the Albanian national legal framework and OP 4.12 have been assessed in the RPF. It has been found that while national laws adequately address most Bank policies on resettlement, they do not recognize illegal or informal land holders as eligible for compensation. Also, damage to structures, standing crops and other assets that exist within the public ROW will not be compensated under national laws. As measures to address the gaps, the RPF sets out that: (i) the widening of roads into the land that is occupied by encroachers or squatters or with multiple or competing claims should be discouraged unless unavoidable; and (ii)where unavoidable, the affected people will be provided compensation for the value ofthe assets lost, and, in the case of physical relocation, assistance as deemed necessary to restore their living standards to levels prevailing prior to the project.

157. Where displacement is unavoidable, communes or Qarks will develop a Resettlement Action Plan in accordance with policies and procedures laid out in the RPF. The RAP will be reviewed and approved by the Council of Ministers who has the only power under the Albanian law to decide on the case of expropriation and approve funding. The ADF will provide necessary support to communes and Qarks in preparing RAPS.

158. The Environmental Safeguards. The Project will carry out rehabilitation and reconstruction of secondary and local roads. Only the first year program is expected to be identified at appraisal, with the remaining year program identified during project implementation. The project is not expected to cause any major impacts on the environment. Some sub-projects may qualify as Category A projects (under the World Bank system) if they trigger World Bank policies on natural habitats and/or forests. Most other sub-projects will likely be classified as Category B (under the World Bank system) because they are unlikely to cause significant impacts on the environment.

159. The Environment Safeguards Framework. An Environment Safeguards Framework (ESF) acceptable to the World Bank has been prepared for the project. The main purpose of the ESF is to ensure sub-projects comply with existing laws, regulations and practices in Albania, as

65 well as with the World Bank Operation Policies on Environmental Assessment Cultural Property, Natural Habitats, and Forestry. The essential elements ofthe ESF are presented below:

160. The Environmental Review. Albanian Law on Environmental Protection requires that any activity that is likely to affect the environment has to receive an Environmental Declaration, Environmental Permit, Authorization or Consent from the Ministry ofEnvironment, Forestry and Water Administration (MOEF WA) or Regional Environmental Agency (REA) before project implementation may commence. A Decision by the Council of Ministers has defined the types of projects that should obtain any of the above mentioned permits. The law provides the following definitions that are important for the classification of projects and the respective licenses that need to be issued: (i)“Environmental Declaration” is the official document issued by the Minister of Environment, after the review of the request and relevant documentation for the approval of the project. The Declaration might refuse or approve the forwarded request, accompanying it with obligatory conditions to be implemented by the proponent and competent authorities. (ii) “Environmental Permit” is the official document, issued by the Ministry of Environment, after the review and consultation of the request and its relevant documentation, with all the concerned stakeholders. The permit approves the exercise of any activity having an impact on the environment, and determines the obligatory conditions and circumstances to be complied with, in order that pollution and damages on environment do not exceed the allowed norms; and (iii)an “Environment Consent and Authorization ” is issued for activities of local character having an impact on the environment, but not included in the Council of Ministers’ Decision. They are approved by the Regional Environmental Agencies in the form of consent or authorization, in cooperation with local government bodies.

161, “Environmental Impact Assessment (ELA) ” Albanian Law defines the type and scale of the projects or activities that require an EIA before implementation. The categories of EIA are:

0 A Summary EIA. This is for projects that may have less significant potential impacts but still require an expert assessment oftheir impacts. They include projects listed in Appendix 2 ofthe Law on EIA, and any changes or rehabilitations ofprojects listed in Appendix 1; and

0 A Profound EIA. This is for projects with significant potential impacts, as listed in Appendix Iof the Law, those projects listed in Appendix 2 which the MOEFWA considers will have a significant impact on the environment (See Annex 1).

