Document o f The World Bank

FOR OFFICIAL USE ONLY

Report No: 27920-RO

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LOAN

IN THE AMOUNT OF US$225.0 MILLION

TO

THE REPUBLIC OF ROMANIA

FOR A

TRANSPORT RESTRUCTURING PROJECT

October 22,2004

Infrastructure and Energy Department Europe and Central Asia Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. I t s contents may not otherwise be disclosed without World Bank authorization.

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APL

Calatori

C A S CDF

CESTRIN

CFAA

CFR

EBRD

EL4 EIB EMP

EU GRSP

I C R I R I S

ISPA

CURRENCY EQUIVALENTS

(Exchange Rate Effective October 18, 2004)

Currency Unit = Romanian L e i (ROL) US$l.OO = ROL33,104

FISCAL YEAR January 1 - December31

ABBREVIATIONS AND ACRONYMS

Adaptable Program Loan

Romania National Railway Passenger Operations Company Country Assistance Strategy Comprehensive Development Framework Romania Central Laboratory for Transport and Road Infrastructure Country Financial Accountability Assessment Romania National Railway Company European Bank for Reconstruction and Development Environmental Impact Assessment European Investment Bank Environmental Management Plan

European Un ion Global Road Safety Partnership

Implementation Completion Report Integrated Railway Information System Instrument for Structural Policies for pre-Accession

Marfa

M T C T

MPF R N C M N R

PAD

PAL

PHARE

PPLBL

PPP PSC SAPARD

S I L SNCFR

SOEs SWAP

Romania National Railway Freight Operations Company Ministry o f Transport, Construction and Tourism Ministry o f Public Finance Romania National Company for Motorways and National Roads Project Appraisal Document

Programmatic Adjustment Lending

Fund for Assistance to Central and Eastern European Counties Public Private Institution Building Loan Public -Private Partner ship Public Service Contract Special Accession Program for Agriculture and Rural Development Specific Investment Loan National Railway Company o f Romania (former) State Owned Enterprises Sector Wide Approach

Vice President: Shigeo Katsu, E C A V P Country Director / Manager:

Sector Director / Manager: Task Team Leader:

h a n d K. Seth / Owaise Saadat, ECCUS Hossein Razavi / Motoo Konishi, ECSIE Henrv G. R. Kerali. ECSIE

FOR OFFICIAL USE ONLY ROMANIA

TRANSPORT RESTRUCTURING PROJECT

CONTENTS

Page

A . STRATEGIC CONTEXT AND RATIONALE ................................................................ 1 1 . Country and Sector Issues ................................................................................................ 1

2 . Rationale for Bank Involvement ...................................................................................... 4

3 . Higher'Level Objectives to Which the Project Contributes ............................................. 4

B . PROJECT DESCRIPTION ................................................................................................ 5

1 . Lending Instrument .......................................................................................................... 5

2 . Project Development Objective and K e y Indicators ........................................................ 6

3 . Project Components ......................................................................................................... 7 4 . Lessons Learned and Reflected in the Project Design ..................................................... 9

5 . Altematives Considered and Reasons for Rejection ...................................................... 11

C . IMPLEMENTATION ....................................................................................................... 12 1 . Partnership Arrangements .............................................................................................. 12 . 2 . Institutional and Implementation Arrangements ........................................................... 13

3 . Monitoring and Evaluation o f OutcomesResults .......................................................... 14 4 . Sustainability .................................................................................................................. 15

5 . Crit ical R isks and Possible Controversial Aspects ........................................................ 16

6 . Loadc red i t Conditions and Covenants ......................................................................... 16

D . APPRAISAL SUMMARY ................................................................................................ 18

1 . Economic and Financial Analyses ................................................................................. 18

2 . Technical ........................................................................................................................ 20

3 . Fiduciary ........................................................................................................................ 20

4 . Social .............................................................................................................................. 21

5 . Environment ................................................................................................................... 21

6 . Safeguard Policies .......................................................................................................... 22

7 . Policy Exceptions and Readiness ................................................................................... 23 J

Annex 1: Country and Sector or Program Background ......................................................... 24

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ................. 29

This document has a restricted distribution and may be used by recipients only in the performance o f their official duties . I t s contents may not be otherwise disclosed without Wor ld Bank authorization .

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ................. 30

Annex 3: Results Framework and Monitoring ........................................................................ 31

Annex 4: Detailed Project Description ...................................................................................... 35

Annex 5: Project Costs ............................................................................................................... 44

Annex 6: Implementation Arrangements ................................................................................. 45

Annex 7: Financial Management and Disbursement Arrangements ..................................... 47

Annex 8: Procurement ................................................................................................................ 53

Annex 9: Economic and Financial Analysis ............................................................................. 60

Annex 10: Safeguard Policy Issues ............................................................................................ 72

Annex 11: Project Preparation and Supervision ..................................................................... 75

Annex 12: Documents in the Project File ................................................................................. 76

Annex 13: Statement of Loans and Credits .............................................................................. 77

Annex 14: Country at a Glance ................................................................................................. 79

MAP of Romania

ROMANIA

RECONSTRUCTION AND DEVELOPMENT Total:

TRANSPORT RESTRUCTURING PROJECT

152.90 225.00 377.90

PROJECT APPRAISAL DOCUMENT

EUROPE AND CENTRAL ASIA

ECSIE

Date: October 22, 2004 Country Director: h a n d K. Seth Sectors: Roads and highways (66.5%); Country Manager: Owaise Saadat Railways (33%); Urban Transport (0.5%) Sector Director: Hossein Razavi Themes: Other public sector govemance (P); Sector Manager: Motoo Konishi Other urban development (P); Public

Team Leader: Henry G. R. Kerali

expenditure, financial management and procurement (S); State enterprisehank restructuring and privatization (S); Other rural development (S) Environmental screening category: A ~ Project ID: PO83620

I Lending Instrument: Specific Investment Loan Safeguard screening category: S2

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

3 r Loans/Credits/Others: Total Bank financing (USsm.): 225.0 Proposed terms: LIBOR based Variable Spread Loan (VSL) in U S Dollars;

5/17 vears (Gracematuritv Deriods) I

FOR

~~

152.90 I 0.00 I

Total 152.90 225.00

Responsible Agencies: Romania National Company for Motonvays and National Roads (RNCMNR) 38 Bd. Din icu Golescu, Floor 8, Sector 1, Bucharest 771 13, R O M A N I A Tel: (40-21) 223-26-06 Fax: (40-21) 312-09-84 andaandnet .ro

National Railway Infrastructure Company (CFR) 38 Bd. Dinicu Golescu, Sector 1, Bucharest 771 13, ROMANIA Tel: (40-21) 223-14-87 Volievschi@,central.cfr.ro / olievski@mt.ro

S.C. METROREX S.A. 38 Dinicu Golescu Bvd., 010873 Bucharest, 1, Romania Tel: +4021 336 00 90 / 55 90 E-mail: Tiberiu Moldovan <moldo@kappa.ro>

Fax: (40-21) 222-25-17

Fax: +4021 312 51 49

I

ICumulativeI 20.0 I 75.0 I 135.0 I 195.0 I 225 I 225 I Project implementation period: Start: M a y 15,2005 End: April 30,2009 Expected effectiveness date: M a y 15, 2005 Expected Loan closing date: July 3 1 , 2009 Does the project depart fkom the CAS in content or other significant respects? Re$ PAD A.3 Does the project require any exceptions fiom Bank policies? Re$ PAD D. 7

[ ]Yes [XINO

[ ]Yes [XINO Have these been approved by Bank management? I s approval for any pol icy exception sought from the Board?

]Yes [ IN0 [ ]Yes [ IN0

[ ]Yes [XINO Does the project include any critical risks rated “substantial” or “high”? Re$ PAD C.5

[XIYes [ ] N o Does the project meet the Regional criteria for readiness for implementation? Re$ PAD D. 7 Project development objective Re$ PAD B.2, Technical Annex 3 The project aims to improve the efficiency o f the railways and roads sectors, and thereby reduce the overall costs o f transportation.

Project description Re$ PAD B.3.a, Technical Annex 4 The project includes components primari ly for roads and railways sub-sectors selected from the governments priority investments for the transport sector, with a small component added for institutional development of urban transport planning and management. This wil l be achieved by financing: (i) improvements in the efficiency o f managing the railways and roads sub-sectors; (ii) improvements in road safety; (iii) reduction in the overall costs o f transportation through construction o f road by-passes in selected cities, and procurement o f equipment for railway track maintenance, power supply and signaling; (iv) rehabilitation and improvement o f selected road

bridges; and (v) institutional development o f urban transport planning and management capacity.

Which safeguard policies are triggered, if any? Re$ PAD D. 6, Technical Annex 10 Environmental Assessment (OB/BP/GP 4.0 1). lnvoluntary Resettlement (OP/BP 4.12)

Significant, non-standard conditions, if any, for: None Board presentation: None.

Loadcredit effectiveness:

(i) Government has submitted to the Bank duly authorized and ratified Subsidiary Loan Agreements making the loan proceeds available to CFR and R N C M N R o n the same terms as the loan. (Ratification o f Metrorex Subsidiary Loan Agreement i s a condition o f disbursement o f that component).

(ii) Government endorsement o f the key elements in the transport sector expenditure program and 5 year cash f low projections with identified financing sources prepared under the WB TA program.

Covenants applicable to project implementation: Standards covenants.

A. STRATEGIC CONTEXT AND RATIONALE

1. Country and Sector Issues

Macro-econ om ic Environment

1. Romania has experienced steady growth o f i t s economy since 1991 with per capita GDP growth rates ranging between 5 - 6 percent. The Government adopted an economic reform strategy in 1996 with the goal to transform the economic system from a centrally planned economy to the free market model that has been the foundation o f the economic success in western Europe. This has provided the impetus to the government, and to the Romanian public, to aspire to j o i n the European Union within the f i rst decade o f this millennium. Consequently, the Government sees the integration of Romania within the European Union as one o f its highest priorities, and this has shaped much of i t s policies and strategies for development. Integration with the EU requires a range of measures to be taken by the government, in addition to aligning the economy with the rest o f Europe, including improving social, strategic and physical l i nks .

2. In 2003, Romania had a total population o f around 22.7 million, with around 45% living in rural areas, resulting in an average population density o f 45 people per square km in the rural areas. The transport sector contribution to the Romanian economy was 6.4% o f the total GDP (USD 54.7 billion equivalent) in 2003. In addition, trade in goods as a share o f GDP was 67.8% in 2001, and much o f this trade utilizes one or more modes o f transport, which in Romania i s dominated by the railways and roads. These two modes have unique problems: for the roads, there i s insufficient capacity, which only can be corrected by a large highway development program; whilst for the railways, there i s excess capacity that only can be corrected by abandoning uneconomic railway lines. Common to both transport modes i s the need to rehabilitate viable fixed assets, to reduce the direct labor force, and to introduce modern management methods and models.

Road Transport

3. The road network in Romania totals 78900 km o f which 20% are national roads that carry 60% of the traffic. Road density, with respect to both population and land area, i s among the lowest in al l o f Europe thereby suggesting l o w accessibility to the road networks. Countries with comparable road classification structures, such as Austria, Sweden and Finland, have road lengths o f 135000km, 98000km, and 78000km, respectively, but with one third or less o f the population o f Romania. The current stock o f vehicles i s estimated to be 3.5 million, which i s very l ow for a population of about 23 million, compared to the Netherlands with 7 million vehicles for 16 mi l l ion people. Consequently, i t is expected that car ownership wi l l grow, and personal travel too wil l commensurately grow. Intercity bus travel, as an economic and highly competitive mode, has also grown and will continue to win market share f rom ra i l passenger services. Truck transportation wil l also grow, at approximately twice the rate o f economic growth. This growth in truck traffic will come from two sources; transfer f rom rail, and restructuring o f the economy. Until 1990, al l land transports a f more than 50 km were required to use the railways. However, the drive to integrate with the EU, along with the transformation to a market economy, has forced the transport industry to become more sensitive to logistics costs and just-in-time deliveries. As a consequence, road capacity and the level o f service provided by

1

roads are increasingly becoming a constraint to the movement o f goods and passengers in Romania. In addition, direct access to the main and collector roads i s prevalent in Romania, thereby negatively affecting road capacity, the level-of-service and traffic safety. With more than 50% of the national road network reported to be in poor condition in 2003, primarily due to inadequate financing o f the road network, road transport costs are on average 30 - 56% higher than they should be.

4. Romania's road traffic crash rate o f 10.4 fatalities per 100,000 inhabitants, i s much higher than the average for EU countries, where the norm i s we l l below 10. The comparison i s even worse if the fatality rate i s taken per vehicle, resulting in a rate that is more than 3 times the average EU rate. Although the number and the rate o f traffic crashes have declined over the past 5 years, recent estimates by the Ministry of Transport, Construction and Tourism (MTCT) indicate that the gross costs o f traffic crashes in Romania could be around 2 % o f GDP.

5. In summary, there are four principal problems in the roads sub-sector: (i) few roads in the country have been designed with adequate capacity and durability, (ii) there i s direct access from land to the main roads with negative consequences in urbanized areas, and consequently, most roads require major rehabilitation, remedies for access control and upgrading to carry vehicles with the EU standard 40T truck loads, (iii) shortage o f financing that i s required to increase road network capacity and to rehabilitate those in poor condition, and (iv) traffic safety with significantly higher crash rates compared to EU countries.

Railways

6. The railway network in Romania comprises 22,298 km o f track, o f which 36% i s electrified and 27% i s double track. In 2003, the railways carried 8.1 billion passenger-km in addition to 17.3 bi l l ion ton-km of freight, and the combined total transportation by ra i l constituted around 45% of al l passenger and freight movement in the country. In terms o f the size and scale o f operations, the railways are comparable with the larger EU railways. However, as in other centrally planned economies, Romanian railways had very short lengths o f haul, averaging only 250 km. Consequently, the railways experienced a dramatic fal l in freight and passenger volumes from the peak volumes recorded in 1989 mainly due to the decline in GDP and competition from road transport. The rai l share fe l l significantly from 80% for freight, and 70% for passenger traffic in 1960, to less than 40% for freight, and to about 50% for passenger travel by 2001. Road transport competes aggressively with ra i l transport and has continued to gain in the share o f the combined freight market (in terms o f tonnage), and o f the intercity passenger transport market (in terms of number o f passengers). International trade i s s t i l l important for the Romanian railways with imports accounting for 11% o f the traffic, exports about 6%, and transit about 1%.

7. As the market share for rai lway transport fell, i t s deficits rose. The railways could not finance maintenance and investment in facilities and equipment. Also, heavy losses were incurred because o f overstaffing, outdated equipment, and non-payment by many loss-making state-owned enterprises (SOEs). The railways covered the losses by accumulating arrears to the state and through debt to other creditors. A s a result, the Government launched a railway reform program in 1996 to reduce the fiscal burden and to meet EU accession benchmarks. The reforms were joint ly financed by the Bank, EBRD, the EU (PHARE) and the government. The previous state railway company (SNCFR) was initially separated into f ive companies, and these were

2

subsequently merged into three: infrastructure (CRF), freight (Marfa), and passenger (Calatori), with the state as the sole shareholder in al l three. The restructuring also created a regulatory agency (AFER) within MTCT, in addition to the Ministry’s rai lway department that coordinates the operations o f the railway companies. The Bank funded the Romanian Railways Rehabilitation Project (Loan 39760) that contributed to the restructuring o f the railways and resulted in the following reforms that were achieved by the end o f 2003’:

Enactment o f a new Railway Law creating an environment that permits private participation in the railway industry in Romania; An increase in the efficiency o f operations for the Railways to respond to market demands and to meet the requirements o f EU accession; Privatization o f a total o f 20 out o f 26 non-core railway activities ; Reduction in the number o f staff from 137,139 in 1996 to 72,744; and The size o f the railway network is expected to be reduced by around 3,500 km as part o f the on-going restructuring and divestiture o f non-performing rai lway assets.

8. Despite these changes, ra i l passenger services st i l l require large subsidies. In 2002 alone, the Government spent over US$170 mi l l ion for Public Service Contracts (PSC). Despite this level o f subsidy, railway passenger services are the main cause o f the growing deficits for the entire railway system due to i t s continued operation o f extensive but uncompetitive services at l o w fares. Conversely, the railway freight company (Marfa) operates with a modest profit. Freight rates are deregulated and private companies have entered the market. There is concern that the state freight company wil l continue to lose the most profitable cargo contracts to the private sector if i t i s not privatized in the near future. For example, in 2001 there were nine private operators whose market share was only 1 % in terms o f ton-km as wel l as tonnage, but the new entrants have increased their market share and taken over profitable freight contracts. The Government intends to privatize Marfa after the necessary groundwork i s in place including rationalization o f network and operations, implementation o f undistorted access charges, and further labor reductions.

9. For the railways to become competitive and financially viable, the agenda includes continuation of: (i) the improvement in labor productivity; (ii) rationalization o f the rai lway network and services; (iii) implementation o f a new railway regulatory regime to permit EU interoperability; (iv) contractual financing arrangements between the State and the passenger railway services to pay for or terminate non-commercial services through a Public Service Contract (PSC); (v) implementation o f commercially-based access charge scheme; and (vi) restructuring o f core railway activities to lower infrastructure maintenance and operation costs.

Urban Transport

10. The project also includes a small component that was added for institutional development o f capacity for planning and managing urban passenger transport. This wil l improve efficiency and effectiveness o f the metro-rail urban transport operator in Bucharest (Metrorex), as we l l as the urban transport unit within MTCT.

’ Implementation Completion Report No. 27750, Romania Railways Rehabilitation Project. World Bank, Europe and Central Asia region, M a y 2004.

3

2. Rationale for Bank Involvement

11. The World Bank has actively supported the transport sector in Romania through investment operations and advisory services for the past 15 years. The most recent operations financed through Bank loans include the Railway Rehabilitation Project (Loan 39760-RO) and the Second Roads Project (Loan 4178-RO). The Railway Rehabilitation Project was instrumental in seeing through the implementation o f s ia i f icant reforms in the railways sub- sector. The Bank financed project, together with other donor financed components, resulted in significant improvement o f productivity (measured in terms o f passenger-km plus freight ton-km per staff) for al l three railway companies (CFR, Marfa, and Calatori). In quantified terms, the productivity gains were impressive; from a l o w point o f 272 in 1999 to a projected 420 by the end o f 2005, i.e. 54% increase. M u c h o f this improvement i s attributed to the organizational restructuring and the divestiture o f non-core railway businesses, that were undertaken during the Bank financed project. The Bank financed Second Roads Project focused o n improving: (i) road safety; (ii) the condition o f selected road sections; (iii) management and performance o f the road administration; (iv) the capacity o f the c iv i l works construction industry; and (v) the environmental impacts o f traffic through the reduction o f lead in petrol.

12. The need for Bank engagement in the transport sector in Romania remains strong. There have been welcome structural reforms in both roads and railways sectors. However, the level o f government intervention in each sector remains high and affects both investment priorities and business management. The impacts o f that intervention on managerial behavior, combined with a prevalence o f traditional work methods and culture mean that many necessary changes have not yet been fully embraced. As a result, and despite significant budgetary transfers, neither the roads, nor the railways sub-sector i s financially stable or sustainable in their current form.

13. This project has therefore been developed to consolidate the reforms in the railways sub- sector, and to further improve the performance o f the roads sub-sector by removing some o f the critical bottlenecks caused by inadequate capacity o f the national and rural road network, and hrther build capacity for road administration and management. Thus, considering the above, involvement o f the Bank in the project is justified on the fol lowing grounds: (i) given i t s knowledge in the transport sector, the Bank can provide substantive assistance to the Government in implementing sustainable pol icy and institutional reforms in the sector; and (ii) the Bank i s uniquely equipped to help the Government and the sector’s main agencies synthesize the information from other countries that have experienced similar challenges and tailor these to the needs o f the transport sector in Romania. Consequently, the Bank i s desired both as an advisor and a financier.

3. Higher Level Objectives to W h i c h the Project Contributes

14. The combined impacts o f the government’s drive for EU integration, with the relatively l ow population density, and the poor condition o f the existing transport infrastructure, has greatly influenced the government’s strategy to increase planned investments in transport infrastructure and transport services. The government’s goal i s to raise the competitiveness o f the Romanian economy to levels close to those o f EU accession countries, and at the same time, improve the internal l i n k s between populations living in al l regions o f the country. Estimates by the Romanian government o f the investment needed to improve land transport range between U S D 18.5 to 21.2 bi l l ion for the period 2003 - 2015. For the road network, this includes USD4.4

4

bi l l ion for investments in rehabilitation, USD2.6 bi l l ion for road improvements (such as widening and bypasses to congested cities), and USD4.5 b i l l ion for construction o f new highways and motorways. For the railways, planned investments range between USD7.0 - 7.7 bi l l ion for improvements to the infrastructure and modernization o f essential rol l ing stock. These significant levels o f planned investments reflect the importance that the government attaches to the contribution o f the transport sector to economic development, poverty reduction, and i t s role in achieving both internal and external integration within the EU.

15. One o f the goals o f the FY02-04 CAS was to promote structural reforms and private sector development through unbundling and the privatization o f state owned enterprises (SOEs) and infrastructure services. The FY02-04 CAS objectives also included sustained investment in the national transport systems and stimulation o f private participation in infrastructure. The restructuring so far achieved in the railways sub-sector, together with the institutional reforms to be implemented under this new loan in both railways and roads sub-sectors, should further consolidate private sector participation in transport infrastructure. In addition, the Bank reviewed and prepared a strategy in 2002 that defined its support to the Romanian infrastructure and energy sectors. The strategy, endorsed by the Government and key donors validated continued Bank involvement in priori ty areas, including railways and roads in the transport sector. The strategy envisions a combination o f adjustment and investment lending to support key reforms and priority investments.

