Document of The World Bank Public Disclosure Authorized Report No: 29844 IMPLEMENTATION COMPLETION REPORT (TF-27806) ON A GRANT Public Disclosure Authorized IN THE AMOUNT OF US$3.0 MILLION TO KOSOVO, SERBIA AND MONTENEGRO FOR A PRIVATE SECTOR DEVELOPMENT TECHNICAL ASSISTANCE GRANT Public Disclosure Authorized November 10, 2004 Public Disclosure Authorized CURRENCY EQUIVALENTS (Exchange Rate Effective October 22, 2004) Currency Unit = US$ 1 Euro = US$ 1.2670 US$ 1 = Euro 0.7892 October 22, 2004 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ACCA - Association of Chartered Accountants DJA - Department of Judicial Administration EAG - Economic Assistance Grant EC - European Commission ICR - Implementation Completion Report IDA - International Development Association IFAC - International Federation of Accountants IFRS - International Financial Reporting Standards ISA - International Auditing Standards GDP - Gross Domestic Product KBSFR - Kosovo Board on Standards for Financial Reporting MFE - Ministry of Finance and Economy MTI - Ministry of Trade and Industry NBR - Registry of Business Organizations and Trade Names of Kosovo OSCE - Organization for Security and Co-operation in Europe PBR - Provisional Business Registry PISG - Provisional Institutions of Self-Government PSD TA - Private Sector Development Technical Assistance REA - Regional Enterprise Agency SCAAK - Society of Certified Accountants and Auditors of Kosovo SEEPAD - South Eastern Europe Partnership on Accountancy Development SME - Small and Medium Enterprise TSS - Transitional Support Strategy UNMIK - United Nations Interim Administration Mission in Kosovo USAID - United States Agency for International Development Vice President: Shigeo Katsu Country Director Orsalia Kalantzopoulos Sector Director/Manager Fernando Montes-Negret/Gerardo Corrochano Task Team Leader/Task Manager: Silvia Minotti KOSOVO PRIVATE SECTOR DEVELOPMENT TECHNICAL ASSISTANCE CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 4 5. Major Factors Affecting Implementation and Outcome 10 6. Sustainability 12 7. Bank and Borrower Performance 13 8. Lessons Learned 14 9. Partner Comments 14 10. Additional Information 17 Annex 1. Key Performance Indicators/Log Frame Matrix 22 Annex 2. Project Costs and Financing 23 Annex 3. Economic Costs and Benefits 24 Annex 4. Bank Inputs 25 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 26 Annex 6. Ratings of Bank and Borrower Performance 27 Annex 7. List of Supporting Documents 28 Project ID: P071265 Project Name: PSD TA Operation Team Leader: Silvia Minotti TL Unit: ECSPF ICR Type: Core ICR Report Date: December 6, 2004 1. Project Data Name: PSD TA Operation L/C/TF Number: TF-27806 Country/Department: KOSOVO Region: Europe and Central Asia Region Sector/subsector: Central government administration (53%); Law and justice (30%); Vocational training (17%) Theme: Regulation and competition policy (P); Legal institutions for a market economy (P); Judicial and other dispute resolution mechanisms (P); Standards and financial reporting (P); Legal services (P) KEY DATES Original Revised/Actual PCD: 01/16/2001 Effective: 04/01/2001 06/21/2001 Appraisal: 01/17/2001 MTR: 03/31/2002 11/12/2002 Approval: 03/05/2001 Closing: 06/30/2004 09/30/2003 Borrower/Implementing Agency: UNMIK/UNMIK-PISG, Ministry of Trade and Industry, Ministry of Finance and Economy, Department of Judicial Administration Other Partners: STAFF Current At Appraisal Vice President: Shigeo Katsu Johannes F. Linn Country Director: Orsalia Kalantzopoulos Christiaan J. Poortman Sector Director: Fernando Montes-Negret Paul J. Siegelbaum Team Leader at ICR: Silvia Minotti Gerardo M. Corrochano ICR Primary Author: Silvia Minotti 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: H Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: Yes 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: Background In 1989 the autonomy of Kosovo within the Federal Republic of Yugoslavia was abrogated and a decade of social and economic hardship began, leading to the 1999 spring conflict. During that decade, Kosovo did not make any progress towards a market-based economy. Albanian Kosovars were excluded from civic life, including university education, and many of them were forced to quit their public sector jobs. Most Kosovar judges and lawyers were unable to practice their profession. The accounting infrastructure was extremely poor and restricted to bookkeeping practices utilizing outdated standards and principles. On June 10, 1999, the UN Security