IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-43710) ON A CREDIT IN THE AMOUNT OF SDR16.4 MILLION (US$25 MILLION EQUIVALENT)

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-43710) ON A CREDIT IN THE AMOUNT OF SDR16.4 MILLION (US$25 MILLION EQUIVALENT) TO BOSNIA AND HERZEGOVINA FOR A ROAD INFRASTRUCTURE AND SAFETY PROJECT Sustainable Development Department South East Europe Unit Europe and Central Asia Region December 27, 2012 Report No: ICR2220

2 CURRENCY EQUIVALENTS (Exchange Rate Effective) Currency Unit = BAM (Convertible Mark) 1 BAM = US$ US$ 1.00 = BAM GOVERNMENT FISCAL YEAR January 1- December 31 ABBREVIATIONS AND ACRONYMS BAM BH BIHAMK BOQ CAS CPFR CPS CMU DPL EBRD EIB EIRR EMP EU FA FBH FBHMTC FBHRD FM FY GDP HDM IBRD ICB ICR Bosnia and Herzegovina Convertible Mark Bosnia and Herzegovina Bosnia and Herzegovina Automobile Club Bill of Quantities Country Assistance Strategy Country Portfolio Financial Review Country Partnership Strategy Country Management Unit Development Policy Loan European Bank for Reconstruction and Development European Investment Bank Economic Internal Rate of Return Environmental Management Plan European Union Financial Agreement Federation of Bosnia and Herzegovina Ministry of Transport and Communications Federation of Bosnia and Herzegovina Federation of Bosnia and Herzegovina Public Company Road Directorate ( Javno preduzeće Direkcija cesta Federacije Bosne i Hercegovine ) Financial Management Fiscal Year Gross Domestic Product Highway Development and Management System International Bank for Reconstruction and Development International Competitive Bidding Implementation Completion Report IDA IFI INT IRI ISR MoF MoCT MTDS MTR NPV OECD OPBM OPBRMC PAD PDO PEIR PIT PM PPP QAG REBIS RISP RMSP RSMCR RS International Development Association International Financial Institution Integrity Vice Presidency International Roughness Index Implementation Status Report Ministry of Finance Ministry of Communications and Transport of Bosnia and Herzegovina Medium Term Development Strategy Mid Term Review Net Present Value Organization of Economic Cooperation and Development Output and Performance Based Maintenance Output and Performance Based Road Maintenance Contract Project Appraisal Document Project Development Objectives Public Expenditure and Institutional Review Project Implementation Team Project Management Public Private Partnership Quality Assessment Group Regional Balkans Infrastructure Study Road Infrastructure and Safety Project Road Management and Safety Project Road Safety Management Capacity Review Republika Srpska

3 RSRD SDR Republika Srpska Road Directorate ( Javno preduzeće Putevi Republike Srpske") Special Drawing Rights SEETO TOR TSA UN South East Europe Transport Observatory Terms of Reference Traffic Safety Agency United Nations Vice President: Country Director: Sector Manager: Project Team Leader: ICR Team Leader: Philippe LeHouérou Gerard A. Byam Juan Gaviria Carolina Monsalve George Banjo

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5 BOSNIA AND HERZEGOVINA ROAD INFRASTRUCTURE AND SAFETY PROJECT CONTENTS DATA SHEET... i A. Basic Information... i B. Key Dates... i C. Ratings Summary... i D. Sector and Theme Codes... ii E. Bank Staff... ii F. Results Framework Analysis... iii G. Ratings of Project Performance in ISRs... v H. Restructuring (if any)... v I. Disbursement Profile... vi 1. Project Context, Development Objectives and Design Key Factors Affecting Implementation and Outcomes Assessment of Outcomes Assessment of Risk to Development Outcome Assessment of Bank and Borrower Performance Lessons Learned Comments on Issues Raised by Borrower/Implementing Agencies/Partners Annex 1. Project Costs and Financing Annex 2. Outputs by Component Annex 3. Economic and Financial Analysis Annex 4. Bank Lending and Implementation Support/Supervision Processes Annex 5. Beneficiary Survey Results Annex 6. Stakeholder Workshop Report and Results Annex 7. Borrower's ICR and Comments on Draft ICR Annex 8. Comments of Co-financiers and Other Partners/Stakeholders Annex 9. List of Supporting Documents... 55