B. PROJECT DESCRIPTION

1. Lending Instrument

16. The $377.9 mi l l ion project wil l be financed under a Specific Investment Loan (SIL) amounting to $225 mi l l ion that i s structured to improve efficiency, productivity and service to users o f roads and railways through restructuring, modernization, capacity-building and carefully selected improvements to road infrastructure to rel ieve traffic bottlenecks around key cities. A significant proportion o f the loan i s dedicated for physical improvements to the road network, and for the acquisition o f essential high value equipment for the maintenance o f railway infrastructure. Other project components wil l support improvements in road safety, institutional development o f the road management organization (RNCMNR), and privatization o f the freight railway company. As such, these are specific investments that support a broad range o f components that are al l aimed at the development, rehabilitation and maintenance o f economic, social, environmental, and institutional infrastructure.

17. The project is coordinated with the Programmatic Adjustment Lending (PAL) program in order to maximize leverage and full achievement o f the project development objectives. The PAL includes significant transport related conditionalities with specific targets for productivity, operating efficiency, and debt service ratio for the railways sub-sector; and privatization o f direct labor organizations and increased cost recovery for the roads sub-sector. The P A L program includes a number o f technical assistance consultancies, financed through a PPIBL. For the railways, the technical assistance consultancies include: (i) restructuring the core businesses and divesting non-core operations; (ii) identification and removal o f non-core railway track segments; and (iii) strengthening the railway regulatory regime, consistent with the EU practice. For the roads sub-sector, the consultancies wil l address: (i) reorganization o f the R N C M N R

5

including privatization o f works execution units; (ii) alternatives for cost recovery through a road user charges study; and (iii) development o f a road management system to prioritize investments based o n engineering and economic principles.

18. The Romanian government expects to conclude negotiations for the Transport Chapter o f the aquis communautaires before the end o f 2004. N o significant derogations are anticipated. Romania has been able to utilize al l ISPA funds available to it, approximately Euro 230 mi l l ion for the Euro 310 mi l l ion railway projects; and Euro 410 mi l l ion for the Euro 555 mi l l ion road projects. The ISPA funds (and the Cohesion funds when they become available) are not, however, sufficient. In order to satisfy the demand for infrastructure investment, Romania is borrowing from other international financial institutions. Consequently, the S I L is the most appropriate loan instrument as both the road and the railway networks in Romania need targeted modernization.

2. Project Development Objective and Key Indicators

19. The Government o f Romania has defined a strategy for the transport sector that is primarily aimed at improving the efficiency of the railways and road sectors, and thereby reducing the overall costs of transportation. The project also includes a small component that was added for institutional development o f capacity for planning and managing urban passenger transport. The government aims to achieve this by undertaking the fol lowing investments and reforms in the years leading up to EU accession:

,

Rehabilitate, modernize and develop transport facilities to improve safety and mobil i ty o f al l travelers. Relieving traffic congestion in or near cities i s o f the highest priori ty in order to improve traffic f low and preserve o ld historic cities. Restructure the administration o f roads through reclassification o f the road network and associated changes in the road management and financing. Increase efficiency o f road works through privatization and development o f the domestic construction industry. Complete restructuring o f the state railway companies to improve productivity towards full cost recovery (counting PSC as legitimate income rather than subsidy) and prepare the railways for open competition within the EU. Improve efficiency and effectiveness o f urban transport planning and management, as well as the urban transport unit within MTCT. Stimulate liberalization o f the domestic transport market by privatizing service delivery for both railways and roads.

20. The key performance indicators that will be used to monitor progress wil l be:

(i) (ii)

Road traffic safety: the number o f fatalities per 100,000 vehicles. Effectiveness o f the city by-passes: a. Reduction in through traffic volumes, especially trucks, in the affected

cities’ main streets b. Reduction in air pol lut ion and noise in the city’s main streets (the

environmental monitoring procedures are described in the EMP) (iii) Road management effectiveness:

a. review o f functional classification

6

b.

a. b. Labor productivity C. Track maintenance costs Urban Transport planning and management effectiveness: a. b.

budget allocation methodology between road owners and road classes.

Full-cost Public Service Contract (PSC) for the passenger services (iv) Railway management effectiveness:

(v) Improved regulation o f urban transport in large cities Investment plans for improving Bucharest metro-rail urban transport system.

Percent o f the road maintenance budget spent through competitive contracting.

(vi) Private sector participation: a.

3. Project Components

21. The project includes components for roads, railways and urban transport sub-sectors, selected from the governments priori ty investments for the transport sector. The loan wil l also finance external audits to assure transparency and accuracy o f project expenditures and financial statements prepared by RNCMNR, CFR, and Metrorex. Details o f the results framework expected from the project components together with the key performance monitoring indicators are further described in Annex 3. The estimated costs for the components are summarized in Table 1. Details o f the project components are presented in Annex 4, with the cost estimates in Annex 5.

Road Sub-sector Comvonents

Rdl. Institutional Development: The activity consists o f technical cooperation and training to improve efficiency o f road management and administration targeted at the RNCMNR. Specifically: (a) technical support for institutional development, including organizational development, review and update o f functional and administrative classification o f the public road network, development o f R N C M N R environmental pol icy and program, and development o f data services and analytical capabilities in road management; (b) development o f R N C M N R planning methods and capabilities; (c) review and diagnosis o f R N C M N R technical specifications and technical documents; (d) harmonization and updating o f R N C M N R technical standards and documents with EU standards; and (e) carrying out a road user charges study (unless i t i s funded from other sources). There also wil l be consultancies for the engineering design, training in project management, including procurement, and modernization o f R N C M N R computer systems.

Rd2. Road Safety Improvements: T o raise public awareness, support the implementation and application o f a road traffic crash database, to finance a “Linear Village’’ traffic safety pi lot project and corrective measures at road sections with high traffic crash rates (black spots).

Rd3. Construction of Bypasses to Selected Cities: To relieve congestion, environmental pollution, and reduce travel costs for traffic traveling through key cities that are at present a major bottleneck to both passenger and freight transport. The selected cities include; Bacau, Brasov, Reghin, Medias and Targu Mures. In addition alternatives analyses and

7

environmental assessments are ready for two other bypasses, in Adjud and Ramnicu- Sarat should there be savings during project implementation.

Rd4. Supervision of Civil Works During Construction: T o ensure quality o f the c iv i l works during construction o f the bypasses, rehabilitation o f bridges, and road safety c iv i l works.

Rd5. Bridge Rehabilitation: Repairs or replacement o f selected bridges that are in critical condition.

The project wil l also finance the costs incurred by R N C M N R to hire Auditors approved by the Bank to conduct financial audits for the project funds, and for the entity accounts, and also includes US$ 1 .O mi l l i on for physical and price contingencies.

Railwav Sub-sector Components

Rwl.

Rw2.

Rw3.

Rw4.

Technical Cooperation and Training for the Commercialization of the Railway Industry: Activities to further consolidate the reforms achieved in the railways industry under the previous Bank loan. The component wil l comprise: (i) management training and development to assist the railways adopt commercial/private sector practices and to institutionalize Railway Management Training; (ii) Business Process Redesign. Three technical consultancy projects wil l be supported to redesign the organization and the business processes associated with Freight Marketing, Train Operations for CFR, and Infrastructure Maintenance and Management. These TA support wil l also have specific software and hardware components to be identified in the respective consultancies; (iii) Survey and Analysis o f the market demand for passenger services. This wil l help Calatori to update its 5-year plan and investment plan to meet current and future market demands for passenger services in a cost-effective manner; (iv) Training to the PMU and Railway Management staff.

Completion of the I R I S Hardware and Communications Network: Major developments and installations o f Communications and Information Systems were accomplished during the previous Project. The objective o f this component i s to ensure that the benefits f rom the previous investments are realized by the entire Romanian Railway industry. The project wil l finance the completion o f the National Data Transmission Network to facilitate implementation o f I R I S in al l o f the railway service units. This will result in diversification o f services and increase in quality o f service offered to users, and improve interoperability with the European network.

Infrastructure Maintenance, Power Supply and Signaling Equipment: T o improve the efficiency and quality o f railway infrastructure maintenance and to lower the costs o f operations for both passenger and freight services. This component wil l finance the purchase o f various equipment for track maintenance, and for the modernization o f power supply and signaling at selected railway stations and segmenst, as described in Annex 4.

Systems for Quality and Environmental Management: T o assist the railways to implement integrated systems o f quality and environmental management in order to align the industry with European standards for train operations. This component wil l finance

8

purchase o f equipment and systems for monitoring emissions, metrological measurements, and environmental management.

The project wil l also finance the costs incurred by CFR to hire Auditors approved by the Bank to conduct annual financial audits for the project funds, and for the entity accounts. The loan also includes U S $ 0.5 mi l l ion for physical and price contingencies.

Urban Transport Component

UT1. Institutional Development: Provision o f technical assistance to support institutional development for M T C T and Metrorex , consisting of: (i) organizational development o f the urban transport planning and management unit within MTCT, and establishment o f the Bucharest Metropolitan Transport Authority; (ii) reorganization o f the Metrorex institutional structure to improve efficiency and effectiveness; (iii) feasibility studies for extensions to the Metrorex commuter services within Bucharest metropolitan districts, and (iv) provision o f consultant services for audit o f the Project accounts covering the financial years during project implementation.

The project wil l also finance the costs incurred by Metrorex to hire Auditors approved by the Bank to conduct financial audits for the project funds. Metrorex i s expected to finance the costs of audits o f the entity accounts.

4. Lessons Learned and Reflected in the Project Design

22. Preparation o f this project has benefited from the lessons learned during two previous Bank financed projects in the transport sector; (i) the Railway Restructuring Project (Loan 39760 - RO), and (ii) the Second Roads Project (Loan 4178 - RO). The I C R for the Railways project shows that the project was rated highly successful by the Borrower - an indication o f the value attached to the project outcomes. The key lessons learned from both projects are that:

0 In middle income countries, such as Romania, implementation o f a project i s more o f a partnership between the Government, the executing agencies, and the Bank. This bestows upon the Bank a greater responsibility than simply monitoring progress o f the lending program and each o f the project components. Through the interaction with the various government organs, the Bank needs to understand the changing socio-economic and political environment, and share in the development o f strategies to ensure the overall success o f the project.

0 The rapid evolution o f the Romanian economy between 1996 - 2003, and the drive to j o i n the EU, created higher demands on the transport sector than had been expected. Thus for projects with significant institutional development or restructuring objectives, Bank supervision needs to guide the process towards the shared objectives o f the Borrower and the Bank. The extent and level o f detail during supervision needs to be tailored to suit each project component.

0 Projects financed by the Bank often constitute a small % o f the total investment in the transport sector; less than 10% in the case o f Romania between 1996 - 2003. Nevertheless, the Bank brings to the table the expertise and experience from other

9

countries that have successfully implemented reforms in the transport sector. Although, the Bank’s technical support i s invaluable to the Borrower, coordination o f the various donor-financed projects should always remain the responsibility o f the government.

0 Projects with several components should not be planned to the last minutiae o f detail - i t should be sufficient to define the goals, objectives and targets to be achieved during project implementation. The implementing agencies should have the freedom to manage the project in order to achieve the development objectives within the resources made available to them.

0 The Romanian implementing agencies are competent in procuring and implementing c iv i l works, acquiring equipment, and procuring sophisticated management systems. Technical cooperation i s desirable in defining and implementing needed management systems and procedures, training both management and staff in their application and use, and in updating standards and regulations.

23. The above lessons have guided the preparation activities leading up to the appraisal o f this project. Preparation activities for this project were largely carried out and financed by the Borrower, including the identification o f project components, feasibility studies for the roads components, safeguards analyses, as wel l as the arrangements for fiduciary management. This not only demonstrates the level o f ownership o f the project, but also the success o f the institutional reforms achieved during previous Bank financed projects. Investment priorities for the transport sector were defined by the Borrower, particularly the Ministry o f Transport, Construction and Tourism (MTCT). Project components were selected from the priori ty l i s t prepared by Borrower.

24. Finally, i t i s pertinent to note that the legal framework, safeguards requirements and fiduciary standards now applied in Romania are very much in l ine with the Bank’s own requirements and standards. Project preparation was therefore carried out using the Borrower’s laws and requirements for safeguards and fiduciary standards. The Bank’s project team reviewed these at an early stage to identify the few areas o f key differences with the Bank’s requirements where additional inputs would be necessary for full compliance with the Bank’s o w n standards and procedures. This project has subsequently been designed to include further institutional development to strengthen the legal framework, safeguards requirements and fiduciary standards o f the Borrower so that future Bank operations in the transport sector wil l entirely utilize the Borrower’s own laws and standards. This i s foreseen as a pre-requisite for any future Sector Wide Approach (SWAP) to investments in the transport sector in Romania.

10

Table 1. Estimated Project Component Costs

'roject Cost By Component (US% million)

toads sub-sector: - Institutional Development - Road Safety Improvement - Construction o f bypasses to selected cities - Supervision o f bypasses, bridge rehab & road safety works - Bridge rehabilitation - Annual Financial audits

- Contingencies and Unallocated - Miscellaneous (permits, approvals, authorizations, land acquisition)

Roads Sub-Total: Railways sub-sector: - Technical cooperation & training for railway commercialization - Completion o f IRIS Hardware and the Communications Network - Infrastructure maintenance, power supply and signaling equipment - Systems for quality and environmental management - Annual Financial audits - contingencies and unallocated -

Railways Sub-Total:

Urban Transport sub-sector: - Technical assistance & institutional development

Urban Transport Sub-Total:

Total Baseline Cost

Project Costs excluding taxes & duties (*)

Total Financing Required

Counter- Part

1.2 3.9

104.7 2.0 6.9 0.4 0.2 9.4

128.7

2.1 2.7

18.9 0.2 0.1 0.0

24.0

0.2

0.2

152.9

130.0

World Bank

6.5 4.0

117.8 10.7 7.0 2.0 1 .o 0.0

149.0

11.5 4.5

57.0 1 .o 0.5 0.5

75 .O

1 .o 1 .o

225.0

225.0

225 .O

Project Total

7.7 7.9

222.5 12.7 13.9 2.4 1.2 9.4

277.7

13.6 7.2

75.9 1.2 0.6 0.5

99.c

1.2

1.2

377.9

355.0

Note:

5. Alternatives Considered and Reasons for Rejection

Identifiable taxes and duties amount to US$22.9 million o f counter-part funds.

25. The loan responds to the highest priorities in the transport sector. Bypass roads are o f the highest priority in order to preserve historic cities, to improve traffic f low in the cities, to reduce pollution, and to improve traffic safety. The design o f the bypasses i s coordinated with the planned improvements o f intercity roads. On the railway side, the project continues to support improvement in railway management and financial restructuring, mainstreaming the information and communications technology, and upgrading the infrastructure maintenance and train control equipment. In the road sector, the alternative would have been to continue rehabilitation o f

11

existing roads. This was rejected because i t would not contribute to solving the traffic and road safety and direct land access control problems in and near the cities. For the existing road network the greatest needs are for bridge rehabilitation to prevent bridge collapses and sudden lack o f road access, and improvements to road sections with high traffic crash rates in order to reduce road crashes. In the railways, rehabilitation o f infrastructure was considered but rejected in favor o f enabling continued infrastructure maintenance and rehabilitation using own funds and promoting good railway service to customers.

26. The loan also supports capacity building leading to the next logical step for Bank operations in the transport sector in Romania that would comprise a Sector Wide Approach to investment lending. However, at this stage o f institutional development, as wel l as the evolving socio-political and legal environment, i t is judged that a SWAP operation in the transport sector would be premature. There i s a need to further strengthen the institutional and legal environment o f the implementing agencies in the MTCT, and to allow time for Romania to complete its negotiations with the EU leading to finalization of the Aquis Communautaires. Integration with the EU will result in significant changes to the laws of the country, as well as changes to fiduciary and safeguards standards. I t wil l be appropriate to consider application o f the SWAP to lending when al l o f the above have been agreed with the EU.

27. The Adaptable Program Loan (APL) instrument was not considered because this project comprises wel l defined components that must be implemented and completed within a specific period o f time. The APL instrument would be ideal for a series o f loans planned at the outset, but subject to agreed progress and attainment o f targets between phases. The components o f this project (for example the road bypasses for selected cities) do not have natural follow-up activities that could constitute the next phase o f the same Bank operation.

28. Consequently, as indicated above, the Specific Investment Loan (SIL) i s considered to be the most appropriate instrument for this project. This provides for the focusing and for the flexibility for the broad range o f components included under this project.

C. IMPLEMENTATION

1. Partnership Arrangements

29. The government has a wel l defined program o f investments for the transport sector that defines both planned and completed projects for the period 1996 - 2015, amounting to a total o f over USD13.1 bi l l ion (Euro 10.9 billion)2 for the road sector and over USD7 b i l l ion for the railways. Much o f these investments are being undertaken with the support o f various IFIs, the EU, bilateral agencies, and through Public-Private Partnerships (PPPs). The road investments are managed by the Romanian National Company for Motorways and National Roads (RNCMNR), the successor road agency to the former National Administration o f Roads (NAR), the railway investments wil l be managed mostly through the railway infrastructure company CFR, and the small component for institutional development o f urban transport wil l be managed by Metrorex. All three implementing agencies RNCMNR, CFR and Metrorex, have increased their capacities to plan, procure and manage investments, having benefited from several years of experience in dealing with the IFIs, as wel l as being the recipient o f technical assistance grants

Euro 1 .OO = USD 1.20 (June 2004)

12

funded through the EU PHARE program. For this project co-financing i s not envisioned. However, there wil l be coordination o f the road component with EBRD, and parallel financing of the railway component with EBRD i s being discussed.

2. Institutional and Implementation Arrangements

Project Management

30. The M T C T wil l have overall responsibility for project oversight and coordination with other IFIs, the EU (ISPA program), bilateral agencies, and the private sector partners. Management o f the main project components will be undertaken separately for the roads and railways. The R N C M N R will manage al l o f the roads components, whilst the railways infrastructure company, CFR, wil l manage al l o f the railways components.

31. The R N C M N R has wel l established departments or units that perform specialized fimctions such as planning and development, road safety, maintenance management, financial management, and a PPP unit. Consequently, the project wil l utilize wel l established procedures for procurement and financial management. The various departments and units within R N C M N R have previous experience with managing Bank financed projects, and therefore the present administrative arrangements within the organization wil l be maintained.

32. Management o f the railways components of this project wil l be undertaken by CFR under the supervision o f the General Directorate for Railways (GDR) within the MTCT. A Project Management Unit (PMU) was established within CFR under the previous Bank financed loan. The PMU has highly motivated staff who have accumulated significant experience with the Bank’s fiduciary procedures and requirements. The P M U will undertake al l project management functions on behalf o f a l l three railway companies.

33. managed by Metrorex, the metro-rail urban transport operator in Bucharest.

The small urban transport component, comprising technical assistance studies, wil l be

Financial Management

Strengths and Weaknesses

34. The significant strengths that wil l provide a basis o f reliance on the project’s financial management systems include the experience o f the existing project implementation teams, one within RNCMNR, currently in charge with the implementation o f the Second Roads Project (Loan 4178-R0), with a closing date o f September 30, 2005, and the other one within CFR, which was in charge with the implementation o f the Railway Rehabilitation Project (Loan 3976- RO) that closed on September 30, 2003. The most recent financial management supervision o f the Second Roads Project o f June 2004 confirmed that the FM and FP ratings o f the project are satisfactory.

Implementing En tities

35. The existing project implementation teams established within the RNCMNR, CFR and Metrorex, would be responsible for the financial management aspects o f the Roads components, o f the Railways components, and of Urban Transport components, respectively, o f the new

13

Transport Restructuring Project. Three Project Agreements wil l be signed by the World Bank (IBRD), one with RNCMNR, one with CFR, and one with Metrorex.

Procurem ent

36. The thee executing agencies, RNCMNR, CFR and Metrorex are established within the structure o f the M T C T and wil l be responsible for management o f procurement procedures (mostly R N C M N R and CFR, due to the small amount in the Metrorex Component). All entities wil l have full time procurement/financial management staff and two full-time procurement specialists. Procurement o f goods and services for the Bank financed components wil l be done by al l entities in accordance with the provisions o f the Wor ld Bank “Guidelines for Procurement under IBRD Loans and IDA Credits and Selection and Employment of Consultants by World Bank Borrowers” (effective M a y 1,2004). Project components not financed by the Bank may be procured in accordance with the national regulations or the co-financing institutions procurement regulations. Procurement o f goods, works and services for the project will be carried out in accordance with the agreed Procurement Plan, which will be updated annually and included in the progress report to be reviewed by the Bank. Details o f the proposed procurement arrangements are provided in Annex 8.

37. In order to hr ther strengthen the procurement capacity o f the implementing entities appropriate training wil l be provided for relevant staff and financed under this loan. Training, and if possible, study tours will be carried out according to a training plan that wil l be prepared by the agencies annually and submitted to IBRD for no-objection prior to implementation. The locations for the training and study tours wil l be selected o n the basis o f an evaluation o f the most suitable program o f training offered by several institutions or consultants, availability o f services, period o f training, within the frame o f the Selection method based on the Consultants’ Qualifications (CQS) or Section V o f the Guidelines for the major part, and Shopping method for smaller ready-made training programs (proposed by UN Agencies such as ILO for example).

