Document of The World Bank

FOR OFFICIAL USE ONLY E

Public Disclosure Authorized Report No. 231Oa-YU

YUGOSLAVIA

STAFF AP'PRAISAL REPORT Public Disclosure Authorized

THE TENTH HIGHWAY PROJECT

FOR A HIGHWAY SECTOR LOAN Public Disclosure Authorized March 15, 1979

Public Disclosure Authorized Projects Department Europe, Middle East and North Africa Regional Office

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

Currency Unit = Yugoslav Dinar (Din.) Din. 1 = US$0.0555 Din. 1,000 = US$55.5 Din. 1,000,000 = US$55,555

WEIGHTS AND MEASURES

Metric System British/US System

1 meter (m) = 3.808 feet (ft) 1 kilometer (km) = 0.214 mile (mi) 1 square kilometer (km2) = 0.3861 sq. mile (mi2) 1 metric ton (m ton) = 0.9842 long ton (lg ton)

ACRONYMS AND ABBREVIATIONS

AADT - Average Annual Daily Traffic COI - Communities of Interest CRO - Council of Republican and Provincial Roads Organization CYR - Community of Yugoslav Railways EDI - Economic Development Institute ER - Economic Return FYBR - First Year Benefit Ratio GNP - Gross National Product MEU - Monitoring and Evaluation Unit O-D - Origin and Destination RTE - Railway Transport Enterprise RUC - Road Users Charges SAP - Socialist Autonomous Province SR - Socialist Republic TYH - Trans-Yugoslav Highway

SOCIALIST FEDERAL REPUBLIC OF YUGOSLAVIA

FISCAL YEAR

January 1 to December 31 YUGOSLAVIA FOR OFFICiAL uat O>LY

APPRAISAL OF

A TENTH HIGHWAY PROJECT

Page No.

I. THE TRANSPORT SECTOR ...... 1

A. The Transport System ...... 1 B. Transport Policy, Planning and Coordination . 3 C. Institutional Framework ...... 4 D. Previous Projects ...... 6

II. THE ROAD SUBSECTOR ...... 7

A. Road Transport ...... 7 - Traffic ...... 7 - Trucking Industry ...... 7 - Vehicle Regulations ...... 8 - Road User Charges ...... 8

B. Infrastructure ...... 9 - Administration ...... 9 - Planning ...... 11 - Investment and Financing ...... 11 - Engineering ...... 11 - Construction ...... 12 - Maintenance ...... 12 - Training ...... 12

III. THE ROAD PROGRAM AND THE PROJECT ...... 13

A. General ...... 13 B. Objectives ...... 14 C. Project Preparation and Methodology ...... 14 D. The Project Regions - K:osovo, Montenegro, Vojvodina, Macedonia and Bosnia- Herzegovina ...... 15 - The Projects - An Overview ...... 15 - Characteristics of the Program ...... 18 - Characteristics of Each Region including assessment of its Institutional Capacity, Financial Capability and Economic Viability ...... 21 (i) SAP Kosovo ...... 21 (ii) SR Montenegro ...... 27 (iii) SAP Vojvodina ...... 34 (iv) SR Macedonia ...... 41 (v) SR Bosnia-Herziegovina ...... 48

This report was prepared by Messrs. M. Ganguli (Economist), R. Mulligan and B. J. Sisson (Highway Engineers) on the basis of an appraisal mission to Yugoslavia during September 1978.

This document has a restricteddistribution ancl may be used by recipients only in the performance of their official duties. Its contents may not othierwisebe disclosed without World Bank authorization. Table of Contents (Continued) Page No.

E. The Loan ...... 56 F. General Sector Conditions ...... 58 G. Conditions for Subprojects ...... 59 H. Implementation ...... 59 I. Disbursements ...... 61 J. Project Risks and the Environment ...... 62

IV. RECOMMENDATIONS ...... 63

ANNEXES

1. Transportation Projects Previously Financed by the Bank 2. Study of Road User Charges - Terms of Reference 3. Outlines of Terms of Reference for Highway Master Plan Study 4. Economic Analysis of Road Program 5. Progress Reporting Requirements 6. Monitoring and Evaluation Unit 7. Project Implementation Schedule 8. Selected Documents and Data Available in the Project File 9. Equipment to be Procured from the Loan 10. Proposed Training Program

MAPS

1. IBRD 13850 - Yugoslavia Highway Sector Project, Yugoslavia Project Area 2. IBRD 13878 - Yugoslavia Highway Sector Project, Kosovo - Traffic Flows 3. IBRD 13882 - Yugoslavia Highway Sector Project, Kosovo - Surface Type and Proposed Subprojects 4. IBRD 13851 - Yugoslavia Highway Sector Project, Montenegro - Traffic Flows 5. IBRD 13879R - Yugoslavia Higwhay Sector Project, Montenegro - Surface Type and Proposed Subprojects 6. IBRD 13852 - Yugoslavia Highway Sector Project, Vojvodiria - Traffic Flows 7. IBRD 13880 - Yugoslavia Highway Sector Project, Vojvodina - Surface Type and Proposed Subprojects 8. IBRD 13853 - Yugoslavia Highway Sector Project, Macedonia - Traffic Flows 9. IBRD 13881R - Yugoslavia Highway Sector Project, Macedonia - Surface Type and Proposed Subprojects 10. IBRD 13854 - Yugoslavia Highway Sector Project, Bosnia-Herzegovina - Traffic Flows 11. IBRD 13883 - Yugoslavia Highway Sector Project, Bosnia-Herzegovina - Surface Type and Proposed Subprojects YUGOSLAVIA

STAFF APPRAISAL REPORT OF A TENTH HIGHWAY PROJECT

I. THE TRANSPORT SECTOR

A. The Transport System

General

1.01 Yugoslavia is a socialist federal republic consisting of six Repub- lics 1/ and two Autonomous Provinces. 2/ During the past decade, governmental authority and administration, previousLy concentrated in the Federal Center, was decentralized to the Republics and Provinces, which have gained consider- able autonomy over their affairs, including decisions on transport infrastruc- ture investments.

1.02 Two main factors have influenced the development pattern of Yugos- lavia's transport network. First, topography has dictated the use of the broad river valleys as transportation corridors, with the result that the country's principal road/rail links follow the fertile Sava/Danube flood plains on an approximate northwest to southeast alignment. The southern and coastal mountains have proved formidable and costly obstacles to transport development in the transverse direction and it is the misfortune of some of the less-developed regions of Yugoslavia that they have the added burden of expensive access routes either to the coast or to the hinterland.

1.03 Secondly, for historical reasons, the northwestern and central regions of the country achieved levels of development in some sectors, trans- port included, on a par with western Europe. On the other hand, in the poorer regions to the south the pace of development was much slower.

1.04 Moreover, Yugoslavia's geographical location is such that it is an important crossroads in the European transport system. It provides access to the sea for many of its northern neighbors, and is as well an important link in the east/west route between Europe and the Middle East.

1.05 Small wonder, then, that transport is a dynamic sector of the Yugoslav economy. The system is well diversified (Map 1); there are 7 major ports, nearly 10,000 km of rail lines, 100,000 km of roads, 15 airports (10 catering for international flights) and a sizeable network of inland water- ways. Pipelines, also have come into increasing use in recent years. Govern- ment's broad aim is to ensure the balanced development of all modes of trans- port to meet the needs not only of Yugoslavia's own market-oriented economy,

1/ Bosnia-Herzegovina, Croatia, Macedonia, Montenegro, Serbia and Slovenia.

2/ Kosovo and Vojvodina. - 2 - but to improve the country's integration with the world economy. The attain- ment of regional balance in economic development has also been an explicit objective of the Government. Increasingly emphasized is the improvement o. transport links between the economically-advanced and the less-developed Republics and Provinces and within the less-developed areas.

1.06 Roads and railways are the backbone of the transport system but traffic growth for these and other modes has been rather uneven. During the last 10 years the freight traffic (ton-km) on railways increased by about 3% per annum compared to an increase of about 12% per annum on highways. The passenger traffic on railways remained practically unchanged during the same period, in contrast with an increase of about 20% per annum on highways. As a result, road transport has gained in relative importance and has replaced rail transport as the dominant carrier. The railways, however, continue to be the main carrier of bulk commodities over relatively long distances for key industries. River transport has retained an important place, carrying about 10% of total freight traffic. Ports have more than doubled their cargo handl- ing since the early 1960s and currently move about 20 million tons per annum.

1.07 However, improvements to the highway network have not kept pace with the growth of road traffic. Many roads are by modern standards inadequately designed both in geometry and pavement capability. With high traffic volumes, unacceptable levels of traffic congestion often result. In general, most of the roads are inadequate for the traffic they are now carrying.

Special Features of the Project Areas: Kosovo, Montenegro, Macedonia, Bosnia-Herzegovina and Vojvodina

1.08 The SAP Kosovo, the most underdeveloped and densely-populated region of Yugoslavia, is difficult of access from most of its neighbors. Within the Province also, many rural settlements still have no all-weather connections with market centers, resulting in opportunities for trade, commerce and employment being foregone. Thus, without an adequate road network, Kosovo cannot easily break the chain of lagging development, over-population and poverty.

1.09 On account of their geographic positions, S.R. Montenegro and S.R. Macedonia are major potential outlets to the Adriatic sea and the Middle East for central and eastern Yugoslavia. The improvement of the inter-Republican systems, therefore, would stimulate national and international trade and, to some degree, counter their physical disadvantage in being comparatively remote from Yugoslavia's mainstream of economic activity. As in the case of Kosovo, improvement of the intra-Republican networks of these less-developed regions would serve to integrate more closely their outlying communities with market centers, so that opportunities for trade and employment would be enhanced.

1.10 The rugged, broken terrain of SR Bosnia-Herzegovina is a serious impediment to the development of its transport networks. Constructing roads through the mountains that cover most of the Republic is costly and fraught with difficulty; in consequence the Government needs to devote a much higher proportion of its budget to road and rail development than do the other more - 3 -- fortunate Republics with easier terrain. Despite its central location in Yugoslavia as a whole, the Republic's networks are relatively unimportant to international commerce, as the principaL Adriatic ports are not best served by its main north/south route. Nevertheless, its networks are important to both inter- and intra-Republican interests, and the deficiencies of these networks remain an impediment to the economic development of the Republic.

1.11 Unlike its four co-borrowers under these loans, SAP Vojvodina enjoys a higher standard of development. Although its well-watered, rolling terrain favors agricultural production (30% of its 1976 GNP), industry is expanding rapidly and has now overhauled agriculture as the growth sector of the econ- omy. In line with this development, intra-regional traffic has been growing rapidly and the network needs expansion and modernization to keep pace with it. Vojvodina also enjoys a favorable strategic situation in Yugoslavia, having the country's main border with Hungary and also Romania; indeed, the Province's spinal E5 route is a principal north-south artery of the European network, linking Yugoslavia's northern neighbors to the sea. It is also a vital communications link for Vojvodina.

B. Transport Policy, Planning and Coordination

1.12 Since the mid-1960s the administration of Yugoslavia has steadily moved towards decentralization of decision-making, with enterprises (busi- nesses or companies) operating under workers' management in a market-oriented economy. During the late 1960s and in line with this policy, the principal responsibility for transport within Government was transferred from Federal to Republican/Provincial authorities. In 1975 the Federal Secretariat for Transport was replaced by a Federal Committee, whose Chairman and Vice- President are Federal officials, and whose other members are the Republican and Provincial officials responsible for transport. This committee has now been left with a mainly coordinating function as Governmental respon- sibility is being transferred to Communities of Interest (COIs). Each COI consists of one or more transport enterprises and their users, and their authority is normally confined to one Republic or Province.

1.13 The transfer of authority to the "grass roots" agencies and transport organizations has increased the number of decision-making bodies, and has made the country-wide planning and coordination of transport more difficult, espe- cially coordination between road and rail. Until recently there has been no overall, clearly stated transport policy, although the basic rationale for one is implicit in the country's main economic principles: free choice by users and competition in a market economy among autonomous transport enterprises. In late 1976, however, with a view to creating the necessary conditions for integrated development of transport, the Federation, the Republics and the Autonomous Provinces mutually agreed to establish a long- term transport policy for the country. Since then considerable progress has been made in this direction, and the authorities have concluded Social Agree- ments on the various aspects of future transport policy. - 4 -

1.14 According to these Social Agreements, the Government's principal objectives for the transport sector are: (i) to build up a transport inf--a- structure in support of the developments taking place in other sectors of the economy; (ii) to develop the various modes of transport as an integrated network and in such proportions and combinations as will meet the total needs of the economy at minimum cost to the community; (iii) to open up less-developed regions and foster interdependence and economic integration of the regions of the country; (iv) to provide the national network with adequate facilities for connection to the networks of neighboring countries; and (v) to rationalize the use of energy in transportation and to reduce the negative effects of transportation on environment.

1.15 Many of these goals, such as attaining regional balance in economic development, bringing the rural communities closer to the main stream of development, and improving integration with the world economy, have always been stated objectives of the Yugoslav Government. The Social Agreement especially emphasizes the development of a door-to-door public transportation system at least cost to the economy. It is hoped that such a system would attract greater public use than "own-account" transport, and would encourage the formation of an optimal structure of the overall transport system based on economic principles.

1.16 To these ends, the authorities intend to encourage the use of rail and water transport for long- and medium-distance commodity hauls and of road transport for short hauls. Priority is to be accorded to railway and air transport for transportation of passengers on medium and long distances. Given the availability of two or more parallel transportation routes (railway lines, rivers, highways), highway transport should be used to complement and integrate with other transport modes. A standard methodology is to be estab- lished to assess the allocation of resources to all branches and forms of transport infrastructure, commensurate with the utilization and relative advantages of each. Much of the success in translating the transport policy into a concrete action program will depend on the effectiveness of the decen- tralized decision-making process.

1.17 The basic principle of the transport policy and coordination will continue to be free competition in the market and the main policy instruments will be pricing measures.

C. Institutional Framework

1.18 The Yugoslav authorities are keenly aware of the need for a sound institutional framework within which various transport agencies and enter- prises can collaborate effectively. The Bank has provided some stimulus in promoting these institution-building policies, resulting in:

(i) the establishment of the Federal Committee (originally a Secretariat) for Transport and Communications; - 5 -

(ii) the establishment of the Secretariats or Committees for Transport in most Republics and Provinces;

(iii) the establishment of the Council of Republican and Provincial Roads Organization (CRO); and

(iv) strengthening the Community of Yugoslav Railways (CYR).

1.19 In the past one of the Bank's main objectives in Yugoslavia's trans- port sector has been the development of the local skills needed to operate the modal institutions. Under the Third and Fourth Highway Loans (Loan Nos. 608-YU and 678-YU) the laws and decrees related to the highway subsector were reviewed, the organizations for road miaintenance and their operations were overhauled and improved, and traffic counting, which earlier had been rudi- mentary, was reorganized on a systematic and planned basis. Subsequent high- way and railway loans (Loan Nos. 751-YU, 990-YU, 1026-YU, 1143-YU, 1377-YU) provided technical assistance in the formulation of standardized guidelines for the preparation of feasibility studies, personnel training, action plans, highway master plans and other important studies like those for road users' charges and rail costs. These latter two complementary studies are designed to establish an appropriate basis for developing a policy framework (including tariffs) which would permit the orderly economic development of the transport sector, and are expected to provide a firm basis for the efficient and eco- nomic utilization and coordination of transport facilities. Both studies are now in progress; the Road User Charges Study should be completed by March 1979 and the Rail Costs Study towards the end of 1979.

1.20 Until now the Bank's highway projects in Yugoslavia have largely involved lending for an ad hoc selection of discrete road sections proposed by various Republics/Provinces. Reaching agreement on a specific package to be financed under a particular highway loan has not been easy, and has always been time-consuming for all concerned--Government as well as Bank staff. Conflicting demands of eight Republics and Provinces have had to be reconciled within Government, and the Bank's economic criteria met. In the process, the needs of the less developed regions have often had to defer to those of the more developed, where the requirements of traffic have been more pressing.

1.21 This procedure clearly needed overhaul. Instead of a country-wide comparison of subprojects contending for Bank financing as was previously the situation, now, under the proposed sector lending approach, subprojects within a particular Republic/Province would be compared one with another and ranked according to economic priority. This procedure would ensure that critically needed investments in regional, secondary and feeder roads, so essential for the less developed regions to cater for and induce economic development in the outlying areas are not obscured by the visibly more pressing needs of the arterial networks. Accordingly, with the encouragement of the Bank and the Yugoslav authorities, each of the concerned administrations of the less- developed Republics/Provinces has prepared a highway master plan from which has been developed a relatively firm three-year investment program with priorities ranked according to broad economic criteria. All five master plan studies have been prepared on the basis of common methodologies, and, Ior * first Lime in Yugoslavia, each constitutes a systematic and objective analysis of the highway sector needs (institutional as well as in infrastruc- ture) of the Republic/Province concerned. These plans, therefore, usher in a new era in Bank lending in highways to Yugoslavia, as they form the basis of the sector loan to the five Republics/Provinces which this document appraises. Sector lending is now recognized in Yugoslavia as a natural progression from the Bank's earlier "section-by-section" lending.

1.22 The thrust of future transport sector lending will be to consolidate progress in institutional development and to foster intermodal coordination. The Road User Charges and Rail Costs Studies and the Highway Master Plan Studies (paras. 1.19 and 1.21) are not "one-shot" efforts, but must be con- tinuously updated. Necessary institutional facilities, therefore, must be developed progressively for obtaining the management information in a systematic manner and on a continuing basis. The Bank has been deeply involved in institutional development and would continue to assist and expedite improvements in this field in cooperation with concerned agencies.

D. Previous Projects

1.23 The proposed project would be the 17th in the transport sector and the 10th in highways. The Bank has lent US$856 million equivalent to the transport sector, including US$356 million for nine highway projects, US$348 million for five railway projects, US$108 million for two pipeline projects and US$44 million for the Bar Port Project. Out of the nine highway projects, five have been successfully completed so far; all the roads in the sixth project are also open to traffic and the remaining projects are well in hand. Government's execution of the highway projects has been generally satisfactory. Brief details of all transport projects are in Annex 1.

1.24 In general, the main problem encountered in the highway projects has related to land acquisition where unforeseen difficulties have delayed con- struction. Authority has now been so decentralized that groups such as the Communities of Interest can appeal and overturn decisions on alignment and right-of-way, after they have been taken at a higher level. There appears no easy solution to this problem (Audit Report No. 1632 dated June 1977), but greater consultation between all groups concerned is being sought to achieve more soundly-based decisions. Further, some Republics are operating some road sections financed by the Bank as toll roads. The imposition of tolls on a relatively uncongested road can inhibit its use to a suboptimal level. In Yugoslavia, therefore, the Bank has consistently emphasized the need to study the probable effects of imposing tolls, so that they may be set (if at all) at a level which would not impede the optimum use of the roads (Audit Report No. 1385, dated December 1976). The loan agreements for subsequent road projects have included a clause to this effect where relevant. In the currently pro- posed highway sector programs, however, there are no specific proposals to levy tolls. - 7 -

II. THE ROAD SUBSECTOR

A. Road Transport

Traffic

2.01 In the past decade road transport has developed rapidly; the number of cars has increased about threefold, and the numbers of trucks and buses have almost doubled (Table 2.1). Freight and passenger traffic on the network (in ton-km and passenger-km) has likewise increased about two to three times during the same period. Most of the vehicle fleet increase was met from domestic production. Where a decade ago local manufacture of cars and trucks was about equal to imports, now annual domestic production is about three times higher than the total annual imports. Although private car ownership is steadily rising as per capita incomes grow, motorization in the different regions of the country varies widely, but in line with their states of devel- opment. For example, Slovenia, the most developed Republic has six inhabit- ants per car, whilst Kosovo, the least developed, has about 100 inhabitants per car.

Table 2.1: ROADS AND ROAD TRANSPORT

Trucks Length and Ton/Km of Paved Passenger Truck Passenger/Km (billions) Network Cars Buses Trailers (billions) Enter- Own Year (km) ('000) ('000) ('000) Bus Car prises Account

1970 24,214 721 15 189 14.1 18.4 6.7 11.1 1971 27,350 875 16 211 16.7 22.4 7.3 11.8 1972 29,910 1,000 18 230 18.4 25.6 8.1 13.6 1973 32,590 1,141 18 252 21.4 27.6 8.5 14.9 1974 35,459 1,333 19 288 23.4 31.8 9.8 16.0 1975 38,699 1,537 20 307 25.9 37.1 10.5 17.5 1976 41,144 1,732 21 336 27.8 42.2 11.2 18.8 1977 43,500 1,934 22 360 29.8 47.0 11.9 20.1 1978 46,000 2,130 23 390 32.0 52.0 12.7 21.5

Source: Federal Bureau of Statistics and mission estimates.