162. Guidelines and Procedures. ADF will be responsible for screening sub-projects and ensuring that LGUs follow required environmental procedures. The process will comprise the following steps:

163. Step I: Screening: The LGU or other sub-project proposer submit a request to the REA on the environmental approval process required. After receiving the request, the REA will carry out an initial review of the required documentation, classify the proposed sub-project. It shall decide whether the sub-project will require an EIA, and then decide whether it should undergo a Profound EIA, or a Summary EIA enhanced to match WB requirements (Category A EIA), or a Summary EIA (Category B), and advise the LGUhub-project proposer accordingly. The

66 environmental specialist of the ADF will also screen the project proposals and assist the proposers in finalizing the documentation to be reviewed by REA.

164. Step 2: Environmental Assessment Documentation; According to the screening decision on the type of EIA required (if any), the LGU/sub-project proposer shall proceed to prepare the necessary EA documentation. A Profound EIA, enhanced Summary EIA, and Summary EIA all will require inclusion of a Environmental Management Plan (EMP) to comply with World Bank EA requirements. In the case of an EIA, this process shall include preparation ofthe TORand engaging a licensed EIA specialist (according to Albanian procurement rules EIA preparation). For any EIA required, the REA shall inspect the EIA report and prepare, a recommended decision with justification to support or reject the subproject. In the case of approval the REA shall also include any conditions to be included. This decision shall be forward to the MOEFWA with the EIA report. The MOEFWA shall review this decision, and either approve or reject the application. In the case of no EIA, the REA, shall issue the environmental consent, with any environmental conditions, monitoring requirements, etc., after review ofthe sub-project design and the EMP.

165. Step 3: World Bank Approval: On receipt of the environmental approval by the MOEFWA the LGU/sub-project proposer will forward a copy to ADF, accompanied by the documentation required for review by the World Bank (see Table above). ADF shall satisfy itself of the appropriateness of the decision, confirm to the Bank that the applicable environmental procedures have been followed, and submit the documentation for review. For Category C projects, ADF will inform the Bank of the justification for this rating (no additional documentation is necessary for sub-projects in this category). The World Bank will review the information provided and, if it considers the assessment and the EMP are appropriate and satisfactory, will provide a ‘no objection’ and the sub-project may proceed to design completion, application to the KRT for a Construction Permit, and implementation, alternatively it will suggest areas where strengthening is needed before the above process can be completed.

166. Public Consultation and Information Disclosure. For projects falling in World Bank Category A and B projects, the responsible LGU will consult project affected groups and local non-governmental organizations (NGOs) about the sub-proj ect’s environmental aspects and take their views into account. These requirements are as follows:

Category A: Public consultation will occur twice: a) after environmental screening and before TORS for the EIA are finalized; and b) after the draft EIA is prepared, to receive public feedback on the report; and

Category B: Public consultation will occur when with the draft EMP. Findings of the draft EMP will be discussed and public views incorporated in the final EMP.

167. Information Disclosure. All the documents required for local use and disclosure will be in the Albanian language. However, the ADF will provide an Executive Summary in English of any EIA and EMP for all Category A sub-projects, and translate the generic EMPs for Category B projects, if requested by the Bank. ADF will observe and monitor the whole process, as appropriate to the level ofEA required.

67 168. The implementation ofthe EMP. The ADF has overall responsibility for ensuring EMP implementation. However, the various parties identified in the plan, e.g. contractors, construction supervisors, maintenance managers, etc., have immediately responsible for implementing and monitoring their parts. The ADF will monitor sub-projects, to ensure that the requirements, specifications and environmental considerations of each EMP are met. The ADF will report the implementation to the Government through a Project Steering Committee.

68 C R h h E 3 3 C C .L c zd 2 .r: c n n3 a 3 f

a,

cm

c8 a

2 h E h G

h G m b Y

S er s P S .I L C .Ic S 5

B 6 0"

Annex 11: Project Preparation and Supervision ALBANIA: SECONDARY AND LOCAL ROADS

Planned Actual PCN review 11/01/2007 11/01/2007 Initial PID to PIC 11/09/2007 11/05/2007 Initial ISDS to PIC 11/30/2007 11/20/2007 Appraisal 03/3 1/2008 03/3 1/2008 Negotiations 04/10/2008 04/0 8/200 8 BoardRVP approval 05/2 8/2008 06/03/2008 Planned date of effectiveness 08/29/2008 Planned date of mid-term review 11/30/2010 Planned closing date 12/31/2012