3. Monitoring and Evaluation of Outcomes/Results

38. The results frameworks given in Annex 3 will be the main tool that wil l be utilized by senior management and policy-makers to assess the effectiveness o f the project during implementation, and subsequently after project completion to measure the outcomes. The main outcome for the railways wil l be increased efficiency and reduced costs o f operation, with the freight company fully commercialized and ready for privatization. The main measures for this wil l be reduced costs o f railway infrastructure maintenance leading to lower access charges to the operating companies. For the passenger railway services, subsidies wil l be at levels commensurate with the public service obligations agreed with the government. The freight services wil l be in a better position to compete with the private operators that offer selective freight services for specialized cargo. For the roads sub-sector, the first and foremost outcome that i s sought i s a reduction in road crash rates that are currently among the highest in Europe. Second, wil l be the improvement in the traffic environment within the cities for which road bypasses are to be constructed. This wil l be measured in terms o f reduced traffic congestion within the central business districts, as wel l as reduced noise and pollution from vehicle emissions.

14

39. The key performance indicators required to assess progress in achieving the above outcomes will be measured annually as part o f the implementing agencies’ reporting requirements. The railway companies already prepare annual management information and statistics, largely derived from data held in the Integrated Railway Information System (IRIS) that was implemented under the previous Bank financed loan, and also from the financial management system used by the PMU within the railways. These two management information systems provide details o f unit costs o f operation for the various activities performed by the railways. Performance indicators for the roads sub-sector wi l l be derived from measures recorded annually by CESTRIN, the research arm of RNCMNR. Data collected by CESTRIN o n an annual basis include road condition, traffic counts, and updates o f road inventory features (i.e. the physical characteristics o f the road network). Provisions have been made under this loan to improve the capacity o f RNCMNR to collect and store the required data in modern databases. Additional capacity will be required for the collection o f traffic noise and vehicle emission data f rom selected city centers.

4. Sustainability

40. The government i s in the midst o f negotiations with the EU to agree the obligations, policies, and strategies for the transport sector as part o f the Aquis Communautaires for EU accession. Transport i s seen by the government as the key to physical integration with other EU countries, and as such the government has prepared an investment plan for the transport sector ahead o f the EU accession that i s planned for 2007. The components for this project are al l derived from the priorities for investment in the transport sector prepared by the Borrower. In addition, much o f the preparation activities leading to the appraisal o f the project were undertaken by the implementing agencies and financed from the Borrowers own resources. This i s a clear demonstration o f the level o f commitment and ownership by the borrower towards al l o f the project components.

41. Increased road financing i s expected from the introduction o f road vignettes, a form o f special purpose license or permit for vehicles using the main roads and motorways in Romania. These revenues are expected to be utilized to finance adequate maintenance o f roads managed by R N C M N R and to finance activities such as road safety awareness campaigns, performance monitoring activities, etc. This should ensure the long-term sustainability and continued attainment o f the project outcomes. For the railways, the investments being made under this loan to reduce the operating costs o f the rai lway infrastructure company, CFR, will need to be accompanied by corresponding investments in the passenger and freight operating companies. The successful commercialization of Marfa, the freight operations company, and cost reductions at the railway passenger operator, Calatori, wil l depend on critical investments required to modemize the railways industry that will considerably reduce their operating costs. The government and Calatori, must agree on appropriate levels o f public service contracts that must be adequately and f i l ly paid for by government. These actions wil l enable both Calatori and Marfa to fully pay for the access charges that are necessary for the successful operation o f the infrastructure company, CFR.

15

5. Critical Risks and Possible Controversial Aspects

Risk

To Project Development Objectives:

Insufficient budget allocation for the passenger railways PSCs

Insufficient budget allocations for R N C M N R annual road maintenance needs

Private operators o f freight services take away too much business f rom Marfa

Government resists increases in road user charges to cover 70% o f road expenditures

Resistance to institutional restructuring i s successful and change i s slower than mapped out in the project t ime line

To Component Results Adequate counterpart funds are not allocated in a timely fashion

Government does not allocate sufficient monies for data services and use o f modern management systems

Mitigation Measure

Reduction in passenger services to reduce overall railways deficit; surveillance o f budget discipline and Bank loan conditions.

Increase in value o f road vignettes or other road user charges paid by road users

Reduction in the volume o f freight services by Marfa

Surveillance o f budget discipline and observance o f IMF and Bank loan conditions

Issues wil l be raised with the govemment in the context o f the P A L program

Advance assurance f rom government and quarterly jo in t reviews with MPF

Advance assurance f rom government and quarterly j o in t reviews with MPF

Overall Risk Rating Risk Rating: H = High; S = Substantial; M = Modest; N = Negligible or L o w

Risk Rating

S

M

M

S

M

M

S

M

6. Loadcredit Conditions and Covenants

42. The fol lowing actions should be agreed no later than Loan negotiations:

Negotiations 0 There are no conditions for Negotiations

Effectiveness 0 Government has submitted to the Bank duly authorized and ratified Subsidiary Loan

Agreements making the loan proceeds available to R N C M N R and to CFR on the same terms as the loan. A five-year transport sector expenditure program satisfactory to the Bank, consisting o f a five-year business plan including cash f low for CFR, and a five-year investment plan for RNCMNR, has been endorsed by the supervisory boards o f R N C M N R and CFR.

0

16

Dated covenants

0 The Government shall, beginning not later than December 31 , 2004, and continuing each year thereafter, provide full financing, through the budget, for the Public Service Contracts for railway passenger services.

The Borrower shall, in cooperation with the Bank, carry out a Mid-Term Review not later than September 30,2007 to determine any need for revisions in the project design.

0

Other covenants

0 Borrower shall ensure construction and operation o f bypasses and bridges for the roads component to be done in accordance with an Environmental Management Plan satisfactory to the Bank

Borrower shall ensure that al l land acquisition for construction o f bypasses for the roads component shall be undertaken in accordance with land acquisition framework satisfactory to the Bank

R N C M N R shall maintain policies and procedures adequate to enable i t to monitor and evaluate on an ongoing basis, in accordance with indicators satisfactory to the Bank, road condition and achievement o f other road sector objectives.

CFR shall maintain data and financial systems to enable it to monitor and evaluate on an ongoing basis, in accordance with indicators satisfactory to the Bank, their financial condition and achievement o f the objectives stated in their business plans.

RNCMNR, CFR, and Metrorex shall submit to the Bank quarterly progress reports, in a format satisfactory to the Bank, not later than 30 days after the end o f each quarter outlining the progress made in the implementation o f the Project, as well as the problems encountered and how they are being addressed.

R N C M N R and CFR shall prepare, within 90 days after each calendar year, Annual Reports for each calendar year, outlining the progress made in the implementation o f the Project, and including the measures recommended to ensure the efficient carrying out o f the Project, and the achievement of the objectives, during the following calendar year.

0

0

0

0

0

Disbursement Condition 0 Government has submitted to the Bank the duly authorized and ratified Metrorex

Subsidiary Loan Agreement, making the loan proceeds available to Metrorex on the same terms as the loan.

Finan cia1 Management Condition 0 The project financial management arrangements have been reviewed and found to be

acceptable to the Bank.

17

Fin an cia1 Man agemen t Covenants 0 RNCMNR, CFR and Metrorex shall maintain financial management systems acceptable

to the Bank. The project’s financial statements, withdrawal applications and Special Accounts shall be audited by independent auditors acceptable to the Bank and on terms o f reference acceptable to the Bank. The annual audited statements and audit report wil l be provided to the Bank within six months o f the end o f each fiscal year.

Legal Covenants 0 Standard legal covenants

D. APPRAISAL SUMMARY

1. Economic and Financial Analyses

Roads Sub-sector Components

43. All o f the road bypasses that are to be financed under this project were subjected to full economic analysis using HDM-4, the de facto standard model approved by the Bank. In al l cases, the results for the individual bypasses show that their construction would be viable with economic rates o f return (ERR) greater than 17%. The combined NPV, at 12% interest rate for the 5 bypasses included in this project i s US$150.86 mi l l ion (US$159.17 for the seven bypasses). The total economic cost o f construction is estimated to be US$ 1993 mi l l ion (US$219.7 mi l l ion for the seven bypasses), representing a benefitkost ratio (BCR) o f 1.76. The bridge rehabilitation investments were appraised and prioritized under the ongoing Second Roads project. The subset chosen for financing in this project consisted o f bridges, which showed positive economic benefits and were seriously deficient and would collapse unless remedial works were undertaken. The investments earmarked for road safety, and institutional development for the roads sub- sector were not subjected to economic benefit tests, given the unquantifiable nature o f the expected benefits. Appraisal o f these components was undertaken using intemationally accepted methods with the results indicating desirability and benefits that the investments would bring.

Railways Components

44. I t i s expected that the investments planned for the railways under this project will lead to gradual, though modest, improvements in the overall financial position o f the rai lway companies. The results o f the financial analysis show that performance wil l very much depend o n the market response to the planned reforms and the speed o f privatization o f freight services. W h i l s t total revenues (net o f track access revenue) o f CFR (Infrastructure Company), Mar fa (Freight Company) and Calatori (Passenger Company) are estimated to decline by around 9% over the period 2004-2009, their total costs (net of track access charges) are expected to decline by 12%, resulting in a 17% reduction in net deficit from US$415 mi l l ion to US$346 mil l ion.

45. The reduction o f revenues of the three state-owned companies i s due mainly to declining transport revenue o f Marfa because of an estimated 14% reduction o f freight traffic f rom the growing number o f private operators, whose market share i s s t i l l below 10% in train-km. The

Base cost o f construction excluding taxes and contingencies, but including environment mitigation measures, utility relocation, engineering design and supervision costs.

18

recent revenue trend o f Marfa shows clearly that they are already losing market share to the private sector. Marfa should be privatized as soon as possible, or i t wil l keep losing market share and value. Access to Romanian network i s to be extended to international operators in 2007 when Romaniajoins the EU. The framework for deeper reforms prescribed under the project will facilitate the objective o f improving the efficiency and productivity o f MARFA (see Annex 1). The reduction o f costs will be achieved through: (i) the planned 10% staff reduction, or 8,000 employees from CFR and Marfa in 2004; (ii) reduction o f 3,000 km o f route length in 2004- 2005 with an estimated annual saving of about 5-10% o f infrastructure maintenance costs; and (iii) improved efficiency o f track and rol l ing stock maintenance.

46. Marfa i s expected to achieve modest improvement despite declining traffic, mainly due to the above actions for cost reductions and productivity improvements. Freight rates are forecast to stay at the 2004 level. The financial performance o f Marfa will be measured in terms o f the working ratio that i s forecast to improve from 90% in 2003 to 85% in 2009, with annual net profits ranging from US$11 mi l l ion in 2004 to US$13 mi l l ion in 2009. The Bank wil l also monitor Marfa's cash reserves and the debt service coverage ratio in view o f the scheduled bullet payment o f EUR 120 mi l l ion bond maturing in 2007.

47. The passenger traffic and tariffs are expected to remain constant. The financial deficit o f Calatori and thus the need for Government support through PSC wil l increase sharply from US$240 mi l l ion in 2003 to US$332 mi l l ion in 2009, because o f a significant increase in track access charges on passenger services (see Annex 1 for details). The corresponding working ratio (excluding subsidy) will therefore increase sharply from 203 '30 to 275 %. The loan agreement includes a covenant that requires the Government to meet the full PSC payments. This wil l be monitored in terms o f the working ratio (including subsidy) target o f 100% or less each year between 2004 to 2009. This high level of Government support for PSC i s not sustainable. The project, therefore, wil l finance an in-depth analysis o f passenger markets in Romania to reduce the level o f passenger services to match the market demand at the lowest possible cost. Further reforms o f Calatori including labor restructuring wil l depend on the TA study with specific recommendations to rationalize passenger services, establish investment requirements, and minimize the PSC costs to the Government. In the medium term, the financial burden o f Calatori on the Government budget wil l decrease.

48. For CFR, the financial deficit i s estimated to decrease from US$99 mi l l ion in 2003 to US$27 mi l l ion in 2009, thanks to the rising track access payments by Calatori and labor cost cuts. Track access revenue wil l stay largely the same as private freight operators are presumed to win market share from Marfa. Progress would be measured in terms o f the improvement in the working ratio to achieve a target of 100% or less by 2009, f rom 138% posted in 2003. The success o f the railways companies wil l depend to a large extent on the implementation o f more market driven and commercial practices to transform the railway industry into a fully commercial enterprise with minimum Government financial support and the adherence by al l parties to the Public Services Contract.

19

2. Technical

49. The design standards used for the road bypasses to be financed .under this project were based on Romanian standards defined for national roads. These design standards are in l ine with European and international practice. The bypasses have been designed as either two-lane or four- lane roads according the traffic f low forecast for the design year, commonly year 15 after completion o f construction. This i s based on accepted Highway Capacity norms as practiced widely in Europe and in North America. The c iv i l works planned for bridge repair and rehabilitation will restore existing bridges to serviceable condition and therefore do not involve the application o f any new design standards.

3. Fiduciary

50. Three implementing agencies, RNCMNR, CFR, and Metrorex, wil l be responsible for management o f procurement procedures. Appraisal o f the implementing entities established that they are staffed by full time procurement and financial managers, each with two full-time procurement specialists, and accounts assistants. A procurement plan detailing the packaging and estimated schedule o f the major procurement actions has been prepared and is presented in Annex 8. During project implementation, the procurement plan wil l be updated and sent to the Bank for approval annually at a minimum.

51. The financial management arrangements o f the project are acceptable to the Bank. A s o f the date o f this report, the Borrower i s in compliance with i t s audit covenants o f the Bank- financed projects. Formats o f the FMRs and financial reports have been developed and have been attached to the minutes o f negotiations.

52. The first Country Financial Accountability Assessment (CFAA) for Romania was finalized in December 2003 and concluded that the overall fiduciary r isk associated with the public financial management and financial accountability arrangements o f the Romanian government administration is considered to be moderate, with the systems for accounting, financial reporting and internal control representing the areas with the higher risks and budgeting, cash management and extemal audit and Parliamentary oversight representing the lower risks.

53. The implications o f the C F A A for the project are addressed by the fol lowing actions:

e e

e a

e

A detailed review o f the systems was performed for each implementing entity; Each implementing entity has a distinct proj ect-specific accounting ledger; Project accounting staff has been nominated for each implementing entity; The format o f the FMRs and financial reports agreed with both implementing entities; Financial statements for the implanting entities, RNCMNR, CFR, and Metrorex, as well as for the Transport Restructuring Project, are annually audited by an independent auditor.

20

4. Social 54. The railway component o f the project has few direct social implications, as the investment wil l go to purchase equipment or improve management, management systems and communications technology. Technical cooperation for the component wil l enhance the productivity o f management and staff. The roads component wil l have a considerable impact on the population. The traffic safety component will draw public attention to traffic safety issues and fund works to address bottlenecks and black spots; construction o f new bypasses wil l reduce congestion and danger on city streets; improve the environment and l ivabi l i ty o f affected cities; and speed the f low o f goods, ; the bridge rehabilitation component will be largely invisible to the public. Affected interests and stakeholders have been consulted and involved since the beginning directly and indirectly in developing and evaluating the altematives, and other aspects o f project preparation. The project i s expected to have an inqjrect impact on poverty reduction.

55. The bypasses wil l a l l require land acquisition, adversely affecting landowners, particularly those who farm land that will be taken for rights o f way. The exact number o f affected persons wil l be known only when the final designs are completed. The R N C M N R and i t s engineering consultants have aimed to minimize land acquisition, avoid resettlement o f residents and maximize use o f marginal lands whenever possible. During feasibility studies, a number o f the initial alignments were revised to meet these criteria.

56. The R N C M N R has prepared a Land Acquisition Policy Framework approved by the Bank, which clarifies steps and procedures in the land acquisition process. The project poses no significant social risks. At the time o f appraisal, no opposition to the bypasses had been noti f ied to the Borrower.

5. Environment

57. The only environmental issue o f significance in the project is the protection o f peoples’ health from environmental risks and pollution. The inherent nature o f the project component associated with by-pass construction directly relates to this issue. After by-pass construction i s completed i ts ’ very nature will redirect traffic from heavily populated and congested central business districts (CBD) to locations that are less densely populated. The improved traffic f low wil l also promote greater combustion efficiencies for the vehicles. The net result is expected to be a reduction in the exposure o f densely populated areas to combustion exhausts containing hydrocarbons, carbon monoxide, nitrogen oxides, particulates, and lead.

58. For Environmental Assessment, the project was assigned Environmental Screening Category A. As a consequence, seven individual detailed Environmental Impact Assessment (EIA) reports were prepared for each o f the bypasses. As required by Government o f Romania, EIA reports were prepared in Romanian language for each proposed bypass. This was done before the World Bank was involved. For several reasons (see discussion below) it was agreed that an independent consultant be secured to review these EIA reports. This was done and the independent consultant reached the conclusion that al l EIA studies are in full compliance with the requirements o f both the Government o f Romania and the World Bank.

59. Generally, the main negative issues identified were during the construction phases and included combustion exhausts from machinery involved with construction, disruption o f habitats, noise and vibrations, waste disposal etc., and emissions from suppliers o f concrete and asphalt.

21

When the by-passes are in use the chief negative issue would be pollutant runoff from the road during precipitation which may affect soils, and/or surface and ground waters. Construction issues were determined to be minor, temporary, and reversible. Issues associated with the by- pass in use were determined to be minor.

60. Environmental management plans (EMPs) were included as part o f the EIA reports. The independent consultant reviewed these EMPs indicated that there i s generally sufficient institutional capacity for their implementation, either directly or through the use o f specialized consultants (particularly for the monitoring programs). Specific additional needs (equipment, training etc.) are also included in the EMPs.

61. According to OP/BP/GP 4.01 for a Category A project, the EIA document must be prepared by EA experts not affiliated with the project. Since the E IAs had been prepared prior to World Bank involvement by consultants who were responsible for other project preparation aspects (feasibility, design studies etc.), i t was agreed with Bank management to secure an independent Romanian consultant to: (a) determine if the EIAs meet World Bank safeguard pol icy requirements and (b) provide the World Bank with a summary document for each EIA. This consultant would thus provide the independent perspective that in essence would comply with the spirit o f OP/BP/GP 4.01.

62. Key environmental issues for each o f the bypass EIAs were identified by the independent consultant and are incorporated into the individual project specific Environmental Management Plans that includes: mitigation program, monitoring program, institutional arrangements for effective implementation, schedule, and institutional development needs. The independent consultant concluded that al l EMPs were satisfactory for addressing al l individual bypass subproject environmental issues. For purposes of Quality Assurance and Control, the separate EIAs were internally reviewed by the Bank and were found to be adequate to Bank standard.

6. Safeguard Policies

Safeguard Policies Tr iggered by the Project

Safeguards Screening Category: s2 Environmental Screening Category: A Safeguard Studies submitted to the Infoshop: July 19,2004

* By supporting theproposedproject, the Bank does not intend to prejudice the f ina l determination of the parties’ claims on the disputed areas

22

7. Policy Exceptions and Readiness

63. readiness for implementation:

The project does not require any exemptions from Bank policies. Regional criteria for

Financial management staff have been identified Project staff and consultants have been mobilized Counter part funds have been estimated and the government has committed itself to providing the budget in a timely fashion Tender documents for the first year’s procurement have been prepared and pre- qualification documents for three o f the road bypasses have been reviewed and cleared by the Bank Disclosure requirements for Environmental Assessments and Land Acquisition Policy Framework were sent to InfoShop in July 2004 Land Acquisition Policy Framework has been submitted by the Borrower for review and approved by the Bank

23

Annex 1 : Country and Sector or Program Background

ROMANIA: TRANSPORT RESTRUCTURING PROJECT

The Romanian Economy

Romania i s a lower middle income country with GNI per capita o f US$ 1,850. With a population of some 23 million. I t i s the second largest country in Central and Eastern Europe, and i s larger than 10 of the 15 current members o f the European Union (EU).

The country i s in the process of comprehensively reforming and restructuring i t s economy with a view to joining the EU in 2007. As part of this effort, the Government i s seeking to build institutions and design and implement public policies to fundamentally transform Romania’s economy and society. Strong political commitment, considerable expertise and resources, as wel l as popular and external support are required to achieve this objective.

Although economic growth has turned around in the past two years, important challenges remain. Further structural reforms are crucial to build a competitive market economy which is capable o f withstanding the pressures of EU integration. Moreover, poverty remains widespread with 28.9 % o f the population living below the poverty l ine. Some 60 % o f Romania’s poor live in rural areas despite the country’s substantial potential in agriculture, forestry and fisheries.

Romania i s a pi lot country for the Comprehensive Development Framework (CDF) whereby the country owns and directs its development agenda by articulating its long te rm strategy for development. Consultations held in 1999 as part o f the Framework revealed a clear consensus among Romanians around the country’s twin development objectives o f poverty reduction and EU accession.

The transition that began in Romania in 1990 was, in many respects, more difficult than in the other countries o f Central and Eastern Europe. By the late 1980’s Romania’s economy was on the verge o f collapse after forty years of rigid central planning that had emphasized self reliance, an excessive focus on heavy industry and large, uneconomic infrastructure projects.

In an attempt to minimize the social costs of transition, and often captive to vested interests, the Romanian government init ial ly hesitated to impose tight fiscal constraints and privatize large loss-making enterprises. In the late 1 9 9 0 ’ ~ ~ attempts to impose macroeconomic stability without full structural support led to negative economic growth, and poverty increased sharply, doubling from 20 % in 1996 to 41 % in 1999.

Since 2000, the new Government has implemented macroeconomic policies which are supportive o f growth. A disciplined fiscal policy, which complemented a tight monetary policy, and was augmented by strong advances o n structural reforms, led to improved financial discipline in the enterprise sector, and has placed public finances and the financial system on much firmer footing.