Trucking Industry

2.02 The trucking industry is highly competitive. In 1977 there were about 200 specialized transport enterprises each with an average of 150 trucks and buses. These enterprises account for about one-third of freight traffic by road. Social Sector enterprises operate their own fleets of trucks in many cases, accounting for about two-thirds of total road freight transport. The average haul of "own-account" freight traffic is about 25 km. -8-

Vehicle Regulations

2.03 Basic regulations controlling traffic in Yugoslavia are contained in the 1970 Traffic Law. They are primarily safety-oriented and focus mainly speed and load limitations. The maximum permitted loading is 10 tons on a single axle and 12 tons on tandem axles for vehicles using all inter-regional and regional roads. If conditions of particular roads and bridges are sub- standard, a special Republican/Provincial Commission can impose different loading limits as appropriate. Similarly, on public roads except main high- ways, maximum speeds are limited according to the different categories of motor vehicles (80 km/hr for buses; 70 km/hr for trucks exceeding 7.5 tons, 80 km/hr for motor cars towing a caravan, etc.). There are also restrictions on the movement of trucks over selected routes during weekends and holidays, especially during the main tourist season. Otherwise there are no restric- tions on vehicle movements between different Republics and Regions. Moreover, there is no discrimination between vehicles of foreign and domestic registra- tion in the application of these regulations.

Road User Charges

2.04 In Yugoslavia the total revenue from road user charges was estimated for the first time in 1970 and amounted to Dinar 3.3 billion (US$183 million). This amount exceeded the total expenditures on highways during that year of Dinar 2.6 billion (US$144 million). Since then, although both the revenue from road-user charges and the expenditure on roads have each increased about three to fourfold, the same preponderance of revenue over expenditure still persists. But even where the road user charges may cover overall costs, there may not be a direct relationship between specific user charges on different types of vehicles especially heavy trucks and the infrastructure costs for which they are accountable. For example, heavy trucks normally consume diesel fuel which attracts less than half the tax than does gasoline in Yugoslavia. Yet heavy, diesel-fueled vehicles inflict the greatest damage on the pavement structures. If user charges were brought into line with a vehicle's capab- ility to distress road pavements, possible changes in traffic flows within and between different transport modes might result. To clarify this situation with respect to road transport in Yugoslavia, a comprehensive study on road- user charges was commissioned from consultants (para 2.06) at the end of 1977 as a component of the Eighth Highway Project (Loan No. 1377-YU) with financial support from the Bank. An outline of the terms of reference for the study is in Annex 2.

2.05 The study would examine particularly the fiscal, economic and admin- istrative aspects of the present system of levying road user charges, taxing vehicles, and allocating resources to the highway subsector in Yugoslavia, and would assist authorities in reviewing present policies and problems concerning the level of road user charges and their distribution to meet road infrastruc- ture costs. The study would also seek to promote efficient and economic util- ization of existing and proposed highway facilities.

2.06 The contract for the study has been awarded to Kirilo Savic Insti- tute, Belgrade, assisted by Dorsch Consult (W. Germany) and the Atkins Group - 9 -

(UK). Three progress reports and an Interim Report have been issued which were reviewed, and which indicate satisfactory progress. A draft Final Report is expected by March 1979. During Loan negotiations the Borrowers confirmed that in accordance with the Loan Agreement for the Eighth Highway Project (Loan 1377-YU), the Federal Committee for Transport and Communications will review the study findings with the ]3ank and will agree with the Bank which recommendations shall be implemented.

B. Infrastructure

Administration

2.07 The main responsibility for highway administration is now centered in the Republics and Provinces (para. 1.12), with the Federal Government playing a role now confined to common policy and regulatory matters such as the control of vehicle weights and dimensions, road safety, and the international aspects of highway administration and road transport.

2.08 At the Republican and Provincial levels, authority for administering regional and inter-regional roads outside the boundaries of communes (urban and municipal areas), is vested in the Republican or Provincial Road Organiza- tions. These organizations are governed by "Boards" on which are represented members of various groups each with an interest in roads, such as transport companies, industrial enterprises, agricultural cooperatives, professional and road user organizations. The membership of these Boards is usually large, so the members elect Executive Boards which are responsible not only for day-to- day administration, but also for the preparation of proposals for highway development. These proposals are correlated through the planning system with the plans from other sectors, screened, and submitted for approval to the Republican or Provincial Governments. Purely local roads are under the juris- diction of local communities which have special departments for this purpose. In cities, the planning authorities are viewing with growing concern the problems resulting from increasing vehicle use, and are seeking ways and means to rationalize the use of all transport facilities especially through the development of public mass transport. In an effort to relieve urban areas of through traffic, recent Bank-financed highway projects have included the construction of bypasses of towns and cities.

2.09 Coordination among the Road Organizations is provided through the Republican Assemblies, the Federal Committee for Transport and Communications, and the CRO.

2.10 The organization of highway administration has changed repeatedly during the postwar years. As an example, at present the physical planning and administration of the road plans of Macedonia are handled by the Republican Road Council, which replaced the Republican Road Fund about three years ago. The Council is governed by a board of members and is headed by a Secretary (Chart) aided by a professional staff of 22 engineers, 3 economists, 4 lawyers and various technicians. This organization is expected to evolve further to include road user groups, and to become an "Association for the Communities of Interest for Roads." The Communities of Interest, it is understood, would YUGOSLAVIA

Organization Chart of the Road Council of S.R. Macedonia

l ~~S.R.Macedonia|

_X ~ExecutiveCouncil

Secretariat for Traffic & Communication Road Ins ection l

Council for Road Construction, Maintenance and Reconstruction

Secretary of the Road Council

Department for Department for Department for Department for Development of Supervision of Road Department for Budget & General Road Network Construction & Maintenance Accounts Administration Reconstruction - 11 - further promote increased citizen and user organization participation in the decision-making process. It should be recognized, however, that the organiza- tion of the highway subsector is complex, that the highway administration is still in a period of transition as a result of the continuing decentralization process, and no firm long-term plans on highway investment are as yet avail- able. However, medium range highway master plan studies (covering the period up to 1985) for the Autonomous Provinces of Kosovo and Vojvodina, on which work commenced during 1977/78, have been financed by the Bank. Similar studies have also been substantially completed in the other less-developed regions in Yugoslavia, namely, Montenegro, Macedonia and Bosnia-Herzegovina, and form the basis of the currently proposed Bank Sector Loan to Yugoslavia.

Planning

2.11 Five-Year Highway Plans are prepared by the Road Organizations, coordinated with the plans for other sectors by the Republican or Provincial Assemblies. Inter-Republican roads are planned on the basis of agreements among the respective Republics and Provinces.

Investment and Financing

2.12 Highway expenditures have increased steadily over the last decade from about Dinar 1.4 billion (US$78 million) in 1967, to about Dinar 10 bil- lion (US$556 million) in 1977. However, inflation eroded a substantial por- tion of the increased outlay and in real terms the highway expenditures did not keep pace with the rapid growth of highway traffic. Overall highway expenditures for new construction and upgrading in 1977 amounted to about 72% of total highway expenditures, with the remaining 28% earmarked for highway maintenance.

2.13 The Federal Government's role in highway financing has been phasing out since 1970, when it was decided that the Federation should cease its participation and only carry out obligations under previous commitments. In 1977, the Federal Government's remaining contribution to highway financing was only about 2% of the total expenditure. The main source of highway financing is the revenue from taxes on gasoline and diesel oil, license fees, and the revenues from taxes paid by foreign motorists on entering Yugoslavia. A pro- portion of these revenues is earmarked for road development and maintenance purposes. In the year 1977, earmarked revenues covered only about 40% of the total expenditures for those purpose!s,and the balance of the outlay on high- way development and maintenance was made up from IBRD and domestic loans (24%), contributions by the Republics, Provinces, Communes (21%), the Fund for Less Developed Regions (4%), contributions by the Federal Government (2%), and other sources (9%). Since the earmarked revenues cover only about 40% of the total expenditures, the road development plans of the Road Organizations depend heaviLy upon budgetary allocations, public loans, bank credits and voluntary contributions.

Engineering

2.14 Preinvestment studies of highway projects are generally commissioned by the Road Organizations from either local or foreign consulting firms and - 12 - are, from the Bank's experience, satisfactorily executed. The subsequent design of the projects and the supervision of their construction is usually carried out, also satisfactorily, by the Road Organizations who may enlis' e support of competent Yugoslav consulting engineers and technical institutes.

Construction

2.15 Road construction and improvement is normally executed by means of unit-price contracts. As a rule, participation in bidding for locally financed projects is limited to the domestic contracting industry, which is capable, highly competitive, and sufficiently aggressive to continue winning contract awards outside Yugoslavia. Contracts for Bank-financed projects, however, are awarded after international competitive bidding in accordance with the Bank's "Guidelines for Procurement"; such bidding for past highway projects, however, has resulted in the participation as a joint-venture partner of one foreign contractor only, an indication of the competitive edge the local industry has on 'its own ground. Quality of construction work is generally of a high standard.

Maintenance

2.16 Road maintenance is carried out on the basis of yearly contracts negotiated between the Road Maintenance Enterprises and the Road Organiza- tions. The Maintenance Enterprises are deployed widely in each Republic or Province, enabling, in general, prompt and effective maintenance to be carried out. Expenditures for highway maintenance in 1977 amounted to about Dinar 60,280 (US$3,350) per km for the highway network maintained by the Republics and Provinces, an adequate allocation. The generally satisfactory standard of road maintenance in Yugoslavia indicates the capabilities of the Roads Organizations and Maintenance Enterprises, and that adequate budgetary allo- cations for road maintenance have been made during the last few years.

Training

2.17 Yugoslavia is a country with well-developed educational and voca- tional training institutions. The highway transport sector is staffed with competent professionals and technicians. There is, however, need to spread technical and professional skills to the less-developed areas of the country, and, a need to update the knowledge and skills of engineers and managers in highly specialized fields and to provide economists with training in trans- portation and in the preparation of feasibility studies. Once trained, Yugoslav personnel put their skills to effective use, and adapt their systems to appropriate technologies and analysis methods.

2.18 The Fifth Highway Project (Loan 751-YU) was the first to incorporate a training element and this provision has also been included in later proj- ects. In the Fifth Highway Project, training was of two kinds, (i) short- term (up to four months) fellowships and seminars abroad for engineers and economists, and (ii) on-the-job counterpart training through consultants in -- 13 - the preparation of feasibility studies. In the Sixth Highway Project, train- ing included: (i) further fellowships abroad, and (ii) seminars and courses in Yugoslavia including an innovative EDI-type course with simultaneous translation services in the Serbo-Croatian and the English languages.

2.19 The impact of training has been considerable on the highway organiza- tions of Yugoslavia in developing their capabilities in preparing feasibility studies, traffic analyses, transporlt costing, and highway development programs in general. With the benefit of this learning they have recently compiled detailed master plans for highway development in five Republics and Provinces and these have been well prepared. Following the initial assistance from the Bank's EDI, the CRO hopes to continue with EDI-type courses on its own on a regular basis.

III. THE ROAD PROGRAM AND THE PROJECT

A. General

3.01 In the past, to conform with Government's development objectives, and with priorities set by Social Agreements, previous Bank lending in the trans- port sector has, with minor exceptions, focussed on the needs of the main transport network; all eight Republics and Provinces have benefitted from these loans.

3.02 Now, to accord with the transport policy objectives recently arti- culated in the Social Agreements mentioned earlier (para. 1.14), increased emphasis is being given to projects which would improve the lot of the less- developed regions. Better transportation is recognized as a stimulus to development in most other sectors, but to reach outlying communities, many of which have poor access to centers of commerce, not only inter-regional roads, but also regional and feeder roads should be included in programs for construction and improvement (para 1.21). Thus, there has followed accept- ance of the need for each Republic/Province to assess its total requirements in the highway subsector in a comprehensive operation based on a highway master plan study.

3.03 The lead in this respect was taken by SAP Kosovo which covenanted under the Eighth Highway Project (Loan 1377-YU) to prepare with Bank financing such a highway master plan study following Terms of Reference (Annex 3) agreed with the Bank. This study was carried out by Yugoslav design institutes assisted by the French consultant BCEOM and from it has been prepared a devel- opment program with investment priorities ranked according to broad economic criteria.

3.04 Other Republics and Provinces have followed suit using the Kosovo Terms of Reference as a model for their own work. SAP Vojvodina also took advantage of Bank financing and employed Yugoslav design institutes assisted by the French consultant BCEOM to assist in preparing its highway master plan - 14 - and development program. The Republics of Montenegro, Macedonia and Bosnia- Herzegovina used their own resources and the assistance of the various Yugoslav Fo^4, ^aI institutes (consultants) to prepare highway master plan studies and development programs for their own regions. The quality of all five studies has been high, and reflects the growing competence of the Yugoslav design institutes.

3.05 The short-term focus of all five development programs is the period up to 1985, although the long-term plan perspectives differ, ranging from 1990 (Kosovo) to the year 2000 (Macedonia). All five short-term programs are in keeping with the ability of each of the respective Republics/Provinces to finance, and within its institutional capability (with some improvements where needed) to implement. The project currently appraised in this report is to meet a part of the foreign costs of a three-year tranche, mid 1979 to mid 1982, of all five development programs.

3.06 Thus, this project represents a significant step forward in the evolu- tion of Bank lending to Yugoslavia in the highway subsector (paras. 1.20, 1.21).

B. Objectives

3.07 The main objectives of the 1979-85 Road Programs are to:

(i) support agricultural and industrial development plans, and to increase the coverage of social services through a balanced development of main, secondary, and feeder roads, such development programs being within the finan- cial and technical capabilities of the governments con- cerned;

(ii) ensure adequate maintenance of the existing highway net- work;

(iii) strengthen, as needed, through technical assistance and training, the operations and administration of the Road Organizations so as to improve the implementation of, and their capability to monitor the road programs; and

(iv) reinforce efforts made under earlier projects to foster the development of a stable and effective domestic contracting industry by providing greater assurance of a sustained level of investment over the next few years, and to develop the capabilities of local consulting organizations.

C. Project Preparation and Methodology

3.08 Since 1963, the Bank has made several loans to Yugoslavia which have included highways in the five Republics/Provinces which will participate in - 15 - the currently-proposed sector loan. These five Republics/Provinces have also invested considerable amounts on their own account during this period for the development of road networks in their territories. During this long asso- ciation, substantial progress has been achieved in the various aspects of high- way planning and development; in particular, the respective Road Organizations have evolved adequate systems of project preparation in cooperation with Yugoslav consultants (Institutes).

3.09 More recently, in order to improve the quality of road programming, an attempt was made in all the five participating Republics/Provinces to take an overview of the road system as a whole, irrespective of the categories in which individual roads fall. Thus, in each Republic/Province, a highway master plan covering the period up to 1985 (with relatively more firm informa- tion up to 1982) has been prepared on the basis of comprehensive analyses and the examination of the various factors affecting road traffic on the entire road network under its jurisdiction. The roads concerned are primarily inter- regional and regional, and are classified in categories 1, 2 and 3. Purely local (Class 4) roads for which communes are responsible, were not included in the study.

3.10 Initially an inventory of the existing highway network was prepared. The inventory included an assessment of the condition and capacity of indivi- dual links and of their utilization in terms of traffic flows (Maps 2, 4, 6, 8 and 10). For the future, traffic growth on the network has been estimated on the basis of earlier relationships between production, consumption and the traffic needs of the different communles/traffic zones. Since 1970 socio- economic data at the level of communes has been systematically collected and this information has been of great value in the projection of future traffic flows. The growth of inter-Republican (inter-Provincial) traffic was based on earlier trends adjusted where appropriate, to take into account the effects of new and firmly planned developments. The new investments proposed to facilitate traffic flows have been decided on (Maps 3, 5, 7, 9 and 11) after taking due account of operational anti policy improvements in the subsector as well as developments in complementary modes of transport, where they are relevant. The methodologies and approaches used in the economic analyses are applied uniformly throughout Yugoslavia. These are based on the Bank-financed (Loan 751-YU) "Guidelines for the Preparation of Highway Feasibilty Studies", and are outlined in Annex 4. Although all the sub-projects which the Bank will finance have not yet been finally identified, those which are technically and economically viable and which yield rates of return not less than 12% shall be selected by agreement between the Borrowers and the Bank in accord- ance with the provisions of the Loan Agreements.

D. The Project Regions

The Projects - An Overview

3.11 The proposed projects provide for direct participation by the Bank in a three-year (mid 1979-mid 1982) tranche of the 1979/85 highway development - 16 - programs of the five participating Republics/Provinces (Kosovo, Montenegro, Vojvodina, Macedonia, and Bosnia-Herzegovina - Map 1). These programs which have been developed from the findings of Highway Master Plan Studies prepared by each of the Borrowers, cover: the construction of new roads; the recon- struction and rehabilitation of existing roads; the purchase of specialized equipment to assist the Roads Organizations in monitoring traffic and in acquiring and processing data related to the operation of the networks of inter-regional and regional roads; and personnel training to assist the Roads Organizations in improving their standards of administering and maintaining their road networks.

3.12 In summary, Bank assistance to the five Republics/Provinces would be allocated as follows: -- 17 -

Table 3.1: TENITH HIGHWAY PROJECT

----- US$ (m)------Bank's Estimated Cost Local Foreign Total Participation

(a) SAP Kosovo (i) Inter-regional roads 26.87 11.46 38.33 7.86 (ii) Regional roads 44.44 19.10 63.54 13.14 (iii) Equipment 0.00 0.90 0.90 0.90 (iv) Training 0.10 0.10 0.20 0.10

Subtotal 71.41 31.56 102.97 22.00

(b) SR Montenegro (i) Inter-regional roads 27.27 11.69 38.96 9.24 (ii) Regional roads 31.27 13.40 44.67 10.46 (iii) Equipment 0.00 0.20 0.20 0.20 (iv) Training 0.10 0.10 0.20 0.10

Subtotal '58.64 25.39 84.03 20.00

(c) SAP Vojvodina (i) Inter-regional roads 106.73 45.74 152.47 33.28 (ii) Regional roads 7.19 3.01 10.20 2.42 (iii) Equipment 0.00 0.40 0.40 0.40 (iv) Training 0.15 0.10 0.25 0.10

Subtotal 1:14.07 49.25 163.32 36.00

(d) SR Macedonia (i) Inter-regional roads 86.08 36.89 122.97 26.49 (ii) Regional roads 26.04 11.17 37.21 8.11 (iii) Equipment 0.00 0.30 0.30 0.30 (iv) Personnel Training 0.10 0.10 0.20 0.10

Subtotal 1:L2.22 48.46 160.68 35.00

(e) SR Bosnia-Herzegovina (i) Inter-regional roads 180.90 77.55 258.45 31.40 (ii) Regional roads 17.19 7.37 24.56 3.10 (iii) Equipment 0.00 0.40 0.40 0.40 (iv) Personnel Training 0.10 0.10 0.20 0.10

Subtotal 198.19 85.42 283.61 35.00

Total 554.53 240.08 794.61 148.00

Source: Republican/Provincial Roads Organizations and mission estimates. - 18 -

3.13 Before turning in detail to the programs of each of the five Republics/Provinces, many program attributes are common to all and are given below.

Characteristics of the Program

3.14 The investment programs embody the principal findings of the highway master plan studies, tailored to meet the Republics'/Provinces' capability to implement them and their financial constraints. The programs are considered realistic; project priorities have been identified so that any possible delays in execution can be accommodated by postponing the lower priority subprojects to the next phase of the program (after mid-1982).

Retroactive Financing

3.15 There will be no retroactive financing of on-going road contracts as these will have been entered into before mid-1979, the estimated time of loan signature, and will have been financed in full from the Borrowers' own resources.

Cost Estimates

3.16 Basic cost estimates of the programs have been prepared by the con- cerned Road Organization(s) in consultation with Yugoslav and foreign consul- tants on the basis of quotations and experiences on similar projects. The subprojects are taken from a three-year time slice of a relatively homogeneous investment program. Completion of detailed engineering to the extent that the first year's contracts can be awarded has been considered adequate to allow construction work on the program to begin, and to provide a satisfactory basis for refined cost estimates for the remainder of the program. Further engineering for additional links scheduled later in the program would be done sequentially.

Contingencies and Price Escalation

3.17 A 10% physical contingency has been added to the cost estimate for road construction. Price escalation has been calculated using annual rates of 9% in 1977, 8% in 1978, 7 1/2% in 1979 and 7% in 1980 through 1982. Based on previous experience, local and foreign costs have been escalated at the same rates. During loan negotiations, the project cost estimates were dis- cussed and confirmed with the Borrowers.

Foreign Exchange Component

3.18 The foreign exchange component of the civil works has been estimated assuming as in earlier projects that local contractors would win the awards of construction contracts after international competitive bidding. This com- ponent has declined from about 40% to the present 30% of total capital cost of civil works over the past 10-15 years, indicating the country's increasing self-sufficiency in this sector. - I9 -

Program Flexibility

3.19 The list of specific subprojects financed in any year may be revised based on technical, planning, or policy criteria resulting from implementation of the sector loan. Changes in traffic flows and development patterns may occur which could change priorities over the three-year (mid 1979 - mid 1982) time span of the programs.

3.20 The project pipeline will be reviewed annually by the Borrowers in consultation with the Bank on a rolling plan basis.