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7 BOSNIA AND HERZEGOVINA ROAD INFRASTRUCTURE AND SAFETY PROJECT A. Basic Information Country: Bosnia and Herzegovina DATA SHEET Project Name: ROAD INFRASTRUCTURE AND SAFETY PROJECT Project ID: P L/C/TF Number(s): IDA ICR Date: 12/28/2012 ICR Type: Core ICR Lending Instrument: SIL Borrower: BOSNIA AND HERZEGOVINA Original Total Commitment: XDR 16.40M Disbursed Amount: XDR 16.30M Revised Amount: XDR 16.40M Environmental Category: B Implementing Agencies: Republika Srpska Road Directorate Federation Road Directorate Cofinanciers and Other External Partners: European Investment Bank European Bank for Reconstruction and Development (EBRD) B. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 10/19/2006 Effectiveness: 09/19/ /19/2008 Appraisal: 09/10/2007 Restructuring(s): 09/16/ /06/2011 Approval: 12/13/2007 Mid-term Review: Closing: 12/31/ /30/2012 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Risk to Development Outcome: Bank Performance: Satisfactory Moderate Satisfactory i

8 Borrower Performance: Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Quality of Supervision: Satisfactory Implementing Agency/Agencies: Satisfactory Overall Bank Performance: Satisfactory Overall Borrower Performance: Satisfactory C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Performance (if any) Potential Problem Project No at any time (Yes/No): Problem Project at any time (Yes/No): DO rating before Closing/Inactive status: No Moderately Satisfactory Quality at Entry (QEA): Quality of Supervision (QSA): None None Rating D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration Roads and highways Theme Code (as % of total Bank financing) Infrastructure services for private sector development E. Bank Staff Positions At ICR At Approval Vice President: Philippe H. Le Houerou Shigeo Katsu Country Director: Gerard A. Byam Orsalia Kalantzopoulos Sector Manager: Juan Gaviria Motoo Konishi Project Team Leader: Maria Carolina Monsalve Jacques Bure ICR Team Leader: George A. Banjo ICR Primary Author: George A. Banjo ii

9 F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The Project Development Objectives are to reduce user costs on the priority sections of the trunk and regional road networks, to improve the institutional framework for road safety, and to modernize road maintenance practices. Revised Project Development Objectives (as approved by original approving authority) PDO was not revised. (a) PDO Indicator(s) Indicator Indicator 1 : Value quantitative or Qualitative) Baseline Value Original Target Values (from approval documents) iii Formally Revised Target Values Actual Value Achieved at Completion or Target Years Reduce by the end of the project road user costs by ten percent in road sections rehabilitated. US$0.25/km/vehicle US$0.339/km/vehicle 10% reduction (i.e. (2004, FBH) (2012, FBH) US$0.225/km/vehi US$0.381/km/vehicle (2012, RS) cle) (2004, RS) (2007, RS) Date achieved 01/01/ /31/ /30/2012 Comments Vehicle operating costs declined by 18.07% in the Federation and 11.22% in the (incl. % RS, which meet or exceed the target of 10%. achievement) Establish effective road safety office; prepare a road strategy; conduct pilot Indicator 2 : operation Value quantitative or Qualitative) none 1 national and 2 entity road safety offices established Road Traffic Agency established in RS Date achieved 06/02/ /31/ /30/2012 Safety agency est in RS, but not in FBH (existing road safety unit played active Comments role in promoting road safety). At natl level road safety desks exist within (incl. % MOI/MOTC. Road strategies prepared. Pilot operations conducted in both ent. achievement) Considered achieved. Indicator 3 : Complete a satisfactory pilot performance based road maintenance operation Value quantitative or Qualitative) none 2 pilots implemented. Quality and costs known. 1 pilot implemented in FBH and contract for one signed in RS. Date achieved 06/02/ /31/ /30/2012 Target achieved in FBH--survey results indicate 78% of respondents confirmed Comments partial improvement of OPBM over conventional method (no significant cost (incl. % difference between the two). In RS, only partially achieved as contract for pilot achievement) signed in 6/25/12.