This resulted in robust GDP growth for two consecutive years - 5.3 in 2001 and 4.3 in 2002 . In addition, inflation and interest rates declined steadily, the fiscal deficit was brought under

24

control, foreign exchange reserves increased to historic highs, and the external balance was comfortable. Export growth remained vigorous, fuelled by private investment and the competitive depreciation o f the currency. The competitiveness o f the enterprise sector was boosted by productivity gains. Romania i s now a visible and attractive destination for international investors as a result o f better sovereign ratings and improved access to international capital markets

The Road Network

Romania's total road network totals about 78,000 km. Public roads in Romania (excluding street networks) are classified in a three-tier system: national (main) roads (14,500 km), district roads (app. 36,000 km), and communal roads (app. 28,000 km). In addition there are approximately 30,000 km village roads serving the rural villages' needs, and farming related activities. The national roads are administered and managed by the National Company for Motonvays and National Roads (RNCMNR) - an entity under the Ministry o f Transport, Construction and Tourism. The district (county) roads are administered by the County Council and managed by the County's technical department. The communal roads are administered and managed by the village councils aided by the County council's technical office.

Road financing was arranged through a Road Fund, which received 45 % o f the fuel excise tax and a vignette. The income from the fuel excise tax was shared between the national roads (65 per cent) and county roads (35 YO). The road fund income covered the administrative expenses, routine maintenance, loan service payments, and l imited rehabilitation costs o f the national roads, (see table below). The road fund was also the principal, albeit insufficient, source o f funding for the rehabilitation and maintenance o f county roads. Recently, the Government has issued a Policy Letter for the road sector. I t includes, inter-alia, a study to modernize the road fund and road financing in Romania.

Over the past decade R N C M N R has secured grants (EU-ISPA) and several loans from International Financial Institutions (the World Bank, EIB, EBRD) guaranteed by the state, to upgrade i t s main road corridors. The Government i s actively pursuing new external IF1 financing or Public-Private Partnerships to further strengthen RNCMNR institutional development, and upgrade the main roads. RNCMNR's multi-year Highway Development Program and a multi- year Highway Rehabilitation Program are both primarily funded through loans and grants. Last year the communal road network has begun receiving support from EU's S A P A R D program and the World Bank's Rural Development Project.

Road capacity and the quality o f this capacity must be increased to meet the anticipated traffic demand. The o ld roads have no functional distinction between serving land access and traffic; they have direct access to land, and pass directly through villages, towns and cities. The by- passes which will be funded in the current project are meant to serve traffic and provide no direct access to land. In this way, the road capacity and i t s quality are improved. A s a by-product, road traffic safety is improved and the urban c i t y - o f t e n r ichly historic-is preserved. Attendant to the physical works, road management is improved through targeted technical assistance. The issues at the railways are more diffused, but the core objective i s the same: tailor the capacity to meet market demand, reorganize the railways to take advantage o f newly acquired information tools, and retrain the management to manage and run the railways commercially.

25

Road transport i s privatized and performed by numerous buses and trucks operated either by their owners or bus and trucking companies. The issue o f road safety has moving inexorably up the pol icy agenda, reflecting the seriousness and the significance o f the issue, at both a personal and national level. Road accidents are responsible for about one thousand deaths, and a further 24 thousand serious injuries each year.

A Global Road Safety Partnership (GRSP) program has been active in conjunction o f the Bank’s Second Roads project to contribute to the development o f a l l aspects o f road traffic safety, including emergency response (009), safe road design, driver training, vehicle inspections, and the transfer o f knowledge about road traffic safety. The intention is that, v ia a series o f training courses, research work, media coverage, and training both the public and private sectors will work together to improve road traffic safety. The outputs from the project are specific short-term recommendations that will both prevent accidents and increase the capacity o f the road, whilst also building human resources in accident analysis and prevention.

Revenue and Expenditures for National Roads, 2000 - 2005 (million of 2003 US$)

2000 2001 2002 2003 2004 2005

Revenues (budget) (projected) Own revenues

Road Fund Fuel Tax 107 118 103 132 132 132 Vignette 0 0 5 40 50 155 Tolls and Crossing Taxes 30 28 18 20 36 55 Other revenues 5 2 2 4 2 2

Total Own revenues 143 148 128 196 220 344

International Funds 158 191 162 276 427 306 Local Commercial Loans 0 35 41 0 0 0 State Budget Funds 114 130 132 206 272 250

Expenditures Routine Maintenance 118 142 99 82 82 82 Periodic Maintenance 13 16 47 39 94 219 Other Investments 15 19 24 31 31 31 Debt Service 56 59 76 155 150 158 Rehabilitation 213 268 217 372 563 41 1

Total Expenditures 415 504 463 678 919 900

26

The Railways

Present Situation. The Romanian Railways have achieved significant progress in structural reform under the umbrella o f the previous World Bank/EBRD financed Railway Rehabilitation Project (1 996-2003), in particular regarding labor, organizational, and financial restructuring, and privatization o f non-core railway businesses. The railways have achieved to: (a) reduce staff and increase staff productivity, despite declining traffic; (b) unbundle the integrated railway system into five separate companies; (c) issue license to private operators; (d) set up appropriate mechanism to relieve the railway o f historic debt; (e) provide PSC compensation for uneconomic passenger lines and services; (f) make long-term planning through 5-year Business Plans an integral part o f i t s business culture; (g) invest in asset modernization and rehabilitation plan, which should lead to improved productivity and safety in the coming years; and (h) separate and privatize non-core railway businesses. Recent trends in the key operational and financial indicators are given in Annex 9.

Whi le substantial progress has been made in improving financial performance o f the railways, some undesirable legacies o f the past remain and negatively affect the financial well-being o f the railways. M u c h s t i l l remains to be done to transform the railways into a fully commercial enterprise with minimum budget support. The state contribution to the railway as well as the railways’ uncovered financial deficit amount to US$300 million, accounting for about 0.7% of GDP in 2002. Although the US$300 mi l l ion i s huge in absolute terms, i t s value expressed as share o f GDP compares wel l with Croatia (1.3% o f GDP), fairly with Bulgaria (0.6% o f GDP), and poorly with Poland and Turkey (0.4% o f GDP). All railway systems in Western Europe receive substantial financial support by one mechanism or another from governments to sustain their respective railway networks: In U.K., with a similar length o f network, the Government spent around US$2.7 bi l l ion (0.2% o f GDP) o n the railways; US$8.5 billion (0.5% o f GDP) in Germany; US$6.2 bi l l ion (0.5% o f GDP) in France; US$2.3 bi l l ion (0.6% o f GDP) in Netherlands; US$0.58 bi l l ion (0.3% o f GDP) in Austria; and US$0.56 billion (0.5% o f GDP) in Greece. The challenge for Romania is to sustain a railway network o f much the same density as Western Europe with about 60% o f the traffic density, less than ha l f o f the labor productivity and a tenth o f the Gross National Incomehead. The Romanian Government i s committed to start a deeper and more radical reform to reduce the fiscal burden o f the railways o n the state budget.

Framework for Further Restructuring. A framework for restructuring the railways comprises six key components:

reduction o f excess staff (about 10% o f the number in December 2003); reduction o f excess railway track (3,000 km, or 30% o f rai lway route length in December 2003); implementation o f fair, transparent, and competitive track access charges; rationalization o f passenger services, and refinement o f a clear public services contract; transformation o f the railways into a fully commercial business; private sector participation in the operation and management o f railways, particularly in the provision o f freight services.

27

Projected Future Financial Situation. The above framework can lead to a gradual, though modest, improvements. The financial impact o f private sector involvement and development o f new freight market have not been reflected in the analysis. The actual performance thus will depend o n the speed o f privatization o f freight services and the market response to the planned reforms. While total revenues are estimated to decline by 9% over the period 2004-2009, total costs are expected to decline by 12%, resulting in a 17% reduction in net deficit. The reduction of revenues o f the railways as a whole, i s due mainly to declining transport revenue o f Marfa because of an estimated 14% reduction o f freight traffic from the growing number o f private operators (whose market share i s st i l l below 10% in train-km). The freight tariffs are forecast to remain at the 2004 level in real terms. Passenger traffic and revenue are expected to remain constant. For CFR, track access revenue wil l stay the same since private freight operators are presumed to win market share from Marfa. The reduction o f costs wil l be achieved through: (i) the planned 10% staff reduction, or 8,000 employees from CFR and Marfa in 2004; (ii) reduction of 3,000 km o f route length in 2004-2005 with an estimated saving o f about 5-10 % o f annual infrastructure maintenance costs; and (iii) improved efficiency o f track and rol l ing stock maintenance.

N e t deficit (before subsidy) i s estimated to rise from US$339 mi l l ion in 2003 to US$415 mi l l ion in 2004 because o f higher track access charges for Calatori, but wil l gradually decrease by 17 percent to US$346 mi l l ion in 2009. The estimated amount o f budget support for PSC will rise from US$240 mi l l ion in 2003 to US$332 mi l l ion in 2009

Comparison of Performance o f Romanian Railways and other European Railways

South Western East Europe Europe Romania

Population density (persons1000 sq km) 106 92 94

Traffic density (000 traffic unitslrail route-km) 3,670 1,640 2,254 Labor productivity (000 traffic units1rail staff) 650 223 277 Gross National Income ($000/capita 2003) 21 2 2

Route density (rail route-km1000 sq km) 44 42 48

28

Operational and Financial Forecast (2004-2009 constant mid-2004 prices)

2003

13,210 'EX (1 USD = Lei)

'assenger (billion pkm) ?eight (billion tkm) 'rivate operators (billion tkm) 'otal Traffic Unit: (pkm+tkm) (billion)

'rack access charges (TACs) (Euro per train km) Freight Passenger

tailway Network (km) (year-end) tailway Network (km) - reduction

dumber of employees (year-end) .abor productivity (thousand TU per employee)

'assenger revenue :reight revenue Total transport revenue Ither rev. (excl. TACs from Marfa & Calatori) I / Total revenue

rota1 costs (excl. TACs from Marfa & Calatori)

Net profiff (deficit), of which: Infrastructure Company Passenger Company Freight Company

State budget support: PSC payment (including discount tickets) 2/

2004 2005 2006 2007 2008 2009 2004-2009 % change

37,000 37,000 37,000 37,000 37,000 37,000

Vet deficit, incl. effect of the state budget support

Norking Ratio (without subsidy) 31 Infrastructure Company Freight Company Passenger Company

lebt Service Coverage Ratio 41 Infrastructure Company Freight Company 5/

8.5 16.6 1 .o

26.1

3.6 1 .o

11,364

74,285 310

145 495 641 285 925

1265

(339) (99)

(240) 0

240

(99)

138% 90%

203%

(1.3) 1.5

8.5 8.5 8.5 8.5 8.5 15.0 14.6 14.1 13.7 13.3 2.6 3.0 3.5 3.9 4.3

26.1 26.1 26.1 26.1 26.1

3.6 3.6 3.6 3.6 3.6 2.4 2.4 3.6 3.6 3.6

8,364 8,364 8,364 8,364 8,364 1,700

66,034 66,034 66,034 66,034 66,034 395 395 395 395 395

153 153 153 153 153 451 438 424 412 399 604 591 577 565 552

80 83 84 88 88 684 674 662 652 641

1,073 1,045 1,032 1,009 987

(389) (371) (370) (356) (346) (107) (102) (39) (36) (27) (291) (275) (336) (334) (332)

9 7 5 13 13

291 275 336 334 332

(98) (96) (34) (23) (14)

119% 115% 95% 93% 93% 86% 85% 85% 85% 85%

254% 242% 275% 275% 275%

1.8 1.6 1.7 1.6 1.5 1.9 1.8 1.0 5.0 5.3

8.5 15.5 2.1

26.1

3.6 2.2

10,064 1,300

66,034 372

153 465 61 8

86 704

1,119

(41 5) (136) (290)

11

290

(125)

132% 86%

260%

1.8 1.8 1 4

-14% O%I

I Passenger Company

21 Includes State budget support for subsized tickets. 3/ The working ratio is defined as: operating costs before depreciation, divded by operating revenues (excluding the the State contributions for infrastructure maintenance, public service obligations and subsidized tickets). 41 The debt service coverage ratio is defined as: total sources from operations (operating income, plus depreciation, minus dutiedtaxes, misc. charges and penalties), divided by debt service obligations (principal repayments & interest). 5/ Because of scheduled repayment of EUR 120 million bond in 2007, Marfa has to raise additional resources of about Lei 5 billion (US$135 million equivalent) to achieve the DSCR of 1.0.

29

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies

ROMANIA: TRANSPORT RESTRUCTURING PROJECT

The Roads

The Bank completed the f i rst Transport project (Loan 35930-RO) in 1998 and i s far along to complete the Second Roads project (4178-RO) for US$ l50 mil l ion. Bo th projects finance a slice of the Government’s road and bridge rehabilitation program. The second project also included a traffic safety component with elimination o f the worst black spots and a pi lot project to improve traffic safety in “linear villages”. There also was a small but successful environmental component to introduce unleaded petrol. Unfortunately, a substantial institution building program to be funded by PHAREi fel l through and the project’s institutional development component was an unfunded mandate carried out through the project supervision missions. Both projects are meeting their development objectives and performing satisfactorily.

The R N C M N R i s also borrowing from the EBRD (US$l50 million), EIB (Euro 920 million), and JBIC (US$80 million) to rehabilitate roads and to build new roads. Also ISPA funds (Euro 410 million) are available and being used for road rehabilitation. RNCMNR has also taken commercial loans (US$190 million). The EBRD loans have included a modest technical assistance component. The Bank projects have addressed the road rehabilitation and traffic safety issues. The new project would focus on city bypasses to improve traffic circulation in the cities, protect the historic cities, improve traffic safety, and provide meaningfhl funding for institutional development and development of methods for prioritizing and allocating the road budget efficiently.

The Railways

The Romanian Government, together with the Romanian Railways and the World Bank have recently completed the Railway Rehabilitation Project that began in 1996. The objective o f the project was to support and consolidate the restructuring process, which the Railways and the Government had initiated. The ICR for the Railways Rehabilitation Project gives details o f the progress and the results o f the restructuring that has occurred during the term o f the last project. The Project contributed to a major restructuring o f the Romanian Railway industry, including:

A new railway Law enacted to create the legal environment for the railway industry. The previous State Railways was restructured through a series o f evolutions into three companies focusing on Infrastructure, Freight, and Passenger services. This restructuring was aimed at aligning the operations to the market place, increasing efficiency, and responding to the requirements for European Integration. Several non-core businesses, such as power generation, hotels & restaurants, schools, etc., were privatized. Railway facilities such as stations and switching terminals were rationalized. Staff numbers were reduced from 137,139 to 72,744 during the te rm o f the previous project, i.e. from 1996 to 2003. A modern fiber optic railway communication network was installed, together with a modern Integrated Railway Information System (IRIS).

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Annex 3: Results Framework and Monitoring

ROMANIA: TRANSPORT RESTRUCTURING PROJECT

Results Framework -

Project Development Objectives

(1) Aligned with EUpractices, rehabilitate, modernize and develop transport facilities for traveler safety and mobility. Traffic circulation near cities is of highestpriority to improve traf lcpow and preserve old historic cities.

(2) Restructure administration of roads through reclassification of the road network and associated changes in road management and financing. Increase eficiency of road works through privatization and development of the domestic construction industry.

(3) Restructure the management of the state railway companies to improve productivity toward full cost recovery and for competition within the E U transport market.

(4) Stimulate liberalization of the domestic transport market by privatizing the service delivery at both railways and roads.

Outcome Indicators

Reduction in through traffic volumes, air pol lut ion and congestion in the affected cities. Reduction in travel times for l ong distance freight traffic.

Road networks reclassified; a method to distribute the road budget between road owners i s developed; P M S and B M S systems are used to develop financially identif ied 5-yr road programs; and new maintenance plans and technologies are employed.

ICT (and IRIS) are fully engaged in daily management; (labor) productivity has increased; and information o f the transport market i s used to design services.

Freight services endowed with complete managerial freedom; road and rai lway maintenance operations procured competitively. ,

Use o f Outcome Information

Increased capacity to improve traffic circulation in and around cities.

Improved allocation o f resources to achieve economic efficiencies and broader impact o n road conditions under budget constraints. Development o f Mult iyear Program.

Design o f more competitive services to freight forwarders. Further improvement in (labor) productivity. Full cost PSO contracts for passenger services.

Private sector development and improvement o f market competition.

31

Results Monitoring

Intermediate Results One per Component

Road Component R d l : Development o f procurement method for design-build in rehabilitation and n e w construction.

Road Component Rd2: Implementing a ‘Linear Vil lage’ type traffic safety improvement. ~~

Road Component Rd3: Construction and Supervision o f Bypasses for Selected Cities

Road Component Rd4 Bridge rehabil itation

Rail Component R w l : Management training in CFR, Marfa, and Calatori

Rail Component Rw2: Extension o f I R I S

Component Rw3 Infrastructure Maintenance, Power Supply and Signaling Equipment Component Rw4: Environment management

Results Indicators for Each Component

,Road Component Rdl : One contract for bo th rehabilitation and new construction let using the design-build method.

Road Component Rd2: The number o f fatal and injury accidents in the ‘linear villages’.

Road Component Rd3: Bypasses built as designed.

Road Component Rd4: Bridges rehabilitated according to schedule

Rail Component R w l : (Railway) Management training program established in a Romanian business school Rail Component Rw2: Extension o f I R I S function for the commercial activities (TUI, etc.). Component Rw3: Maintenance, power supply and signaling equipment procured. Component Rw4: Environmental equipment procured.

Use o f Results Monitoring

Road Component Rdl : Comparison o f design-build with standard “design f i rs t and then build” method.

Road Component Rd2: Planning for traffic safety and monitoring o f accidents in urbanized areas. Road Component Rd3: Moni tor progress and correct if quality/progress is poor. Ensure that RNCMNR learns f r o m the experience. Road Component Rd4: Moni tor progress and correct if qualitylprogress i s poor. Ensure that RNCMNR learns f r o m the experience. Rail Component R w l : Attendance in the business program by the rai lway management staff.

~

Rail Component Rw2: Moni tor ing o f rai lway performance indicators . Component Rw3: Reduction in track maintenance unit costs and labor requirements. Component Rw4: Moni tor ing o f environment quality.

32

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Annex 4: Detailed Project Description

ROMANIA: TRANSPORT RESTRUCTURING PROJECT

The Project

The proposed Transport Restructuring Project has two main parts (with separate loan numbers) processed as one operation.

1) Road loan, which includes technical co-operation, traffic safety, urban bypasses, and bridge rehabilitation; and

2) Railway loan, which includes technical co-operation, track machinery, train control system and other capital improvements.

The project total cost amounts to US$ 377.9 million, o f which US$225 mi l l ion is supported by the World Bank loan. The project’s key components are: (i) restructure road administration, management and finance to improve the road sector efficacy, traffic safety, traffic circulation near important cities by building urban bypasses, and rehabilitate severely deteriorated bridges; and (ii) improve railways management through technical cooperation, especially in information and communication systems, better track machinery, train control systems, and improving regulatory capacity.

The project will build on and complement earlier projects funded by the Bank by both benefiting from the institutional reforms carried out earlier and extending them to address needs that either have come apparent or could not be addressed earlier. I t wil l improve the RNCMNR’s ability to plan and manage urban segments of i t s road system, improve i t s design, environmental, and procurement processes. For the Railway companies the project supports continued financial and technological restructuring, and finances the acquisition o f asset-specific maintenance equipment. Detailed description o f the components follows.

The Road Sector Components Estimated at US$277.7 million (loan US$149 million)

Substantial progress was made in the past road projects to rehabilitate Romanian main road network. However, the inherited road network i s insufficient and requires both rehabilitation and development investments, especially near cities and other major traffic generators. The RNCMNR i s modernizing i t s organization and management frameworks and systems, aligning them with EU standards and practices, and engaging the private sector in both financing and service delivery. A key objective o f the Roads component o f the Transport Restructuring Project i s to consolidate the many changes into a coherent whole, update key planning and managerial functions and finance important bypasses that are carefully designed and integrated into the existing and planned main highway network.

35

Rdl. Technical Cooperation and Training to Improve Efficiency of Road Management and Engineering Design

Technical cooperation and assistance funded by the loan aims to support institutional development in five areas, plus a sixth task as a stand-by item. These are:

1. Institutional support for the RNCMNR, consisting of:

a. Organization development, including management training.

b. Review and propose functional and administrative classification o f the public road network; including identification o f road owner, administrator, and manager responsibilities, and development o f a method for dividing the road sector budget between road owners and administrations;

c. Development o f R N C M N R environmental pol icy and program, with training;

d. Development o f data services and analytical capabilities in road management, including training.

2. Development o f planning methods and capabilities, consisting of:

a. Use o f road management systems (Pavement and Bridge Management Systems) to develop a rol l ing 5-yr program, with training;

b. Development o f multi-year maintenance plans and methods and processes for their procurement, including training

3. Review, diagnosis and improvement o f R N C M N R procurement documentation, including quantity measurement and instructions to tenders. A s a specific item, this component includes the development o f consultancy TORAWP and associated process for design-build method, which will be tested in one o f the by- passes.

4. Harmonization and updating o f R N C M N R technical specifications, geometric standards, and documents with EU standards (as diagnosed above).

5. As a stand-by task, a Road User Charge study wil l be undertaken in case the PPJBL - TA consultancy o n the subject is further delayed.

Under the Consultancy services category there wil l be training in project management, procurement and engineering design for the road works. The project wil l have Goods Category for the modemization o f R N C M N R computer systems, and for the purchase o f licenses for pavement and bridge management systems.