Other Program Components

3.21 The proposed three-year (mid 1979-mid 1982) programs, apart from civil works, provide funds for equipment such as automatic traffic counters and portable or fixed vehicle weighing scales, maintenance equipment for mowing and snow removal where necessary, and equipment for pavement evalua- tion and structure inspection (Annex 9). This equipment is being provided to assist the Roads Organizations in monitoring the operation and utilization of their networks. Road maintenance is executed by contract in Yugoslavia (para. 2.16) and the equipment is not of the types which these contractors would normally use. Funds for training and technical assistance are also included to provide through seminars, scholarships and the services of consultants, updated knowledge for engineers and economists. The training component is considered an integral part of the program to upgrade the administration and operations of the Roads Organizations. A summary of the training program proposed is shown in Annex 10.

Design Standards

3.22 The design standards to which new road construction and road improvements will be carried out under the development programs are shown in Table 3.2. They are applied throughout Yugoslavia and have been accepted by the Bank over the past several highway projects. They are appropriate to the proposed project. - 20 -

Table 3.2: DESIGN CHARACTERISTICS OF PROJECT ROADS

Inter-regional roads Regional roads Type of Moun- Moun- Terrain Unit Flat Hilly tainous Flat Hilly tainou.;

Design Speed km/hr 100- 100- 80- 80- 80- 40- 120 120 100 100 100 80 Maximum gradient % 2.0 6.0 9.0 2 6 9 Road width (min.) m lx7.5 lx7.5 lx6.0 lx7.5 lx7.0 lx6.0 2x7.5 2x7.5 Width of emergency lane m 2.5 2.5 - - - Width of shoulder m 2x1.3 2x1.3 2x1.05 2x1.3 2x1.3 2x1.05 Horizontal curves m 2,000- 2,000- 700- 2,000- 700- 400- 700 700 400 700 400 100 Vertical curves Summits m 50,000- 50,000- 20,000- 18,000- 15,000- 4,000- 18,000 18,000 12,000 12,000 10,000 3,000 Sags m 40,000- 40,000- 18,000- 12,000- 10,000- 2,000 12,000 12,000 10,000 10,000 8,000 Maximum single axle load Ton 10 10 10 10 10 10 Type of wearing surface - Asphalt/ Asphalt/ Asphalt/ Asphalt/ Asphalt/ Asphalt/ Concrete Concrete Concrete Concrete/ Concrete/ Surface Surface Surface dressing dressing dressing

Design of structures in compliance with Din 1,072 standard.

Source: Republican/Provincial Roads Organizations and mission estimates. - 21 -

Characteristics of Each Region

Kosovo

The Investment Plan 1979 to 1985

3.23 Planned program expenditures for 1979 to 1985 are summarized below along with 1972 to 1978 actual expenditures for comparison in constant 1977 prices. About 10% of capital expenditures programmed relate to on-going works. The total program costs are estimated at Dinar 4,778 million (US$265 million). The foreign exchange component of the capital works is estimated at approxi- mately Dinar 1,157 million (US$64 million).

Table 3.3: ACTUAL AND PROPOSED ROAD EXPENDITURES

Dinar Million US$ Million Actual Proposed ActualProposed 1972-1978i-' 1979-1985 1972-1978-1/ 1979-1985 In 1977 In Current In 1977 In Current In 1977 In Current In 1977 In Current 2 SAP Kosovo Prices-/ Prices Prices Prices)/ Prices. Prices Prices Prices!/

Caital Road Construction/ Improvement (i) Inter-regional roads 477.5 341.1 452.0 678.0 26.5 18.9 25.1 37.7 (ii) Regional roads 1,667.5 1,191.1 2,047.0 3,070.5 92.5 66.1 113.7 170.6

Equipment 66.1 47.2 64.0 96.0 3.6 2.6 3.6 5.4

Training and Technical Assistance - - 8.0 12.0 - - 0.4 0.6

Subtotal 2,211.1 1,579.4 2,571.0 3,856.5 122.6 87.6 142.8 214.3

Recurrent Road Maintenance (i) Inter-regional roads 135.7 96.9 160.0 240.0 7.6 5.4 8.8 13.2 (ii) Regional roads 295.5 211.1 320.0 480.0 16.4 11.7 17.8 26.7

Administration and Planning 163.7 116.9 134.4 201.6 2.6 6.5 7.4 11.1

Subtotal 594.9 424.9 614.4 921.6 26.6 23.6 34.0 51.0

Total 2,806.0 2,004.3 3 185.4 4,778.1 149.2 111.2 176.8 265.3

1/ Figures for 1978 are budget estimates. 2/ Includes overall price escalation of 40% based oni prevailing price indices. 3/ Includes overall price escalation of 50% based oni the estimated price rise.

Source: Provincial Road Organization and mission estimates. - 22 -

3.24 Kosovo is one of the land-locked Provinces of Yugoslavia. Hemmed in bv mountains, its main links with its neighboring republics are constrained to river gorges or mountain passes. Its isolation is one reason that Kosovo is the least developed of all Yugoslavia's Republics and Provinces. However, notwithstanding its relative isolation, a more cogent reason for its slow pace of development is the fact that communications within the Province are also poor; particularly in winter, some communities are isolated from the rest of the country. Of the 1,430 communities dispersed throughout the Province, over 80% contain less than 1,000 inhabitants, yet all need to be integrated in Kosovo's all-weather road network. Kosovo, therefore, was taken as the model province for the Bank's first operation in highway sector lending in Yugoslavia.

3.25 The program resulting from Kosovo's master plan study focuses on the construction of 465 km of roads, of which 148 km are inter-regional and 317 km are regional. About 40 km of this total represents on-going projects to which the present Road Council is already committed. The program also covers the maintenance of approximately 1,800 km of roads, about 1,100 km of which are paved. The main components of the program are strengthening and widening of paved roads, maintenance, construction, equipment, organization and training.

3.26 The standard of road maintenance in Kosovo has been poor. Although maintenance works are executed by contract, the Roads Organization has been ill-equipped to define the program needed and to supervise the work. Conse- quently, key elements of the development program are the establishment of three regional maintenance centers from which works will be more closely planned and monitored, the purchase of certain particular items of equipment needed by the Roads Organization to monitor use of the roads (vehicle scales, traffic counters, etc.), and personnel training, to improve the levels of planning and implementation capabilities within the Organization and to make current staff au fait with modern techniques and practices.

Three Year Projects - Mid 1979 to Mid 1982

3.27 The three year program consists of the mid-1979 to mid-1982 slice of the investment plan which is summarized below: - 23 -

TABLE 3.4: THREE YEAR PROGRAM (MID-1979 TO MID-1982)

Dinar Million US$ Million SAP Kosovo Local Foreign Total Local Foreign Total

Capital Road Construction/ Improvement Inter-regional 379.7 162.7 542.4 21.1 9.0 30.1 Regional 628.3 269.3 897.6 34.9 15.0 49.9

Subtotal /1 1,008.0 432.0 1,440.0 56.0 24.0 80.0

Contingencies Physical 10% 101.0 43.0 144.0 5.6 2.4 8.0 Escalation 17.34% 174.8 74.9 249.7 9.7 4.2 13.9

Construction Total 1,283.8 549.9 1,833.7 71.3 30.6 101.9

Equipment 0.0 14.4 14.4 0.0 0.8 0.8 Contingencies 10% 0.0 1.8 1.8 0.0 0.1 0.1

Equipment Total 0.0 16.2 16.2 0.0 0.9 0.9

Training/Technical Assistance 1.2 2.8 4.0 0.1 0.1 0.2

Subtotal 1,285.0 568.9 1,853.9 71.4 31.6 103.0

Recurrent Road Maintenance /2 Inter-regional 80.0 0.0 80.0 4.4 0.0 4.4 Regional 160.0 0.0 160.0 8.9 0.0 8.9

Maintenance Total 240.0 0.0 240.0 13.3 0.0 13.3

Administration and Planning /2 67.2 0.0 67.2 3.7 0.0 3.7

Total 1,592.2 568.9 2,161.1 88.4 31.6 120.0

/1 Construction cost estimates are of January 1979.

/2 The table gives no breakdown of the foreign costs of recurrent items; the loan is based on the costs of capital works only.

Source: Provincial Road Organization and mission estimates. - 24 -

The proposed Bank assistance of US$22 million would support the first phase of the road program and would provide about 70% (22 - 31.6) of the foreign exchange component of the capital works. Although specific subprojects (civil works) which the Bank wi'll finance have not been finally identified, it is expected that commitments will be made in accordance with Table 3.5.

Table 3.5: PROPOSED ROAD CONSTRUCTION/IMPbOVEMENTTARGETS

Total Mid 1979 Mid 1980 Mid 1981 Mid 1979 to to to to Mid 1980 Mid 1981 Mid 1982 Mid 1982 SAP Kosovo Km Dinar ml/ Km Dinar ml/ Km Dinar mil Km Dinar ml/

A. Inter-regional Roads

I. Strengthening/Rehabilitation 1. Kos.Mitrovica - Pristina - - 38.0 54.0 38.0 54.0 2. Podujevo-Merdare - - 8.0 8.4 8.0 8.4 3. Urosevac-Doganovic - - - - 10.0 32.4 10.0 32.4 4. K.Polje - V.Slatina - - - - 8.0 20.4 8.0 20.4 5. Laplje Selo-Urosevac - - 8.0 26.4 14.0 45.6 22.0 72.0 6. Leposavic-K.Mitrovica - - - - 35.0 120.0 35.0 120.0

Total I. - - 8.0 26.4 113.0 280.8 121.0 307.2

II. Strengthening com Widening 1. Pristina - Laplje Selo 5.0 42.0 5.0 42.0 - - 10.0 84.0 2. Laplje Selo - Stimlje 9.0 84_0 8.0 67.2 - - L7.0 152

Total II. 14.0 126.0 13.0 109.2 - - 27.0 235.2

Grand Total A. 14.0 §MO 5.0-Q 135.6 113.0 280.8 148.0 42

B. Regional Roads

t. Strengthening/Rehabilitation 1. K.Mitrovica - G. Klina - - - - 16.0 16.8 16.0 16.8 2. V.Krusa - Pirane - - _ _ 4.0 4.8 4.0 4.8 3. Labljane - Gracanica - - _ _ 18.0 27.6 18.0 27.6 4. Bistrazin - Zrze - - - - 5.0 9.6 5.0 9.6 5. Zur - Dragas - - 7.0 16.8 - - 7.0 16.8 6. Pec - Decane - - - - 14.0 32.4 14.0 32.4 7. D.Kormiljane - Konculj - - - 5.0 12.0 5.0 12.0

Total I. - - 0 16.8 62.0 103.2 69.0 120.0

II. Strengthening rumn Widening 1. Gnjilane - Klokot - - - 15.0 74.4 15.0 74.4 2. Orahovac - Zrze 5.0 19.2 5.0 19.2 - - 10.0 38.4 3. K.Mitrovica - Stari Trg 6.0 72.0 2.0 24.0 - - 8.0 96.0

Total II. 11.0 91.2 7.0 43.2 15.0 74.4 33.0 208.8

III. New Constructiona 1. Lebane - Milosevo - - - - 6.0 50.4 6.0 50.4 2. Vitina - Grlica 8.0 63.6 6.0 48.0 - - 14.0 111.6 3. Gnjilane - Presevo 10.0 60.0 6.0 36.0 - - 16.0 96.0 4. Srbica - Klina - - 10.0 72.4 16.0 116.0 26.0 188.4 5. Crnoljevo - Komorane _ _ _ _ 17.0 122.4 17.0 122.4

Total lII. 18.0 123.6 22.0 156.4 39.0 288.8 79.0 568.8

Grand Total B. 7c D3 214.8 16.X 216.4 116.0 466.4 181.0 897.6

Grand Total A + Grand Total B -423 jA34.8_ _57.0 352.0 229.0 747.2 329.0 440.0

1/ In January 1979 prices

Note: Appropriate provision for physical and financial contingencies has been included in Table 3.4 for the three year program but has not bees detailed for each subproject pending their finalization.

Source: Provincial Road Organization and mission estimates. - 25 -

Cost Estimates

3.28 The estimated costs of the three year program are given in Table 3.4. The foreign exchange component of the capital expenditure is estimated at US$31.6 million.

Assessment

Institutional Capacity

3.29 The Roads Organization, although below the standard of the other Republics in its capability to organize its road maintenance contract activi- ties (para 3.26), has, nevertheless, shown in previous Bank-financed projects its ability to organize the planning, design and construction supervision of its capital works. Comparison of expenditures in constant price terms on Table 3.4 envisages a modest expansion of road construction, rehabilitation, improvement and maintenance which would require some additional manpower and training to enable the Organization to administer it efficiently. The local contracting industry is capable and well-organized and is expected to accom- plish the proposed targets under the improved supervision of the Road Council.

Financial Capability

3.30 Kosovo has the resources to meet the local costs and the residual foreign cost components and the demonstrable ability to perform the work. Funds firmly identified, Table 3.6, cover 57% of the proposed project costs. However, not so far included are contributions from municipal authorities and working organizations which have yet to be finalized. - 26 -

TABLE 3.6: FINANCING THE ROAD PROGRAM

--- Dinar m…------US$ m …--- /I /2 /81/2 1976/7&L- 1979/81 1976/78-1 1979/8- Sources (3 Years) (3 Years) (3 Years) (3 Years)

1. Funds of working organizations 9.4 0.5 2. Compensation from gasoline and fuel 193.7 240.0 10.7 13.4 3. Compensation from the funds for developed areas 500.0 600.0 27.8 33.3 4. Local funds (municipal contributions) 81.1 4.5 5. IBRD loans 59.3 396.0 3.3 22.0

Total 843.5 1,236.0 46.8 68.7

/ll 1976/78 figures are based on actuals for 1976 and 1977 and the best possible estimates for 1978.

/2 Estimated figures for 1979/81.

Note: Figures relate to calendar years, tentative estimate for mid-1979 to mid-1982 is of the same order as 1979/81 calendar years.

Source: Provincial Road Organization.

Economic Viability

3.31 The Socialist Autonomous Province of Kosovo serves as the j'uncti-on of two extremely important natural communication lines, a north-south link running from Belgrade towards Skopje and an east-west link connecting the Black Sea and the Adriatic Sea. The territory, therefore, has an important transit role. The topographical features that determined the pattern of Kosovo's transportation network a decade ago resulted in an uneven coverage of the Province. The main road links which connected the most important centers formed a peripheral ring but the central areas were not adequately served by radial connections to that ring. The situation was improved with the construction of the Pristina-Pec and Pristina-Leskovac (under construc- tion) roads, both Bank-financed projects. The construction of the project roads now envisaged in the highway master plan would further improve the situation. - 27 -

3.32 The important commodities that would be affected by the improved roads are agricultural goods, fruits and vegetables, mineral products and construction materials. The project road sections would also provide direct all-weather paved road connection between several growing commercial centers, and would also open up some areas along the roads proposed which are now isolated for much of the year.

3.33 The Provincial Road Council has undertaken a considerable amount of economic analysis of the entire inter-regional and regional network in cooperation with the consultant engaged in the preparation of the highway master plan. The network analysis covered about 85% to 90% of the traffic flows on the interurban roads in the Province.

3.34 The conditions and characteristics of the existing project road sections and the present and projected traffic on each are shown in Map 2. The investment program proposed (Map 3) is based on considerations of volume/ capacity relationship on the road network, economic rates of return, and takes account of presently proposed regional development.

3.35 Maintenance of the existing road network and rehabilitation of certain important sections are shown to be of prime importance. Based on the most probable estimates of construction costs, base year (1977) traffic and traffic growth, the Provincial Road Organization has estimated that the eco- nomic rates of return of the proposed three-year project road sections (Table 3.5) will range from 12% to 50% and above. Savings in vehicle operating costs in most cases account for about 70% of- the total benefits. These returns may be on the conservative side as the benefits do not take account of the reduc- tion in accidents, and the comfort and convenience of travelling on improved roads. In view of the regional significance of these sections in the road system and the conservative estimate of benefits, their construction as pro- posed is amply justified.

SR Montenegro

The Investment Plan 1979-1985

3.36 The planned program expenditures for 1979-1985 are summarized below along with actual expenditures for 1972-1978 for comparison in constant 1977 prices. About 17% of capital expenditures programmed relate to on-going projects. The total program costs are estimated at Dinar 4,187.1 million (US$232.8 million). The foreign exchange component of the capital works is estimated at about Dinar 1,029.1 million (US$57.1 million). - 28 -

Table 3.7: ACTUAL AND PROPOSED ROAD EXPENDITURES

Dinar Million US$ Million Actual Proposed Actual Proposed 1972-1978&/ 1979-1985 1972-1978&1 1979-1985 In 1977 In Current In 1977 In CurrenS In 1977 In Current In 19?7 In Current SR Montenegro Prices2/ _ Prices Prices Prices3/ Pricea/ Prices Prices Prices3Ž

Capital Road Construction/ Improvement (i) Inter-regional roads 960.3 685.9 1,339.0 2,008.5 53.3 38.1 74.4 111.6 (ii) Regional roads 774.6 553.3 856.0 1,284.0 43.1 30.8 47.6 71.4

Equipment 2.4 1.7 80.0 120.0 0.1 0.1 4.4 6.6

Training and Techni- cal Assistance 0.6 0.4 12.0 18.0 0.0 0.0 0.6 0.9

Subtotal 1,737.9 1,241.3 2,287.0 3,430.5 96.5 69.0 127.0 190.5

Recurrent Road Maintenance

(i) Inter-regional roads 254.1 181.5 294.4 441.6 14.1 10.1 16.4 24.6 (ii) Regional roads 138.9 99.2 160.4 240.6 7.7 5.5 9.0 13.5

Administration and Planning 28.7 20.5 49.6 74.4 1.7 1.2 2.8 4.2

Subtotal 421.7 301.2 504.4 756.6 23.5 16.8 28.2 42.3

Total 2,159.6 1,542.5 2,791.4 4,187.1 120.0 85.8 155.2 232.8

1/ Figures for 1978 are budget estimates. 2/ Includes overall price escalation of 40% based on prevailing price indices. 3/ Includes overall price escalation of 50% based on the estimated price rise.

Source: Republican.Roads Organization and mission estimates.

3.37 Capital works in the program include the construction and improve- ment of 218 km of roads of which 117 km are inter-regional and 101 km are regional. Of this total, 38 km represent on-going works to which the Republic is already committed. The program includes maintenance of approximately 1,600 km of roads, 1,000 km of which are paved. The main components of the program are strengthening and widening of paved roads, road maintenance, road con- struction, equipment purchase, strengthening the road organization and staff training.

3.38 In the past few years the thrust of transport investment in Monte- negro has been towards construction of the Belgrade/Bar railway and the devel- opment of the port of Bar. During this period investment in road infrastruc- ture took second place. Now, with those major investments completed, the Republic can turn its attention to the problems of its road networks. The three primary objectives addressed in the proposed program are: - 29 -

(i) improving access from Titograd, the Republican capital, to the northern Adriatic coast of Montenegro;

(ii) to open up undeveloped areaLs in the hinterland presently with meager access; and

(iii) from the inter-regional point of view to improve the road links with Bosnia-Herzegovina to the west.

3.39 Montenegro is a region of climatic extremes and rugged terrain, factors which have contributed to higher maintenance costs for the road network than in most other Republics. Although, as a result of dealing with these challenging conditions the maintenance organization in Montenegro is capable and has been operating creditably, the proposed maintenance program will strengthen the agency and modernize its operations.

Three-Year Project - Mid 1979 to Mid 1982

3.40 The three-year project consists of the mid-1979 to mid-1982 slice of the investment plan which is summarized below: - 30 -

TABLE 3.8: THREE YEAR PROJECT (MID-1979 TO MID-1982)

Dinar Million US$ Million SR Montenegro Local Foreign Total Local Foreign Total

Road Construction/ Improvement Inter-regional 347.20 148.80 496.00 19.29 8.27 27.56 Regional 398.30 170.70 569.00 22.13 9.48 31.61

Subtotal /_ 745.50 319.50 1,065.00 41.42 17.75 59.17

Contingencies Physical 10% 74.55 31.95 106.50 1.14 1.78 5.92 Escalation 31.34% 233.64 100.13 333.77 12.98 5.56 18.54

Construction Total 1,053.69 451.58 1,505.27 58.54 25.09 83.63

Equipment 0.00 3.24 3.24 0.00 0.18 0.18

Contingencies 10% 0.00 0.36 0.36 0.00 0.02 0.02

Equipment Total 0.00 3.60 3.60 0.00 0.20 0.20

Training/Technical Assistance 1.80 1.80 3.60 0.10 0.10 0.20

Subtotal 1,055.49 456.98 1,512.47 58.64 25.39 84.03

Recurrent Road Maintenance /2 Inter-regional 147.20 0.00 147.20 8.18 0.00 8.18 Regional 80.20 0.00 80.20 4.45 0.00 4.45

Maintenance Total 227.40 0.00 227.40 12.63 0.00 12.63

Administration and Planning /2 24.80 0.00 24.80 1.38 0.00 1.38

Total 1,307.69 456.98 1,764,67 72.65 25.39 98.04

/1 Construction cost estimates are of July 1977.

/2 The foreign costs of recurrent items have not been shown.