Council approved resolution 1244 which authorized the deployment of an international security force (KFOR) and the establishment of a UN-managed civilian administration, the UN Mission in Kosovo (UNMIK). Under this resolution, Kosovo remains a province of Serbia, but has “substantial autonomy and self-administration”. One of UNMIK's key objectives of the post-conflict situation was the establishment of a sound legal and institutional framework for the operation of a market economy and a business environment to enable private sector growth. With support from the Bank (e.g., Economic Assistance Grants) and other donors, new commercial regulations were promulgated and new institutions were created. In this context, in order to support the newly established tax administration and to gather data on the post-conflict economic activity, in 2000 UNMIK established the Provisional Business Registry (PBR) to “register” all the businesses active in Kosovo (Regulation 2000/8 "On Business Provisional Registration of Businesses in Kosovo"). The main objective of the provisional registration was to provide a form of identification of the entities in business rather than giving legal personality to the registrants. This was the first step towards the establishment of a new business registration system. In fact, UNMIK had planned to incorporate the PBR into a new modern business registry which - following the old business registration practice - was initially to be located at the commercial court. In 2001 UNMIK established the Kosovo Board on Standards for Financial Reporting (KBSFR) with the mandate of issuing accounting and auditing standards compliant with International Financial Reporting Standards (IFRS) and International Auditing Standards (ISA), and of licensing professional accounting and auditing associations. Implementation of the new legal and institutional framework would require significant capacity building programs. The already limited local capacity was further constrained by Kosovo's unfamiliarity with the principles of the market economy underlying the new commercial regulations and newly established institutions. In this context, UNMIK and the Bank gave priority to create/strengthen the new market institutions that would support the newly created commercial legal framework. Objective The objective of the Private Sector Development Technical Assistance (PSD TA) project was to improve the business-enabling environment for private sector growth. Specifically the project sought to: (i) support the establishment and operation of a modern business registry system; (ii) strengthen the capacity of the commercial and supreme courts and improve the quality of legal services; and (iii) support the development of basic accounting standards, provide training for local accountants, and assist in the establishment of an association of accountants. The project was a technical assistance operation financed by the Trust Fund for Kosovo administered by the International Development Association (IDA). The project's objectives were fully consistent with the Kosovo's Transitional Support Strategy (TSS), dated September 1999, and the TSS Progress Report, dated - 2 - July 2000. The project was also fully in line with the Program for the Reconstruction and Recovery of Kosovo, dated November 1999, jointly prepared by the European Commission (EC) and the World Bank. The project was an appropriate instrument to complement the policy framework supported by the Third Economic Assistance Grant to Support Private Sector Development (EAG III, 2001) which was anchored to a first set of approved commercial regulations (such as the regulation on business organizations, the regulation on contracts for the sale of goods, the regulation on pledges, and the regulation on foreign investment). The overall objective of these regulations was to allow economic actors to enter the market and operate within it. The PSD TA project became effective in June 2001, and, after being fully implemented (after a nine-month extension), it closed in June 2004. 3.2 Revised Objective: The project objectives were not revised. 3.3 Original Components: In order to achieve the stated development objectives, the project included the following four components: Component 1: Development of a new fully-fledged business registry (US$1.36 million) This component was intended to support the establishment and operations of a modern business registry system which would allow businesses to register under the commercial court auspices. To