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World Bank Document Report No. 13891 -MD Moldova TransportSector Review Public Disclosure Authorized November 16, 1995 CoLuntry Departnient IV Europe and Central Asia Region Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized -~~~;,, . ,:,...... - f, z .. ., ... - * . L ... - .- . CURRENCY UNITS and EQUIVALENTS Lei Lei US$1 = 4.3 Lei (as of November, 1994) DM Deutsche Mark US$1 = DM 1.5435 (as of September 9, 1994) ECU European Currency Unit US$1 = ECU 0.8109 (as of September 9, 1994) USD US Dollar USc US cent WEIGHTS, MEASURES and OTHER UNITS bln billion inh inhabitant kilo, kg kilogram km kilometer M, mln million pass passenger sq km, km2 square kilometer T ton (metric, 1,000 kg) th thousand vd vehicles per day CONVERSION FACTORS 1 mile 1.609 meters 1 kg = 2.205 lbs 1 US gallon = 3.785 liters 1 sq km = 0.386 square miles CHEMICAL COMPOUNDS CXHy,HC Hydrocarbons CO Carbon Monoxide CO2 Carbon Dioxide NO,, Nitrogen Oxides SO, Sulfur Dioxide GLOSSARY OF ACRONYMS AND ABBREVIATIONS ATC Air Traffic Control CAA Civil Aviation Administration CIF Cost-Insurance-Freight CIS Commonwealth of Independent States EBRD European Bank for Reconstruction and Development EDI Electronic Data Interchanges EU European Union FIATA Federation Internationale des Associations des Transitaires et Assimiles FOB Free-On-Board FSU Former Soviet Union GATT General Agreement on Tariffs and Trade GDI Gross Domestic Investment GDP Gross Domestic Product IATA International Air Transport Association ICAO International Civil Aviation Organization IMF International Monetary Fund L/C Letter of Credit MDSMTO Moldovan Department for Standards, Metrology and Technical Oversight MOT Ministry of Transport NBM National Bank of Moldova OECD Organization for Economic Cooperation and Development PIP Public Investment Plan SAL Structural Adjustment Loan SGS FSU Railway Association SOE State Organizations and Enterprises SZD FSU's Soviet Union Railways TACIS Technical Assistance for Commonwealth of Independent States TEA Technical and Economic Assessment TIR International Road Transport VAT Value-Added Tax ACKNOWLEDGEMENTS The Review is based on the findingsof a World Bank missionwhich visited Moldova in October 1994. The membersof the missionwere P. N. Taborga (missionleader), F. Bartunek(railway engineer), A. Bonnel (financialanalyst), R. Bonney (road engineer), J. Desgranges (aviation specialist), W. Lane (environmentalist),0. Salama (trade facilitationspecialist), and N. Sumardi (systems support). J. Holt and R. Schultz were the peer reviewers. V. Iovv, Minister of Transport, was the main counterpartof the mission on the Moldovanside. The study has relied heavily on official sources of information - statistics as well as interviews and meetingswith Governmentministries and agencies. It also draws on the Moldova StructuralAdjustment Lending operation, on-going Bank work on the macro economic conditionsof the country, other sector work, studies supported by EBRD and the EU, and findingsfrom various Bank missions. MOLDOVA TRANSPORTSECTOR REVIEW TABLE OF CONTENTS I. INTRODUCTION A. Purpose of the Study .................................... 1 B. Organizationof the Study ................................. 2 II. TRANSPORTAND ECONOMICADJUSTMENT A. Structure of the Economy ................................. 4 B. MacoreconomicPerformance ............................... 5 C. Role of the Transport Sector ............................... 7 1II. TRANSPORTDEMAND A. The Transport Sector in a Changing Economic Situation .... ......... 9 B. Growth Scenario ...................................... 9 C. Historic and Projected Traffic .............................. 10 IV. TRANSPORTAND TRADE FACILITATION A. Overview ........................................... 12 B. Excess Costs and Corrective Actionsby Physical Source ............. 13 C. Further Benefits - Trade and Welfare Gains ..................... 23 V. ROADS AND ROAD TRANSPORT A. Road Infrastructure ..................................... 24 B. Road Transport ....................................... 31 C. Urban Transport ....................................... 35 VI. MOLDOVANRAILWAYS A. Organizationand Staff .41 B. Physical Description .41 C. Traffic Levels .42 D. Railway Operations.44 E. Real Estate Laws and Labor Agreements .46 F. Financial Issues and the Need for Restructuring.46 VII. CIVIL AVIATION A. Overview ......................... 54 B. InstitutionalOrganization of the Sub-Sector ...... 54 C. Airline Operations .......... .. .. .. .. .. .. 55 D. Airports ............. .. .. .. .. .. ... .. .. .. .. .. .. .. .. 57 E. Air Traffice Control .................................... 58 F. Financial Issues and the Need to Restructure ..................... 59 VIII. TRANSPORT, ENVIRONMENT AND RESETTLEMENT A. Background.......................................... 