Key institutions responsible for preparation of the project: Albania Development Fund (ADF) Sami Frasheri Street, No. 10, Tirana, Albania

Bank staff and consultants who worked on the project included:

Name Title Unit Martin Humphreys Task Team Leader ECSSD Ziad Nakat Transport Economist ECSSD Stephen Muzira Transport Specialist ECSSD John Snell Highway Engineer, Consultant ECSSD Dr. Bernie Baratz Environmental Specialist ECSSD Satoshi Ishihara Social Scientist ECSSD Elena Chesheva Operations Analyst ECSSD Artan Guxho Operations Officer ECSSD Claudia Pardiiias Ocaiia Senior Counsel LEGEM Salim Benouniche Sr. Procurement Specialist ECSPS Elona Gjika Financial Management ECSPS Specialist Lorraine Mccann Kosinski Procrram Assistant ECSSD

Bank funds expended to date on project preparation: 1. Bank resources: US$132,000 2. Trust funds: 3. Total: US$132,000

Estimated Approval and Supervision costs: 1. Remaining costs to approval: US$lO,OOO 2. Estimated annual supervision cost: US$80,000

78 Annex 12: Documents in the Project File ALBANIA: SECONDARY AND LOCAL ROADS

Evans, H.E. (1990). Rural-Urban Linkages and Structural Transformation. Sector Policy and Research Report INU71. World Bank. Washington DC. Heggie, G.I. and Vickers, P. (1998). Commercial management andfinancing of roads. World Bank Technical paper No. 409. World Bank. Washington DC. Louis Berger, (2005) Albania National Transport Plan, Volumes 1-5.

Ministry of Public Works, Transport and Telecommunications (2007) Sectoral Strategy of Transport, Tirana.

Republic of Albania Council of Ministers (2007), National Strategy for Development and Integration for 2007-201 3, Government of Albania.

World Bank (2003) Albania Poverty Assessment. Report No. 2621 3-AL; Human Development Sector Unit, Europe and Central Asia Region World Bank.

(2004~)Albania Sustaining Growth Beyond the Transition, Country Economic Memorandum, Washington DC.

World Bank (2006b) Public Expenditure and Institutional Review, Washington DC.

World Bank (2006~)Albania: Trends in Poverty and Inequality, Draft Paper.

World Bank. (2007a) Albania: Strategic Policies for a more competitive agricultural sector. Washington DC.

World Bank (2007b) Improving the Management Financing of Secondary and Local Roads in the SEE Countries, ECSSD.

World Bank (2007~).Albania: Growth, Migration and Poverty Reduction. Washington DC.

World Bank (2007d) Albania: Assessment of Inter-Governmental Fiscal System. Washington DC.

World Bank (2007e) Implementation Completion and Results Report: Road Maintenance Project. Washington DC.

World BaWIFC (2005) “Doing Business in 2005: Removing Obstacles to Growth”. A joint publication of the World Bank, International Financial Cooperation and Oxford University Press.

World Bank/IFC, (2006a) Country Assistance Strategy for the Republic of Albania for the Period FY06-FY09, Washington DC.

