I Proiect Name I TRANSPORT SECTOR SUPPORT PROJECT 1

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1 Public Disclosure Authorized PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB219 I Proiect Name I TRANSPORT SECTOR SUPPORT PROJECT 1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized 1. Key Development Issues and Rationale for Bank Involvement Joining the European Union is one of the central development objectives of Romania with the recently signed Accession Treaty committing the government to EU membership in EU accession will require wide ranging reforms of the Romanian economy in order to prepare for competition, and to improve the physical infrastructure. While the Government has achieved significant progress in structural and institutional reform of the transport sector with support of the World Bank,l the state of Romania s existing transport infrastructure represents a key challenge for convergence and integration with EU member states. Road and rail network capacity is limited, the efficiency and safety of infrastructure services are below EU standards, and a large backlog in rehabilitation and maintenance has accumulated mainly due to inadequate funding in the past. These issues were identified in the Government s transport sector strategy for , and the Ministry of Transport, Construction and Tourism (MTCT) is currently developing a comprehensive mediumterm investment program for the rail and road sector to prepare for EU integration. The Government s strategic investment priorities in the railways sector are aimed at achieving network interoperability with neighboring countries, improved quality and safety of infrastructure services and signaling systems, and reduced maintenance costs. Previous Bank financed projects have supported the restructuring of the State Railway and the modernization of the railway s Information and Communication Technology. The new Transport Restructuring project further supports management development, and should improve the way that the Railways manage train operations and track maintenance with the acquisition of modem track maintenance equipment. The proposed project will consolidate the achievements of previous Bank projects by financing rehabilitation and modernization of the physical infrastructure to clear the substantial backlog of maintenance and the poor condition of the signaling systems. For the road sector, strategic investment priorities laid out in the Government s Road Rehabilitation Program include improvements to the bearing capacity, road geometry and riding quality of the Through the Second Roads Project, the Railway Rehabilitation Project and Transport Restructuring Project.

2 national road network, in order to align these with EU standards.:! The recommendations in previous Bank AAA reports clearly indicate the need to counteract further deterioration in the transport infrastructure by improving the management of maintenance and rehabilitation, as well as increased financing. For the road network, the introduction of a Pavement Management System (PMS) and a Bridge Management System (BMS) under the Transport Restructuring Project will help to maximize resource allocation under current budget constraints, leading to improved road network condition.3 Further efficiencies could be gained by improving procurement practices for civil works contracts in the road sector through development of a competitive private sector construction industry and further use of competitive bidding which could reduce current contract costs by up to 30 per~ent.~ The government of Romania has prepared a Sector Operational Program for Transport (SOPT) as a component of the National Development Plan (NDP), a key requirement for EU accession. The SOPT will specify the activities and financing resources that the government will make available for the period This includes fkding from EU pre- and post accession grant funds (ISPA up to 2006, and the Cohesion Fund from 2007 onwards) that are targeted for improving transport infrastructure capacity and (to a limited extent) for network rehabilitation along the Trans-European Corridors IV and E. While the EIB will partly co-finance EU grant funds, significant co-financing requirements from the Government remain5. Consequently, this project will contribute to financing components of the SOPT dealing with the essential investment in maintenance and rehabilitation of the existing transport infrastructure. The Government of Romania has requested World Bank assistance to finance periodic maintenance and priority modernizatiodrehabilitation investments for the road and rail networks. The draft Country Partnership Strategy for Romania puts much emphasis on supporting the strengthening of institutional capacity, ensuring macro-economic stability, increasing competitiveness and strengthening the private sector, in order to curb poverty and promote economic growth. The Bank will support the investments in priority sectors determined by Romania, and thereby assist the country to fulfill its pledges with regard to EU accession and with the absorption of EU grant funds. 2. Proposed Objective(s) The objective of the Project is to assist the Borrower to reduce transport costs through improvement of the overall quality of its national roads and railways networks during the first years of EU accession. For the proposed roads component, this will be achieved by: (i) (ii) (iii) improving the overall condition of national roads; establishing reliable and sustainable funding for road maintenance, rehabilitation, and road safety, through a coherent 5-year rolling program; and improving the capacity within the road agency (RNCMNR) to operate efficiently and effectively in managing road maintenance and rehabilitation. Since beginning of the program in mid-l990s, approximately 2,500 km were modernized; around 7,000 km (worth approx. USD 8 billion) are scheduled to be completed over the next 10 years. To date, maintenance works are scheduled at predetermined frequencies. The average cost of completed periodic maintenance work is about USD 180,000 per km, which is relatively high compared to the unit costs of resurfacing reported by RNCMNR EBRD no longer provides sovereign finance to Romania and commercial bank and bond finance to the railway companies is currently limited to rehabilitation. 2