Source: Republican Roads Organization and mission estimates. - 31 -

The proposed Bank assistance of US$20 million would support the first phase of the road program and would provide about 80% (20 - 25.39) of the foreign exchange component of the capital works. Although the specific subprojects (civil works) which the Bank will finance have not been identified with absolute certainty, it is expected that commitments will be made in accordance with Table 3.9.

Table 3.9: PROPOSED SECTIONAL ROAD CONSTRUCTION/IMPROVEMENT TARGETS

Total Mid 1979 Mid 1980 Mid 1981 Mid 1979 to to to to Mid 1L980 Mid 1981 Mid 1982 Mid 1982 SR Monteneero Km Dinar ml-/ Km Dinar ml/ Km Dinar ml/ Km Dinar ml/

Inter-regional Roads Strengthening and Widening

Andrejevica-Murino 7.0 96.0 8.0 100.0 - - 15.0 196.0 Kosanica-Djurdevica- Tara - -- 4.0 40,0 11.0 110_0 15.0 150.0

Subtotal 7.0 Wi_Q 12.0 14-n 11.0 110. 30.0 346.0

New Construction

Niksic-Vilusi 4.0 26.0 6.0 39.0 13.0 85. 23.0 1L0

Subtotal 4.0 26.0 6.0 39.0 13.0 85.0 23.0 l n.o

Inter-regional Road Total 11.0 122.0 18.0 179.0 24.0 195.0 53.0 496.0

Regional Roads Strengthening and Widening

Titograd-Cetinje 11.0 101.0 10.0 84.0 10.0 84.0 31.0 269.0 Andrijevica-Ivangrad (16 km) 4.0 50.0 8.0 100.0 4.0 50.0 16.0 200.0

Paving Gravel Roads (sections to be specified later) 13.0 52.0 12.0 48.0 - - 25.0 100.0

Regional Road Total 28,0 203.0 30.0 232.0 14.0 134.0 72.0 569.0

Grand Total 39.0 325.0 48.0 411.0 38.0 329.0 125.0 1,065.0

1/ In 1977 prices.

Note: Appropriate Provision for physical and financLal contingencies has been included in Table 3.8 for the three-year program but has not been detailed for each subproject pending its finalization.

Source: Republican Roads Organization. - 32 -

Cost Estimates

3.41 The estimated costs of the three-year program are given in fable 3.8. The foreign exchange component of the capital expenditure is estimated at US$25.39 million.

Assessment

Institutional Capacity

3.42 The Republican Roads Organization is the agency concerned with all aspects of the project, and is the focal point for all directly, or indirectly concerned with its implementation. The organization is adequately staffed with personnel appropriately qualified in the technical and economic aspects of project planning and design. The capability to supervise projects in the field, however, needs to be further strengthened so that closer quality con- trol can be exercised. More attention is now being given to the systematic supervision and control of the work of road maintenance contractors. Develop- ment of a traffic flow information system is now recognized as being of prime importance for sustained planning purposes and the organization is striving to improve its present system and its coverage. Comparison of expenditures in constant price terms in Table 3.7 indicates an expansion of approximately 30% in the Republican roads program which is within the capabilities of the Roads Organization and the local contracting industry and road maintenance enterprises.

Financial Capability

3.43 Montenegro has the resources to meet the local costs and the resi- dual foreign cost components and the demonstrable ability to perform the work. Funds firmly identified, Table 3.10, cover all of the proposed project costs. - 33 -

TABLE 3.10: FINANCING THE ROAD PROGRAM

SR Montenegro DaU$ SR Montenegro -~------Dinar------US$ ------1976/78L- 1979/81/-1976/78-/ 1979/81/- Sources (3 years) (3 years) (3 years) (3 years)

1. Funds of Working Organization) 2. Compensation from Under- ) developed Fund ) ) 800.0 1,400.0 44.4 77.8 3. Proceeds from Fuel Taxation ) and Funds of SR Montenegro ) Budget ) 4. Local Funds ) 5. IBRD Loans and Loans from other International Organizations 300.0 400.0 16.7 22.2

Total 1,100.0 1,800.0 61.1 100.0

/1 1976/78 figures are based on actuals for 1976 and 1977 and the best estimate for 1978.

/2 1979/81 estimated figures.

Note: Figures relate to calendar years. Tentative estimate for mid-1979 to mid-1982 is of the same order as 1979/81 calendar years.

Source: Republican Roads Organization

Economic Viability

3.44 The project roads are part of regional and inter-regional transport routes and serve areas of high industrial, mining and agricultural activity. The important commodities whose exploitation would be enhanced by the improved roads are raw and processed forestry products, fruits and vegetables, textiles and leather goods, construction materials, aluminium and steel prod- ucts. The improvement of both inte-r-regionaland regional roads will benefit long-distance as well as local traffic.

3.45 The economic benefits will accrue in particular to three specific zones. Firstly, in the central zone comprising the influence area of Titograd- Bar-Pluzine, which caters to a large industrial and mining complex, congestion on the existing main arterial route, Titograd-Petrovac will be substantially relieved. The easing of traffic flows will facilitate the growth of key - 34 -

sectors of the economy. Secondly, the proposed infrastructure facilities will greatly improve connections between the Republican capital and Montenegrin coast of the Adriatic and will stimulate tourism development. Thirdly, the proposed construction in the Andrejevica, Murino, Ivangrad region will assist in the development of light processing industries and will greatly help devel- opment of this relatively backward region of the Republic.

3.46 Present and forecast traffic on the road network is indicated in Maps 4 and 5 on which is also indicated the present condition and character- istics of individual links. The investment program (Table 3.8) is based on broad economic analyses utilizing volume/capacity relationships on the road networks.

3.47 The economic analyses take into account several alternative possi- bilities such as stage construction, including sequential pavement construc- tion and the use of tunnels where applicable. In some cases, new construction was found to be more economical than rehabilitation of existing roads mainly because of poor horizontal and vertical alignments and the high cost of widen- ing in mountainous areas.

3.48 One of the road sections in the project will provide an important economic link towards Bosnia-Herzegovina, the adjoining Republic and to the Croatian coast. It will also partially substitute for the discontinued narrow gauge railway line which previously serviced the area.

3.49 The project would yield adequate economic benefits. Based on the most probable estimates of construction costs, base year (1977) traffic and on a conservative estimate of traffic growth, the Republican Road Organization has calculated that the economic rates of return of the proposed three-year project road sections (Table 3.9) will range from 13% to 19%, which is real- istic. The Republic has not yet firmed up the list of approximately 25 km of gravel roads which need to be paved during the period under reference. These will be low cost roads chosen out of a few alternative sections now being con- sidered and their inclusion in the project will be based on adequate economic justifications. In general, the broad economic analyses show that the need for the project sections is urgent and their construction should be under- taken without delay. The investment plan will, however, be continuously under review through a roll-over system of planning.

SAP Vojvodina

The Investment Plan 1979 to 1985

3.50 Planned program expenditures for 1979 to 1985 are summarized below along with 1972-1978 actual expenditures for comparison in constant 1977 prices. About 39% of capital expenditures programmed relate to on-going projects. The total program costs are estimated at Dinar 11,755.5 million (US$653.4 million). The foreign exchange component of the capital works is estimated at approximately Dinar 2,681 million (US$149 million). - :35-

Table 3.11: ACTUAL AND PROPOSED ROAD EXPENDITURES

Dinar Million US$ Million Actual Proposed Actual Proposed 1972-1978IJ 1979-1985 1972-1978k1 1979-1985 In 1977 In Current In 1977 In Curre t In 1977 In Current In 1977 In Curreit SAP Voivodina Prices2V Prices Prices Prices'9 Prices-l Prices Prices Prices-3/

Capital Road Construction/ Improvement (i) Inter-regionalroads 2,107.4 1,505.3 4,219.0 6,328.5 117.0 83.6 234.4 351.6 (ii) Regional roads 416.9 297.8 1,600.0 2,400.0 23.2 16.6 88.9 133.4

Equipment 93.5 66.8 120.0 180.0 5.2 3.7 6.7 10.1

Training and Technical Assistance 15.4 11.0 _L8.0 27.0 0.8 0.6 1.0 1.5

Subtotal 2,633.2 1 ,880.9 57. 8,935.5 146.2 104.5 331.0 496.6

Recurrent Road Maintenance

(i) Inter-regionalroads 748.7 534.8 1,162.0 1,743.0 41.6 29.7 64.6 96.9 (ii) Regional roads 545.6 389.7 576.0 864.0 30.2 21.6 32.0 48.0

Administration and Planning 84.8 60.6 142.0 213.0 4.6 3.3 7.9 11.9

Subtotal 1,379.1 985.1 1,880.0 2,820.0 76.4 54.6 104.5 156.8

Total 4,012.3 2,866.0 7,837.0 11,755.5 222.6 159.1 435.5 653.4

t| Figures for 1978 are budget estimates. 2/ Includes overall price escalation of 40% based orLprevailing price indices. 3/ Includes overall price escalation of 50% based ornthe estimated price rise.

Source: Provincial Roads Association and mission esLimates.

3.51 The long-term development strategy of Vojvodina in which the pro- posed road program will play its part, visualizes the decentralization of eco- nomic activity from Novi Sad to five other primary centers. Each, in addition to its spatial separation from the others, is already the focus of particular activities (agriculture, petrochemicals, metal processing, etc.), and accounts in its own right for a significant contribution to the Province's income. There will be strong transportation links (principally highways) between Novi Sad and these five development satellites. In its turn each primary center is the development focus of its adjoining areas, the centroidal towns of which become the secondary centers and with which each primary center should have sound transportation links. Thus a national web-like pattern of primary, secondary and feeder roads for Vojvodina is in the course of evolution. The Bank's sector loan to the Province will assist in its reaching fruition. In the short run, however, first priorities will be given to eliminating bottle- necks on the Province's two primary routes: the north-south E5 and the east- west trans-Yugoslav highway section. The need for the individual sections proposed in the program is justified by the traffic projections. - 36 -

3.52 The program construction targets are 385 km of roads of which 205 km are inter-regional and 180 km are regional. About 187 km of this total represents on-going projects to which the Roads Association is already com- mitted. The program also covers the maintenance of approximately 2,500 km of roads, about 2,200 km of which are paved. The main components of the program are strengthening and widening of paved roads, maintenance, construction, equipment, organization, and training.

3.53 As in the other Republics and Provinces of Yugoslav, Vojvodina carries out its road maintenance by contract with an enterprise (contractor), Vojvodinaput, which has specifically organized itself for that purpose. Fund- ing has been adequate and the enterprise is well deployed throughout the Province so that routine and periodic works can be systematically carried out. The functions of the maintenance department of the Roads Association is to define the tasks and to supervise the operations of Vojvodinaput. In this they are effective, but, nevertheless, the Association recognizes the need for its staff to be exposed to techniques and practices in this field of other more developed countries and proposes training accordingly.

Three Year Project - Mid-1979 to Mid-1982

3.54 The three year program consists of the mid-1979 to mid-1982 slice of the investment plan which is summarized below (Table 3.12): - 37 -

TABLE 3.12: THREE YEAR PROGRAM (MID-1979 TO MID-1982)

Dinar Million US$ Million SAP Vojvodina Local Foreign Total Local Foreign Total

Capital Road Construction/ Improvement Inter-regional 1,470.00 630.00 2,100.00 81.67 35.00 116.67 Regional 98.70 42.30 141.00 5.50 2.30 7.80

Subtotal /1 1,568.70 672.30 2,241.00 87.17 37.30 124.47

Contingencies Physical 10% 156.90 67.20 224.10 8.72 3.73 12.45 Escalation 29.66% 324.56 139.10 463.66 18.03 7.73 25.76

Construction Total 2,050.16 878.60 2,928.76 113.92 48.76 162.68

Equipment 0.00 6.48 6.48 0.00 0.36 0.36

Contingencies 10% 0.00 0.72 0.72 0.00 0.04 0.04

Equipment Total 0.00 7.20 7.20 0.00 0.40 0.40

Training/Technical Assistance 2.70 1.80 4.50 0.15 0.10 0.25

Subtotal 2,052.86 887.60 2,940.46 114.07 49.26 163.33

Recurrent Road Maintenance Inter-regional 581.00 0.00 581.00 32.30 0.00 32.30 Regional 288.00 0.00 288.00 16.00 0.00 16.00

Maintenance Total /2 869.00 0.00 869.00 48.30 0.00 48.30

Administration and Planning /2 71.00 0.00 71.00 3.90 0.00 3.90

Total 2,992.86 887.60 3,880.46 166.27 49.26 215.53

/1 Construction cost estimates are of April 1978.

/2 Foreign costs have not been determined for recurrent items.

Source: Provincial Roads Association and mission estimates. - 38 -

The proposed Bank assistance of US$36 million would support the first phase of the road program and would provide about 73% (36 - 49.26) of the foreign exchange component of the capital works. Although specific sub-projects (civil works) which the Bank will finance have not yet been finally identi- fied, it is expected that commitments will be made in accordance with the Table 3.13.

Table 3.13: PROPOSED ROAD CONSTRUCTION/IMPROVEMENT TARGETS

Total Mid 1979 Mid 1980 Mid 1981 Mid 1979 to to to to Mid 1980 Mid 1981 Mid 1982 Mid 1982 SAP Voivodina Km Dinar mnt' Kn Dinar m-l/ Km Dinar mnt/ Km Dinar mnI/

Inter-regional roads

New Construction Expressway E-70 Pecinci-Prov. Border 3.0 126.0 10.0 378.0 - - 13.0 504.0 Expressway E-75 Srbobran-Novi Sad 11.0 345.0 10.0 345,0 11.0 356.0 32.0 1,046.0 Novi Sad-Zabalj 4.0 75.0 8.0 150.0 4.0 75.0 16.0 300.0 Zabalj-Tisa 3.0 62.0 7.0 125.0 3.0 63.0 13.0 250.0

Subtotal 2j1L 608.0 35.0 998.0 18.0 494.0 74.0 2,100.0

Regional roads

Kula Savino Solo 9,0 141.0 - 9.0 141.0

Total 30.0 749.0 _5_0 998.0 18.0 494.0 83.0 2,241.0

I/ Prices April 1978

Note: Appropriate provision for physical and financial contingencies has been included in Table 3.12 for the three-year program but has not been detailed for each subproject pending their finalization.

Source: Provincial Roads Association. - 39 -

Cost Estimates

3.55 The estimated costs of the three year program are given in Table 3.12. The foreign exchange component of the capital expenditure is estimated at US$49.26 million.

Assessment

Institutional Capacity

3.56 That the Provincial Roads Association is technically competent is due to the importance it has attached to strengthening the planning functions within the organization and to the gathering of traffic and operational statistics on the Province's highways and their utilization. The organiza- tion has demonstrated sound engineeri.ng and professional skills in completing successfully the Novi Sad-Indija-Batajnica Expressway Project (Bank-financed) which includes one of Europe's major bridges (that over the river Danube). Road maintenance has also received its rightful attention. As reflected in the foregoing comparison of expenditures in constant price terms in Table 3.11, the project envisages a considerable expansion of road construction, improve- ment and to a more limited extent, maintenance. It is expected, however, that in association with capable and well-organized local contracting industry, the Roads Association will accomplish the task efficiently and on time.

3.57 The proposed road program is considered realistic. Careful atten- tion has been given to identification of project priorities, so that any shortfall in implementation of subprojects may be handled easily. The project pipeline will be reviewed annually by the Province in consultation with the Bank.

Financial Capability

3.58 Vojvodina has the resources to meet the local costs and the residual foreign cost components and the demonstrable ability to perform the work. Funds already firmly identified, Table 3.14, cover 90% of the proposed project costs. - 40 -

TABLE 3.14: FINANCING THE ROAD PROGRAM

SAP Vojvodina ------Dinar------US$ m------1976/78 1979/81 1976/78 1979/81 Sources (3 years) (3 years) (3 years) (3 years)

1. Funds of Working Organizations 7.0 - 0.4 - 2. Proceeds from fuel taxation and funds of SAP Vojvodina budget 634.7 863.0 35.3 103.5 3. Loans from Yugoslav Commercial Banks 251.3 822.4 4.0 45.7 4. Local funds (municipal contributions) 90.8 134.0 5.0 7.4 5. IBRD Loans 6.3 648.0 0.3 36.0

Total 990.1 3,468.0 55.0 192.6

Note: Figures relate to calender years, tentative estimate for mid-1979 to mid-1982 is of the same order as 1979/81 calender years.

Source: Provincial Roads Association.

Economic Viability

3.59 The project will make significant improvements to the transportation infrastructure of Yugoslavia's most important agricultural region. Vojvodina provides half the wheat, almost two-thirds of the maize and half the sugar beet, pork and beef sold in the market. The proposed highway program would improve some of the principal arteries linking the primary centers in the northern and southern parts of the Province, and would facilitate the social and economic integration of several important population and economic centers in the area: Novi Sad the Provincial Capital; Subotica the second largest city in the north, set in a farming region but with considerable industry; and the Zabalj-Tisa-Zrenjanin complex noted for its food processing industries. Improvement of the east-west Trans-Yugoslav Highway (TYH) section within the Province would also eliminate a present bottleneck to smooth traffic flow between Central/Western Europe and the Balkans/Near East.

3.60 The principal quantifiable benefits of the proposed improvements would be savings in transport costs. Additional benefits would accrue from improved safety and comfort in driving, and the environment would benefit from the relief of traffic congestion especially on the TYH section leading to the Surcin airport. The principal direct beneficiaries would be road users. How- ever, because of keen competition in the transport industry, it is expected that savings in transport costs accruing to truckers and other transport inter- mediaries would be passed on gradually to producers and consumers. - 41 -

3.61 The Provincial Roads Association has undertaken considerable traffic and economic analyses of the entire inter-regional and regional road network in cooperation with the consultant engaged in the preparation of the highway maste plan. In addition, they have also carried out detailed feasi- bility studies of the two principal arterial routes, E5 (Subotica-Novi Sad- Belgrade) and the TYH section passing through the Province.

3.62 The conditions and characteristics of the existing project road sections are indicated in Maps 6 and 7 along with present and forecast traffic on each of the project sections. The traffic projections are based on past traffic growths, recent origin and destination studies, projection of produc- tion of goods and services and growth of per capita income in the zones of influence and are realistic.

3.63 In selecting the proposed investments, especially for the arterial routes E5 and TYH, the routes were divided into several sub-sections depending on the traffic flow characteristics and several alternative solutions were evaluated for each section: improving the existing road, constructing a new two-lane road, and stage construction of the ultimate four-lane highway. The results were reviewed with the Bank and a number of marginal subprojects were either reformulated or postponed for consideration in the next phase (after mid-1982) and only the most economic solution was adopted.

3.64 Two of the proposed road sections would parallel railways. On these routes both railways and roads are heavily utilized and both need urgent improvement. The inter-modal allocation of traffic has been arrived at with due consideration to the nature of traffic, distance travelled and service characteristics offered by the two modes.

3.65 The proposed investment program for different road sections (Table 3.13) would produce economic returns ranging from 18% to 32%. The economic benefits attributed to the project road improvement take into account only savings in vehicle operating costs, passenger time (in the case of congested primary roads) and road maintenance costs. Benefits due to increased comfort, convenience and safety have not been considered. The road improvement and maintenance program proposed has a sound rationale and deserves early imple- mentation.

SR Macedonia

The Investment Plan 1979-85

3.66 Planned program expenditures for 1979-85 are summarized below along with 1972-78 actual expenditures shown for comparison in constant 1977 prices. About one-fifth of the capital expenditures programmed are for ongoing projects. The total program costs are estimated at Dinar 10,691 million (US$594 million). The foreign exchange component of the capital works is estimated at about Dinar 2,372 million (US$132 million). - 42 -

Table 3.15: ACTUAL AND PR0P0SED ROAD EXPENDITlRFS

Dinar Million US$ Million Actual Proposed Actual Proposed

1972-78 1/ 1979-85 1972-78 - 1979-85 In 1977 In current In 1977 In current In 1977 21 In current In 1977 In current SR Macedonia prices - prices prices prices 3/ prices prices prices prices 3/

Capital Road Construction/ Improvement

(i) Inter-regional roads 1,451.7 1,036.9 4,383.0 6,574.5 80.6 57.6 243.5 365.2 (ii) Regional roads 1,788.1 1,277.2 725.0 1,087.5 99.3 70.9 40.3 60.4

Equipment 40.6 29.0 154.0 231.0 2.3 1.6 8.5 12.8

Training and Technical Assistance - - 8.0 12.0 - - 0.5 0.7

Subtotal 3,280,4 2,343.1 5,270.0 7,905.0 182.2 130.1 292.8 439.1

Recurrent Road Maintenance (i) Inter-regional roads 486.6 347.6 897.4 1,346.1 27.0 19.3 49.9 74.8 (ii) Regional roads 325.5 232.5 583.2 874.8 18.1 12.9 32.4 48.6

Administration and Planning 188.3 134.5 376.6 564.9 10.5 7.5 20.9 31.4

Subtotal 1,000.4 714.6 1,857.2 2,785.8 55.6 39.7 103.2 154.8

Total 4,280.8 3,057.7 7,127.2 10,690.8 237.8 169.8 396.0 593.9

1/ Figures for 1978 are budget estimates 2/ Includes overall price escalation of 402 based on the prevailing price indices 3/ Includes overall price escalation of 50% based on the estimated price rise

Source: Republican Road Council and mission estimates.