79 Annex 13: Statement of Loans and Credits ALBANIA: SECONDARY AND LOCAL ROADS

~______~~~~~~ ______Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel Undisb Orig Frm Rev’d PO96643 2007 BERIS 560 370 000 000 000 885 107 0 00 PO96263 2007 LAND ADMIN & MGMT PROJ 19.96 15.00 0.00 0.00 0.00 35.03 -0.14 0.00 PO78949 2007 TRANSPORT 20.00 5.00 0.00 0.00 0.00 20.40 -1.13 0.00 P100273 2006 AVIAN FLU - AL 0.00 5.00 0.00 0.00 0.00 4.41 1.97 -0.07 PO78933 2006 EDUC EXCEL & EQUITY 0.00 15.00 0.00 0.00 0.00 12.24 -0.30 0.00 PO82814 2006 HEALTH SYST MOD 0.00 15.40 0.00 0.00 0.00 16.38 3.60 -0.02 PO90656 2005 ECSEE APL2 (ALBANIA) 0.00 27.00 0.00 0.00 0.00 26.68 5.52 0.00 PO86807 2005 COASTAL ZONE MGMT (APL # 1) 0.00 17.50 0.00 0.95 0.00 14.90 8.43 0.00 PO82375 2005 NATURAL RES DEVT 0.00 7.00 0.00 0.00 0.00 5.30 2.26 0.00 PO82128 2004 WATER RES MGMT 0.00 15.00 0.00 0.00 0.00 6.10 -0.59 0.00 PO77526 2004 POWER SECTOR GENER & 0.00 25.00 0.00 0.00 0.00 25.87 23.70 -0.16 RESTRCT’G PO77297 2003 COM WRKS 2 0.00 15.00 0.00 0.00 0.00 1.81 0.54 0.04 PO41442 2003 MUN WATEWW 0.00 15.00 0.00 0.00 0.00 3.96 0.05 0.00 PO55383 2001 SOC SERV DEVT 0.00 10.00 0.00 0.00 0.00 6.14 3.41 2.69 PO54736 2001 AG SERVICES 0.00 9.90 0.00 0.00 0.00 1.30 -0.36 0.00 Total: 45.56 200.50 0.00 0.95 0.00 189.37 48.03 2.48

ALBANIA STATEMENT OF IFC’s Held and Disbursed Portfolio In Millions of US Dollars

Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2005 Fushe Kruje 30.00 0.00 0.00 0.00 30.00 0.00 0.00 0.00 2002 INSIG 0.00 0.00 6.23 0.00 0.00 0.00 6.22 0.00 2000 NCBank 0.00 2.00 0.00 0.00 0.00 2.00 0.00 0.00 1999 Procredit ALB 0.00 0.98 0.00 0.00 0.00 0.98 0.00 0.00 2003 Vodafone Albania 17.83 0.00 0.00 3.70 17.83 0.00 0.00 3.70 Total portfolio: 47.83 2.98 6.23 3.70 47.83 2.98 6.22 3.70

Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic 2002 Savines Bank 0.00 0.02 0.00 0.00 Total pending commitment: 0.00 0.02 0.00 0.00 Annex 14: Country at a Glance ALBANIA: SECONDARY AND LOCAL ROADS Europe & Lower- POVERTY and SOCIAL Central mlddle. Development diamond' Albanla Asia Income 2006 Population, mid-year (millions) 3.1 460 2,276 Life expectancy GNlper capita (Atlas method, US$) 2,980 4,798 2,037 GNl(Atlas method, US$ billions) 9.3 2208 4,835 Average annual growth, 2000-06 T Population (%) 0.4 0.0 0.9 GNI Gross Laborfone (%) 0.2 0.5 14 per priman Most recent estlmate (latest year available, 2000-06) capita enrollment Poverty (%of population below nationelpovertyline) 25 Urban population (%of totalpopulation) 46 64 47 Life expectancyat birth (pars) 75 69 71 1 Infant mortality (per lOOOlive births) 8 28 31 Child malnutrition (%of children under5) w 5 0 Access to improved water source Access to an improvedwater source (%ofpopuletion) 98 92 81 Literacy (%ofpopulation age a+) 99 97 89 Gross primaryenroilment (%of school-age population) 08 02 m -A Ibania Male 06 03 M Lo wer-middle-income group Female 05 00 w KEY ECONOP IC RATIOS and LONG-TERM TRENDS

1986 1996 2005 2006 Economic ratior' GDP (US$ billions) 2.2 3.0 6.4 9,l Gross capital formation/GDP 30.9 220 25.8 23.6 Trade Exports of goods and aervices/GDP 15.1 0.3 218 22.2 Gross domestic savingsIGDP 30.5 -0.9 -0.5 13 Gross national savingsiGDP 30.5 20.0 8.1 74 Current account balancelGDP -3.8 .. -7.9 -8 0 Domestic Capital Interest payments/GDP .. 0.2 0.3 savings formation Total debt/GDP .. 18.3 2 19 Total debt service/exporis .. 2.1 2.5 Present vaiueof debt/GDP 8.5 Present vaiueof debtlexports 42.9 lndebtednes s 1986.96 1996-06 2005 2006 2006-10 (average annueigrowthj GDP -2.5 5.9 5.5 5.0 8.0 GDP percapita -2.6 5.7 4.9 4.7 4.8 ~~~~~~middle-incorneorou~ Exports Of goods and IBNICBS 25.1 211 7.2 7.3 9.7 I