10 Indicator 4 : Length of roads rehabilitated Value quantitative or Qualitative) Date achieved 06/02/ /31/ /30/2012 Comments (incl. % Target exceeded by about 22% achievement) (b) Intermediate Outcome Indicator(s) Indicator Indicator 1 : Value (quantitative or Qualitative) Baseline Value Original Target Values (from approval documents) iv Formally Revised Target Values Measure safety improvement (speed, seat-belt use, etc) 47% (RS, drivers) use seat belt; 36% (FBH, front seat passengers using seat belts) 10% over baseline Actual Value Achieved at Completion or Target Years 47% (RS, drivers) use seat belt; 36% (FBH, front seat passengers using seat belts) Date achieved 02/01/ /13/ /30/2012 Comments (incl. % achievement) Due to delay in carrying out the pilot, baseline figures were established only in February 2012 instead of 2008 as planned. Hence no 'target' to be achieved. Achievement has to be rated as partial in that the pilot was conducted Indicator 2 : Issue a road safety strategy Value (quantitative or Qualitative) None Strategy issued. Strategy prepared in each entity but not yet formally adopted by them. Date achieved 06/02/ /31/ /30/2012 Comments (incl. % achievement) A road safety strategy was prepared by both FBH and RS in 2008 through own efforts and these were to be updated under the project. Achievement rated partial as strategy yet to be adopted i.e. issued, by the entities. Indicator 3 : Road users satisfaction survey toward performance based road maintenance Value (quantitative or Qualitative) None Survey completed in each entity Survey conducted in FBH. Completed in FBH but not RS Date achieved 06/02/ /14/ /05/ /30/2012 FBH survey results was non-conclusive on merit of performance based road Comments maintenance over traditional maintenance works--users found it difficult to (incl. % differentiate between pilot roads & those improved under other interventions. achievement) Achievement rated as partial Indicator 4 : Roads rehabilitated, Non-rural Value (quantitative or Qualitative) Date achieved 12/09/ /05/ /11/ /30/2012

11 Comments (incl. % achievement) Bank core indicator retrofitted into results framework that would have been better placed as intermediate indicator. All roads rehabilitated under project are non-rural. Actual length of roads rehabilitated is 293 km--greater than target of 240km by 22% Roads in good and fair condition as a share of total classified roads Indicator 5 : Value (quantitative N/A or Qualitative) Date achieved 12/06/ /31/ /30/2012 Bank core indicator retrofitted into results framework. No target set--objective to Comments measure change over project period. Roads figures under FBHRD/RSRD (incl. % responsibility. Increase of about 4% in roads in good/fair condition over project achievement) implementation period G. Ratings of Project Performance in ISRs No. Date ISR Archived DO IP Actual Disbursements (USD millions) 1 05/30/2008 Satisfactory Satisfactory /14/2008 Satisfactory Satisfactory /30/2009 Satisfactory Satisfactory /13/2010 Satisfactory Satisfactory /08/2010 Satisfactory Satisfactory /29/2010 Satisfactory Moderately Satisfactory /05/2011 Satisfactory Moderately Satisfactory /13/2011 Satisfactory Moderately Satisfactory /25/2012 Satisfactory Satisfactory /24/2012 Moderately Satisfactory Moderately Satisfactory H. Restructuring (if any) Restructuring Date(s) Board Approved PDO Change ISR Ratings at Restructuring DO Amount Disbursed at Restructuring in USD millions 09/16/2010 N S S /06/2011 N S MS IP Reason for Restructuring & Key Changes Made Reallocation of funds from components 2 and 3 to 1 mainly to increase funding for component 1. Reallocation of funds. Project closing date extension. To allow completion of road safety component in RS. v