66 B. Involuntary Resettlement ................................. 69 IX. RECOMMENDATIONS A. Overview ........................................... 71 B. Sector Adjustment ..................................... 71 C. InvestmentPriorities and Possible Bank Assistance.80 I. INTRODUCTION 1.1 Moldovais a landlockedcountry -- it has an imprecisely defined 500 to 900 meter frontage on the Danube-- situatedbetween Rumaniaand Ukraine. It became independenton August 27, 1991, as the Soviet Union disintegrated. Moldova is ethnicallydiverse and is the most densely populatedcountry in the Former Soviet Union (FSU), with a population of 4.3 million and a land area of 33,700 square kilometers. GDP per capita was $1,300 in 1992. About half of the populationis classifiedas urban, and Moldova's capital, Chisinau, has a populationof about 1.2 million. 1.2 Under the Soviet system, Moldova's role was one of producer of raw and processed foodstuffs, such as grapes, grains, wines, vegetablesand livestock,and Moldova's land and climatic endowmentgive it a potential comparative advantage likely to remain unchanged. Agriculture and agro-industry have historicallyexceeded 50% of GDP while manufactures,including technologically advanced items for the military, has recently declinedfrom its traditionalshare of 37% of GDP to less than 30% in 1994. Most inputs, particularlyprimary energy supplies like oil, gas and coal, are importedfrom the FSU. 1.3 In addition to its agriculturaland industrialbase, Moldova's geographicalproximity to markets in the West and East and its extensivetransport infrastructureamount to significantstrengths on which to base its economicrecovery. The relative political stability and the commitmentto economic reform were recognizedin the approvalby the World Bankof a StructuralAdjustment Loan (SAL) on December 8, 1994. 1.4 Moldovahas endured an internal armed conflict followingindependence, driven by ethnic factors combinedwith differencesin approachesto economicreform and restructuring. The conflict ended with a cease fire in July 1992 and resulted in a de facto partition of the country, with the eastern part of the country across the Dniestr river (Transnistria) under separate control. High level discussions are underway and there are indicationsof budding economic cooperation. Parliament, elected in February 1994, appears to have a majority in support of economicreform. 1.5 Moldova's well developedtransport sector (albeit with institutional and physical deterioration problems) consists of 10,531 km of roads (excludingmunicipal, agriculturaland forestry roads), 1,318 km of railroad (about 100 km electrified), and four airfields, one of which is of internationalstandard. In addition, the vehicle fleet consists of 169,100 passenger cars, 69,600 trucks and 10,000 buses. 1.6 The economic reforms underway are likely to make most of Moldova's traditional sectors competitive, provided that transport and trade related services support and enhance the country's comparativeadvantages. It is expectedthat after a difficult period of economicand politicaladjustment, Moldovawill enter a phase of increasedefficiency, trade orientation, includingassistance to transit trade, and significant reduction in Government involvementin direct economic activities. A. Purpose of the Study 1.7 This study has been carried out as a direct response to the Government's request to develop a program of assistance in support of a comprehensivetransport strategy, with emphasis on the following objectives: 2 I Introduction a. identifyingkey policy reform; b. introducinga privatizationprogram into the sector; and c. formulating action plans for restructuring railways, managing road infrastructure, reorganizingcivil aviation and urban transport. In additionto meeting the above objectivesthe study identifiespriority expendituresfor inclusion in the Government'sPublic InvestmentPlan (PIP) and eventualdiscussion with other donors. 1.9 The study has relied heavilyon officialsources of information--statisticsas well as interviewsand meetingswith governmentministries and agencies. It also draws from past and ongoingWorld Bank and IMF economicwork, other sector reviews, e.g., trade, agriculture, in addition to studies being carried on behalf of EEC, EBRD, and findings from various World Bank missions. B. Organizationof the Study 1.10 The study is presented as nine chapters and a statistical appendix. The chapters are as follow: 1.11 Transportand EconomicAdjustment. Chapter II gives a summary descriptionof Moldova's economicsituation, current constraintsand agenda for reform, followedby the role of the transport sector and possible contributionto economicrecovery. The current situation of the transport sector, its cost recoveryperformance,
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