STRUCTURE of the ECONOMY 1986 1996 2005 2006 Growth of capltal and GDP (%) (%of GDPj 100 T Agriculture 340 330 22.8 Industry 442 202 215 Manufacturing 144 Services 218 468 55.7 01 02 03 04 05 Household final consumption expenditure 602 912 91.2 89 8 1 General gov't final consumption eqenditure 93 97 9.3 89 Imports Of goods and SeNICeS 155 352 45 9 46 5 -GCF -GDP

1986.96 lS96-06 2006 2006 Growth of exports and Imports (%) (average annualgrowth) Agriculture 41 14 2.6 Industry -112 66 -3.4 Manufacturing 58 Services -16 79 8.0 35 Householdfinal consumption expenditure 29 73 88 06 General gov't final consumption eqenditure -31 29 2.0 52 01 02 03 04 05 Gross capital formation 82 n7 4.3 09 lmpOrtS Of goods and Services 242 64 0.1 31

Note 2006 dataarepreliminaryestimates This tabiewas producedfrom the Development Economics LDB database 'Thediamonds showfourkey indicators in thecountry(in bold) comparedwthits income-groupaverage lfdata aremissing thediamondwll be incomplete I

81 Albania

PRICES and GOVERNMENT FINANCE I986 I996 2006 2006 Dornestjc prices (% change) Consumer pnces P7 2.4 24 Implicit GDP deflator -2 4 28 4 3.5 24 Government finance (%of GDP,incIudescumntgrants) Current revenue 48 7 158 24.9 25 5 Current budget balance 25 0 -62 12 18 Overall surplus/deficit -110 -4.1 -3 9 ----GDPdeMor -CPI

TRADE 1986 I996 2006 2006 Export and Import levels (US$ mill.) (US$ millions) Totalexports (fob) 229 652 750 3,000 T Agriculture 35 Mineral products 21 Manufactures ni 2 000 Total imports (cif) 92 1 2,397 2 68 Food 323 1,000 Fuel and energy 22 Capital goods 367 0 00 01 02 03 04 05 06 Export price index (200O=WO) P1 PO import price index (2000=00) IT3 I7 mEXports OimpOrtS Terms of trade (2000-WO) a4 02 I

BALANCE of PAYMENTS 1986 1996 ZOO6 2006 Current account balance to GDP (Oh) (US$ millions) Exports Of goods and services 327 373 1823 1988 Imports of goods and services 336 in1 3,858 4 154 Resource balance -9 -739 -2,035 -2 76 Net income 0 72 144 152 Net current transfers 559 1229 1297 Current account balance -a7 -663 -727 Financing items (net) 133 766 807 Changes in net reserves 1 -56 -03 -60 Memo: Reserves including gold (US$ millions) 324 I263 1332 Conversion rate (DEC. iocal/US$) 8.0 045 99.9 98 5

EXTERNAL DEBT and RESOURCE FLOWS 1986 1996 2006 2005 Composltlon of 2005 debt (US$ mill.) (US$ millions) Total debt outstanding and disbursed 491 1839 IBRD 0 0 0 IDA a7 655 729 I G: 288 Total debt service 21 61 iBRD 0 0 0 IDA 1 x) 0 Composition of net resource flows Official grants 114 84 Official creditors 80 79 Plivate creditors 4 34 Foreign direct investment (net inflows) 90 262 Portfolio equity(net inflows) 0 D 212 World Bank program 52 0 Commitments 63 A. IBRD E- BWwd Disbursements 32 34 46 B - IDA D .0th~ mltll&e$sl F - Private Principal repayments 0 4 5 C-IMF 0. Short-terr Net flows 32 30 41 Interest payments 1 5 6 Net transfers 31 24 35