3.67 The program includes construction of about 515 km of roads of which about 350 km are inter-regional roads and about 165 km are regional roads. About 85 km of this total represents ongoing works to which the Road Council is already committed. The program also includes the maintenance of about 3,000 km of roads, about half of which are paved. The main components of the program are the strengthening and widening of some of the roads already paved, the reconstruction to acceptable standards of old roads with weak pavements and poor geometry, the maintenance of existing roads, the purchase of equip- ment needed to collect and collate traffic data, and strengthening of the road organization by a program of staff training. - 43 -

3.68 From expenditures proposed in the 1979-85 program (Table 3.15), it is clear that a much higher level of investment is planned than in the 1972-78 period. The need for such an increase has been dictated primarily by the growing transport needs of other expanding sectors of the economy, the need to stimulate activities in the underdeveloped regions, and the diversification and dispersion of industry throughout the Republic.

3.69 During the last decade (Road Plans 1971-75 and 1976-80), road devel- opment plans were mainly concerned with the expansion of the network of regional roads to serve key areas of dlevelopment in the Republic. Although more expansion of the network will stiLlI be made to provide needed links, the emphasis is now being turned to the consolidation of previous investments in terms of the improvement and upgrading of roads to better provide for the increasingly heavy vehicle flows. The proposed investment plans, justified by traffic forecasts, reflect these changing needs and should enable the Repub- lican Road Council to meet its objectives of increased efficiency and quality of service.

3.70 Provisions for road maintenance have not been consistent in the earlier Plan periods. In the proposed program, however, maintenance of the existing road network has been given prominence as being an essential com- ponent of a rational program for development and modernization of the network itself. Accordingly the proposed expenditure on road maintenance during 1979-85 will be almost twice that spent during 1972-78 (in 1977 constant prices), but will be in line with the network's needs.

Three-Year Project, Mid 1979-Mid 1982,

3.71 The proposed project (Table 3.16) consists of a three-year time slice (mid 1979-mid 1982) of the Investment Plan. - 44 -

Table 3.16: THREE-YEAR PROJECT (MID 1979-MID 1982)

Dinar Million US$ Million SR Macedonia Local Foreign Total Local Foreign Total

Capital Road Construction/ Improvement Inter-regional 1,099.00 471.00 1,570.0 61.05 26.17 87.22 Regional 332.50 142.50 475.00 18.47 7.92 26.39

Subtotal /1 1,431.50 613.50 2,045.00 79.52 34.09 113.61

Contingencies Physical 10% 143.15 61.35 204.50 7.95 3.41 11.36 Escalation 30.99% 443.62 190.12 633.74 24.65 10.56 35.21

Construction Total 2,018.27 864.97 2,883.24 112.12 48.06 160.18

Equipment 0.00 4.86 4.86 0.00 0.27 0.27 Contingencies 10% 0.00 0.54 0.54 0.00 0.03 0.03

Equipment Total 0.00 5.40 5.40 0.00 0.30 0.30

Training/Technical Assistance 1.80 1.80 3.60 0.10 0.10 0.20

Subtotal 2,020.07 872.17 2,892.24 112.22 48.46 160.68

Recurrent Road Maintenance /2 Inter-regional 448.70 0.00 448.70 24.90 0.00 24.90 Regional 291.60 0.00 291.60 16.20 0.00 16.20

Maintenance Total 740.30 0.00 740.30 41.10 0.00 41.10

Administration and Planning 188.30 0.00 188.30 10.50 0.00 10.50

Total 2,948.67 872.17 3,820.84 163.82 48.46 212.28

/1 Construction cost estimates are of July 1977.

/2 The table gives no breakdown of the foreign costs of recurrent items.

Source: Republican Road Council and mission estimates. - 45 -

The proposed Bank loan of US$35 million would support the first phase of the road program and would provide about 72% (35 - 48.46) of the foreign exchange component of the capital works. Although the specific subprojects (civil works) which t e Bank will finance have not been finally identified, it is expected that they will be those listed in Table 3.17 and be accomplished at the annual rates of expenditure shown:

Table 3.17: PROPOSED SECTIONAL ROAD CONSTRUCTION/IMPROVEMENTTARGETS

Total Mid 1979 Mid 1980 Mid 1981 Mid 1979 to to to to Mid 1980 Mid 1981 Mid 1982 1, Mid 1982 SR Macedonia Km Dinar m-/ Km Dinar m - Kin Dinar Km Dinar

Inter-regionalroads New Construction

1. Prilep-Bitola 10.0 85.0 15.0 128.0 22.0 187.0 47.o 400.0 2. Ohrid-Bitola 12.0 101.0 20.0 168.0 31.0 261.0 63.0 530.0 Miladinovci-Stip 15.0 108.0 25.0 180.0 24.0 172.0 64.0 460.0 3. 180.0 4. Kumanovo-Rankovci - - - - 20.0 130.0 20.0

Subtotal 37.0 294.0 60.0 476.0 97.0 800.0 194.0 1,570.0

Regional roads Strengthening and Widening

1. Trabotiviste- Pehcevo 9.0 30.0 9.0 30.0 - - 18.0 60.0 2. Debar-Albanian Border 3.0 10.0 - - - - 3.0 10.0 3. Maked Brod- Belica 18.0 50.0 10.0 28.0 28.0 78.0

New Construction

1. Berovo- Strumica - - 10.0 100,0 - - 10.0 100.0 2. Tetovo-Gostivar 7.0 35.0 7.0 35.0 6.0 30.0 20.0 100.0 3. Krivogastani- Krusevo 3.0 14.0 5.0 23.0 - - 8.0 37.0 30.0 4. Ohrid-Pestani 10.0 30.0 - - - - 10.0 5. Rasimbegov Most- Vitoliste 10.0 44.0 4.0 16.0 - _14.0 60.0

Subtotal 60.0 213.0 45.0 232.0 6.0 30.0 111.0 475.0 Regional roads Grand Total 97.0 507.0 105.0 708.0 103.0 830.0 305.0 2_045.0

1/ in ~1977pri`ces~

Note: Appropriate provision for physical and financial contingencies has been included in the earlier table for the total three-year program but has nut been detailed for each subproject pending their finalization.

Source: Repuhlican Road Council and mission estim,ates - 46 -

Cost Estimates

3.72 Estimated costs of the three-year project are given in Table 3.16. The foreign exchange component of the capital expenditure is estimated at US$48.46 million.

Assessment

Institutional Capacity

3.73 The Republican Road Council has established a strong maintenance organization and has demonstrated its capacity to plan and execute road con- struction and improvement projects to satisfactory standards. The Council has maintained effective liaison with such Yugoslav consultants in the region as the Environmental Planning Institute (Ohrid) and the Faculty of Civil Engineering, University of Skopje, and has gradually developed adequate proce- dures for highway project planning and administration. Its highway programs have been generally responsive to the needs of the various parts of the Republic and flexible enough to meet changing circumstances. However, as reflected in the foregoing comparison of expenditures in constant price terms, the project envisages considerable expansion of road construction, improvement and maintenance, and would call for additional efforts from all concerned. The local contracting industry and Road Maintenance Enterprises are, however, capable and well organized, and are expected to accomplish the proposed physical targets on time under the overall supervision of the Road Council.

Financial Capability

3.74 The Republican authorities have the resources to meet the local costs and the shortfall in foreign costs not met from the loan, and the proven ability to execute projects speedily and well. Funds firmly identi- fied (Table 3.18) cover about 90% of the proposed project costs. Besides the assistance from the Bank, the authorities expect additional foreign exchange assistance to be available from EIB and other bilateral agencies. 47 -

Table 3.18: FINANCING THiEROAD PROGRAM

SR Macedonia Diner m…US$ m …

1976/78 1/ 1979/81 2/ 1976/78 11 1979/81 2/ Sources (3 years) (3 Lears) (3 years) (3 years)

1. Funds of Working Organizations 2. Proceeds from Fuel Taxation and Funds of SR Macedonia Budget ) 1,979.1 2,700.0 110.0 150.0 3. Loans from Yugoslav Commercial Banks 4. Local Funds (municipal contri- butions) 5. IBRD Loans and Loans from Other Interna- tional Organizations 129.6 800.0 7.2 44.4

Total 2,108.7 3,500.0 117.2 194.1

1/ 1976/78 figures are based on actuals for 1976 and 1977 and the best estimate for 1978. 2/ 1979/81 estimated figures.

Note: Figures relate to calendar years. Tentative estimate for mid 1979-mid 1982 is of the same order as 1979/81 calendar years.

Source: Republican Road Organization.

Economic Viability

3.75 Several industrial, mining and agricultural enterprises which are directly served by the proposed improved network and which produce construc- tion materials, wood and wood producits, ores, agricultural commodities and semi-processed food will receive benefits in the form of reduced transport costs. The beneficiaries will also include tourists, especially those visit- ing the Ohrid-Prespa region and stimulating the foreign exchange potential of the Republic. Because of the competitive nature of the road transport indus- try, it is expected that the benefits of the project, which initially accrue to the road users, will be passed on to the economy in general.

3.76 The Republican Road Council has undertaken a considerable amount of economic analyses of the road network in cooperation with the consultant engaged in the preparation of the highway master plan. The network analysis covers about 90% of the traffic flows on the inter-urban roads in the Republic. - 48 -

3.77 The present condition and characteristicsof the existing links which are to be improved/reconstructedunder the proposed project are indi- cated on Map 9. Map 8 shows the traffic volumes as of 1977 and also indicates projected volumes.

3.78 One highway section in the project parallels a railway line. Be- cause the section is relatively short, its improvementis not expected to divert any significantvolume of traffic from the railways which carry mainly long-distancebulk cargo .andpassenger traffic. There is no sea or river traffic. On the Ohrid and Prespa Lake there is some local traffic without any influenceupon the project roads. For each project road section, the most economical solution has been proposed on the basis of the overall network analysis and broad economic criteria.

3.79 Based on the most probable estimates of constructioncosts and traffic growth from year 1977, the Road Council has estimated that the eco- nomic rates of return of the proposed three-yearproject road sections (Table 3.17) will range from about 13% to 21%, which are realistic. These returns may be even higher, as the benefits taken into account do not include reduc- tions in traffic accidents, the enhanced comfort and convenience of travel on the improved roads, and the possible generation of traffic from construc- tion of these new facilities. Moreover, as the investmentplan will be continuouslyunder review and possible revision, it can be adjusted to meet changing developments.

SR Bosnia-Herzegovina

The InvestmentPlan 1979-1985

3.80 The planned program expendituresfor 1979-85 are summarizedbelow along with the actual expendituresfor 1972-78 for comparison in constant 1977 prices. About 25% of capital expendituresprogrammed relate to ongoing projects. The total program costs are estimated at Dinar 17,684 million (US$982 million). The foreign exchange componentof the capital works is estimated at about Dinar 3,982 million (US$221million). Table 3.19: ACTUAL AND PROPOSED ROAD EXPENDITURES

Dinar Million US$ Million Actual Proposed Actual Proposed 1972-19781/ 1979-1985 1972-19781/ 1979-1985 In 1977 In Current In 1977 In Current In 1977 In Current In 1977 In Current SR ______Prices! ______V Bosnia-Herzegovina Prices__ Prices Prices Prices- Prices2Prcs2 PricesPie PricesPie Prices-V

Capital Road Construction/ Improvement (i) Inter-regional roads 5,937.4 4,241.0 6,852.0 10,278.0 392.8 235.6 380.7 571.1 (ii) Regional roads 2,483.6 1,774.0 1,767.0 2,650.5 138.0 98.6 98.2 147 3

Equipment 197.4 141.0 216.0 324.0 10.9 7.8 12.0 18.0 Training and Technical Assistance 16.8 12.0 14.0 21.0 1.0 0.7 0.8 l 2 Subtotal 8,635.2 6,168.0 8,849.0 13,273.5 479.8 342.7 491.7 737 6 Recurrent Road Maintenance

(i) Inter-regional roads 1,495.2 1,068.0 1,800.0 2,700.0 83.0 59.3 100.0 15C.0 (ii) Regional roads 940.8 672.0 900.0 1,350.0 52.2 37.3 50.0 7¢.O Administration and Planning 210.0 150.0 240.0 360.0 11.6 8.3 13.2 V 9

Subtotal 2,646.0 1,890.0 2,940.0 4,410.0 146.8 104.9 163.2 244.8

Total 11,281,2 8,058.0 11,789.0 17,683.5 626.6 447.6 654.9 982.4

1/ Figures for 1978 are budget estimates. 2/ Includes overall price escalation of 40% based on prevailing price indices. 3/ Includes overall price escalation of 50% based on the estimated price rise. Note: Does not include urban freeway Dariva-Brijesce-Butila.

Source: Republican Road Organization and mission estimates. - 50 -

3.81 Since the early 1960s Bosnia-Herzegovina has devoted a major proportion of its budget to providing a transport network to meet the needs of iLs huudred-ood diverse communities. The largest of all Yugoslavia's Republics, the rugged nature of its terrain and its extremes of climate has made any effort to improve transportation a difficult and costly task. Now with the first objective of providing a basic network almost completed, the Republic is turning its efforts to improving the quality of services its roads can provide by increasing capacity on its major inter-regional and regional routes. First priority is being given to improving the geometric design and capacity of clearly identifiable "bottleneck" sections, all too many of which are the cause of considerable traffic congestion now. The high costs of road works in the rocky mountainous terrain dictate that alignment decisions can only be taken after a careful review of all reasonable alternatives has been made. The Republic has been prudent in this respect as it is fully aware that it gets less road per dinar invested than do its more fortunate neighbors with easier terrain to traverse. Thus the development program resulting from the Republic's highway master plan study is the result of a long and patient review process, and it takes into account the capability of the Roads Organiza- tion to execute the works proposed and Council's ability to finance them.

3.82 Capital works in the program include the construction and improve- ment of approximately 520 km of roads of which 350 km are inter-regional and 175 km are regional. Approximately 115 km of this total represents on-going works to which the Republic is already committed. The program includes maintenance of 6,500 km of roads, about 65% of which are paved. The main components of the program are strengthening and widening of paved roads, road maintenance, road construction, equipment purchase, strengthening the road organization and staff training.

3.83 Maintenance of the network in such difficult terrain is a more burdensome problem for Bosnia-Herzegovina than for most of the other Republics. Accordingly, annual maintenance expenditures are scheduled to increase during the forthcoming plan period over allocations made previously. To support their efforts, the project includes provision for some road maintenance equipment not ordinarly used by the maintenance contractors - snow removal machines, equipment for bridge inspections, equipment to monitor vehicle loadings, and traffic counters, etc. To bring the capabilities of the Republic's supervisory staff into line with modern techniques and practices in road maintenance, the project also includes a training component.

Three Year Program, Mid 1979 to Mid 1982

3.84 The three year program consists of the mid 1979 to mid 1982 slice of the investment plan (Table 3.20): - 51 -

Table 3.20: THREE YEAR PROGRAM (MID 1979 TO MID 1982)

Dinar Million US$ Million SR Bosnia-Herzegovina Local Foreign Total Local Foreign Total

Capital Road Construction Improvement Inter-regional 2,290.75 981.75 3,272.50 127.26 54.55 181.81 Regional 217.70 93.30 311.00 12.09 5.18 17.27

Subtotal /1 2,508.45 1,075.05 3,583.50 139.35 59.73 199.08

Contingencies Physical 10% 250.85 107.51 358.35 13.94 5.97 19.91 Escalation 32.15% 806.47 345.62 1,152.10 44.80 19.21 64.01

Construction total 3,565.77 1,528.18 5,093.95 198.09 84.91 283.00

Equipment 0.00 6.48 6.48 0.00 0.36 0.36 Contingencies 0.00 0.72 0.72 0.00 0.04 0.04

Equipment total 0.00 7.20 7.20 0.00 0.40 0.40

Training/Tech. Assist. 1.80 1.80 3.60 0.10 0.10 0.20

Subtotal 3,567.57 1,537.18 5,104.75 198.10 85.41 283.60

Recurrent Road Maintenance /2 Inter-regional 900.00 0.00 900.00 50.00 0.00 50.00 Regional 450.00 0.00 450.00 25.00 0.00 25.00

Maintenance total 1,350.00 0.00 1,350.00 75.00 0.00 75.00

Administration and Planning /2 120.00 0.00 120.00 6.60 0.00 6.60

Total 5,037.57 L,537.18 6,574.75 279.79 85.41 365.20

/1 Construction cost estimates are of July 1977. /2 Foreign costs for recurrent items have not been derived.

NOTE: Does not include urban freeway Dariva-Brijesce-Butila.

Source: Republican Roads Organization and mission estimates. - 52 -

The proposed Bank assistance of US$35 million would support the first phase of the road program and would provide about 41% (35 - 85.41) of the foreign exchange component of the capital works. Although all the works to be fi- nanced from the loans have not been finally identified, it is unlikely that they will differ from those listed in Table 3.21. - 53 -

Table 3.21: PROPOSED ROAD CONSTRUCTION/IMPROVEMENTTARGETS Total Mid 1979 Mid 1980 Mid 1981 Mid 1979 to to to to Mid 1980 Mid 1981 Mid 1982 1/ Mid 1982 SR Bosnia-herzegovii Km Dinar m - Km Dinar m 1/ Km Dinar m - Km Dinar m -

Inter-regional roads Strengthening & Widening

1. Jajce-Podmilacje - - 3.0 42.6 3.0 42.7 6.0 85.3 2. Jezero-Jajce 4.0 56.8 4.0 56.9 - - 8.0 113.7 3. Kifinoselo-Madanici 15.0 30.0 15.0 35.0 - - 30.0 65.0 4. Sanskimost-Kljuc 5.0 36.9 5.0 37.0 11.0 82.5 21.0 156.4 5. Lastva-Klobuk 3,0 34.1 5.0 56.8 5.0 56.9 13.0 147.8 6. Kobas-Derventa - - 5.0 22.0 5.0 23.0 10.0 45.0 7. Gradacac-Pelagicevo - - 5.0 18.0 5.0 18.0 10.0 36.0 8. Bos.Novi-Bis Dubica 5.0 28.4 5.0 28.4 5.0 28.5 15.0 85.3 9. Miliniste-Glamoc' 8.0 44.9 8.0 56.8 - - 16.0 101.7 10. Rogolji-Mliniste 8.0 50.8 8.0 50.8 8.0 50.9 24.0 152.5 11. Pale-Rakite-Praca 3.0 31.3 7.0 71.0 7.0 71.1 17.0 173.4 12. Duvno-Posusje 6.0 48.0 6.0 48.0 - - 12.0 96.0 13. Bos. Brod-Odzak - - 5.0 20.0 5.0 20.0 10.0 40.0 14. Pilica-Sepak - - 3.0 14.0 4.0 18.2 7.0 32.2 15, Brcko-Vrsani 8.0 64.0 7.0 55.0 - - 15.0 119.0 16. Draksemic-Gradiska 5.0 25.0 5.0 25.0 - - 10.0 50.0 17. Ljubinje-Zakovo 10.0 56.8 10.0 56.9 7.0 37.0 27.0 150.7 18. Maslovare-Teslic 3,0 40.0 3.0 40.0 7.0 96.5 13.0 176.5

Subtotal 83.0 547.0 109.0 734.2 72.0 545.3 264.0 1,826.5

New Conistruction

1. Josanica-Blazuj - - 3.0 90.0 3.0 90.0 6.0 180.0 2. Blazuj-Konjic 2.0 105.0 4.0 210.0 6.0 315.0 12.0 630.0 3. Klasnice-Okucani - - 5.0 170.0 5.0 140.0 10.0 310.0 4. Maglaj-Ljesnica 5.0 160.0 - - - - 5.0 160.0 5. Tuzla-Medas 2.0 66.8 3.0 99.2 _ - 5,0 166.0

Subtotal 9.0 331.8 15.0 569.2 14.0 545.0 38.0 1,446.0

Total (Interr. Roads) 92,0 878.8 124.0 1,303.4 86.0 1,090.3 302.0 3,272.5 Regional roads Strengthening & Widening

1. Stolac-Plana 4.0 25.0 4.0 25.0 5.0 31.0 13.0 81.0 2. Otoka-Kladusa 5.0 21.0 5.0 21.0 6.0 24.0 16.0 66.0 3. Sekovici-Caparde 6.0 30.0 6.0 31.0 6.0 31.0 18.0 92.0

Subtotal 15.0 76.0 15.0 77.0 17.0 86.0 47.0 239.0

New Construction

1. Drvar-Martin Brod 4.0- 24.0 4.0 24.0 4.0 24.0 12.0 72.0

Total (Reg. Roads) 19.0 100.0 19.0 101.0 21.0 110.0 59.0 311.0

Grand Total 111.0 978.8 143.0 1,404.4 107.0 1.200.3 361.0 3.583.5

1/ In 1977 prices. Note: Does not include urban freeway Dariva-Brijesce-Butila.