3 The development objective for the proposed railway component will be achieved by: (i) (ii) Lowering the costs of rail transport through rehabilitation of track infrastructure to permit cheaper, faster and safer train operations. Interoperability of the railway network with neighboring counties through modernization of equipment on the rail network, at border crossings, and improved connections with the domestic branch network. This should result in increased transit traffic, reduced travel times, and increased productivity. 3. Project Description The proposed project will provide financial support to ensure full implementation of the government s program for rehabilitation and maintenance of the existing road and rail networks. The project focuses on the Government s maintenance and rehabilitation program, which is part of a larger investment program, and includes measures to strengthen the management capacity of the road and railway infrastructure companies. The project is designed to assist the Government in setting priorities and to foster stable financing for maintenance and rehabilitation of existing road and railway infrastructure. As indicated in the draft Country Partnership Strategy, the World Bank would provide a maximum of USD 750 million over the period , including this proposed USD 180 million Specific Investment Loan (SIL) that will cover The government would commit to a five-year transport infrastructure maintenance, rehabilitation and modernization program to ensure long-term program sustainability, and to address current concerns over inadequate maintenance expenditure as expressed by the EU and others. The Government s proposed plan for the period includes investments in roads and railways infrastructure averaging EUR 2.5 billion and EUR 2 billion per year, respectively. The Government is in the process of revising this investment program to fit within the overall medium term expenditure framework defined in the budget. The necessity to prioritize the program derives not only fiom financial constraints, but also from the need for a more balanced expenditure program, which better serves the development of the private sector and which avoids peaks and troughs in the investment program. The balanced program also permits gradual improvement in Romania s absorptive capacity to utilize EU grants. The proposed loan of USD 180 million will contribute to financing a USD 2 18 million national roads periodic maintenance program, and railway infrastructure repair and rehabilitation program in 2006 and These programs were developed by RNCMNR, CFR, and MTCT, with the support of the Ministry of Public Finance. The proposed project includes two components for: (i) Road Sector Support; and (ii) Railway Sector Support. For both components, disbursement of loan proceeds initially will be based on statement of expenditures (SOEs), with the possibility of adopting a programmatic approach so that disbursements would based on interim financial reports (IFRs). The Roads Sector support component comprises periodic maintenance works on national roads, as well as technical assistance to RNCMNR in 2006 and This will provide support to RNCMNR to implement the National Roads Periodic Maintenance Program, and modernize its maintenance practices through: (i) the implementation of a program for the maintenance and rehabilitation of national roads, including the removal of road safety black spots; (ii) the provision of technical assistance to modernize RNCMNR as an organization, improve its road management practices and for the design and supervision of road maintenance and rehabilitation works; and (iii) the provision of technical assistance to RNCMNR in order to develop the operating and competitive selection procedures of rural roads management consultants which will provide technical assistance to groups of counties. 3