12 I. Disbursement Profile vi

13 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal Bosnia and Herzegovina (BH) is a state with a complex governance structure comprising two entities, each with a high degree of autonomy: the Federation of Bosnia and Hezegovina (FBH) which is further decentralized into 10 cantons, and the Republika Srpska (RS). The autonomous Brcko district was added to the structure in There are 137 municipalities in BH, of which 74 are located in the FBH, and 63 in the RS. At the time of appraisal, increased investment in infrastructure was seen as needed in order to support economic growth. The transport sector was at appraisal being administered and managed at the State level by the Ministry of Communications and Transaport (MoCT), and at the entity level, by separate Ministries of Transport and Communications. At the operational level, there were four road Directorates, two in each entity, responsible for motorways and magistral roads respectively; the Directorate in RS also has responsibility for regional roads. This fragmentation of responsibilities in the sector was seen as increasing complexity and transaction costs and eroding public sector capacity at all levels. Significant investments in the sector since the end of the war, including a considerable share of external financing, had helped to improve the overall condition of the road networks. Due to the severity of war damage however, only 11 percent of the network was at the time of appraisal in good condition with 40 percent in poor condition and requiring pavement strengthening or rehabilitation. Moreover, traffic was growing at about 5 percent calling for upgrading of road infrastructure in the medium term. Substantial opportunities were also seen as existing to consolidate sector policy making and operational responsibilities, but this required political commitment. The Government s strategic sector focus at appraisal was: (i) developing a comprehensive transport sector policy and strategy framework with support from the World Bank (WB) and the European Bank for Reconstruction and Development (EBRD); (ii) clearing maintenance backlog and strengthening maintenance capabilities by increasing recurrent expenditure; and (iii) reducing the social and economic burden of road traffic accidents. The RISP, together with the parallel European Investment Bank (EIB) and EBRD operations, was seen as central to assisting the Government meet these strategic needs. The PAD stated three rationale for Bank assistance: (i) to build upon achievements of the Road Management and Safety Project (RMSP) then ongoing that had supported institutional and sectoral reforms, domestic contracting industry development, development of a road and bridge database for the magistral and regional roads which had been used to prioritize investments on these roads and a pilot project to improve road safety; (ii) the comparative advantage of the Bank particularly in introducing innovation in road maintenance and road safety, efficiency, and capacity building that should help to deepen the development of the roads sector in BH; and (iii) the strong positive dialogue 1

14 with government and the Bank s ability to catalyze other donors. These reasons were all seen as essential for the development of the road sector. The higher level objectives relevant to the Project related to (i) the 2004 BH Medium Term Development Strategy (MTDS), (ii) the European Union (EU) policy on transport infrastructure (iii) the Bank Country Assistance Strategy (CAS) FY05-07 which respectively identified transport as a major sector vital to the economy, encouraged cooperation between IFIs, and prioritized private sector led growth and investment in key social and economic infrastructure. The Project would contribute to their achievement by financing rehabilitation of priority sections of the magistral and regional road networks, gaining government commitments to increase financing of routine and winter maintenance and piloting performance-based maintenance contracts all of which would increase private sector role in the sector. Planned road safety improvements also had social and economic benefits. The Country Partnership Strategy (CPS) for FY08-11 then under preparation highlighted the importance of infrastructure development. 1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The PDO was to reduce user costs on the priority sections of the magistral and regional road networks, to improve the institutional framework for road safety, and to modernize road maintenance practices 1. Key performance indicators were: (i) reduce road user costs by 10 percent on the road sections rehabilitated under the project (about 240 km 2 ); (ii) increase the quantity and quality of safety outputs (e.g. policing operations, promotional activities, systematic engineering treatment, and data collection) 3 ; and (iii) satisfactory piloting of output-based road maintenance (OPBM) contracts and comparison of the outcomes of these contracts with other regular maintenance contracts to assess whether the pilot operations could be scaled up. 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The PDO was not revised. 1.4 Main Beneficiaries Road users, including pedestrians, were expected to benefit from the road improvements as improved ride quality would lead to reduced vehicle operating costs, and sound structural roads would lead to lower life cycle costs of the road assets including sidewalks 1 This text of the PDO is the same as in the Legal Agreement but the text in the results framework contained very minor differences which did not affect the meaning or understanding of the PDO. There were 5 outcome indicators specified in the PAD and only 3 in the Legal Agreement as a result of three of the PAD outcome indicators being combined into one. 2 It is to be noted that the Procurement Plan in the PAD contained km of roads in both entities from which the 240 kms to be rehabilitated were to be selected. 3 Indicators for capturing these attributes include improvements in compliance with speed limits, use of seat belts, computerization of vehicle and driver information and use of campaigns to promote road safety awareness. 2