Source: Republican Roads Organization. - 54 -

Cost Estimates

3.85 The estimated costs of the three year program are given in Table 3.20. The foreign exchange componentof the capital expenditureis estimated at US$85.41 million.

Assessment

InstitutionalCapacity

3.86 The Republican Roads Organizationin associationwith users' repre- sentatives is capable of drawing up realisticplans and targets for its highway programs. The Organizationhas developed a strong team to supervise the operations of the maintenanceenterprise, and also has a mature highway planning and project management system, providing flexibilityof procedures and effectivenessin execution. Successful completionof complex civil works such as the Ustipraca-Rogaticaroad constructionin difficult and mountainous terrain clearly demonstratestheir technicaland professional capabilitiesand the strength of the local contractingindustry. Comparison of expendituresin constant price terms in Table 3.19 envisages only marginal expansion of road constructionand maintenanceup to 1985. Careful attention has been given to identificationof project priorities. The local contracting industry and roads maintenanceenterprises are well organized to implementthe program on time under the overall guidance of the roads organization.

Financial Capability

3.87 Bosnia-Herzegovinahas the resources to meet the local costs and the residual foreign cost component and the demonstrableability to perform the work. Funds firmly identified,Table 3.22, more than cover the proposed project costs, but do not cover provision for the urban freeway Dariva-Brijesce- Butila which was outside the scope of the Master Plan Study. - 55 -

Table 3.22: FINANCING THE ROAD PROGRAM

-- Dinar m------US$m------SR Bosnia-Herzegovina 1976/78 /1 1979/81 /2 1976/78 /2 1979/81 /2 (3 years) (3 years) (3 years) (3 years) Sources

1. Proceeds from Fuel Taxation) and Funds of SR Bosnia ) and Herzegovina ) ) 2. Loans from Yugoslav ) Commercial Banks ) ) 5,6410.0 6,650.0 313.3 369.4 3. Local Funds (municipal ) contributions) ) ) 4. Compensation from the ) Funds for Underdeveloped ) Areas )

5. IBRD Loans 128.0 630.0 7.1 35.0

Total 5,768.0 7,280.0 320.4 404.4

/1 1976/78 figures are based on actuals for 1976 and the best estimate for 1978. /2 1979/81 estimated figures.

Note: Figures relate to calender years, tentative estimate for mid 1979- mid 1982 is of the same order as 1979/81 calendar years.

Source: Republican Roads Organization.

Economic Viability

3.88 The Republic of Bosnia-Herzegovina, the largest of the less-developed Republics and Provinces of Yugoslavia, with a per capita income of about two-thirds of the national average, had relatively low priority for road development until the mid 1960s. The inadequate road network became an impediment to the growth of key sectors of the economy and the realization grew that development of the road network is essential to support the economic development of the entire Republic. This new emphasis was reflected in the rapid increase of expenditures for road construction and maintenance which grew (in constant prices) tenfold during the last decade. The inter- republican and the major intra-repubLican highway network is now substantially complete. The current emphasis is, tFherefore,primarily directed to consoli- date the work previously done and improve the system to facilitate smooth flow of traffic and eliminate bottlenecks. - 56 -

3.89 On certain main routes, traffic congestion is now heavy and main- tenance costs are high; further deterioration of driving conditions on these major routes such as Sarajevo-Mostar-Konjic would greatly impede the growth of the key sectors of the economy. On some of the less-travelled routes in the poorer areas of the country, commercial haulers prefer to take long detours to avoid road sections in poor condition. The proposed road sections were included in the project taking these aspects into consideration; their construction would benefit both long distance as well as local traffic.

3.90 The improvements proposed would help to reduce transport costs of raw and processed agricultural goods, fuel, chemicals, wood and wood products and construction materials. On certain sections of the existing network the expected unit savings in these costs after completion of the project roads would range up to 30% for passenger cars and up to 45% for buses and trucks.

3.91 The condition and characteristics of the existing links which are to be improved are shown in Maps 10 and 11. Present and forecast traffic on these sections are also shown therein. Several alternative solutions for the improvement of the project sections were evaluated and the most economic solution was adopted in each case.

3.92 In some cases, the project sections are parallel to railroads or provide transport services to the same termini as the railroads. Improvement of these road sections, which are generally short (about 20 km or less), is not expected to divert traffic from the railways which specialize in bulk cargo and long distance passenger traffic.

3.93 On a conservative basis, the Republican Roads Organization has esti- mated that savings in vehicle operating costs, passenger time and maintenance costs on the project roads (Table 3.21) would yield rates of return ranging from 13% to 24%. The program would, therefore, yield adequate economic benefits and would meet varied needs of the Republic.

E. The Loan

3.94 The proposed Tenth Highway Loan of US$148.0 million wou'ld support the first phase (a three-year tranche from mid 1979 to mid 1982) of the 1979-85 road programs of Kosovo, Montenegro, Vojvodina, Macedonia and Bosnia- Herzegovina. The total cost of new commitments in this first phase is esti- mated at about US$794.61 million or US$699.26 million excluding taxes and duties with a foreign exchange component of about US$240.08 million. The Bank will finance about 40% to 80% of the total foreign exchange component for new commitments of these early years, as they become ready for financing, provided certain general sector and subproject conditions (paras. 3.98-3.101) are met. The loan allocation to each Republic/Province represents the amount it needs to meet the shortfall in foreign exchange resources. The following general apportionment of the Bank Loan was discussed with the Borrowers during loan negotiations, with the understanding that if mutually agreed between them and the Bank, the loan amounts allocated to the differenent categories within each Republic/Province could be adjusted to accord with the actual pattern of imple- mentation. - 57 -

Table 3.23: TENTH HIGHWAY PROJECT (SECTOR LOAN)

US$ Million Mid 1979 Mid 1980 Mid 1981 to to to Mid 1980 Mid 1981 Mid 1982 Total

SR Kosovo Capital Works Interregional roads 1.86 2.69 3.31 7.86 Regional roads 3.78 5.57 3.79 13.14 Equipment 0.30 0.30 0.30 0.90 Training 0.03 0.04 0.03 0.10 Subtotal 5.97 8.60 7.43 22.00

SR Montenegro Capital Works Interregional roads 2.30 3.36 3.58 9.24 Regional Roads 3.73 4.11 2.62 10.46 Equipment 0.07 0.06 0.07 0.20 Training 0.03 0.04 0.03 0.10 Subtotal 6.13 7.57 6.30 20.00

SAP Vojvodina Capital Works Interregional roads 11.46 11.83 9.99 33.28 Regional Roads 1.11 1.11 0.00 2.22 Equipment 0.13 0.13 0.14 0.40 Training 0.03 0.03 0.04 0.10 Subtotal 12.73 13.10 10.17 36.00

SR Macedonia Capital Works Interregional roads 3.77 9.12 13.60 26.49 Regional roads 3.72 2.71 1.68 8.11 Equipment 0.10 0.10 0.10 0.30 Training 0.03 0.04 0.03 0.10 Subtotal 7.62 11.97 15.41 35.00

SR Bosnia-Herzegovina Capital Works Interregional roads 7.34 12.89 11.17 31.40 Regional roads 1.03 1.03 1.04 3.10 Equipment 0.13 0.13 0.14 0.40 Training 0.03 0.03 0.04 0.10 Subtotal 8.53 14.08 12.39 35.00

Total 40.98 55.32 51.70 148.00 - 58 -

3.95 The subprojects (Tables 3.5, 3.9, 3.13, 3.17 and 3.21) in which the Bank could participate have been identified on the basis of broad economic and traffic considerations; it is expected that the loan funds will be used to execute them with the proviso that the list may be amended as a result of any new developments brought to light in the annual review of the investment plans.

3.96 For all procurement under the capital works of the proposed Tenth Highway Project, the loan would be made to the Road Organizations of Kosovo, Montenegro, Vojvodina, Macedonia and Bosnia-Herzegovina, guaranteed by the Socialist Federal Republic of Yugoslavia. A condition of effectiveness would be that the government of each participating Republic and Province will have approved a guarantee to cover the financing, both local and residual foreign exchange costs, of its respective road program (mid 1979-mid 1982), including possible cost overruns.

3.97 During loan negotiations, agreement was reached with the Borrowers that they would complete, in a timely manner, not only the works partly financed under the project but the agreed overall broad development and maintenance programs as a whole.

F. General Sector Conditions

3.98 The Bank will require the concerned Republican and Provincial Road Organizations to meet, on a continuing basis, loan conditions aimed at protecting the existing road system and ensuring timely implementation of the road program. These conditions require each Borrower to:

(i) meet physical completion targets for construction/ improvement of the roads for different categories (Tables 3.5, 3.9, 3.13, 3.17, 3.21);

(ii) continue ensuring that all roads falling within its jurisdiction will be adequately maintained in accord- ance with sound engineering and financial practices, and that funds, facilities, services and other resources required therefore will be provided promptly as needed;

(iii) implement an agreed program of personnel training (Annex 10);

(iv) procure equipment as agreed (Annex 9);

(v) update the road program annually on a rolling plan basis;

(vi) take follow-up action to prepare the second phase (mid 1982 to mid 1985) of its road program with more detailed analyses and updated traffic data; and - 59 -

(vii) continue to ensure that the dimensions and axle loads of vehicles using the roads do not exceed the design limits of the roads.

3.99 Agreement on these sector conditions and the progress reports (Annex 5) required to monitor compliance with them was reached during nego- tiations. Investment Plans will be reviewed annually to take into account current traffic flows and trends. The results of the Study of Road User Charges (being executed under the terms of Highways VIII (Loan No. 1377-YU of April 1977) should be available by March, 1979 for review, and important recommendations arising therefrom would be discussed with the Federal Com- mittee for Transport and Communications (para. 2.06) and pursued further for implementation in cooperation with the concerned agencies.

G. Conditions for Subprojects

3.100 As a condition of effectiveness of the proposed loan, a Monitoring and Evaluation Unit will be established in the concerned Republican/Provincial Road Organizations to bring forward sound subprojects (Tables 3.5, 3.9, 3.13, 3.17, 3.21) in a timely manner and to monitor implementation of these proj- ects and evaluate their impact. This unit will particularly ensure that for each subproject requiring Bank assistance, substantially completed detailed engineering, together with contract drawings, documents including specifica- tions, the economic viability analyses based on updated traffic flows are made available for the Bank's review and agreement before loan funds are committed for their implementation. During loan negotiations, agreements were reached with the Borrowers that no material alterations should be made to the agreed list of subprojects without the prior agreement of the Bank. The Unit will also prepare program and progress reports (Annex 5), and, in due course, the Project Completion Report. During negotiations, agreements were reached on the Unit's terms of reference (Annex 6), on a timetable for establishing the Monitoring and Evaluation Unit, and on the criteria to be met for a sub- project to be financed from the loan (para. 3.10 and Annex 4).

3.101 There will be no retroactive financing of ongoing road works, the construction contracts for which will have been signed before mid 1979, the time of loan signature.

H. Implementation

Responsibility

3.102 The Road Organizations of the five participating Republics and the Autonomous Provinces would be responsible for executing the respective construction works. A condition of effectiveness of the proposed loan would be that the participating Republics/'Provinceswill have adopted the legal authority authorizing the construction of their respective project road sections. - 60 -

3.103 Supervision of the construction and maintenance works would be effected by the Road Organizations themselves assisted as in the past by the Yugoslav consulting engineers and technical institutes which prepared the highway master plans and the detailed engineering.

3.104 The CRO would again act as fiscal agent for the project, coordinator of disbursement requests to the Bank, and act as liaison agent between the Republics/Provinces and the Bank on project-related matters. The CRO would also be responsible for the procurement of traffic counters, road maintenance and load monitoring equipment and training program provided for under the loan. A condition of loan effectiveness would be that the concerned Republics/ Provinces and the Federal Government will have delegated authority to CRO to undertake these obligations.

3.105 The Federal Committee for Transport and Communications would be responsible for implementation of urgent recommendations arising from the study of Road User Charges.

Procurement

3.106 Construction contracts based on unit prices would be awarded after international competitive bidding in accordance with the Bank's "Guidelines for Procurement" for all Bank-assisted subprojects. Contracts would be of such a size as to encourage the participation of foreign contractors, but yet to permit maximum participation of the local industry, allowing firms to bid for one or more sections up to their prequalified capacity. Contractors would be prequalified for the works. To attract the interest of foreign bidders, embassies in Yugoslavia would be notified of the invitation to prequalify, which would also be published in the "Development Forum" and appropriate foreign journals. As bidding documents for many of the subprojects have already been prepared, prequalification procedures began in January 1979. Bids for the first installment of contracts would be invited around May/June 1979 leading to contract awards to the lowest evaluated bidders in August/ September 1979. Contracts will include a satisfactory price-escalation clause. The equipment provided for under the projects would be purchased after International Competitive bidding in accordance with the Bank's "Guide- lines for Procurement", giving domestic manufacturers as usual a margin of preference of 15% based on c.i.f. prices or the prevailing customs duty, whichever is lower. The CRO will coordinate requests for personnel training and arrange courses accordingly as under previous projects.

Land Acquisition for Right-of-Way

3.107 The concerned Republican and Provincial Governments are at present acquiring the land needed to build the project road sections. Although no major problems are foreseen, during loan negotiations assurances were obtained from the Borrowers that they would make available all right-of-way as needed for the timely implementation of the project. - 61 -

Project Implementation Schedule

3.108 The phased construction schedule of the subprojects included in the three-yea (mid 1979-mid 1982) program is shown in Annex 7. The procure- ment of traffic counters, load monitoring and road maintenance equipment should be completed by the end of 1981. The project implementation schedule (Annex 7) as well as the appropriate progress reporting procedures (Annex 5) were discussed and confirmed with the Borrowers during loan negotiations. The Borrowers were also asked to prepare a Project Completion Report within six months of the Loan Closing Date. The data used in the preparation of the project and the source material are listed in Annex 8.

I., Disbursements

3.109 The proceeds of the proposed Tenth Highway loan would finance about 40% to 80% of foreign exchange components of the capital works of Kosovo, Montenegro, Vojvodina, Macedonia and Bosnia-Herzegovina during the three-year period mid 1979-mid 1982, as well as the foreign exchange costs of the equip- ment procurement and training for these participating Republics and Provinces for the entire three-year project period.

3.110 Based on the loan becoming effective in July 1979, the following schedule of disbursements (Table 3.24) has been estimated. This schedule was discussed and confirmed with the Borrowers during loan negotiations. - 62 -

Table 3.24: TENTH HIGHWAY PROJECT (SECTOR LOAN) - SCHEDULE OF CUMULATIVE DISBURSEMENTS

Cumulative Disbursement at end of Quarter IBRD Fiscal Bosnia- Year and Quarter Kosovo Montenegro Vojvodina Macedonia Herzegovina Total

1979/80 September 30, 1979 1.32 1.20 2.16 2.10 2.10 8.88 December 31, 1979 1.76 1.60 2.88 2.80 2.80 11.84 March 31, 1980 2.64 2.40 4.32 4.20 4.20 17.76 June 30, 1980 3.52 3.20 5.76 5.60 5.60 23.68

1980/81 September 30, 1980 4.84 4.40 7.92 7.70 7.70 32.56 December 31, 1980 6.16 5.60 10.08 9.80 9.80 41.44 March 31, 1981 7.70 7.00 12.60 12.25 12.25 51.80 June 30, 1981 9.90 9.00 16.20 15.75 15.75 66.60

1981/82 September 30, 1981 12.32 11.20 20.16 19.60 19.60 82.88 December 31, 1981 14.74 13.40 24.12 23.45 23.45 99.16 March 31, 1982 17.16 15.60 28.08 27.30 27.30 115.44 June 30, 1982 19.36 17.60 31.68 30.80 30.80 130.24

1982/83 September 30, 1982 21.12 19.20 34.56 33.60 33.60 142.08 December 31, 1982 22.00 20.00 36.00 35.00 35.00 148.00

J. Project Risks and the Environment

3.111 The Road Organizations of the Borrowers concerned with civil works have all participated satisfactorily in earlier Bank highway projects. Each entity executes efficiently its annual program of work. As this project is the first in Yugoslavia to be implemented on a sectoral basis, supervision by the Bank will be more demanding. Some of the project appraisal functions, such as the technical and economic review of subprojects to ensure compliance with agreed criteria prior to financing from the loans, must of necessity be carried out by supervision missions. However, the Bank's considerable expe- rience with the Borrowers' agencies in project execution, and its knowledge of their management capabilities, do not suggest the presence of any significant risks in these connections.

3.112 Neither is the project expected to have an adverse environmental impact. In fact, by reducing traffic congestion, a reduction in accidents and air pollution will also result. - 63 -

IV. AGREEMENTS REACHED AND RECOMMENDATIONS

4.1 During negotiations agreement was reached with the Borrowers on the following principal issues:

(i) that they would meet the construction targets detailed in Tables 3.5, 3.9, 3.13, 3.17 and 3.21 (para. 3.98 (i));

(ii) update the road development plans annually (para. 3.98 (v)); and

(iii) not materially alter the agreed lists of subprojects without the prior agreement of the Bank (para. 3.100).

4.2 Conditions of loan effectiveness would be that the Borrowers:

(i) will each have established a Project Monitoring and Evaluation Unit in accordance with Terms of Reference agreed with the Bank (para. 3.100 and Annex 6);

(ii) will have given a guarantee covering the financing of their respective road programs (mid 1979-mid 1982) including possible cost overruns (para. 3.96);

(iii) will have adopted the legal authority for constructing the roads detailed in their development programs (para. 3.102); and

(iv) will have delegated authority to CRO to act as fiscal agent for the project, as coordinator of disbursement requests on the Bank, as liaison between the Borrowers and the Bank on project-related matters, as coordinator of the personnel training programs, and to procure the equipment to be provided under the project (para. 3.104).

4.3 With the understanding indicated above, the project would be suit- able for a Bank loan of US$148.0 million to the Road Organizations of Kosovo, Montenegro, Vojvodina, Bosnia-Herzegovina and to Macedonia for a 15-year term including a 3-year grace period. - 64 - ANNEX 1 Page 1

YUGOSLAVIA

STAFF APPRAISAL REPORT OF

A HIGHWAY SECTOR PROJECT

Transportation Projects Previously Financed by the Bank

Previous Projects

1. So far the Bank has lent US$856 million in total to the transport sector, including US$356 million for nine highway projects, US$108 million for two pipeline projects, US$348 million for five railway projects and US$44 mil- lion for the Bar Port Project.