Rd2. Road Safety Improvement

The project’s traffic safety component would be coordinated with the traffic safety work o f the GRSP and PHARE programs. The c iv i l works would support the “Linear Village” type traffic safety improvements and elimination o f “black spots”. Several o f these were already identified

36

and designed in the ongoing Second Roads project, but will be scrutinized using the road crash database that i s scheduled to be available later this year, funded through PHARE. Specifically, the component will include: (i) education and public awareness for the Romanian public through workshops to be delivered in different regions o f Romania; (ii) technical support for the application o f the traffic crash records database, and (iii) implementation o f the Busteni Linear Village pi lot road safety plan, designed earlier, and minor works and goods for the correction of road sections with recorded high rates o f traffic crashes as identified in the traffic crash database.

Rd3. Construction of Bypasses to Selected Cities

To improve traffic circulation, relieve congestion and environmental pollution, reduce travel costs and traffic accident risk for traffic traveling through key cities that are at present a major bottleneck to both passenger and freight transport. The bypasses also improve the urban environment and the l ivabi l i ty o f the cities. The environmental assessments describe the details about the bypasses. The selected cities include: Bacau, Brasov, Reghin, Medias, and Targu Mures. Studies for the bypasses in Adjud and Ramnicu-Sarat are ready and available should there be savings in the project. A short description o f the bypass studies and the bypasses themselves follows.

All the bypasses are located in cities with severe traffic problems and bottlenecks for growth. Many o f the cities have historic cores, which are now negatively affected by traffic caused pollution and vibration (causing damage to old buildings). All the bypasses enjoy widespread popular support and acceptance among the cities' population.

The feasibility/ alternatives analyses o f the bypasses were financed by the Government. The environmental studies and public consultations were done according to Bank guidelines and reviewed by an independent consultant. The environmental permits for al l the bypasses have been issued fol lowing the requirements o f the Romanian laws. A br ief synopsis o f each bypass, starting with the highest ranked (by NPV/CAPCost criterion) follows. Summary information for the bypasses is in Table 1, a map i s annexed to the PAD. The by-passes in Adjud and Ramnicu Sarat may be included during project implementation if there i s sufficient project balances.

0 Brasov, an industrial ci ty with population o f 310,000, i s located in the foothills o f the Carpathian mountains. Besides being home to numerous industries, Brasov i s also a railroad center, a crossroads for several national roads, and has extensive recreational facilities for both summer and winter. Brasov has an o ld city center with many historic buildings. The ci ty i s congested and the overloaded street network suffers from the lack o f maintenance. An important contributor to congestion are the several national roads from al l directions that converge in Brasov. The bypass would enable the long distance traffic from al l directions bypass the city. The bypass would also effectively distribute the incoming traffic between different ci ty sectors before reaching the city center. I t would enable better land use planning, give room for growth, and serve the planned airport northwest to the city. The design includes substantial environmental improvements. The bypass would connect the city to the planned Bucharest-Brasov-Oradea motonvay. I t i s planned that the Brasov bypass would be the first project and would start as soon as possible.

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0 Medias i s a mediaeval ci ty o f 57,000 inhabitants; part o f the c i ty wal l i s s t i l l in place. The Headquarters o f the Romanian Gas industry i s located in Medias. Over the past 10 years Medias has lost population, but has now started to grow again. The city i s surrounded by mountains and Tarnave river runs through it. Railroad bisects the city and causes substantial delays on the national road now traversing through the city. The street network i s in poor condition. The bypass would run along the Tarnave river enabling the elimination o f the railway crossings. Environmental protectiodenhancement works (totaling US$1.6 mil l ion) are included in the capital costs. This bypass i s tentatively selected for developing the design-build method.

0 Targu Mures, a historic Transylvanian city with a population o f 165,000, a growth center and home to several industries, i s crossed by national roads fkom north to south and east to west. The bypass would enable the north-south traffic avoid the city and also connect i t to the Brasov-Oradea motonvay, which wi l l pass the c i ty to the south. Like in Brasov, the substantial through traffic, especially trucks, now plough through the ci ty streets causing congestion and reducing l ivabi l i ty in the city. The rol l ing terrain has presented demanding engineering and environmental challenges to the designers. Because o f the terrain around Targu Mures, the extant road and street network i s insufficient to accommodate the expected growth, making this bypass an important factor in future growth o f the city.

0 Bacau, population 215,000, i s one o f the larger cities in the northeastern part o f Romania with a diverse set o f industries. I t i s in the crossroads o f several national roads each having a vek difficult alignment in the approach and through the city. Because o f the mountains in the west, along which the city growth has occurred, and river in the east, the bypass design was demanding and the result expensive. I t i s likely that because o f the budget constraint, the bypass wil l be built in two phases, the f i rs t phase being the north-south bypass on DN2. The bypass would relieve severe traffic congestion in the linear, o ld and attractive city.

0 Reghin is a medium size city o f some 50,000 north o f Targu Mures in Transylvania. I t has a historic downtown with some stunning and colorful buildings from its German past. Reghin is the center o f musical instrument manufacture in Romania. I t is surrounded by r ich farmland and experiencing rapid growth. The bypass would detour the city o f the south and east sides, the west side being blocked by hilly terrain and small mountains.

0 Adjud i s a smaller city, which the heavily traveled national road DN2 crosses. The city street network i s thoroughly inadequate for the existing traffic. The bypass would enable the through traffic avoid the city, provide rel ief f rom traffic and eliminate a traffic safety hazard in the city’s main street.

0 Ramnicu Sarat, like Adjud, is a smaller c i ty on the heavily trafficked DN2. The street network i s inadequate for the existing traffic. The bypass would provide rel ief from traffic and eliminate a traffic safety hazard in the city’s main street.

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This project sub-component also includes the costs of consultant’s services to be financed from the loan for detailed engineering design and to supervise the c iv i l works during construction of the by-pass roads.

Rd4. Supervision o f Civil Works

Supervision o f the c iv i l works during construction of the bypasses, rehabilitation o f bridges and road safety works.

Rd5. Bridge Rehabilitation

Repairs or replacement o f selected bridges that are in critical condition and in imminent danger o f collapse. Under the ongoing Second Roads project a thorough study was made on the condition o f the bridges on the main roads. The rehabilitation needs were prioritized and designs are available. I t i s relevant to note that some bridges are in a critical condition and recently one bridge collapsed.

Project Audits

R N C M N R will hire Auditors approved by the Bank to conduct financial audits for the project funds, and for the entity.

Railways Components Estimated at US99 million (loan US$75 million)

While much has been accomplished during the last Bank financed Railway Rehabilitation Project, much s t i l l remains to be done to transform the Romanian Railways into fully commercial enterprises with gradually declining Government financial support (for a given level o f service). Progress has been made in privatizing parts o f the o ld State railway, and reducing the size o f the labor force and the wagon and locomotive resources that are used to provide the railway services. Productivity of the Railways has significantly increased. A key objective of the Railway component o f the Transport Restructuring Project is to consolidate the reforms and assist the Government and the Railways to complete the process initiated in the last Project with the following activities.

e

e

e

e

e

e

Complete the privatization o f the non-core activities, and focus on the core business. Reduce the size o f the Railway Infrastructure Company and improve its productivity. Embed the Integrated Railway Information System (IRIS), and other technology tools, into the operational processes to improve customer service at lower costs. Introduce market orientation and commercial practices into the Railways through management training. Tailor the passenger services to market demand to increase efficiency, and minimize Public Service Contract costs. Facilitate the complete managerial independence o f Marfa.

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These measures, which the components o f this loan support, target further productivity increases and will lead to significant decreases in the real costs o f the Railways to the government.

Rwl . Technical Cooperation for the Commercialization of the Railway Industry and Training

The Technical Assistance component for the Railways under the proposed project will consist of:

1. Management Development. To institutionalize Railway Management Training. The previous Project focused on restructuring the Railway industry through the sale o f the non-core businesses, and aligning the core businesses to match their marketplace, the focus o f the current Project wil l be to commercialize the core railway businesses. This wil l require a major effort to change the culture o f the Railway from being operations driven to being business driven.

The Project wil l support investment in people by broadening the Management Training program that was successfully piloted in the previous Project. To ensure the long term success o f the Railways in Romania, management training must be seen as a continuous process. I t i s therefore important that this capability be established in Romania. The project wil l seek a multi-party agreement between the MTCT, the Ministry of Education, and suitable training institutes inside and outside Romania. This would serve to benefit not only the Railways, but also other Government commercial entities.

2. Business Process Redesign. Major developments and installations o f communications and information systems were accomplished during the previous Project. I t is now necessary to ensure that the benefits from the previous investments are realized by the entire Romanian Railway industry. This wil l require technical support for the integration o f the current systems into the operating practices o f the Railway. Three technical consultancy projects will be supported to redesign the organization and the business processes associated with Freight Customer Sewice, Train Operations for CFR, and Infrastructure Maintenance and Management. These TA support wil l be associated with specific software and hardware components, which wil l identified in the respective consultancies and procured in the project.

(a) Freight Customer Service Center will redesign the processes that Marfa uses to deliver customer service. Technical assistance consultancy would adapt the best practices to design the organization and the support requirements to manage the interface between the customers and the Railway. The consultancy wil l address the issues o f Tariff Policies, Customer Contracts, Wagon Orders, Consignment Notices, Billing and Revenue Collection, Local Switching Orders, Shipment Tracing and Advising. The role and the locations o f the Customer Service Centers wil l be defined. The work that i s currently handled at the station level and other organizational units within the Railway wil l need to be clearly identified with a plan for consolidation and rationalization.

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(b) Train Operations Management Center consultancy will redesign the process o f managing the delivery o f train services. I t will examine the tools and processes available in I R I S to report on train circulation, to manage timetables and speed restrictions. I t wil l examine CFR’s interface with the clients to optimize train management decisions for different train operator companies. The consultancy wil l review the current organization structure and locations that are involved in managing the train operations in order to determine how to improve customer service and reduce costs.

(c) Infrastructure Maintenance Management System consultancy wil l redesign the infrastructure maintenance management processes and systems to take advantage o f the Track Geometry Wagon and the implementation o f the IRIS infrastructure sub- system and relate them to the Capital Budget Planning systems, and Track Maintenance Planning Systems to optimize the organization and delivery o f track maintenance activities.

(d) System development, and procurement of associated software and hardware for the redesign of the business processes. After completion o f each consultancy follows system development, and procurement o f associated software and hardware. The implementation the systems includes physical reorganization o f working locations, and provision o f telecommunications and other support equipment. The Railway Information Technology team must be an integral part o f a l l the three consultancies to ensure that the system enhancements and integration with IRIS are achieved.

3. Survey of market demand for passenger services. The key for commercializing the core rai lway business is to understand the Marketplace. The production resources o f the core railway companies wil l need to be adjusted to meet market demands. This consultancy supports an intemational resource to assist the Passenger Railway Company to undertake a passenger demand survey. An objective o f this action i s also technology transfer o f best practices to Romanian Railways. The survey wil l help Calatori to update its 5-year plan and investment plan to meet current and future market demands for passenger services in a cost-effective manner.

4. Project Management Unit staff training. The PMU that successfully managed the previous Railway Project has had a significant staff reduction and turnover. To ensure that the P M U team has the necessary skills to deal with al l aspects o f the World Bank project management, including procurement, the project wil l provide funds for training up to 20 P M U and Railway Management staff.

Rw2. Completion of the I R I S Hardware and Communications Network

Major developments and installations o f Communications and Information Systems were accomplished during the previous Project. I t i s now necessary to ensure that the benefits from the previous investments are realized by the entire Romanian Railway industry. This wil l include:

Completion o f the National Data Transmission Network (RENTRAD-CFR) to facilitate the implementation o f I R I S (CRONOS, ARGUS, MERCUR) in al l the

(i)

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railway units. This wil l result in diversification o f services and increase o f quality o f service offered to the users, and improve o f interoperability with the European network.

Increase o f processing capacity o f database servers and provide access to additional railway units for the diversification and increase o f services offered to users in order to guarantee o f interoperability with the European network.

(ii)

Rw3. Infrastructure Maintenance, Power Supply and Signaling Equipment

In order for the Romanian Railway industry to remain competitive in the Marketplace, i t must provide a quality service at the lowest cost, while ensuring an adequate retum to support i t ’ s investments. The Project wil l support the Romanian Railways in improving i t s quality o f service and in reducing i t s cost base by providing funds to acquire modem infrastructure maintenance equipment, as wel l as modem power supply and signaling equipment. The results o f these investments will be improved service to al l train operators within the Romanian railway network.

A. Machines and Heavy Track Equipment

Universal tamping machines to double productivity compared with the current machines, and possibility to certify the quality o f the works. Ballast prism profi l ing machines to increase the works quality and reduce implementation time. Ballast savings because o f i t s recoverability. Universal ballast-scarifier and screening machines to increase productivity, reduce operation costs, resulting in increased o f quality and mechanization o f works. Special-purpose wagons for cleaning and direct storage o f waste from ballast cleaning process. This will increase labor productivity, improve works quality and environmental protection. Tamping machines for tracks, and switches for increased productivity, quality and mechanization o f the works resulting in reduction o f operation costs.

B. Machines and Small Track Equipment

Small mechanization machines for improved quality and productivity resulting in savings in labor, fuel, and consumables, and increased labor safety. The small machines wil l include: (i) Rai l drills (ii) (iii) (iv) Rai l grinding machines

Motor driven sleeper screw drivers Rai l saws with abrasion plate

C. Signaling Equipment

(i)

(ii)

Axle counters for the control o f the current track between stations equipped with BLSAR, resulting in a reduction o f 207 positions and increase in traffic safety. Introduction o f centralized traffic control in track segments to Faurei (station) and associated equipment for electronic centralization resulting in IDM positions reduced at 21 stations.

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(iii) Replacement o f ten C E M with CED equipment (to control tracks at stations and on line) resulting in 100 positions reduced (10 for each station). In addition C E M equipment i s obsolete and spare parts are no longer available.

D. Power Supply Equipment

Modemization o f stations at Adjud, Barbatesti, Bolovanis, Caralita, Onesti, Parangu and substations at Ciceu, Deda, Toplita, Voslobeni. This wi l l involve replacement o f current equipment that are obsolete, for which no spare parts are available, resulting in manpower savings and reduction in the number o f electro-mechanical positions.

Rw4. Systems for Quality and Environmental Management

The Railways need to acquire equipment to implement integrated systems o f quality and environmental management to align them with European standards for train operations. This component wil l finance purchase o f equipment and systems for monitoring emissions, metrological measurements, and environmental management.

Other Components

The Railways loan also provides for annual financial audits for CFR, and for physical and price contingencies.

Urban Transport Component (loan US$ 1.0 million)

UT1. Institutional Development: Provision o f technical assistance to support institutional development for M T C T and Metrorex, consisting of: (i) organizational development o f the urban transport planning and management unit within MTCT, and establishment o f the Bucharest Metropolitan Transport Authority; (ii) reorganization o f the Metrorex institutional structure to improve efficiency and effectiveness; (iii) feasibility studies for extensions to the Metrorex commuter services within Bucharest metropolitan districts, and (iv) provision o f consultant services for audit o f the Project accounts covering the financial years during project implementation.

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Annex 5: Project Costs

ROMANIA: TRANSPORT RESTRUCTURING PROJECT

This annex shows the base cost by component (and, if needed, major activity per component) followed by contingencies. The footnote indicates the amount and percentage o f taxes.

'roject Cost B y Component (US$ million) :ounter-

Part Wor ld Bank

Project Total

i i d s sub-sector: - Institutional Development - Road Safety Improvement - Construction o f bypasses to selected cities - Supervision o f bypasses, bridge rehab & road safety works - Bridge rehabilitation - Annual Financial audits - Contingencies and Unallocated - Miscellaneous (permits, approvals, authorizations, land acquisition)

1.2 3.9

104.7 2.0 6.9 0.4 0.2 9.4

6.5 4.0 7.9 0.7 7.0 2.0 1 .o 0.0

7.7 7.9

222.5 12.7 13.9 2.4 1.2 9.4

1

Roads Sub-Total: 128.7 149.0 277.5 Railwayssub-sector: - Technical cooperation & training for railway commercialization - Completion o f I R I S Hardware and the Communications Network - Infrastructure maintenance, power supply and signaling equipment - Systems for quality and environmental management - Annual Financial audits - Contingencies and unallocated -

2.1 2.7

18.9 0.2 0.1 0.0

11.5 4.5

57.0 1 .o 0.5 0.5

13.6 7.2

75.9 1.2 0.6 0.5

24.0 75.0 99.( Railways Sub-Total:

Urban Transport sub-sector: -Technical assistance & institutional development 1 .o 0.2 1.2

1.2 Urban Transport Sub-Total:

Total Baseline Cost

0.2

152.9

1 .o 225.0 377.9

130.0 225.0 Project Costs excluding taxes & duties (*)

Total Financing Required 225.0

Note: Identifiable taxes and duties at 19% amounting to US$22.9 mi l l ion o f counter-part funds,

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Annex 6: Implementation Arrangements

ROMANIA: TRANSPORT RESTRUCTURING PROJECT

Administrative Arrangements

The loan wil l be channeled through the Ministry o f Public Finance to the Ministry o f Transport, Construction and Tourism. The project wil l be implemented by three entities: RNCMNR, CFR, and Metrorex. Both R N C M N R and CFR have experience in implementing World Bank projects, and Metrorext has experience implementing both EIB and EBRD funded projects. The three entities wil l be responsible for al l technical aspects o f the project, including planning, procurement o f goods and services, implementation o f c iv i l works, institutional strengthening and training. Supervision of c iv i l works will be carried out by independent consultants. Administration o f the Special Account and project accounting wil l be done separately by the three entities. Consolidated accounts and reports to the Bank for al l project components wil l be undertaken by the RNCMNR.

Project Management

The M T C T wil l have overall responsibility for project oversight and coordination with other IF Is , the EU (ISPA program), bilateral agencies, and the private sector partners. Management o f the main project components wil l be undertaken separately for the roads and railways. The R N C M N R will manage al l o f the roads components, whilst the railways infrastructure company, CFR, wil l manage al l o f the railways components. The small urban transport component, comprising technical assistance studies, wi l l be managed by Metrorex, the metro-rail urban transport operator in Bucharest.

The R N C M N R has well established departments that perform specialized functions such as planning and development, road safety, maintenance management, financial management, and a PPP unit. Consequently, the project wil l utilize well established procedures for procurement and financial management. The various departments and units within R N C M N R have previous experience with managing Bank financed projects, and therefore the present administrative arrangements within the organization wil l be maintained.

Management o f the railways components o f this project wil l be undertaken by CFR under the supervision o f the General Directorate for Railways (GDR) within the MTCT. A Project Management Unit (PMU) was established within CFR under the previous Bank financed loan. The PMU has highly motivated staff who have accumulated significant experience with the Bank’s fiduciary procedures and requirements. The P M U will undertake al l project management functions o n behalf o f al l three railway companies.

Project Financial Management

The three implementing agencies wil l each maintain a financial management system for the project where project accounting, reporting, monitoring and auditing arrangements wil l be centralized. Accounts wil l be maintained in accordance with generally accepted accounting principles and practices satisfactory to the Bank. The significant strengths that wil l provide a basis o f reliance on the project’s financial management systems include the experience o f the

45

existing project implementation teams. The R N C M N R has previously managed Bank financed projects, including implementation o f the U S $ 150 mi l l ion Second Roads Project that i s scheduled to close September 30, 2005. The most recent financial management supervision o f the Second Roads Project o f June 2004 confirmed that the FM and FP ratings o f the project are satisfactory. The National Railway Company, CFR, also has previous experience in managing Bank financed projects, including the U S $ 125 mi l l ion Railway Rehabilitation Project that closed on September 30, 2003. W h i l s t Metrorex has no direct experience o f managing Bank financed projects, i t has managed both EIB and EBRD financed projects that use fiduciary arrangements with requirements similar to those o f the World Bank.

Procurement

The two main executing agencies, R N C M N R and CFR, are both established within the structure o f the MTCT, whilst Metrorex is established within the Ci ty Corporation o f Bucharest. The three entities wil l be responsible for management o f procurement procedures. The entities have full time procurement/financial management staff and full-time procurement specialists. The technical and procurement capacity o f both R N C M N R and CFR will be further strengthened by adequate training financed through this project. Relevant staff from Metrorex wi l l be invited to participate in local training programs organized for the staff from the two main project implementing agencies. Procurement o f goods and services for the Bank financed components wil l be done by al l entities in accordance with the provisions o f the World Bank “Guidelines for Procurement under IBRD Loans and IDA Credits and Selection and Employment o f Consultants by World Bank Borrowers” (effective M a y 1, 2004). Project components not financed by the Bank may be procured in accordance with the national regulations or the co-financing institutions procurement regulations. Procurement o f goods, works and services for the project wil l be carried out in accordance with the agreed Procurement Plan, which will be updated annually and included in the progress report to be reviewed by the Bank. Details o f the proposed procurement arrangements are provided in Annex 8.

In order to further strengthen the procurement capacity o f the implementing entities appropriate training wil l be provided for relevant staff and financed under this loan. Training and study tours wil l be carried out according to a training plan that wil l be prepared by the agencies annually and submitted to IBRD for no-objection prior to implementation. The locations for the training and study tours will be selected o n the basis o f an evaluation o f the most suitable program o f training offered by several institutions, availability o f services, period o f training, within the frame o f the Selection method based on the Consultants’ Qualifications (CQS) or Section V o f the Guidelines for the major part, and Shopping method for smaller ready-made training programs (proposed by UN Agencies such as ILO for example).

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Annex 7: Financial Management and Disbursement Arrangements

ROMANIA: TRANSPORT RESTRUCTURING PROJECT

Financial Management

Country Issues

The f i rs t Country Financial Accountability Assessment (CFAA) for Romania was finalized in December 2003 and concluded that the overall fiduciary r i s k associated with the public financial management and financial accountability arrangements o f the Romanian government administration i s considered to be moderate, with the systems for accounting, financial reporting and internal control representing the areas with the higher risks and budgeting, cash management and external audit and Parliamentary oversight representing the lower risks.