4 The Railways sector support component includes maintenance and overhaul of main railway lines, and technical assistance to the National Railways Infrastructure company, CFR. This will provide support to CFR to implement the Maintenance and Rehabilitation Program, and modernize its maintenance practices through: (i) the implementation of a program for the maintenance and rehabilitation of main lines in order to eliminate temporary speed restrictions and improve the safety of traffic; and (ii) the provision of technical assistance to CFR to improve its railway management practices and for the design and supervision of railway maintenance and rehabilitation works. 4. Safeguard Policies that Might Apply (including public consultation) Romania is one of the countries being considered for piloting the use of country environmental systems, specifically in the Transport Sector Support Project. This pilot operation is governed by the Bank s new operational policy OPBP 4.00, Piloting the Use of Borrower Systems to Address Environmental and Social Safeguard Issues in Bank-Supported Projects. A safeguards diagnostic study has been undertaken to assess (a) the equivalence of Romanian systems and World Bank requirements and (b) the acceptability of implementation practices, track record and capacity of the agencies involved. This diagnostic review addresses the environmental and social safeguard issues triggered by this project in the following areas: (a) Environmental Assessment and (b) Involuntary Resettlement. Equivalence and Acceptability Assessments: The equivalence and acceptability assessments for piloting the use of country systems were carried out by an interdisciplinary team of Bank staff in collaboration with relevant Government staff. The World Bank review included meetings and site reviews in cooperation with environmental officials at the local and regional levels. The methodology included desk review of current in force legislation and supporting mandatory guidelines, discussion with MoEWM officials, other relevant environmental authorities, and roads and railways authorities, and field visits to Arad, Bucharest, and Targu Mures. The results of the diagnostic review indicate that with regard to Environmental Assessment the Romanian system of laws, regulations and practices in the sub-sectors to be supported by the project are equivalent to those of the World Bank, and are acceptable in practice. With regard to Involuntary Resttlement, the review found several differences between Romania s system pertaining to expropriation and the operational principles stated in OP Proposed Gap Filling Measures: Gap-filling measures are needed for piloting Involuntary Resettlement. The following actions are recommended by the diagnostic study: (i) Notify affected persons, in a full and timely manner, of their rights and the relevant procedures, through an information brochure acceptable to the Bank; (ii) Monitor the promptness and adequacy of compensation, including prejudice, and the impacts of expropriation through independent monitors; (iii) Share valuation assessments carried out by qualified assessors with affected persons, before negotiations under the expropriation procedures start; (iv) Pay compensation at the assessed value of land, structures and damages; and (v) notify the Bank of the following (unlikely) cases: intended acquisition of residences; agricultural holdings; commercial structures and businesses; andor land used by people without claim to legal title, and agree jointly with the Bank on the appropriate course of action. As a result, in this case, a separate resettlement framework document is not needed at this stage, as the combination of gap fillers and Romania s system should be adequate to achieve the objectives stated in Table A1 of OP4.00 in the limited resettlement expected under the project. And, as already 4

5 mentioned, the Bank would require prior notification and joint decision with Romania on the course of action should any unforeseen cases arise6. With the application of these gap-filling measures, Romania s systems can be considered equivalent and acceptable and piloting under OP/BP 4.00 in the two safeguards-related areas triggered by the project, can be supported. World Bank supervision on safeguard-related matters will continue throughout the implementation of the proposed project to: (i) ensure compliance with equivalent and acceptable Romanian procedures, (ii) assess implementation of gap-filling measures, (iii) ensure compliance with Bank policies if/where they apply in lieu of Romanian systems, and (iv) more broadly, track results in environmental and social development outcomes. Public Consultation and Disclosure: MoEWM and the World Bank jointly organized a public consultation workshop to discuss the draft version of the Equivalence and Acceptability Report in Bucharest on December 12, In preparation for this meeting, MoEWM circulated copies of the Executive Summary of the draft report to a large number individuals and relevant agencies inviting for their participation and comments. Over thirty-five people, representing NGOs, EA consultants, academia, and various Government departments, attended this workshop. Participants expressed their support to the proposal to pilot Romanian Environmental and Social system in the context of the project and agreed with the findings and gap filling actions proposed to achieve and sustain equivalence and acceptability. The full report including the executive summary discussed during the workshop was disclosed in Romania and Washington on January 25,2006. The safeguards policies triggered by the project are as follows: Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OPBP/4.01) [I [ XI Natural Habitats (OP/BP 4.04) [I [XI Pest Management (OP 4.09) [I [XI Cultural Property (OPN 11.03, being revised as OP 4.11) [I [XI Involuntary Resettlement (OPBP 4.12) [I [XI Indigenous Peoples (OPBP 4.10) 11 [XI Forests (OPBP 4.36) [I 1x1 Safety of Dams (OPBP 4.37) [I [XI Projects in Disputed Areas (OPBP/GP 7.60)* [I [XI Projects on International Waterways (OPBP/GP 7.50) [I [XI Piloting the Use of Borrower Systems to Address Environmental and Social Safeguard Issues in Bank-Supported Projects (OP/BP 4.00) [XI [I At this stage a resettlement framework may be required. * By supporting the proposed project, the Bank does not intend to prejudice thejinal determination of the parties claims on the disputed areas 5

6 5. Tentative Financing IBRD (USD million) Government of Romania (USD million) Total Contact Point Contact: Henry G. R. Kerali Title: Lead Transport Specialist Tel: +1 (202) Fax: +1 (202) orq 7. For more information contact: The InfoShop The World Bank 6