Note:This tablewas producedfrom the Development Economics LDB database. 9/28/07

82 Annex 15: Map No. IBRD 36133 ALBANIA: SECONDARY AND LOCAL ROADS

83

18°30' 19°00' 19°30' 20°00' 20°30' 21°00'

CROATIA MONTENEGRO

42°30' Beli Drim SERBIA 42°30' MALËSI Valbona E MADHE TROPOJË Q.Prushi Bajram Curri To Podgorica Han i Hoti

Drin Ligeni i Fierzë Fierzes SHKODËR HAS Lake Koplik Shkodres Krume To Prizren Laq i PUKË Laq i Koman Morinë Koman Shëmri Shkodër te Dejes Fushë Lajdhizë Kolsh Arrëz Pukë Kalimash Kukës To Podgorica

42°00' Qafe 42°00'

Buene Qele KUKËS Malqenë LEZHË ALBANIA Zall-Rec Kallmet i Madh Shëngjin MIRDITË Rubik Renz SECONDARY AND Lezhë Rrëshen Kurbneshi Drini Zi DIBËR Shkopet Dibër LOCAL ROADS PROJECT Ulëz Fushë Kuge Milot PROJECT ROADS LAÇ Laç Mamuras Burrel MAT F Y R REGIONAL DIRECTORATE BOUNDARIES KRUJË Bllatë DIRECTORATE CENTERS Bulqizë To Struga MACEDONIA and Ohrid 41°30' Fushë Krujë Krujë 41°30' DURRËS BULQIZË

SELECTED CITIES Tapiza Crni Drim Vorë BORDER CROSSINGS TIRANË

PORTS Durrës Shijak AIRPORTS TIRANË DISTRICT CENTERS Ibë Ndroq LIBRAZHD NATIONAL CAPITAL Kavajë Librazhd Krrabë Shkumbin NATIONAL ROADS To Struga KAVAJË RAILROADS PEQIN Qafe Rrogozhine Qukes Thane RIVERS Vidhës Elbasan Peqin Lake DISTRICT BOUNDARIES ELBASAN Perrenjas Cërrik Ohrid 41 00' 41°00' ° INTERNATIONAL BOUNDARIES To Ohrid Lushnje Belsh and Bitola LUSHNJE Qendër Guri Kud Goricë Fierzë POGRADEC Lake Kajan GRAMSH Pogradec Gramsh Tushemisht Prespes 0 1020304050 KUÇOVË KILOMETERS Devoll Pretushe Podgorie FIER Seman Kuçovë Strum Fier Marinzë Uznovë Vjose Berat Maliq Patos Mbrakull Adriatic BERAT KORÇË To Flórina Ballsh Poliçan DEVOLL Kafaraj Bogove Drenov MALLAKASTËR Korçë Bilishti Kapshticë Sea OsumSKRAPAR Selenice 40°30' Corovode 40°30'

18°30' Vlorë Krahës Mavrovë TEPELENË 10° SWEDEN 20° 30° PËRMET KOLONJË LATVIA RUSSIAN Ersekë DENMARK FED. VLORË Kelcyrë Baltic Sea LITHUANIA RUSSIAN Brataj Tepelenë FED. Përmet BELARUS NETH. POLAND GJIROKASTËR Vjose GERMANY Kuci Erind 50 ° 50° LUX. Dhoksat CZECH UKRAINE REP. Gjirokastër GREECE AK REP. FRANCE V LO 40°00' 40°00' S MOLDOVA SWITZ. AUSTRIA DELVINË HUNGARY Delvinë SLOVENIA ROMANIA CROATIA Sarandë To Ioánnina BOSNIA AND Kakavijë This map was produced by the Adriatic HERZEGOVINA Cuka SERBIA Map Design Unit of The World Bank. Black The boundaries, colors, denominations ITALY MONT. BULGARIA Sea Sea SARANDË and any other information shown on FYR

this map do not imply, on the part of 36133 IBRD Area of map MACEDONIA The World Bank Group, any judgment ALBANIA 40° APRIL 2008 40° Tyrrhenian on the legal status of any territory, or Aegean 30° any endorsement or acceptance of Sea Konispoli GREECE Sea TURKEY such boundaries. 10° 20° 19°30' 20°00' 20°30' 21°00'