The implications o f the C F A A for the project are addressed by the following actions: a

a

a

a

a

A detailed review o f the systems was performed for each implementing entity; Each implementing entity has a distinct project-specific accounting ledger; Project accounting staff has been nominated for each implementing entity; The format o f the FMRs and financial reports agreed with both implementing entities; RNCMNR, CFR, and Metrorex entities’ as well as Transport Restructuring Project financial statements audited by an independent auditor annually.

Strengths and Weaknesses

The significant strengths that wi l l provide a basis o f reliance on the project’s financial management systems include the experience o f the existing project implementation teams, one within RNCMNR, currently in charge with the implementation o f the Second Roads Project (P039250), with a closing date o f September 30, 2005, and the other one within the CFR, which was in charge with the implementation o f the Railway Rehabilitation Project (PO3601 3), closed on September 30,2003.

The most recent financial management supervision o f the Second Roads Project o f June 2004 confirmed that the FM and FP ratings o f the project are satisfactory.

Implementing Entities

The existing project implementation teams established within the RNCMNR, CFR and Metrorex , would be responsible for the financial management aspects o f the Roads components, o f the Railways components, and o f Metrorex components, respectively, o f the new Transport Restructuring Project.

Three Project Agreements wil l be signed by the World Bank (IBRD), one with RNCMNR, one with CFR and one with Metrorex.

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Funds Flow

I I I i Ministrv o f Public

Project funds wil l f low in respect o f each o f the sources o f project financing as follows:

I I I

I I

(i) the Bank loan, by direct payments or v ia the three Special Accounts, which wil l be replenished on transactional methods using Statements o f Expenditure; and

(ii) Government counterpart contribution, v ia dedicated Treasury project accounts.

Three Special Accounts will be opened at commercial banks and on terms and conditions acceptable to the WB. One Special Account will be opened for the R N C M N R in respect o f its Roads components, another Special Account wil l be opened for the CFR in respect o f its Railways components and the third Special Account will be opened for Metrorex in respect o f i t s underground transport components. Foreign currency amounts will be exchanged as needed in local currency (ROL), to cover eligible expenditures payments in local currency to suppliers, from the Special Accounts into local currency transfer accounts that will be opened at commercial banks and o n terms and conditions acceptable to the WB.

Government counterpart contribution payments will be made from separate Treasury project accounts, being sub-accounts o f the entities' main budgetary accounts, and which wil l be used specifically for the counterpart contributions to the project. These contributions wil l be received monthly in accordance with normal budget procedures.

A summary f low o f funds diagram i s presented below:

World Bank I

I Finance I : ; I I I I I I I I I I I I I I I I I I I I I I I

I I I I Construction and Tourism I I

Treasury Account Treasury Account Treasury Account

Flow o f WB loan funds Flow of Government funds .... " ....................... ... . . .. ... b -------------

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Staffing

Each implementing entity i s staffed as follows in terms o f project financial management:

0 R N C M N R has nominated among i t s existing staff the project financed manager, project disbursement officer and project accountant, al l having considerable experience on Bank - financed projects; CFR has nominated among its existing staff the project financed manager, project disbursement officer and project accountant, al l having considerable experience on Bank - financed projects; Metrorex has nominated among i t s existing staff the project finance manager and project accountant.

0

0

Accounting Policies and Procedures

The project’s accounting books and records at the various agencies wil l be maintained on an accrual basis and denominated in Romanian L e i (ROL) with the exception o f the books and records in respect o f the Special Accounts which wil l be maintained in the currency o f the IBRD Loan.

The R N C M N R and CFR have in place appropriate accounting regulations and internal controls including authorization and segregation o f duties documented in their internal control procedures and regulations.

Metrorex i s currently improving i t s accounting procedures and internal control regulations, to address the points raised by the auditors and wil l prepare a comprehensive financial management manual in early 2005. In the meantime, Metrorex wil l put together a project procedures manual.

Audit Arrangements

Internal Audit

Both R N C M N R and CFR have an internal audit department. I t i s anticipated that these internal audit departments wil l review the project’s financial management arrangements. The internal audit departments in both implementing entities wil l include in their annual work program the Transport Restructuring Project, as part o f their entities’ overall activities. Metrorex i s currently establishing i t s internal audit department.

A number o f internal audit reports prepared by the relevant departments o f the implementing entities have been reviewed during appraisal. The various findings reported do not have an impact on the project.

External Audit

As o f the date o f this report, the Borrower is in compliance with i t s audit covenants o f the Bank- financed projects.

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The National Administration o f Roads (NAR), the predecessor entity o f RNCMNR, has been audited in accordance with I S A since i t s incorporation in 1998 by independent extemal auditors. The auditors issued a qualified-exception opinion on NAR’s financial statements for 2001,2002 and 2003, due to issues relating to the application o f I A S 36 and aspects pertaining to fixed assets.

CFR has been audited in accordance with ISA since i t s incorporation in 1998 by independent extemal auditors. The auditors issued a qualified-disclaimer opinion on CFR’s financial statements for 2001, 2002 and 2003, due to issues relating to the inventories, deferred income, accounts receivable and other receivables.

The Second Roads Project Financial Statements and Railway Rehabilitation Project Financial Statements always received clean audit opinions over their implementation l i fe .

Metrorex has been audited in accordance with Romanian auditing requirements, by audit f i r m s that are members o f the Chamber o f Financial Auditors. The auditors issued a qualified- exception opinion on Metrorex financial statements for 2002 and 2003, due to issues relating to weaknesses in the f low o f documents, the accounting system which i s mostly manual, accounting policies, inventories, fixed assets, subsidies and accounts receivable.

The Transport Restructuring Project will be audited annually both by an audit firm and on terms of reference acceptable to the Bank. The terms o f reference for the audit have been agreed and attached to the minutes o f negotiations. The audit scope will include the project’s books and records as maintained by each implementing entity, a l l withdrawal applications, and the Special Accounts. The audited project financial statements together with the auditor’s opinion thereon will be provided to the Bank within six months o f the end o f the reporting period, being the fiscal year. The audit contract wil l be financed by the loan and be awarded to a single audit firm for the l i f e o f the project, subject to satisfactory performance. R N C M N R will coordinate the entire project audit.

The R N C M N R and CFR entities’ financial statements will be audited annually, by audit firms and on terms o f references, acceptable to the Bank. The terms o f reference for the audit have been agreed and attached to the minutes o f negotiations. The costs o f the R N C M N R and CFR audits wil l be covered by the loan, and the costs o f the Metrorex audits will be financed from Metrorex’s own sources.

In addition, the Romanian Court o f Accounts (CoA), the country’s supreme audit institution, wil l continue to perform ad hoc extemal audits o f the implementing entities, including o f this project.

The audit report prepared by the C o A for FY 2002 for the MTCT, which covered also the R N C M N R and CFR, as subordinated entities o f M T C T has been reviewed. The CoA has granted the ‘discharge o f responsibility’, being a process o f whereby the CoA confirms that a budget holder has discharged i ts obligations in respect o f the execution and reporting o f the budget, to the above mentioned budgetary holders. The CoA report for FY 2003 wil l be available in November 2004.

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Disbursement Arrangements

Bank funds will be disbursed either as direct payments, or to one o f the three Special Accounts opened for each component which wil l be replenished under the transactional disbursement procedures. Withdrawal applications for the replenishments o f the SAs wil l be sent to the Bank directly by each responsible project implementing entity monthly, or when about a third o f the init ial deposit in the SA has been utilized, whichever comes first. All replenishments for transactions above the prior-review threshold wil l be fully documented. Supporting documentation for al l transactions, including completion reports, goods received noted and acceptance certificates, wil l be retained by each implementing entity and made available to the Bank during project supervision. There i s no plan to move to forecast-based periodic disbursements.

Reporting and Monitoring

Project management-oriented Financial Monitoring Reports (FMRs) will be used for project monitoring and supervision. The project implementing team in the R N C M N R will produce the project’s FMRs every calendar quarter and the reports wil l be submitted to the Bank within 45 days after the calendar quarter-end. The FMRs wil l be aggregated from the reports provided to the R N C M N R by the project implementing teams in the CFR and Metrorex, within 30 days after the calendar quarter-end. The formats o f the FMRs and financial reports have been agreed and attached to the minutes o f negotiations.

Information Systems

Each entity already has access to an accounting software system o n which it has created and will maintain project-specific accounting ledgers, as follows:

0 R N C M N R - a project-specific accounting ledger created within i t s existing entity accounting software system to record the operations o f the project, using the existing chart o f accounts; CFR - a project-specific accounting ledger created within i t s existing entity accounting software system to record the operations o f the project, using the existing chart o f accounts; and Metrorex - a project-specific accounting ledger created within i t s existing entity accounting system to record the operations o f the project, using the existing chart o f accounts and distinct analytical sub-accounts for the project.

0

0

Action Plan (Agreed with Borrower)

None.

5 1

Supervision Plan

During project implementation, the Bank wil l supervise the project’s financial management arrangements in two main ways: (i) review the project’s quarterly financial monitoring reports (FMRs) as well as the project’s annual audited financial statements and auditor’s management letter; and (ii) during the Bank’s supervision missions, review the project’s financial management and disbursement arrangements (including a review o f a sample o f withdrawal applications and movements on the Special Accounts) to ensure compliance with the Bank’s financial management requirements.

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Annex 8: Procurement

ROMANIA: TRANSPORT RESTRUCTURING PROJECT

Summary of Procurement Arrangements

This section o f the PAD describes the Procurement arrangements for the project. Should there be a discrepancy between the PAD and the Loan Agreement, the provisions o f the Loan Agreement shall prevail.

Procurement o f goods and services o f the Bank financed components wil l be done in accordance with the provisions o f the World Bank Guidelines Procurement under IBRD Loans and IDA Credits and Selection and Employment of Consultants by World Bank Borrowers (effective May I, 2004 ). The project components not financed by the Bank would be procured in accordance with the national regulations or the co-financing institutions procurement regulations. Proposed procurement arrangements are summarized in Table A below.

The Bank’s latest Standard Bidding Documents, Requests for Proposals, Invitations to Quote and Forms o f Contracts wil l be used for al l procurement packages wholly or partly paid out o f the loan.

Notification and Advertising

A General Procurement Notice (GPN) will be published in the UN Development Business. For I C B goods contracts and large-value consultant contracts (more than $200,000) Specific Procurement Notices would be advertised in the Development Business and the national press and in the case o f N C B in a major local newspaper with nationwide circulation (in the national language).

Procurement Responsibilities

The executing agencies (more particularly R N C M N R and CFR), established within the MTCT’s structure wil l be responsible for management o f procurement procedures. These agencies wil l be staffed by a full time procurement/financial manager and two full-time procurement specialists. In addition, the procurement activities will be supported by the project transport specialist. The technical and procurement capacity o f both agencies wil l be strengthened by adequate training.

Procurement Methods and Thresholds

The Project includes procurement of c iv i l works, goods, and consultant services. A procurement plan detailing the packaging and estimated schedule o f the major procurement actions has been prepared by the borrower, attached to the minutes o f negotiations, and wil l be posted o n website (without the estimated costs), according to Bank’s guidelines. During project implementation, the procurement plan wil l be updated and sent to the Bank for approval annually at a minimum.

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Direct Contracting

There i s one direct contracting procedure envisaged in the Railways component for an Information Technology package (supply o f the updated version o f a proprietary software, with related incidental services such as development, installation and training).

Domestic Preference

Domestic preference for the evaluation purpose shall apply to locally manufactured goods in accordance with provisions o f the guidelines Procurement under IBRD Loans and IDA Credits (effective May 1, 2004 ).

Consulting Services

Consulting Services wil l be selected in accordance with the World Bank Guidelines Selection and Employment of Consultants by World Bank Borrowers (issued November 2003). Quality and Cost Based Selection (QCBS) wi l l be the preferred method for selection o f consulting firms for contracts estimated to cost $100,000 equivalent or more, except for a few contracts o f a standard nature: Least Cost Selection (LCS) may be the method used for selection o f consulting firms for contracts o f a standard, non complex nature, estimated to cost less than $200,000 equivalent. QCBS selection over $200,000 will be advertised in Development Business and in a national newspaper for expressions o f interest, f rom which a short list wil l be drawn. Contracts estimated to cost less than $200,000 may be procured fol lowing Consultants Qualifications (CQ) and/or Least Cost Selection (LCS). Individual consultants wil l be selected in accordance with Part V o f the Consultants Guidelines.

Single Source Selection

The extension and development o f two modules o f the existing “IRIS” software developed for the Railways Company, CFR, during the previous Romania Railways Project, which i s partly a proprietary software, wil l be undertaken by the same consulting f i rms, on the basis o f the rates o f the initial development contract (updated and considered as a cap), under Single Source Selection method, for the subcomponents relating to the Freight Customer service Center and to Train Operations Management.

Training

In order to further strengthen the procurement capacity o f the implementing entities, appropriate training will be provided for relevant staff and financed under this loan. Training, and if possible, study tours wi l l be carried out according to a training plan that wil l be prepared by the agencies annually and submitted to IBRD for no-objection prior to implementation. The locations for the training and study tours wil l be selected o n the basis o f an evaluation o f the most suitable program o f training offered by several institutions or consultants, availability o f services, period o f training, within the frame o f the Selection method based on the Consultants’ Qualifications (CQS) or on Section V o f the Guidelines for the major Lots, and o f the Shopping method for smaller ready-made training programs (proposed by UN Agencies such as ILO for example).

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Bank’s Review of Procurement Decisions

Scheduling of Procurement. Procurement o f goods, works and services for the project wil l be carried out in accordance with the agreed Procurement Plan, which wil l be updated annually at a minimum, included in the progress report and reviewed by the Bank.

Prior Review

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

i. all I C B contracts; ii. all goods contracts estimated to cost the equivalent o f $200,000 or more; and iii. the f i rs t two contracts procured under N C B (regardless o f contract value), the f i rst

two contracts procured under shopping and the first two contracts procured under M ino r Works.

Consulting Services. With respect to consulting services, prior Bank review wil l be required for al l terms o f reference for consultants. Contracts for services estimated to cost the equivalent o f $100,000 or more for f i r m s and $50,000 or more for individuals, and the first two contracts under CQ and LCS are subject to Bank’s prior review as set forth in paragraphs 2 and 3 o f Appendix 1 to the Guidelines.

All other contracts are subject to post review, in a ratio o f one contract in five.

Action Plan for strengthening Agency’s Capacity to Implement Project Procurement

1. The agencies will be staffed by a fill time procurement/financial manager and two full- time procurement specialists whose qualifications, experience and terms o f reference shall be satisfactory to the Bank;

2. A training program for the procurement staff o f the agencies (minimum four staff each in the program for CFR and RNCMNR) wil l be implemented, based particularly o n regional workshops and seminars, and on International Labor Organization ILO (Turin) regular WE3 standards procurement training sessions . I t would include at least a two day training session per procurement specialist or officer, focusing mainly in the preparation o f bidding documents for each type o f procurement method proposed in the loan agreement, bid evaluation and preparation o f contracts. Relevant Metrorex wil l also be invited.

Overall Procurement Risk Assessment:

Risk assessment i s rated high.

Frequency o f Procurement Supervision Mission Proposed

One every six months including in-depth procurement supervision for post-review. A sample o f contracts subject to post review, in the ratio o f one in five contracts, wil l be subject to periodic post reviews.

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Table A: Project Costs by Procurement Arrangements (US$ mi l l ion equivalent)

Procurement Method4 Total Expenditure Category ICB NCB Other5 N.B.F. Cost

R O A D S 1. Works 222.5 21.8 0.0 0.0 244.4

I1 7.9 11.0 0.0 0.0 128.9 I. Goods 1.3 0.0 0.0 0.0 1.3

1. I 0.0 0.0 0.0 1.1 3 . Consultants’ Services, including Training 0.0 0.0 20.3 0.0 20.3

0.0 0.0 17.1 0.0 17.1 4. Land Acquisition & miscellaneous (permits etc.) 0.0 0.0 0.0 9.4 9.4

0.0 0.0 0.0 0.0 0.0 Sub-Total (Roads) 223.8 21.8 20.3 9.4 275.4

Sub-Total (Roads) WB I 19.0 11.0 17.1 0.0 147.0

1. Works 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

2. Goods 86.7 0.0 2.2 0.0 88.8 64.7 0.0 1.8 0.0 66.5

3. Consultants’ Services, including Training 0.0 0.0 9.6 0.0 9.6 0.0 0.0 8.0 0.0 8.0

R A I L W A Y S

1.2 I O.O/ 0.0 1.0 I 0.0 0.0 1.0 1. Consultants’ Services, including Training 0.0 0.0 1.2

Sub-Total (Railways) I 86.7 0.0 11.8 0.0) 98.4 Sub-Total (Railways) WB

METROREX

64.7 0.0 9.8 0.0 74.5

Sub-Total (Metrorex) Sub-Total (Metrorex) WB

0.0 0.0 1.2 0.0 1.2 0.0 0.0 1.0 0.0 1.0

222. : Total 310.5 21.8

Total (World Bank) 1 183.7 11.0, 27.9

~~

Figures in bolditalic are the amounts to be financed by the Loan. All costs do not include contingencies. * Includes c i v i l works and goods to b e procured through shopping, consulting services, services o f contracted staff o f the project management office, training, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units.

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U

Table B: Thresholds for Procurement Methods and Prior Review

Contract Value Contracts Subject to Threshold Procurement Method Prior Review

(US$ thousands) (US$ millions)

Expenditure Category

1. Works All - >2,000 ICB <2,000

<1 00 NCB First two contracts

S First two contracts

2. Goods6 - >200 ICB All >loo NCB First two contracts 4 0 0 S First two contracts

3. Services >200 Firms QCBS > 100 All <200 Firms CQ, LCS First two contracts

>5 0 I C All <50 I C First two contracts

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Annex 9: Economic and Financial Analysis

ROMANIA: TRANSPORT RESTRUCTURING PROJECT

Benefit Cost Analysis of the Roads Component

Economic analyses for the bypasses were conducted using standard engineering-economic methodology employed by the World Bank in numerous projects worldwide. The objective i s to minimize the total road transport costs to society over the l i fe of the road subject to constraints, which include road design, traffic safety features, and environmental considerations. The total road transport costs comprise f ive interacting sets o f costs: (1) construction, (2) rehabilitation and periodic maintenance, and (3) routine maintenance and system operation costs spent by the road administration (4) the road user costs (whose most important components are vehicle operating costs, time costs and accident costs), and (5) external costs to society (pollution, development, and production benefits if identifiable). In the analyses local values were used for al l the cost components; the external costs were included in the construction costs through the mitigation measures.

Decisions always consist o f choosing between two or more possible solutions. Everything that i s common to the choices disappears in the comparison process, which i s only concerned with differences. The differences in expenditures between alternatives are easier to establish than the expenditure itself. The differences in user expenditure are generally called "user benefits", that i s reductions in user costs. The attempt to minimize the total expenditure i s thus equivalent to maximizing the difference between the streams o f "user benefits" and road administration costs, this difference being referred to as "net benefit".

Figure 1 illustrates the solution principles o f the engineering-economic analysis. The curve showing road user costs decreases and the curve showing road administration costs r ises with better road condition. The better the road the less i t costs to the travelers in vehicle wear and tear, in delays, and both the society and the travelers gain from better traffic safety. But, to provide a better road costs more to the road administration and the taxpayers.

The total cost curve, the sum o f these two types o f costs has a minimum value that i s the desired "optimum" point. In figure 1 the optimal road condition would be at Q and the associated total cost for bringing or keeping the road in this standard would be at S; the road administration costs being O B and the user costs BS.

Figure 1 refers to a single year. But, what i s carried out in a particular year has an effect on al l later years and this framework i s able to account for present and future costs. The totality of current and future expenditure - the l i f e cycle costs - must be considered. The "road stock preservation" objective then enters into calculations as an optimization o f schedule of expenditures for maintenance and for road user expenditures. The total transport cost T to be minimized is the discounted sum o f expenditures B and road user expenditures S.

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Figure 1

Cost or budget

S

Too large budget

Optimal budget Too small

budgel

Total road transport costs

administration costs Road administration costs after productivity improvements

I I

I Too Q Too , poor good I

Optimal Optimal for

more efficient road administration

7

Road condition

Figure 1 also has a curve for more productive and efficient road administration. The importance of this issue i s discussed later as it relates to the technical assistance and cooperation part o f the Project’s road component.

Using the above framework, benefit-cost calculations were conducted for each o f the seven bypasses. The results are in Table 1 which also indicates the breakdown costs for various purposes such as construction, environment, etc. and the contribution o f the government to the projects’ costs. The results show that al l the bypasses have a good rate o f return, in excess o f 16 YO. The figures sizable sums are invested in environmental mitigation measures. The results are also robust against cost increases.

Figure 1 refers to a single link it can also be envisaged to refer to a (homogenous sub)network and indicate the network wide optimal road standard and the budget associated with the standard. In the context o f the road administration, such as RNCMNR, the interest i s o f the discounted net benefit o f a entire road program.

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Figure 1 can also easily be used to illustrate the effect o f standards and budget constraints to allocation and distribution o f monies that result either in too good or too poor road condition. The importance o f the budget constraint i s not only related to “political” considerations. Improving road administration and management can significantly affect the road administrations cost curve, the dotted l ine in figure 1.