Highway Projects

2. The First Highway Project (Loan 344-YU, US$35 million) was financed in 1963 for the completion of the coastal section of the Adriatic Highway (422 km) and parts of the Belgrade-Nis road (174 km). The Second Highway Project (Loan 485-YU, US$10 million), financed in 1967, was for the improvement of 367 km of roads connecting the Zagreb-Belgrade highway via Sarajevo and Tuzla with the Adriatic highway. Both projects were completed within the original cost estimates and agreed time schedules. The Third (Loan 608-YU, US$30 million), financed in 1969, comprised about 120 km of roads in Croatia, Macedonia and Slovenia, and was completed in August 1974 with a 20-month delay primarily due to delays in completing an access road, but which did not impede the operation of the main highway. This project had an 8% cost overrun, because of infla- tion and foreign exchange adjustments. The Operations Evaluation Department's Project Performance Audit Report (No. 1385, December 10, 1976), highlights the completion of the Third Highway Project with most of the civil works carried out close to the appraisal schedule. The Audit Report (No. 1385), however, emphasizes the need to adequately study tolls, so that their imposition does not impede the optimum use of roads and this caution has been taken into account in later projects. The Fourth (Loan 678-YU, US$40 million) was financed in 1970 for the construction of about 220 km of roads in Bosnia- Herzegovina, Kosovo, Montenegro, Serbia and Vojvodina. Because of expropria- tion problems in the section of Bosnia-Herzegovina, the project was completed in December 1975 with an 18-month delay. There was a 12% cost overrun due to inflation and foreign exchange adjustments. The Audit Report (No. 1632, June 15, 1977) highlights the difficulties encountered in securing right-of- way, even after assurances were made to the Bank that right-of-way and loca- tion had been settled before negotiations. Such difficulties, the Audit Report observes, stem from the decentralization of authority in Yugoslavia, which enables bodies such as Communities of Interest groups to appeal and over- turn decisions on location and right-of-way after they have been taken. There seems to be no easy solution to this problem but more communication between all groups concerned is being sought to achieve better results. The Fifth Highway Project (Loan 751-YU, US$35 million) became effective 8 months late -65 - ANNEX 1 Page 2 due to Government administrative delays. The project comprises 153 km of roads in Kosovo, Macedonia and Slovenia, procurement of US$1.7 million worth of engineering equipment, consultants' services and a staff training component to improve highway planning and project preparation. All roads are open for traffic. The engineering equipment has been delivered and the consultant's services were completed satisfactorily. The staff training component was delayed because of difficulties encountered in securing training of candidates in the head office of foreign consultants and in foreign institutes and because of language problems (insufficient candidates proficient in English). Con- sequently, a restricted program was adopted. Because of the delay in training, the project was completed by the end of 1977, involving a delay of about 15 months. This project had an 8% cost overrun because of the combined effect of inflation and foreign exchange adjustments. The loan for the Sixth Highway Project (Loan 990-YU, US$30 million) was made in May 1974 and became effective six weeks later than estimated in December 1974. The project finances six roads sections in Bosnia-Herzegovina, totalling 150 km, the training of trans- portation economists and road engineers and US$1.1 million worth of engineer- ing and laboratory equipment. Requests for some changes in road alignments were agreed in order to provide better service to two communities. Civil works have been completed satisfactorily, and all roads are open to traffic. In view of the difficulties encountered in the earlier project, a part of the training program is being modified by inviting foreign consultants and specialists to give training courses in Yugoslavia which can be undertaken in both English and Serbo-Croatian. It is expected that the project will be completed by the end of 1978, involving a delay of about 12 months. The loan for the Seventh Highway Project (Loan 1143-YU, US$40 million) was made in July 1975 and became effective in March 1976. The project comprises about 90 km of road construc- tion in Slovenia, Serbia and Montenegro, and US$0.1 million worth of technical assistance to improve preparation of highway feasibility studies and to provide a related training program. The work has progressed satisfactorily in Serbia but is slightly behind schedule in Montenegro and Slovenia, because of expro- priation problems and the challenging difficulties presented by the swampy terrain in Slovenia. The Eighth Highway Project (Loan 1377-YU, US$56 million) was made in April 1977 and became effective in September 1977. The project comprises about 130 km of roads in Serbia, Bosnia-Herzegovina, Macedonia and Kosovo, studies by consultants of road-user charges and rail costs and technical assistance for the preparation of a highway master plan for Kosovo. All road contracts are awarded and work has started on all the contracts. The Ninth Highway Project (Loan 1535-YU, US$80 million) was made in April 1978 and became effective in August 1978. The project comprises construction of four highly-congestedl sections of the Trans-Yugoslav Highway (TYH) in Slovenia, Croatia and Serbia, totalling about 86 km, and the procure- ment of equipment for maintenance andl for monitoring loadings of vehicles using the primary highway network, including TYH. Contractor prequalification for all project road sections have been approved and the construction con- tracts awarded for a road section in Croatia. Construction works for all nine projects have been or are being satisfactorily carried out, reflecting the competence of the Yugoslav contracting. - 66 - ANNEX I Page 3

Naftagas and 0ii Pipeline Projects

3. The loan for the Naftagas Project (Loan 916-YU, US$59.4 million) was made in June 1973, but, due to organizational reform within the Enterprise, became effective only in March 1974 after six month's delay. The project is for the expansion of the gas transmission and distribution systems in Serbia and Vojvodina by provision of gas field compressors, pipelines, treatment plants and distribution rings. The supply of natural gas will come from gas fields in Vojvodina and from Hungarian imports. Due to a substantial increase in the project costs and a reallocation of priorities in the use of natural gas, which caused the elimination of some consumers who withdrew their finances from the project, a delay of more than two years in project implementation has occurred. It has been decided that the implementation will be carried out in three phases and only the first two will be implemented now. The additional funds required will be provided by agencies in Yugoslavia and by a supple- mentary loan of US$11 million from the Bank under the Sarajevo Air Pollution Control Project, Loan 1264-YU. Construction started in late June 1976 and the project is scheduled for completion shortly. The loan for the Oil Pipeline Project (Loan 1173-YU, US$49.0 million subsequently revised to US$48.5 million) was made in November 1975 and became effective in July 1976 after four month's delay. The project comprises the construction of an oil port on the Adriatic coast at Omisalj, near Rijeka, as well as oil storage tank farms, pumping stations, and the pipelines running from the port through Croatia and Vojvodina and to the Hungarian border. Stage I is to provide a yearly capacity of 16 million tons and Stage II, 20 million. The international transit portion of Stage I, which is to provide oil to Hungary and Czechoslovakia, should be completed early in 1979, but the domestic portion, due to problems of design and procurement, will be completed later in the year. Stage II should also be completed before the end of 1979.

Railways

4. The First Railway Loan (Loan 361-YU, US$35 million) was made in 1963 and was substantially completed and put into operation in 1970, i.e., with a delay of about two years. The Second Railway Loan (Loan 395-YU, US$70 million) was made in 1964 to help finance a Modernization Program for the main lines. The Program, which covers electrification, signalling, telecommunications and marshalling yards, was to be executed between 1964 and 1968, at an estimated cost of US$185 million, but due to long delays, completion is not expected before 1979 at over twice the original cost estimated in U.S. dollar terms. The Bank loan was fully disbursed in November 1972 and completion of the Program is being assisted by the Fourth Loan (below). The Third Railway Loan (Loan 531-YU, US$50 million) in 1968 helped to finance the completion of 372 km of the Belgrade-Bar line. Completion was originally scheduled for 1973, but geo-technical and other construction problems in difficult mountainous terrain delayed the opening of the line until 1976. The cost estimate has increased from IJS$225million to about US$422 million. The Fourth Railway Loan (1026-YU, US$93 million) was made in July 1974 and became effective by - 67 - ANNEX 1 Page 4 the revised date of February 1975. T'he loan finances the completion of the 1964 Modernization Program and certain related investments, including track rehabilitation and further signalling works, which are needed to maximize the benefits of the program, all to be completed by the end of 1976. There have been certain delays in project execution due principally to financial and administrative difficulties. Governtnent efforts to combat severe inflation have caused rates to lag too far behind the increase in railway costs. The resulting financial problems and other issues relating to the railways' effi- ciency are being addressed by newly created Communities of Interest. Con- siderable progress has been made on institutional developments notably in planning and management of investments and strengthening the Community of Yugoslav Railways. The Fifth Railway Loan (Loan 1534-YU, US$100 million) was made in April 1978 and became effective in September 1978. The project covers the three year 1978-80 tranche of the railways 1976/80 Investment Plan with -he principal objective to modernize railway facilities in order to improve further the efficiency and the competitive position of the railways.

Port of Bar Project

5. The loan (Loan 1060-YU, US$44 million) was made in November 1974 to finance port development and related railway facilities. The loan became effective on June 13, 1975. Major civil works components are completed except for a grain silo, for which final designs are awaited. Railway works outside the port area, being dndertaken by the Railway Transport Enterprise, Belgrade, have been delayed because of problems in expropriating private dwellings on the needed land. The closing date has been postponed to June 30, 1980. 68 - ANNEX 2 Page 1

YUGOSLAVIA

STAFF APPRAISAL REPORT OF

A HIGHWAY SECTOR PROJECT

Study of Road User Charges

Terms of Reference

Introduction

1. The Government of Yugoslavia has been reviewing transport policies and considers Road User Charges (RUC) to be an important element of its trans- port pricing policies, which deserve a thorough examination, especially in view of the energy crisis. The Government intends to ensure, through appro- priate RUC optimal utilization of the road network infrastructure, sound development of road transport and fair competition amongst different modes.

2. Available information on RUC indicates that in Yugoslavia the total revenue from taxes on gasoline and oil, license fees as well as the revenue from taxes paid by foreign motor vehicles entering Yugoslavia, yielded about Dinar 6.0 billion (US$0.33 billion) in 1974, compared to a total outlay of about Dinar 5.6 billion (US$0.31 billion) on the construction and maintenance of all inter-urban highways. However, this information is not adequate for a full evaluation of RUC since revenues do not include the receipts from certain charges collected by local authorities while the expenditures on maintenance and construction do not cover the entire urban and municipal road networks. Also, RUC needs to be related not only to maintenance and construction costs, but also to all other related administrative and social costs, including con- gestion costs. Furthermore, even if revenues covered total costs, there may not be a direct relation between specific user charges on different types of vehicles, especially heavy trucks, and the infrastructure costs for which they are accountable. The Government realizes that, if serious distortions in RUC were to exist, they could prevent optimum utilization of the road network and lead to distortions in traffic flows within and between different transport modes. The Government is, therefore, interested in commissioning a comprehen- sive study of RUC as a basis for taking appropriate action for improving and removing any deficiencies that exist in the present system.

3. In view of the great importance Government attaches to the Study, it intends to establish a Steering Committee to follow the progress of the Study and to provide the Consultants with guidance as requested.

Objectives of the Study

4. The Study shall determine whether the existing system and levels of RUC for different types of road vehicles are adequate to ensure optimum util- ization and development of the road network, at present and in the future, and - 69 - ANNEX 2 Page 2 to cover the infrastructure and other costs attributable to different users. The Study shall propose reasonable alternative remedies for correcting any distortions or deficiencies which may exist in the present system and levels of RUC.

5. As part of the above general objectives, the Study shall in par- ticular:

(i) examine the fiscal, economic and administrative aspects of the present system of levying RUC, taxing vehicles and allocating resources to the highway sector in Yugoslavia;

(ii) determine clearly the existing levels of RUC on dif- ferent vehicle types and distinguish clearly actual RUC from other duties, levies and taxes imposed on the economy in general;

(iii) compare RUC in YugoslaviaL with those of selected countries of the European Economic Community (EEC);

(iv) estimate and evaluate thet total revenues from all RUC and the distribution of t:hese revenues amongst the authorized agencies;

(v) identify clearly the maintenance, investment, adminis- trative, social and other costs for which different types of road users should be accountable;

(vi) estimate incidence of RUG on cost of transport and retail price of principal commodities;

(vii) recommend alternative solutions of improving the zystem of RUC with particular reference to the general objec- tives indicated in para. 4 above.

Scope of the Study

6. The Study will set out first the existing structure and level of present RUC for each major vehicle type, estimate the revenue accruing from these charges and their distribution amongst the various authorities. The general effect of these on transport prices of passenger travel and principal commodities will then be determined.

7. On the assumption that existing tax levels and vehicle regulations remain unchanged, future revenues will be projected and the economic effects assessed.

8. The Study shall assess, to the extent possible, the costs for which different types of road users should be accountable and the reasonable level - 70 - ANNEX 2 Page 3 of RUC by vehicle types, particularly heavy trucks which inflict the most damage on the roads. In this context, the Study shall identify and quantify all RUC such as taxes, fees and duties levied on road users, including general sales taxes, tolls, import duties, etc., and shall clearly identify which, or which part, of these charges are to be considered as specific RUC and as payment for use of road facilities and other related services. The Study shall estimate total revenues from all RUC as well as from specific RUC and their distribution amongst the various authorities.

9. The Study should ideally cover the entire road network--inter-urban, urban and municipal network. However, to cover all roads in the country would require an extraordinary effort in data collection, processing and analysis. The Government wants to limit the coverage and scope of the present Study to the collection and analysis of information that is readily available. There- fore, the main focus of the Study shall be on the inter-urban network and the determination of appropriate pricing policies for this network. However, the Study shall also cover the urban and municipal networks as necessary to show to what extent the recommended pricing policies for the inter-urban network would be appropriate and/or inappropriate for the urban and municipal net- works, and indicate in a general manner to which extent and/or in which manner the pricing policies should be modified or supplemented by other mea- sures to achieve the same objectives.

10. The Study shall cover maintenance and road improvement expenditures, at present and in the foreseeable future, and also administrative costs such as expenses on traffic police, signalling, street lighting and all quantifiable social costs such as congestion costs. Where major social costs or other costs cannot be quantified, such as noise pollution, the Study shall identify and explain them in broad qualitative terms.

11. The Study shall clearly describe the existing and proposed system of collecting the different types of RUC and estimate the administrative and other costs of their collection, as well as all their advantages and dis- advantages to achieving the objectives indicated in para. 4 above.

12. The Study will then consider alternative road pricing policies and regulations setting out the advantages and disadvantages of each--and indicate and quantify their relative economic and fiscal implications and recommend the user charges which should be levied on each of the selected vehicle types.

Data, Local Services and Facilities to Be Provided by the Government

13. The Government shall provide the Consultants entrusted with the Study with all available data on:

(a) present pricing policy and transport regulations and such changes to these as are currently being contem- plated by the Government; - 71 - ANNEX 2 Page 4

(b) transport costs and revenues, including national and local taxes;

(c) the operations and accounting systems of the Government agencies and local authorities responsible for trans- port maintenance and adminiLstration;

(d) previous studies sponsored by the Government on Trans- portation and on development that will have a bearing on the proposed Study; and

(e) such data on fiscal and financial policy which would materially assist the Study.

Time Schedule

14. The Study shall commence, including field surveys, within 30 calen- dar days of the effective date of this contract and the Consultants shall submit the following reports within the time period mentioned against each:

(i) Inception Report - within two months specifying in particular:

(a) Methodology; and

(b) Data Requirement and Availability (_ copies in Serbo- Croatian, _ copies in English);

(ii) Progress Report - every two months following submission of the Inception Report and until conclusion of work in the field;

(iii) Interim Report - a summary of the initial findings within six months of the contract effective date (_ copies in Serbo-Croatian, _ copies in English);

(iv) Draft Final Report - within nine months of the contract effective date (_ copies in Serbo-Croatian, _ copies in English); and

(v) Final Report - within 45 days of receipt of comments on the Draft Final Report from the Government (_ copies in Serbo- Croatian, _ copies in English). - 72 - ANNEX 3 Page 1

YUGOSLAVIA

STAFF APPRAISAL REPORT OF

A HIGHWAY SECTOR PROJECT

Outline of Terms of Reference for Highway Master Plan Study

A. Objectives

1. The purpose of the Study is to provide:

(i) a general highway master plan, and cost estimates therefor, for the period 1979-85 formulating a concept of long-term development of the road network including a maintenance plan;

(ii) a detailed highway investment program for the period 1979-82 including the ranking of the proposed projects based on eco- nomic priorities, and subsequent highway investment programs in outline which shall cover the period 1983-85, and also including a preliminary ranking of proposed projects by economic priorities;

(iii) a program to improve the highway administration to enable it to update the maintenance and investment programs and to implement them in an efficient manner.

2. As part of the above general objectives, the Study shall in par- ticular:

(i) examine availability of financial means with regard to the investment program;

(ii) sug,est ways and means for bridging the resource gap, if any, with particular reference to the completion of high priority works; and

(iii) prepare a list of roads to be subject to feasibility studies, and carry out feasibility studies of approximately 200 km of the highest priority highways for improvement or construction.

B. Scope of the Study

3. The Study shall cover all types of roads excluding municipal roads except as required to ensure full realization of the benefits from the improvements of the non-municipal roads in the investment programs. - 73- ANNEX 3 Page 2

4. The Study shall review all available data and rcports on the existing highway network of the Province/Republic concerned and shall also, as appropriate, conduct visual inspection and reconnaissance surveys of the road system. This inspection and survey shall result in an inventory of the high- way network that will indicate by major road sections, the general geometric and construction standards, capacity of structures, mileage and geographic distribution, present state of maintenance and general adequacy for present traffic.

5. The Consultants shall analyze all existing highway traffic data. If the Consultants find that additional traffic counts and origin-destination studies are required to determine the nature of the traffic and the present volume of freight and passenger movements by road, the necessary additional counts and other field investigations shall be undertaken by the Consultants in cooperation with the Provincial/Republican Roads Organization. The Con- sultants shall also assist the Provincial/Republican Roads Organization in the establishment and operation of a continuous year-round traffic counting system over the primary and secondary (Class 1-2-3) roads, which can serve to measure daily and seasonal patterns and the yearly growth of traffic.

6. The Study shall review current procedures and policies as well as the organization, staffing, equipment, operation and executive capacity of the agencies of the Provincial/Republican Road Organization responsible for plan- ning, constructing and maintaining the highway system. The Consultants shall propose a program of possible improvements, including contractual and other procedures, staff training and equipment needs.

7. The Study shall compare current and proposed expenditures on main- tenance and construction of highways and recommend a reasonable time-phased maintenance and investment program to meet the needs of the region. In making these recommendations the Study shall fully take into consideration the current Plan of the Province/Republic regarding size and timing of highway investments required to serve the highway needs of the region. In this context the Study shall carry out an initial evaluationLof the alternative road improvements and extensions by analyzing the anticipated economic benefits and costs of new investments required. Based on these analyses the Study shall determine the relative priorities of new investments.

8. The focus of the Highway Master Plan shall be on such factors as:

(i) the adequacy of the proposed program in relation to the region;

(ii) the balance of investments in main roads, secondary roads and feeder roads;

(iii) the appropriate role of highway investments in relation to other modes of transport;

(iv) the adequacy of the planned program of maintenance; and - 74 - ANNEX 3 Page 3

(v) the adequacy of the existing organizations for handling all highway network matters such as highway administration, pro- curement procedures, construction supervision, budgeting and planning, etc.

9. The Highway Investment Plan shall distinguish between:

(i) improvements of the existing network; and

(ii) the construction of new links.

The Master Plan shall first identify high-priority investments, including improvements in maintenance needed to achieve optimum use of the existing net- work and shall prepare an action plan for the implementation of these projects. The Investment Plan shall furthermore identify priority projects and new links justified to meet existing traffic flows and to meet the future development requirements of the region. The plans cover a period of 7 years (1979-85), divided into two phases 1979-82 and 1983-85. The first phase plans shall be reasonably firm and detailed; the plans for the second phase will be indica- tive.

10. The Consultants shall prepare a list of roads to be subject to feasibility studies. The investment plans shall take into account and indi- cate the present status of preparation of various subprojects and related feasibility studies, the scope of additional preparation to be undertaken and reasonable estimates of the time required to complete feasibility studies, preparatory works, bidding procedures and construction, particularly for the first phase plans 1979-82. The Consultants shall also carry out feasibility studies of approximately 200 km of high-priority roads for improvement or construction.

11. Sufficient reconnaissance surveys shall be carried out to permit estimates of principal quantities of high-priority works, with a margin of error not to exceed about 25%. The cost estimates will include an adequate provision for both quantity overruns and price increases and identify them separately. The construction costs estimate shall identify the component of foreign and local currency required for various projects.

12. The study shall also highlight:

(i) availability of financial means with regard to the investment program; and

(ii) arrangements for bridging the resource gap, if any, with par- ticular reference to the completion of high-priority works.

C. Cooperation of Governmental Agencies

13. The Provincial/Republican Road Organization will designate an officer for day-to-day liaison and make available to the Consultants the - 75 - ANNEX 3 Page 4 services of an adequate number of couniterpartsfamiliar with local conditions of the Province/Republic concerned. The Road Organization will also ensure that the Consultants have access to all information, maps, previous reports and studies required for completion of the services.

D. Time Schedule

14. The field work shall commence within 30 calendar days of the effec- tive date of this contract. The Consultants shall submit the following reports within the time periods mentioned against each:

(i) Inception Report - a summary of the initial findings, including data requirements and availability, and an outline of their future work program, within two months of the contract effec- tive date;

(ii) Progress Reports - every two months following submission of the Inception Report and until conclusion of field work;

(iii) Interim Report - within six months of the contract effective date, containing all information and results in a preliminary form;

(iv) Draft Final Report - withini nine months of the contract effective date; and

(v) Final Report - within 45 days of receipt of comments on the Draft Final Report from the Government. - 76 - ANNEX 4 Page 1

YUGOSLAVIA

STAFF APPRAISAL REPORT

OF A HIGHWAY SECTOR PROJECT

Economic Analysis of Road Program

1. Under sector lending, as explained in CPM No. 8.3, "Highway Sector Lending," the Bank accepts that it is neither possible nor necessary for rates of return to be calculated at appraisal for each subproject in the Program based on detailed feasibility and economic studies. Indeed, the actual sub- projects or program components to be financed (e.g., strengthening/widening a road from A to B) need not be identified at the time of loan submission because the Bank would have an agreement on the total program and confidence in the borrower's capacity to plan and bring forward sound subprojects in a timely manner. Nevertheless, the Roads Organizations cf all the five Republics/Provinces concerned have undertaken a road network analysis of all interregional and regional roads as well as a considerable amount of eco- nomic analyses in cooperation with the respective consultants engaged for the preparation of the highway master plan(s). Tentative improvement/maintenance proposals are based on the following broad considerations (paras. I to 12) and the Republican Road Organizations have prepared for each of the proposed subprojects an evaluation sheet on which the key technical, design, cost, traffic and economic information is summarized (enclosure). This information will be updated from time to time to enable review of project scope on the rolling plan basis.

A. Bituminous Paving of Gravel Roads

2. Bituminous paving of gravel roads primarily results in savings in vehicle operating costs and, above specified traffic levels, in road maintenance costs. In addition, such improvements also reduce accident costs and travel time for traffic using the existing facilities. Rates of return were computed taking into consideration only the principal benefits, namely, savings in maintenance and operational costs, and other benefits due to safety, increased comfort and travel time savings have not been considered.

B. Strengthening/Widening of Existing Paved Roads

(i) Strengthening

3. Many of the major intercity roads are being subjected to heavier axle loads, and in many cases heavier traffic volumes than they were designed for, with consequent rapid pavement deterioration and shortened life, and the rLsk of serious pavement failures in the future. Usually in such cases two alternative courses of action are possible (a) applying an overlay as an immediate strengthening procedure, or (b) to completely reconstruct those sections after they fail. Economic analysis was made on the basis that if ANNEX 4 Page 2 the overlays were not applied, vehicle operating costs on the progressively deteriorating pavement would be higher, and the failed sections would require complete reconstruction after, say, ten years at a relatively higher cost than that of the immediate overlay. Further, the disruption to traffic during reconstruction would be much greater than during overlay works, but such benefits to the overlay alternative have not been included.