In this project, there significant technical cooperation activities, which aim to improve the RNCMNR data and road management systems, and in so doing make RNCMNR more productive. As the dotted l ine indicates, such improvement in productivity has the dual impact of improving road network condition and lowering the user costs for the same level o f budget. Thrifty road management calls for multi-year road programs, consisting o f different actions to which the road condition i s linked. Within the limits o f a given road pol icy it is generally possible to modify the total amount o f hnding to some extent. A correct pol icy choice would be to increase the costs, the size o f the road construction, rehabilitation and maintenance program, until the increase in benefit i s equal to the increase in cost.

The management systems, the engineering-economic analysis framework and the review o f its technical standards and specifications - al l components in the TA program--will also assist RNCMNR to determine the “optimal” size o f i t s annual budget. This combined with the road user charges study wil l assist the Government and RNCMNR to establish budget targets and allocate the road budget the most efficient manner.

If RNCMNR i s provided with a dedicated income source from road user charges, the methodology wil l also enable RNCMNR to conduct financial analyses, which today are quite rare even in modem road administrations.

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m i I

Economic Costs and Benefits of the Railways Components

The two main groups o f railway equipment included for financing under the proposed project are heavy track equipment and train control equipment.

Heavy Track Machines. Track machine performance, mostly tamping and ballasting machines, have a substantial influence on track maintenance costs and, as a result, on overall infrastructure costs. All aspects o f tamping machines operation have to be governed by the consequences o f the track costs. However, this does not necessarily mean that minimizing machine expenses reduces the cost o f track maintenance. When comparing different strategies, i t must be considered how they influence direct work costs, the cost per meter tamped, and the life-cycle o f the track. In addition, the cost o f train operation i s also very important. Init ial and inherent quality determine track maintenance cycles, and therefore the life-cycle cost o f the track. Even on track where there i s less need for train ride comfort, i t i s advisable to rely on machines that produce high quality work. Improving the quality o f track will extend by as much as 30% the interval between track maintenance.

Every kilometer o f conventional double-track l ine has between 3000 and 5000 m3 o f ballast, depending on the type o f permanent way and the track spacing. The economic handling and management o f these huge quantities o f material pose a great challenge for track maintenance. The ballast i s required to distribute the load from the sleepers as uniformly as possible over the foundation, to give the sleepers and track sufficient resistance against lateral and longitudinal movement, and to keep the track dry by providing the best possible passage for the circulation o f air and water run-off A knowledge o f the quantity o f ballast in the track i s the start o f efficient ballast management. Machines can be equipped with systems to measure the ballast profile which allow for extremely high efficient ballast management. Using intelligent ballast management systems has the potential for large reductions in the amount o f new ballast that needs to be purchased annually and thereby avoid the associated transport and unloading costs.

The new equipment i s expected to increase output by five or six times in about 30% o f the network, and i t has been conservatively estimated that the direct benefit would be the reduction of 20% o f the maintenance costs o n the port ion of the network to which the equipment will be allocated. These results are fairly conservative, since they do not include benefits derived from increased safety due to improved capacity and alignments.

Power Supply and Signaling Equipment. This equipment, comprising mainly o f electronic equipment for traffic dispatching, mechanical interlocking, and signaling wil l modernize train power supply and signaling increasing automation, reducing the cost o f labor, and more importantly, improving safety and replacing obsolete equipment prone to failure and costly service disruptions. The Romanian Railways carried out a cost-benefit analysis for each group o f stations, based solely (and conservatively) on the savings in the operating costs o f the new systems. I t was implici t ly assumed that the freed labor would be allocated to activities with at least equal marginal productivity. The analysis confirms the high priori ty o f the proposed systems, with an estimated ERR of 45%. Details o f the economic evaluation are included in the project fi le.

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Background to Railway Reforms in Romania

Under the umbrella o f the previous World Bank/EBRD financed Railway Rehabilitation Project (1 996-2003), the Romanian Railways have achieved significant progress in fundamental structural reform based on the Railway L a w enacted in 1998 to increase efficiency, respond to the market demands, and meet the requirements of EU accession. The restructuring has four parts -- organizational, labor, privatization, and financial.

Organizational Restructuring. Since October 1998, the previously monolithic company (SNCFR) has been split into five companies - railway infrastructure (CFR), freight (Marfa), passenger (Calatori), surplus asset management ( S A A F ) , and financial, legal and procurement management services (SMF). SMF was dissolved in 2002 and i t s functions have been taken over by the four companies. S A A F i s also planned to be dissolved soon as the bulk o f the surplus and obsolete assets has now been disposed of. SNCFR has continued to exist as a separate debt amortization unit to help reduce its indebtedness. Because the passenger services required substantial subsidies, the Government divided the passenger railways into nine different companies in February 2000, eight for short-haul regional services and one for long-haul international and inter-city services. The idea was that the local govemments would pick up the subsidy payments as none was needed for the long haul services. This solution did not work out because o f lack o f legal framework allowing PSO compensation from local budgets, lack o f an IT-based ticketing system to allow revenue allocation among the eight operators, and fragmentation o f assets causing higher operating costs. In April 2001, the Government reversed i t s decision and al l o f the nine companies have been merged back into one passenger company.

Labor Restructuring. Since end-1997, with the support o f the State budget, labor has been reduced by about 40 YO from 133,000 to around 74,000, which has improved labor productivity compared to what i t would been without this program. Despite a sharp reduction o f traffic volume (40%) during this period, labor productivity has now reached 3 10,000 TU/per staff. There are st i l l excess staff and the size of network i s too large relative to traffic levels and a high proportion o f uneconomic services. The Romanian Railways have adopted an approach to reduce the excess rai lway track by dividing the rai lway track into two categories: interoperable and non- interoperable. The former, about 70 percent o f the total route network o f 11,364 km, would be maintained in compliance with EU regulations and standards. The latter 30 percent would be franchised, given to local governments, or closed. This wil l benefit the railways in reducing staff, operating costs, track access charges and therefore tariffs. Another labor reduction o f about 8,000 employees, or about 10 percent of the total workforce, i s foreseen in 2004 through layoffs and separation o f infrastructure maintenance workshops.

Privatization. Between 1999 and 2002, non-core railway activities were first separated from core businesses and 34 railway subsidiary companies were established. A total o f 20 subsidiaries have been privatized since 2003. Most of the remaining wil l be privatized in 2004 and 2005, and the railways plan to keep 8 subsidiaries providing essential services such IT center, repair workshops for track, locomotives and coaches, ticket sales and sleeping car.

Financial Restructuring. At the time o f 1998 restructuring, the accumulated tax arrears o f US$600 mi l l ion were placed at the SNCFR to enable the new companies to start with a clean slate. SNCFR has now been able to reduce over 80 percent o f the old tax arrears using the

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money collected from o ld receivables. Since the 1998 reorganization, the Government has provided Calatori with PSC payments ranging about US$150-220 m i l l i on annually. Passenger tariffs have been adjusted periodically to cover inflation. Many railway facilities and equipment such as stations and switching terminals have been rationalized to reduce costs and increase revenues. Under the previous Railway Rehabilitation Project, the Romanian Railways have modemized and rehabilitated track, equipment, traction units and rol l ing stock and installed a very sophisticated integrated railway information system and modem communication network. This, together with the ongoing modemization and rationalization o f the railways with the support o f the Government budget and the proceeds o f the recent Eurobonds, IF1 loans, and EU grants, wi l l assist the Romanian Railways in reducing i t s cost base and improving i t s competitiveness. W h i l e much has been accomplished in improving financial performance o f the railways, much s t i l l remains to be done to transform the railways into a fully commercial enterprise with minimum budget support. I t i s not only the railways that need to be restructured, but the entire Romanian economy needs to be restructured as well to create an environment to facilitate a much deeper railway reform. This wil l be addressed through the proposed project and PAL operation.

Recent Financial Performance

Financial Results. Prior to 1990, the Romanian Railways were profitable since most o f the freight and passenger traffic was directed to the railway. As a result o f reduced traffic and rising costs, and particularly because of difficult economic environment, the financial position o f the Romanian railways had progressively deteriorated and reached unsustainable levels. As a result of reform program adopted since 1998, the situation began improving, despite declining traffic. Most o f the financial deficit has been covered by the State budget support. The net deficit o f the railway as a whole was reduced from US$214 mi l l ion in 1995 to US$44 million in 2002. The situation however deteriorated in 2003 and the net deficit has grown to US$99 million, a l l o f which was incurred in CFR mainly because of unfunded maintenance costs. Track access fees were reduced from Euro 5.8 to Euro 3.6 per train km for Marfa, and from Euro 1.3 to Euro 1.0 per train km for Calatori. In the recent past, the passenger services incurred over 90 % o f the total losses in the railways, the main reason being the unreasonably high, noncompetitive and uncompensated level o f passenger services. The working ratio (without subsidy) deteriorated to 124 % for the entire railways in 2003, from 114 % recorded in 2002 and 120 % in 2001.

Traffic. Traffic volume suffered a sharp reduction but has stabilized since 2003. The decline in production in the traditional sectors such as heavy industries and mining led to a rapid fa l l o f freight traffic. The sharp reduction in passenger traffic was resulted from the growing car ownership and the competition o f private buses, coupled with reduced purchasing power o f the population due to macro-economic instability and very high inflation, which in 1997 reached an annualized rate o f 300 %. Compared with 1995, the Romanian Railways carried in 2003 only about 45 % o f passenger-km and 60% of ton-km. Freight accounts for about 70 % o f physical traffic (in freight ton-km and passenger-km) and 80 % o f total transport revenue.

Tariffs. Despite continued traffic decline, the impact o f reduced traffic o n revenues has been much less important, thanks to a significant real increase in freight and passenger tariffs. Over the period 1995 to 2003, the average unit revenue (in lei) increased 30 fold for freight and 50

66

fold for passenger, we l l above inflation for the period, as prices increased about 23 fold on average. The average revenue is U S 0 . 0 3 for freight and US$0.02 for passenger services. Revenues from freight services cover about 1 10% o f cost, and cross subsidize passenger services (see costs below). The passenger fare box revenues cover 40-50 percent o f the costs, with the budgetary support for PSC covering the bulk of the remaining costs. Quite often unfunded cost i s contributing to the unsatisfactory financial situation o f the railways. Under the proposed project, the system o f PSC would be refined further so that only those obligations deemed essential and affordable by the State budget would be retained with a clear PSC between the Government and the operating company and other services terminated.

Costs. Operating costs have declined only slightly f rom US$940 mi l l ion in 1995 to US$920 million in 2002 despite significant staff reduction and the corresponding salary savings. In 2003, the operating costs increased sharply to US$1,120 mil l ion. Since the reorganization, a l l the separated rai lway companies have significantly increased expenditures for maintenance to reduce the backlog in deferred maintenance, virtually nullifying the gains o f staff reduction. Total labor cost decreased from 47% o f total revenue (without subsidy) in 1998 to 32% in 2003. The operating cost per traffic unit (excluding track access fees) has more than doubled from US$0.02 in 1995 to US$0.04 in 2002, and US$0.045 in 2003. Consequently, the cost o f operations and public service contract and the dependence o f the railways on the Government continue to remain high. The railway network and services (in particular for passengers) have not yet been adjusted to the reduced demand. These actions will provide cost savings once they are implemented.

State Budget Support. The State contribution to the railways has gone up from US$82 mi l l ion in 1997 to US$257 mi l l ion in 2002, and US$373 million in 2003. The large part o f the budget support (about 60%) has been towards the PSC. Yet the Government was unable to pay for the full cost o f PSC for ra i l passenger services and Marfa cross-subsidized these services. This caused the track access charges to be much higher for Mar fa than Calatori. In 2003, track access charges were Euro 3.6/train km for Marfa and Euro l.O/train km for Calatori. This undermined Marfa’s competitiveness and in turn reduced CFR’s revenue to maintain the track and pay for the employment and social taxes o f i t s staff. Marfa’s market position has been further weakened by the business climate o f its major clients - mostly state-owned enterprises with similar liquidity problems -- whose payments for transport services are delayed, bartered, or simply uneconomic. The budget support for infrastructure maintenance i s also inadequate to cover the actual cost because o f excess track and a backlog o f deferred maintenance that has accumulated over the past decade. All investments are funded externally by means o f IF1 loans and grants as wel l as the State budget. Most investment needs of CFR and Calatori are covered by the State budget, including about 80-90 % o f their debt service payments. The total amount o f the State support to the railways i s about 0.7% o f GDP. The proposed project would support hr ther reforms that would reduce the rai lway fiscal deficits and the State support.

Arrears to the State. The liquidity situation has continued to deteriorate. Current liabilities o f the railways exceed current assets significantly. The payables to the Government, domestic suppliers, contractors and foreign railways (excluding SNCFR’s old debt) increased to from US$200 mi l l ion to US$830 mi l l ion from 1999 to 2003 because o f unfunded costs o f CFR and Calatori. The receivables (excluding SNCFR’s o ld receivables) increased from US$230 million

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to US$640 million during the same period. CFR has the largest receivables as Marfa pays i t s track access fees late because o f difficulty in collecting money from i t s clients. The financial deficits have’been covered by accumulating arrears to the State budget and social funds. As a biggest loss maker, CFR owes US$300 mi l l ion equivalent to the Government for taxes on salaries and social security payments, or 80% o f the total arrears o f US$370 mi l l ion outstanding for the entire railways. The Government i s planning to set up appropriate mechanism to cancel historic debt o f the railways to a level which does not impede sound financial management and to improve their financial situation in accordance with EU rules on state aid.

Further Restructuring

A framework for further restructuring o f the railways comprises the fol lowing components:

Reduction of Staf. Further reduction in the staff o f CFR and Marfa (Freight Company) by 8,000 employees is expected to result in increased labor productivity from 3 10,000 TU/employee in 2003 to 395,000 TU/employee by 2005. Labor restructuring o f Calatori wil l depend on the TA study o f passenger markets in Romania with the recommendations to support rationalization o f passenger services, establish investment requirements, and minimize the Public Services Contract costs to the Government.

Reduction of Rail Network: A bidding process i s underway for franchises to operate non- economic lines. Railway lines that do not receive any bids wil l be candidates for closure. The franchising and l ine closure wil l result in the reduction o f 3,000 km o f route network from CFR’s track asset and i s expected to b e completed by end-2005 with an estimated saving o f about 5-10% o f annual infrastructure maintenance costs. CFR would receive less track access revenue due to closed lines, but this would be balanced by lower payments made by Marfa and Calatori.

Track Access Charges and Government Support for Public Services: The track access charges (TACs) for Calatori increased from EUR l.O/train-km to EUR 2.4/train-km in March 2004. From 2007, Calatori i s scheduled to pay a higher rate o f EUR 3.6/train-km. Marfa’s access charges wil l remain at EUR 3.6/train-km. This wil l result in a significant increase in the level o f Public Services payments, but wil l help to focus on the rationalization o f passenger services, and refinement o f a clear Public Services contract to cover only obligations deemed essential and affordable by the State budget. All loss- making services that are not included in the contract should be closed together with al l related facilities.

Redesign of Business Processes: The proposed project wil l assist the railway companies to implement organizational changes based on commercial transactions where marketing and management i s essential. Marfa i s to explore market niches and develop international freight traffic on main corridors. CFR should define new infrastructure maintenance management processes and the organizational structure required to optimize the activities and minimize the costs.

Private Sector Participation: The recent revenue trend o f Marfa shows clearly that they are already being hurt by the private sector. Marfa should be privatized as soon as possible, or wil l keep on losing market share and value. Access to Romanian network i s to be extended to international operators in 2007 when Romania joins the EU.

0

0

0

68

The above actions wil l facilitate the objective o f privatizing MARFA. The performance o f Mar fa will be measured in terms o f the working ratio that i s forecast to improve from 90% in 2003 to 85% in 2009, with annual net profits ranging from US$11 mi l l ion in 2004 to US$13 mi l l ion in 2009. The Bank wil l also monitor Marfa’s cash reserves, and the debt service coverage ratio (DSCR). Consequently, the main monitoring targets for Mar fa include: (i) improvement o f the working ratio to 85% by 2009; and (ii) maintaining the debt service coverage ratio at about 1.5 between 2004 to 2009.

The financial deficit for Calatori, and thus the need for Government support through Public Services Contract, are projected to increase sharply from US$240 million in 2003 to US$332 mi l l ion in 2009. The corresponding working ratio (excluding subsidy) will therefore increase sharply from 203% to 275%. The loan agreement includes a covenant that requires the Government to cover the full cost o f passenger services specified in annual Public Service Contracts. This wil l be monitored for Calatori in terms o f the working ratio (including subsidy) target o f 100% or less each year between 2004 to 2009.

The high level o f Government support for PSC is not sustainable. The project, therefore, will finance an analysis o f passenger markets in Romania to reduce the level o f passenger services to match the market demand at the lowest possible cost, thereby reducing Calatori’s financial burden on the Government budget. Further reforms o f Calatori including labor restructuring will depend on the TA study with specific recommendations to rationalize passenger services, establish investment requirements, and minimize the PSC costs to the Government. For CFR, progress would be measured in terms o f the improvement in the working ratio to achieve a target o f 100% or less by 2009. The key to success for CFR wil l be full payment o f the T A C by both Calatori and Marfa, as we l l as by other train operators who use the tracks.

Projected Future Financial Situation. The above framework can lead to a gradual, though modest, improvements. The financial impact o f private sector involvement and development o f new freight market have not been reflected in the analysis. The actual performance thus wil l depend on the speed o f privatization o f freight services and the market response to the planned reforms. W h i l e total revenues are estimated to decline by 9% over the period 2004-2009, total costs are expected to decline by 12%, resulting in a 17% reduction in net deficit.

The reduction o f revenues o f the railways as a whole, i s due mainly to declining transport revenue o f Marfa because o f an estimated 14% reduction o f freight traffic from the growing number o f private operators (whose market share i s s t i l l below 10% in train-km). The freight tariffs are forecast to remain at the 2004 level in real terms. Passenger traffic and revenue are expected to remain constant. For CFR, track access revenue wil l stay more or less the same since private freight operators are presumed to win market share from Marfa.

The reduction o f costs will be achieved through: (i) the planned 10% staff reduction, or 8,000 employees from CFR and Marfa in 2004; (ii) reduction o f 3,000 km o f route length in 2004- 2005 with an estimated saving o f about 5 1 0 % o f annual infrastructure maintenance costs; and (iii) improved efficiency o f track and rol l ing stock maintenance.

69

Summary Financial Forecast* (amounts in US$ millions)

(2003: current prices: 2004-2009: constant mid-2004 prices) Infrastructure Company (CFR)

2003 2004 2005 2006 2007 2008 2009

Working Ratio ** (without subsidy) 203% 260% 254% 242% 275% 275% 275% Working Ratio ** (with subsidy) Debt Service Coverage Ratio 1.4 1.4 1.5 1.4 1.3 1.3 1.3

Marfa

92%

2003 2004 2005 2006 2007 2008 2009

Revenue 560 488 467 454 44 1 428 416 costs 427 372 356 348 340 321 312 Infrastructure fees 133 105 102 99 96 93 91 Profiff (Deficit) 0 11 9 7 5 13 13 Working Ratio ** (without subsidy) 90% 86% 86% 85% 85% 85% 85% Debt Service Coverage Ratio *" 1.5 I .8 I .9 1.8 1 .o 5.0 5.3

Total Railways

2003 2004 2005 2006 2007 2008 2009

?evenue from infrastructure fees Calatori Marfa Private Operators

3ther Revenue 2osts Jrofiffpeficit)

221 283 285 277 343 343 340 76 168 172 164 231 231 23 1

133 105 102 99 96 93 91 I 1 10 11 14 15 18 18

154 35 35 35 34 33 33 474 454 426 414 415 412 400 (99) (136) (107) (102) (39) (36) (27

Working Ratio ** (without subsidy) 138% 132% 119% 115% 95% 93% 93% Debt Service Coverage Ratio (1.3) 1.8 1.8 1.6 1.7 1.6 1.5

Calatori 2003 2004 2005 2006 2007 2008 2009

Revenue costs Infrastructure fees Profiff(Deficit) Subsidy (required) Subsidy (provided) Net results

194 171 172 172 172 173 174 358 294 291 283 277 276 276 76 168 172 164 231 231 23 1

(240) (290) (291) (275) (336) (334) (332) 240 290 291 275 336 334 332 240

0

Infrastructure Calatori Marfa

Total (without subsidy)

PSC payment required PSC payment provided

(99) (136) (107) (102) (39) (36) (27) (240) (290) (291) (275) (336) (334) (332)

0 I 1 9 7 5 13 13 (339) (415) (389) (371) (370) (356) (346)

240 290 291 275 336 334 332 240

Net result, incl. effect of State support for op. (99) (125) (98) (96) (34) (23) (14) World Bank staff estimates based on the financial forecasts provided by CFR, Marfa, and Calatori.

** Working Ratio defined as: operating costs before depreciation, divided by operating revenue. *** Because of scheduled repayment of EUR 120 million bond in 2007, Marfa has to raise additional resources of Lei 5 billion (US$135 million equivalent), without which DSCR will be only 0.2.