(ii) Widening

4. A considerable part of the existing roads have about 4 to 5 meter- wide bituminous carriageway with earth shoulders. Consequently, vehicles must pass each other with their near-side wheels running on the earth shoulders until the carriageway is clear again. As traffic volumes increase, the shoulders are subjected to increasing wear and tear, and as they are not designed to pavement strength, but only to provide lateral support to the carriageway, they cannot sustain repeated wheel loads without intensive maintenance. Thus the benefits of widening the pavement normally includes savings in vehicle operating costs, travel time and maintenance costs, and these savings have been taken into account in the analyses.

C. New Construction of Highways

5. In recognition of the seriousness of the mounting coagestion problems and the increasing problem of maintaining the road under heavy traffic, new construction of some highway sections were considered. Different alternative solutions were evaluated such as improving or reconstructing the exist- ing road, constructing a new one, the stage construction of the pavement, etc. The quantified economic benefits consist of savings in vehicle operating costs, passenger time and road maintenance costs.

6. For business trips made within the influence area of the project roads, time savings were valued at 1.1 times average hourly wage rate to take some account of overhead costs. Since, however, the value of time for non- business trips is more difficult to establish, these were given a conservative value of 1/4 times average hourly wage rate. Benefits due L. increased comfort, convenience and safety have not been considered.

7. For each project section, the most economical alternative in terms of total transportation cost has been selected. In determining the economic viability of the different subprojeczts, the rational allocation of future freight and passenger movements between road and rail facilities whenever relevant, has been taken into account with due regard to their service characteristics and total distribution costs.

D. Economic Evaluation of Maintenance Program

8. The costs of preventing, through maintenance, the failure of a roadway are less than the costs incurred in periodically rebuilding it. The optimal level of maintenance, however, depends on the marginal costs of increasing maintenance effort (beyond that which would just prevent the - 78 - ANNEX 4 Page 3

roadway from complete failure) vis-a-vis the decrease in user costs. For the purpose of economic analyses certain discrete levels of maintenance based on physical and administrative capabilities of the organizations concerned were considered and the economic costs of the program were compared with the economic benefits resulting from savings in operating costs to road users.

9. Road users' savings represented the difference in vehicle operating costs between the present level of maintenance and the proposed level of maintenance. If the present maintenance effort were inadequate, and if main- tenance in the future were limited to this level, there would be a deteriora- tion of the road network which would increase year by year, especially on those links with growing traffic. This deterioration would gradually increase future user costs, which were estimated by adjusting present user costs by appropriate factors reflecting likely road deteriorations.

10. The analyses were carried out mainly on a link-by-link basis. About 80% of the total inter-regional and regional network under maintenance was evaluated, with only those links which are scheduled to be improved within the three-year mid 1972-mid 1982 period excluded.

E. General

11. For those subprojects (such as those with agricultural orientation) where developmental benefits are significant, economic analyses based on the producer surplus (value-added) concept should be carried out taking due note of changes in consumer surplus whenever relevant. For each sub-project two analyses should be made; one based on conditions 'with' the proposed sub- project, and the other based on 'without' the proposed sub-project. In the first the incomes of the farmers within the influence area of the subproject and the truckers serving them should be calculated, as should be the expendi- tures incurred by the farmers in their expanded agricultural activities, and the additional farming investments needed. Similar calculations should be made for the other situation 'without' the proposed road investment and complementary agricultural investments, and the difference between the two sets would give a measure of the costs/benefits to be derived from the sub- project.

12. Finally, to test the sensitivity of the rates of return to adverse variations in costs and benefits, they should be recalculated assuming that construction costs have increased 10% to 15% with a simultaneous decrease in projected traffic flows of the same proportions. Under these adverse assump- tions the subprojects should remain viable to qualify for financing from the loans. - 79 - Enclosure to ANNEX 4

YUGOSLAVIA

HIGHWAY SECTOR PROJECT

Evaluation Sheet for Subprolect (Example)

1. Basic Data Road: Section: Length (in km): Cross section present: Cross section proposed: Pavement:proposed:

Design class:

2. Traffic (AADT) Car Truck Bus Total

1977: 1982:

3. Cost Estimate (in US$ 'OOO)

4. Operational Cost Car Truck Bus (per km) (Dinar net of taxes)

Old road: Improved road:

5. Economic Data FYBR E.R.

6. Tender Tentative tender date: Completion time:

7. Technical Description (one paragraph)

8. Economic Description (one paragraph)

9. Location Map

10. Alternatives Considered - 80 - ANNEX 5 Page 1

YUGOSLAVIA

STAFF APPRAISAL REPORT OF

A HIGHWAY SECTOR PROJECT

Progress Reporting Requirements

1. Two types of progress reports would be submitted regularly: Program Progress Reports and Subproject Progress Reports. Both types of reports will be prepared by the concerned Road Organization of the different Republics/ Provinces in cooperation with road transport agencies wherever necessary.

Program Progress Reports

2. Program Progress Reports would be submitted at six-month intervals, commencing with the six months ending December 19, 1979. These reports would indicate progress in implementing each major component of the Program and would contain the following information:

Component Information Required

Road Construction/Improvement For each class of road: 1/

(i) physical progress to date of report and during reperting period;

(ii) comparison of physical progress with implementation schedule;

(iii) reasons for deviations from schedule and proposals for corrective action where appropriate;

(iv) projections of likely progress in following reporting period;

(v) expenditure to date of report and during reporting period;

(vi) comparison of actual expenditure with Program and reasons for any deviations, with particular atten- tion to trends in unit costs; and

1/ Class 1, 2, 3 including feeder roads (or Inter-regional and Regional roads separately). - 81-- ANNEX 5 Page 2

(vii) projections of likely expenditure in following reporting period.

Road Maintenance (i) list of routine and periodic main- tenance work performed during the reporting period;

(ii) comparison of actual performance with program and reasons for any deviations; and

(iii) work targets for following reporting period.

Institution Building (i) details of training courses offered and number of trainees trained during reporting period;

(ii) comparison of actual training with program, and reasons for any devia- tions;

(iii) planned training activity for follow- ing period; and

(iv) progress to date of report regarding traffic counting arrangements/O-D surveys on the road network.

Road Transport (i) number of axle weighing showing the proportions of excessive axle loads during reporting period and summary of actions taken; and

(ii) report on other major developments during reporting period (e.g., varia- tion in prescribed freight rates, establishment of freight terminals, increase in duties on motor fuel, any significant change in transport policies).

Subproject Progress Reports

3. These reports would be submitted quarterly, not later than one calendar month after the end of the quarter. The first report should cover the quarter ending December 31, 1979. These reports should contain the fol- lowing information on each subproject being financed by IBRD: - 82 - ANNEX 5 Page 3

Subproject Information Required

Road Construction/Improvement (i) the physical progress accomplished to date of report and during the reporting period;

(ii) actual or expected deviations from the subproject implementation schedule 1/;

(iii) actual or expected difficulties or delays and their effect on imple- mentation and the actual steps taken or planned to overcome the diffi- culties and avoid delays;

(iv) expected changes in the completion dates of the subprojects;

(v) key personnel changes in the staffs of the Road Organization including monitoring and evaluation unit, con- sultants and contractors;

(vi) matters which may affect the cost of the subprojects;

(vii) original estimated cost;

(viii) revised costs, if appropriate;

(ix) actual expenditure;

(x) projected expenditure in the follow- ing quarters; and

(xi) actual withdrawals and projected withdrawals for the following quarter from the Loan Account for this sub- project;

1/ Implementation schedules for each subproject have been tentatively pro- grammed (Annex 7) but a more firm schedule would be submitted with the application for IBRD to accept that subproject for financing. - 83 - ANNEX 5 Page 4

Buildings and Equipment (i) progress with construction, fitting of workshops, and equipment procure- ment during quarter;

(:Li) reasons for any deviations from implementation schedule, and proposed corrective action; and

(iii) projected progress during following quarter.

Technical Assistance and (i) progress during quarter in procuring Consulting Services these services; and

(ii) brief report describing and evaluat- ing work performed by technical assistance experts and consultants during quarter. - 84 - ANNEX 6 Page 1

YUGOSLAVIA

STAFF APPRAISAL REPORT OF

A HIGHWAY SECTOR PROJECT

Monitoring and Evaluation Unit

Background

1. Each concerned Roads Organization of the partici.pating Republics/ Provinces proposes to establish a Monitoring and Evaluation Unit (MEU) within the organization to bring forward sound subprojects in a timely manner, to monitor implementation of these road works, and to evaluate their impact. The primary function of the proposed Unit will be to ensure that the limited funds available are utilized efficiently and on time.

Objectives

2. The objectives of the MEU are to:

(a) formulate sound subprojects within the framework of the highway master plan; ensure completion of substantial detailed engineering and economic viability analyses of different subprojects requiring Bank assistance; and bring them forward in a timely manner for implementation;

(b) monitor how efficiently roads are being constructed/ improved and whether complementary activities necessary to the successful impact of the subproject(s) are being implemented;

(c) propose corrective actions whenever necessary; and

(d) evaluate how effective the subproject(s) are in lowering transport costs and in stimulating economic and social development.

Outline of Work Program Monitoring

3. The scope of monitoring activities will include:

(a) monitoring a timetable (a CPM chart wherever possible) for bringing forward sound subprojects for implementa- tion and disbursements;

(b) monitoring the output and costs of construction and maintenance units; - 85 - ANNEX 6 Page 2

(c) monitoring implementation of complementary activities wherever relevant; and

(d) monitoring operational difficulties, if any.

4. As part of their monitoring programs, the MEUs should suggest mea- sures needed from time to time to attain the physical and financial targets including requirements of personnel, equipment, and training. In this context MEUs should critically review the adequacy of the procurement procedures, construction/supervision and related institutional facilities required to support the execution and operation of the program.

Evaluation

5. The scope of the evaluation covers:

(a) measurement of agriculturaLl and industrial production and marketing, traffic flcws and population movements showing effect of roads constructed and improved;

(b) updating inventory of highway networks that will indi- cate by major road sections construction standards, present state of maintenanice and general adequacy for present traffic;

(c) assessment of the existing traffic counting system and identification of additional traffic counts and origin/ destination studies needed to determine the nature of the traffic over the primary and the secondary (Class 1-2-3) roads, which can serve to measure daily and seasonal patterns and the yearly growth of traffic;

(d) comparison of actual and predicted results especially vehicle operational cost estimates derived from the use of present evaluation metlhods, making necessary changes and refinements to improve their accuracy and reliability as a planning tool; and

(e) assessment of the cost effectiveness of the subprojects, standards of construction works and adequacy of organi- zational arrangements. - 86 -

ANNEX 7 KOSOVO Page 1 Tenrth Highway Project Project Implementat ion Schedule

Years 1979 1980 1981 192 1983 Ouaners 1st 2nd 3rd 4th 1st 2ndF 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th

Inter-regional Roads

Finalize Documents

Prequalify Contractors

Bid, Evaluate, Award

Pristina-Laplje Selo

Laplje Selo-Stimlje

Finalize Bid Documents

Prequalify Contractors

Bid, Evaluate, Award

Laplje Selo-Urosevac

Finalize Bid Documents

Prequalify Contractors

Bid, Evaluate, Award

Leposavic-K.Mitrovica

Urosevac-Doganovic

K.Polje-V.Slatina

Podujevo-Merdare

Kos.Mitrovica-Pristina - 87 -

ANNEX 7 KOSOVOEl Page 2 Tenth Highwcay Pr'oject

Project Implementat ion Schedule

Years 1979 1980 1981 1982 1983

Quarters 1st 2nd 3rd 4th lst 2nd 3rd 4th Ist 2nd 3rd 4th lst 2na 3rd 4th lst 2nd 3rd 4;h

Regional Roads

Finalize Bid Documents

Prequalify Contractors

Bid, Evaluate, Award

Orahovac-Zrze _ _ _ _

K.Mitrovica-Stari Trg _ _ - - _ _ _

Vitina-Grlica - - - -

Gnjilane-Presevo _-- -

Crnoljevo-Komorane - _ _- -

F'inalize Bid Documents

Prequalify Contractors

Bid, Evaluate, Award

Zur-Dragas

Srbica-Klina __ … …-

Finalize Bid Documents

Prequalify Contractors

Bid, Evaluate, Award

Bistrazin-Zrze

D.Kormiljane-Konculj

K.Mitrovica-G.Klina

V.Krusa-Pirane

Pec-Decane

Lablj ane-Gracanica

Gnjilane-Klokot

Lebane-M4ilos evo - 88 -

ANNEX 7 Page 3 MONTENEGRO Tenth Highway Project Project IrmpIerentat ion Schedule

Years 1979 1980 1981 1982 1983

Quarters 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th

Inter-retional Roads

Finalize Bid Documents

Prequalify Contractors

Bid, Evaluate, Award

Andrej evica-Murino

Niksic-Vilusi

Kosanica--Djurdevica Tara

Regional Roads

Finalize Bid Documents

Prequalify Contractors E

Bid, Evaluate, Award

Pave Unspecified Sections

Titograd-Cetinje

Andrejevica-Ivangrad - 89 -

ANNEX 7 Page 4 VOJ'VODINA Tenth Higihway Project Projec 3 t Implemrentation Schedule

Years 1979 1980 1981 1982 1983

1 Quarters 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th lst 2nd 3rd 4th Ist 2nd 3rd 4th

Inter-regional Roads

Finalize Bid Documents

Prequalify Contractors

Bid, Evaluate, Award

Popinci-Border SAPV -

Novi Sad-Zabalj -_

Srbobran-Novi Sad ___ -

Zabalj-Tisa -…

Regional Roads

Finalize Bid Documents

Prequalify Contractors

Bid, Evaluate, Award

Kula Savino Solo - _ __ - 90 -

ANNEX 7 Page 5 MACEDONIA

Tenth Highway Project

Project Implementation Schedule

Years 1979 1980 1981 1982 1983 Quaners1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th lst 2nd 3rd 4th

Inter-regional Roads

Finalize Bid Documents

Prequalify Contractors

Bid, Evaluate, Award

Prilep-Bitola

Ohrid-Bitola

Miladinovci-Stip

Kumanovo-Rankovci

Regional Roads

Finalize Bid Documents

Prequalify Contractors

Bid, Evaluate, Award

Debar-Albanian Border

Ohrid-Pestani

Trabotiviste-Pehcevo

Maked Brod-Belica

Krivogastani-Krusevo

Rasimbegov Most- Vitoliste

Tetovo-Gos tivar

Berovo-Strumica - 91 - AŽNNEX7 Page 6

BOSNIA-1_ERZEr;OVI NA

Tenth Highway Project

Project Implenentation Schedule

Years 1979 1980 1981 1982 1983

Quartersls n 3rd 4 [1,, )ml, 3rd 4'h Iht 2nd 3rdI 4hI ~Ir2nd I1 4'h 1-t 2nrj1~d4 Inter-regional Roads Finalize Documents Prequalify Contractors _

Bid, Evaluate, Award Maglaj-Ljesnica _,

Jezero-Jajce zm =uzc 1- --

Kifinoselo-Madanici _=____- Milinis te-Glamoc =:=- ~-.:~~ -

Duvno-Posusje -- Breko-Vrsani

Draksemic-Gradiska. Tuzla-Medas Sanskimost-Kljuc Lastva-Klobuk

Bos. Novi-Bis Dubica ______Rogoiji-Ministe - _ =Z= t Z Pale-Rakite-Praca Liubinje-Zakovo Maslovare-Teslic .4 Blatuj-Konjic Finalize Documents Prequalify Contractors Bid, Evaluate, Award

Jai ce-Podmilacie e -It Kobas-Derventa

Gradacac-Pelagicevo |t=_ Bos. Brod-Odzak ______---t--t_ Pilica-Sepak

Josanica-BlazuJ __||______-_ Klasaice-Okueani Regional Roads Finalize Bid Documents

Prequalify Contractors Bid, Evaluate, Award t ;- Stolac-Plana _-_-___;_

Otoka-Kladusa T-: _ - = Sekovici-Caparde _- Drvar-Martin Brod | - 92 - ANNEX 8 Page 1

YUGOSLAVIA

STAFF APPRAISAL REPORT OF

A HIGHWAY SECTOR PROJECT

Selected Documents and Data Available in the Project File

A. Reports and Studies on the Transport Sector

1. Yugoslavia Development with Decentralization - World Bank Country Economic Report, 1975, Ch. 7, "Infrastructure - Transport", pp 166- 178.

2. Yugoslavia Transport Sector Memorandum (White Cover) - April 1978.

3. Guidelines for Highway Feasibility Studies, 1975, Vols 1 and 2, Dorsch Consult in association with Louis Berger, International, Inc.

B. General Reports and Studies Relating to the Project

1. Development of Road Network in SAP Kosovo 1977-1990, Vols 1-4, Institute Za Puteve - Beograd, September 1978.

2. Master Plan Road Network Construction Program Mid '79 to Mid '82 - Titograd, 1978.

3. Road Network Master Plan SAP Vojvodina 1979-85, Vols 1-3, Institute Za Puteve, Beograd, September 1978.

4. Feasibility Study of the Highway E-75(E-5) State Border-Subotica- Novi Sad-Beograd (with separate Annex)-1975, September 1976, February 1978 - "Urbis" Novi Sad and "Gradjevinarstvo", Novi Sad.

5. Feasibility Study of TYH (Kuzmin-Dobanovci) SAP Vojvodina-Urbis, 1977.

6. Development of Basic Road Network in SR Macedonia for Period 1978-82, Skopje, June 1978.

7. Feasibility Study of the Highway Miladinovci-Stip, Highway Institute, Belgrade, March 1976.

8. Feasibility Study on Expressways in Sarajevo Region, Sarajevo, 1978.

9. Feasibility Study - Josanica-Blazuj, Institute Za Puteve, Beograd, September 1976.

10. Feasibility Study - Sarajevo-Konjic, CONSULTPROGETTI, Milano; Dorsch Consult, Munchen; Louis Berger, Inc., USA., October 1975. - 93 - ANNEX 8 Page 2

11. Excerpts from the Plan of Development of the Road Network of Bosnia- Herzegovina up to the year 1982, September 1978, Zavod Za SaobL±acQJ Gradevinskog Fakuleta, Sarajevo.

12. Sozina Tunnel - Feasibility Study (Phase I), Zagreb, September 1978. - 94 - ANNEX 9

YUGOSLAVIA

STAFF APPRAISAL REPORT OF

A HIGHWAY SECTOR PROJECT

Equipment to be Procured

Estimated Cost Item (US$ Equivalent)

SR Bosnia-Herzegovina 1. Automatic traffic counter with auxiliary equipment 2. Microfilm equipment 3. Ice sensor 4. Traffic data analyzer 400,000

SR Montenegro 1. Asphalt thickness meter 2. Traffic counters 3. Ice sensor 4. Traffic data analyzer 200,000

SAP Vojvodina 1. Automatic traffic counter with auxiliary equipment 2. Supply of equipment of traffic counter 3. Ice sensor 4. Traffic data analyzer 5. Roughness meter (indicator) 400,000

SAP Kosovo 1. Automatic traffic counter with auxiliary equipment 2. Dynamic weighing device (portable) 3. Ice sensor 4. Sand/salt spreader 5. Traffic data analyzer 6. Roughness meter (indicator) 7. Cine camera plus projector 900,000

SR Macedonia 1. Automatic traffic counter with auxiliary equipment 2. Asphalt thickness meter 3. Ice sensor 4. Loader for spreader 5. Unimog-truck with additional unit 6. Other 300,000

TOTAL 2,200,000 95 - ANNEX 10

YUGOSLAVIA

STAFF APPRAISAL REPORT OF

A HIGHWAY SECTOR PROJECT

Proposed Training Program

Estimated Cost 1979/80 1980/81 1981/82 (US$ Equivalent)

SR Bosnia-Herzegovina 1 Traffic Engineer 2 months 1 Civil Engineer 2 months 1 Economist 2 months Seminar-3 Civil Eng. 1/2 month 1/2 month 1/2 month 100,000

SR Montenegro 1 Civil Engineer 2 months 1 Economist 2 months Seminar-4 Civil Eng. 1/2 month Seminar-4 Civil Eng. 1/2 month 100,000

SAP Vojvodina 2 Civil Engineers 2 months 2 months 1 Traffic Engineer 2 months Seminar-3 Civil Eng. 1/2 month 1/2 month 100,000

SAP Kosovo 2 Civil Engineers 2 months 2 Civil Engineers 2 months 1 Economist 2 months Seminar-2 Civil Eng. 1/2 month Seminar-2 Civil Eng. 1/2 month 100,000

SR Macedonia 2 Civil Engineers 2 months 1 Traffic Engineer 2 months 1 Economist 2 months Seminar-2 Civil Erig. 1/2 month Seminar-2 Civil Eng. 1/2 month 100,000

Total 500,000

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