70

Performance Indicators

Baseline value

Unit of Measure

Working Ratio (WR)

Latest value

CFR: WR = Operating costs before depreciation, divided by operating revenues (excluding the State budget contributions for infrastructure overhaul)

%

Marfa: WR = Operating costs before depreciation, divided by operating revenues

%

Calatori: WR = Operating costs before depreciation, divided by operating revenues (including the State budget contributions for public service obligations and subsidized tickets)

%

Debt Service Cover Ratio

Marfa: Debt Service Coverage Ratio = Total sources from operations, divided by debt service obligations (principal repayments plus interest)

times

2003 - 90% A- ~~

2003 - 1.5

Expected value

2006 - 115% 2009 - 100%

2006 - 88% 2009 - 85%

2004 - 100% 2005 - 100% 2006 - 100% 2007 - 100% 2008 - 100%

2004 - 1.5 2005 - 1.5 2006 - 1.5 2007 - 1.0 2008 - 1.5

71

Annex 10: Safeguard Policy Issues

ROMANIA: TRANSPORT RESTRUCTURING PROJECT

By-Pass Location

Bacau

Brasov

Medias

Environmental Assessment

Key Environmental Issues Construction: Air emissions from equipment operation

Temporary land use during construction for access roads and materials storage Air emissions from new traffic pattern

Air emissions from equipment operation Temporary land use during construction for access roads and materials storage Surface water pollution from materials stockpiles runoff Influence on nearby protected areas (Harman and Sanpetru) Air emissions from new traffic pattern particularly NO, impacts on local ecosystems Noise level increases Influence on nearby protected area (Harman and Sanpetru)

Air emissions from equipment operation

Operation:

Construction:

Operation:

Construction:

Key environmental issues for each o f the bypass EIAs are summarized below from the independent consultant report. All issues are incorporated into the individual project specific Environmental Management Plans which includes: mitigation program, monitoring program, institutional arrangements for effective implementation, schedule, and institutional development needs. The independent consultant concluded that al l EMPs were satisfactory for addressing al l individual bypass subproject environmental issues.

Reghin Construction: Air emissions from equipment operation Temporary land use during construction for access roads and

Targu Mures

materials storage Impacts on habitats, and vegetation Air emissions from new traffic pattern

Air emissions from equipment operation Temporary land use during construction for access roads and materials storage Noise impacts on natural habitat Surface water pollution from materials stockpiles runoff Pollution f rom materials supply plants (asphalt, concrete etc.) Impacts on habitats, and vegetation Air emissions from new traffic pattern

Operation:

Construction:

Operation:

72

I By-Pass Location I Key Environmental Issues

Adjud

Ramnicu Sarat

Construction: Air emissions from equipment operation Temporary land use during construction for access roads and materials storage Air emissions from new traffic pattem Operation:

Construction: Air emissions from equipment operation Temporary land use during construction for access roads and materials storage Surface water pollution f rom materials stockpiles runoff Temporary disruption o f vegetation and local wildlife Air emissions from new traffic pattem Operation:

Social Analysis

The railway component o f the project has few direct social implications, as much o f the investment wil l go to purchase equipment. Technical cooperation for the component wil l enhance the productivity o f management and staff, rather than reducing staff size. The roads component wil l have a significant impact on the population, however. The traffic safety component will draw public attention to traffic safety issues as well as fund works to address bottlenecks and hot spots; construction o f new passes wil l reduce congestion and danger o n city streets and speed the f low o f goods, as wel l as result in some expropriation o f land; the bridge rehabilitation component wil l be largely invisible to the public. Overall, the project wil l contribute significantly to modernizing the highway system in a country that i s moving closer to accession to the EU, permitting increased road transport, improved access and reducing the incidence o f damage and losses related to the rapid increase o f vehicle ownership and use on streets and roads.

Critical stakeholders have been involved directly and indirectly in project preparation since the beginning. All o f the road and bridge investments address road safety hazards that are well- known to residents as wel l as politicians and road specialists. Principal stakeholders in the project include staff o f the railroad and road administrations, road construction and maintenance companies, local governments, road users, residents o f the respective cities and landowners in proposed r ights o f way. The components emerged f i om discussions with the Ministry o f Transport, the Romanian Railway Authority and the National Administration o f Roads, based on the recommendations o f other stakeholders. Local administrations strongly support the bypasses and have been engaged closely with consultants working on feasibility studies, strongly influencing the proposed alignments. In turn, local leaders consulted constituents informally, and through public hearings. A range o f stakeholders wil l be consulted in the process of selecting and designing works addressing specific hotspots, including local administration, local technical staff, police, c iv i l society groups and residents immediately adjacent to the sites. Some o f these stakeholders wil l also provide data for monitoring and impact assessment.

The project i s expected to have an indirect impact on poverty reduction. For example, selection o f the bypasses included in the project will be based on economic and social criteria to maximize the beneficial impact o f the investments. This will include the size o f population affected and

73

the incidence o f poverty in the target zone. At least three o f the bypass candidates are in the poorest regions and Transylvania. Overall, a broad spectrum o f people will benefit from the bypasses and resolution o f hot spots, including residents along current routes that traverse the cities who experience traffic congestion, noise and danger posed by transport vehicles and reduced air quality, and producers and consumers o f products that wil l move more speedily and safely. A third set o f beneficiaries will be the owners o f buildings along current routes, especially historical buildings, which are affected by the vibrations and emissions o f trucks that must traverse the cities.

The bypasses wil l al l require land acquisition, adversely affecting landowners, particularly those who farm land that wil l be taken for r i gh ts o f way. The exact number o f affected persons wil l be known only when the final designs are completed. The National Administration o f Roads makes o f point o f minimizing land acquisition, avoiding acquisition o f residents and using marginal lands whenever possible. During feasibility studies, a number o f the init ial alignments were revised to meet these criteria. The National Administration o f Roads has prepared a Land Acquisition Policy Framework approved by the Bank, which clarifies steps and procedures in the land acquisition process. Romanian laws and practices are already consistent with essential provisions o f OPBP 4.12 and standard documentation wil l be used to demonstrate compliance with the OP.

The project poses no significant social risks except for the possibility o f the emergence o f local opposition to the site chosen for a bypass. Such an occurrence, which i s not anticipated due to the high priori ty given to the investments, would most likely manifest as the NIMBY (Not in My Back Yard) syndrome. Romanian Land Acquisition laws provide ample opportunity for people to express their opposition and for their concerns to be heard in both public and administrative hearings. The main social impacts o f the project - reduction o f accidents in hot spots, increased, overall transport traffic increase, and decreased transport traffic through cities - wil l be

. monitored by the project, based o n routine data collection by local and regional officials.

Safeguards

Key policies Land Acquisition for bypasses, which wi l l trigger OP/BP 4.12 Involuntary Resettlement.

Studies N o studies were undertaken regarding land acquisition policies and practices, but Bank staff have reviewed carefully legislation and standard practices o f the National Administration for Roads carefully and found them to be consistent with provisions o f OP/BP 4.12.

Borrowers capacity The borrower has considerable experience in expropriation, the result o f which has improved and standardized practices. They require no additional support to undertake the task.

74

Annex 11: Project Preparation and Supervision

ROMANIA: TRANSPORT RESTRUCTURING PROJECT

Planned Actual PCN review August 26,2003 Initial PID to PIC Init ial ISDS to PIC Appraisal June 28 -July 7,2004 June 28 -July 7,2004 Negotiations October 4-6,2004 October 5 - 8,2004 BoardRVP approval November 16,2004 November 16,2004 Planned date o f effectiveness Planned date o f mid-term review Planned closing date July 2009

July 19. 2004

May 15,2005 September 2007

Key institutions responsible for preparation o f the project: National Company for Motorways and National Roads (RNCMNR), MTCT, Romania Railway Infrastructure Company (CFR), MTCT, Romania

Bank staff and consultants who worked on the project included:

Name Title Unit Henry Keral i Sr. Highway Engineer (Team Leader) ECSIE Antti Talvitie Sunja Kim Allan Pozniak Salim Benouniche Stan Peabody Bernard Baratz Serena Adler Doina Visa Otilia Nutu Bogdan Constantinescu Jonathan Pavluk Nicholay Chistyakov Stein Lundebye Paul Amos Coral Bird

Sr. Transport Specialist (Consultant after retirement) Sr. Financial Analyst Consultant, Railway Specialist Sr. Procurement Specialist Lead Social Scientist Consultant, Environment Specialist Consultant, Environment Specialist Project Officer Consultant Financial Specialist Senior Counsel Disbursement Officer Peer Reviewer, Roads component Peer Reviewer, Railways component

ECSIE ECSIE ECSIE ECSPE ECSSD ECSSD ECCU5 ECCU5 ECCU5 ECCU5 LEGEC L O A G l SASE1 TUDTR

Staf f Assistant ECSIE

Bank funds expended to date on project preparation: 1. Bank resources: US$160,000 2. Trust funds: US$35,000 3. Total: US$195,000

Estimated Approval and Supervision costs: 1. Remaining costs to approval: 2. Estimated annual supervision cost:

US$15,000 us$l lo,ooo

75

Annex 12: Documents in the Project Fi le

ROMANIA: TRANSPORT RESTRUCTURING PROJECT

1. Government o f Romania, “Economic Development and Poverty Reduction Program o f Romania”, Bucharest, June 2003.

EBRD/World Bank, “Business Environment and Enterprise Performance in Romania”, 2002

World Bank, “Public Expenditure Review o f Romania”, 2004

Engineering Design and Environmental Assessment. Adjud, Bacau, Brasov, Medias, Reghin, Targu Mures, Ramnicu-Sarat, Bucharest, 2004 [includes EMP]

Roads and the Environment: A Handbook. World Bank Technical Paper No. 376.

World Bank: Building Institutions for Public Expenditure Management: Reforms, Efficiency and Equity (A Public Expenditure and Institutions Review), Romania, August 2002

World Bank: Country Assistance Strategy, M a y 2001

World Bank: Program Document for a Proposed First Programmatic Adjustment Loan, August 2004

Final Report: Traflc Safety Program, Louis Berger Group, December 2003

Final Report: Mediag Bypass: Traffic Study and Project Feasibility Analysis for National Company For Highways And National Roads, May 2004

Final Report: Targu Mureg-East Bypass: Traffic Study and Project Feasibility Study for National Company For Highways And National Roads, March 2004

Road Diversion For Targu Mures East: Feasibility Study by National Company For Highways And National Roads, 2004 (Volume I)

Road Diversion For Targu Mures East Bypass: Feasibility Study for National Company For Highways And National Roads, 2004 (Volume 11)

Construction o f Adjud Municipality Bypass. Feasibility Study for National Company For Highways And National Roads, 2004

Bacau Ci ty East By-Pass. Final Report, Feasibility Study for National Company For Highways And National Roads, 2004

Construction o f Ramnicu Sarat Municipality Bypass. Final Report, Feasibility Study for National Company For Highways And National Roads, 2004

Construction o f Medias Municipality By-Pass. Final Report, Feasibility Study for National Company For Highways And National Roads, 2004

2.

3.

4.

5.

6.

7.

8.

9. 10.

11.

12.

13.

14.

15.

16.

17.

76

Annex 13: Statement o f Loans and Credits

ROMANIA: TRANSPORT RESTRUCTURING PROJECT

Difference between expected and actual

disbursements Onginal Amount in US$ Millions

Project ID FY Purpose IBRD IDA SF GEF Cancel Undisb Ong Frm Rev'd

2004 IRRIG REHAB 80 00 000 000 000 000 8000 000 0 00 PO43881

PO67367

PO67575

PO68062

PO81406

PO73967

PO69679

PO57960

PO66065

PO68808

PO56891

PO08783

PO65041

PO43882

PO08797

PO56337

PO44176

PO39251

PO58284

PO55495

PO44614

PO34213

PO39250

PO36013

PO08794

PO08776

2003

2003

2003

2003

2003

2003

2002

2002

2002

2001

200 1

2000

2000

2000

2000

1999

1999

1999

1998

1998

1998

1997

1996

1996

1995

FOREST DEVT

PSAL 2

ENERGY EFF (GEF)

ELEC MARKET

RURAL EDUC

PPIBL

RURAL DEV (APL #I)

AG POLLUTION CONTROL (GEF)

SDF 2 (APL #2)

RURAL FIN (APL #I) SOC SECT DEV (SSD) TRADE & TRANS FACIL IN SE EUR AGR SUPPORT SERVS

HEALTH SECTOR REFORM

MINE CLOSURE

BIODIV CONSV MGMT (GEF)

PIBL

CULTURAL HERITAGE

CHILD WELFARE REFORM

SCHOOLS REHABILITATION

GEN'L CADASTRE

SECOND ROADS

RAILWAY

POWER SECTOR REHAB

EMPLYMT & SOC PROTECTION (ESSP)

25.00

300.00

0.00 82.00

60.00

18.60

40.00

0.00 20.00

80.00

50.00

17.10

11 .oo 40.00 44.50

0.00 25.00

5.00

5.00

70.00

25.50

150.00

. 120.00

110.00

55.40

0.00

0.00

0.00 0.00

0.00 0.00

0.00

0.00 0.00

0.00

0.00

0.00 0.00

0.00 0.00 0.00

0.00

0.00

0.00

0.00

0.00 0.00

0.00

0.00

0.00

0.00

0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00

0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00

0.00

0.00 0.00 0.00

0.00 0.00

10.00 0.00

0.00 0.00 0.00

5.15

0.00 0.00

0.00

0.00

0.00

0.00 0.00 5.50

0.00 0.00 0.00 0.00

0.00

0.00

0.00 0.00 0.00

0.00

0.00 0.00

0.00 0.00

0.00 0.00 0.00

0.00

0.00

0.00 0.00 0.00

0.00

0.00

0.00

1.10 0.00

0.00

0.00 0.00 0.00

0.00

33.50

5.70

25.00

194.02

9.92

85.42

60.00

18.56

39.28 4.68

18.69

79.77

49.64

10.31

7.84

8.51

33.07

3.02

10.64

3.47

0.36

11.43

17.35

19.05

11.58

15.06

13.41

0.23

0.00 2.98

0.00

0.33

-0.04

1.45

0.91

-1.31

15.77

27.70

-6.79

6.10

6.24

32.40

2.78

11.74

3.47

0.36 11.43

17.35

19.05

11.58

48.56 19.11

0.00

0.00 0.00

0.00 0.00

0.00 0.00 0.00

1.61

0.00

0.00 0.00

0.00

0.00

-6.76

0.14

0.00

0.75

0.00 2.76

7.53

0.00

9.36

6.63

0.00

Total: 1,434.10 0.00 0.00 20.65 40.30 830.08 231.40 22.02

77

ROMANIA STATEMENT OF IFC's

Held and Disbursed Portfolio In Millions o f U S Dollars

Committed Disbursed

IFC IFC

FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic

1999 Ambro 4.12 0.00 0.00 0.00 4.12 0.00 0.00 0.00

2003 Arctic 11.45 0.00 0.00 0.00 9.16 0.00 0.00 0.00

1998102 Banc Post 0.00 0.00 10.00 0.00 0.00 0.00 10.00 0.00

2003 Banca Comerciala 75.00 0.00 0.00 0.00 75.00 0.00' 0.00 0.00

2001 Banca Romaneasca 5.26 0.00 0.00 0.00 5.26 0.00 0.00 0.00

1998 Bilstein Compa 0.88 0.00 0.00 0.88 0.88 0.00 0.00 0.88

1996 Danube Fund 0.00 1.40 0.00 0.00 0.00 1.40 0.00 0.00

2001 ICME 17.18 0.00 0.00 0.00 12.60 0.00 0.00 0.00

1998 Krupp Compa 3.38 0.00 0.00 1.45 3.38 0.00 0.00 1.45

2002103 MFI MFB Romania 0.00 0.53 0.00 0.00 0.00 0.53 0.00 0.00 1997/98/00 Mobil Rom 1.35 0.00 0.00 1.80 1.35 0.00 0.00 1.80

1997 Rambox 0.81 0.00 2.00 0.00 0.81 0.00 2.00 0.00

1994/98/01 Romlease 3.1 1 0.00 0.00 0.00 3.1 1 0.00 0.00 0.00

Total portfilio: 122.54 1.93 12.00 4.13 115.67 1.93 12.00 4.13

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic

2003 Banca Comerciala 0.00 75.00 0.00 0.00

2003 Ro-Fin Mortgage 5.00 0.00 1 .oo 0.00

Total pending commiltment: 5.00 75.00 1 .oo 0.00

78

Annex 14: Country at a Glance

ROMANIA: TRANSPORT RESTRUCTURING PROJECT

POVERTY and SOCIAL

2002 Population, m id-year (millions) 22.4 GNi per capita (Atlas method, US$) 1850 GNI(Atlasmethod, US$ billions) 4 1.4

Ave rage annual growth, 1996-02

Roman ia

Population (%) -0.2 Laborforce (%) 0.2

M o s t recent es t ima te ( la test year avai lable, 1996-02)

Poverty (% of population belo wnationalpovertyline) 55

Life expectancyat birth (years) 70

Child malnutrition (%of children under5)

Urban PO pulatio n (%of total population)

Infant mortality(per 1,OOOlive births) 18

Access to an improved water source (%of population) ,

Illiteracy (%of population age a+) Gross primary enrollment (%of school-age population)

58 2

99 Male a0 Female 98

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1982 1992

GDP (US$ billions) .. 25.1 Gross domestic investment/GDP .. 31.4 Exports of goods and services/GDP .. 27.8 Gross domestic savings/GDP .. 23.0 Gross national savingslGDP .. 22.9

Current account balancelGDP -6 .O interest payments/GDP 0.2 Total debt/GDP .. 0 .0 Total debt servicelexports 23.3 9.1 Present value o f debt/GDP Present value of debt/exports

1982-92 1992-02 2001 (average annual growth) GDP -19 0.6 5.3 GDP per capita -2.1 0.8 5.4

Europe & Lower- Cen t ra l middle-

As ia i ncome

476 2,160 1,030

0.1 0.4

63 69 25

91 3

m2 m3 a 1

2001

39.7 21.9 33.5 0.8 15.8

-5.8 15

29.0 18.4

27.9 79.3

2,411 1390

3,352

1.0 1.2

49 69 30 I1

81 0 111 Ill lr)

2002

44.4 22.0 34.9 14.6 16.5

12 29.9 29.4

2002 2002-06

4.3 5.0 4.5 5.4

1 Deve lopmen t diamond'

I Life expectancy

-

1 GNI Gross per primary capita nrollment

I I

Access to imDroved watersource

-Romania

1 - Lo wer-middle-income group

~ E c o n o m i c ra t i os *

I Trade I

I

I sav'ngs Investment ' Domestic

I

I Indebtedness

-Romania

I - Lo wer-m lddle-inc o me group

STRUCTURE o f the ECONOMY

(%of GDP) Agriculture Industry

Services

Private consumption General government consumption Imports of goods and services

Manufacturing

(average annualgrowth) Agriculture industry

Services

Private consumptio n General government consumption Gross domestic investment imports of goods and services

Manufacturing

1982 1g92 2 o 0 1 2o02 1 G rowth o f i nves tmen t and GDP (YO) 1 I 79 150 118 1 3 0 -

44 0 34 6

38 2 50 4

62 7 79 9 685 ' 36 2 416 423 - ----GDI -GDP 143 6 3 169 1 - 3 0 -

1982-92 1992-02 *Ool 2o02 ' G r o w t h of expor ts and i m p o r t s (%) I 14 -10 212

-2 9 0 7 7 4

19 13

2 6 11 0 19 P 2

-12 185 3 7 ---Exports -Inports 9 9 I75 7 9 __ -

79

Romania ~ ~~~

P R I C E S and GOVERNMENT FINANCE

D o m e s t i c p r i ces (%change) Consumer prices l7.8 Implicit GDP deflator 12.1

1982

Governmen t f inance (%of GDP, includes current grants) Current revenue Current budget balance Overall surDlus/deficit

T R A D E

(US$ millions) Total exports (fob)

Textiles M etals Manufactures

Total imports (cif) Food Fuel and energy Capital goods

Export price index (1995=WO) Import price index (1995=WO) Terms of trade (1995=WO)

1982

B A L A N C E o f P A Y M E N T S 1982

(US$ millions) Exports o f goods and services 12,384 Imports of goods and services 13,493 Resource balance 1,891

Net income Net current transfers

-851 0

Current account balance 1040

Financing items (net) Changes in net reserves

Memo: Reserves including gold (US$ millions) Conversion rate (DEC,locaVUS$)

-988 -52

EXTERNAL DEBT and RESOURCE FLOWS

(US$ millions) Total debt outstanding and disbursed

1982

13,003 IBRD 1483 IDA 0

Total debt service IBRD IDA

Composition of net resource flows Official grants Official creditors Private creditors Foreign direct investment Portfolio equity

World Bank program Commitments Disbursements Principal repayments

2.913 8 2

0

0 378 413

0 0

8 7

73 423

~~ ~

1992

213.9 200.1

36.7 -0.1 -5.3

1992

4,363 735 572

2,623 6,260

996 2,028 1,208

1992

5,023 6,504 -1481

-90 65

-1,506

1,393 113

858 240.3

1992

3,272 213

0

464 2 0

8 9 1006

144 77

0

500 2 11

0

2001

34.5 37.0

30.4 -0.1 -3.4

2001

n,385 1 5 8 784

8,122 15,552 $207 2,237 4,326

96 88 113

2001

23,379 8,557 -3,778

-282 1.143

-2,377

3,801 -1,484

4,880 29,060.9

2001

11524 1876

0

2,571 204

0

257 l7

1434 1257

8

230 232 131

~ ~~

2002

213 22.0

34.4 2.0

-3.0

2002

12,677

9,218 8,756

4,678

97 88 111

2002

14.713 l7,824 -3,123

-262 1130

-357

5.123 33,055.4

2002

13,301 2,147

0

2,971 8 4

0

0 -34 859

0 0

379 307 18

' I n f l a t i on (%)

I 97 98 99 00 01 02

- i o 97 98 99 00 01 0-21

I ----GDPdeflator -CPI 1

Export and impor t leve ls (US$ mill.)

I 20,000

15 000 -

I 96 97 98 99 00 01 02 I

Exports olnports

- Current a c c o u n t balance t o GDP (%)

I

I C o m p o s i t i o n o f 2002 debt (US) mill.)

C 428

D 1.30

E 897

I ' A - IBRD 1 B - IDA I C - I M F G- Short-term

E- Bilateral F - Private D ~ other rmititateral

80

MAP SECTION