15 provided. The road improvements represented about 80 percent of the Credit. Road users would also benefit from expected improvements to the road safety legislative framework, improvements to the information base for decision making on road safety through carrying out of planned road safety studies and pilot activities, and the training and public awareness campaigns which had been highlighted in the Road Safety Management Capacity Review (RSMCR) of March These project actions would also benefit agencies and personnel with road safety responsibilities, particularly the traffic police and municipalities, via increases in their competencies from participation in implementing the activities. Consultants and contractors who participated in the implementation of the Project or attended project organized workshops would also benefit by being exposed to international good practices. At a higher level, the general public was expected to benefit through more efficient and effective use of public resources arising from improved capacity for service delivery in the implementing agencies and their adoption of improved approaches to road maintenance. 1.5 Original Components (as approved) The Credit for the RISP was of value SDR 16.4 million equivalent to US$ 25 million. 5 Component I: Rehabilitation of Selected Roads (US$ 24 million equivalent, Bank financed share US$I9 million equivalent). This component, linked to the outcome indicator reduce user costs on the priority sections of the magistral and regional road networks, financed civil works to rehabilitate and repair 240 km of the magistral and regional road network in both entities during Component 2: Road Safety (US$ 5 million equivalent, Bank Financed Share US$5 million equivalent). There were two subcomponents linked to achieving the outcome indicator improve the institutional framework for road safety. The first of US$2.60 million equivalent would build capacity to address road safety issues and provide support to the preparation of action plans at each entity level, including cost-effective interventions to address key road safety issues and establish a harmonized monitoring framework for road safety activities in the entities. The second subcomponent of US$2.40 million equivalent was aimed at conducting pilot activities along high-risks sections, to measure the effectiveness of stakeholder co-ordination and the impact of road safety interventions. Component 3: Technical assistance and capacity building (US$1 million equivalent Bank Financed Share US$l million equivalent). This component, linked to achieving the outcome indicator modernize road maintenance practices, comprised consulting services: (i) to provide technical guidance on introducing output and performance-based maintenance (OPBM) in each entity; and (ii) to build capacity based on the recommendations of the Transport Sector (TransSec) study (the activities under this category were to be defined by the Road Directorates during implementation). The $0.5 million allocated to each entity was seen as provisional and could be reallocated to other 4 Funded by the Global Road Safety Facility managed by the World Bank. 5 Due to changes in the exchange rate, the US dollar amount disbursed was US$25.62 million. 3

16 categories during implementation. Only the technical assistance related to the setup of the OPBM was identified in detail at an estimated cost of about $100,000 per entity. The RISP was the sixth Bank transport operation since 1996 and part of a larger collaborative program by IFIs, of about S$210 million, to rehabilitate about 2,200 km of the magistral and regional roads in BH. This was based on work financed under the earlier RMSP. The program financing included: (i) US$25 million from IDA; (ii) US$5 million from the entity budgets; (iii) US$75 million from the EBRD; and (iv) Euro 80 million - US$l05 million equivalent- from the EIB. The EBRD and EIB also contributed respectively to activities for the introduction of the OPBM, and technical assistance for the preparation and design of the roads to be financed by the IFIs. 1.6 Revised Components The Project went through two Level 2 restructurings that were approved in September 16, 2010 and July 6, 2011, respectively. There was no cancellation of funds. The first restructuring reallocated additional financing for component 1 to allow completion of the planned 240km of roads. The second restructuring entailed the extension of the closing date of the Project by six months to June and reallocation of funds from component 3 to 2 in the RS. The revised allocations from the restructuring are shown in the table below. One of the effects of the allocations is that credit proceeds were not used for component 3. FBH RS Componen Origina After first After second Origina After first After second t l restructurin g restructurin g l restructurin g restructurin g Total Other significant changes These related to the scope, financing and implementation of the Project as follows: (i) component 1- funding from outside of the Project (from EIB, EBRD and FBH budget) of some road sections and bridges initially planned to be rehabilitated using credit proceeds. 6 This was due to cost overruns without which more roads and bridges could in fact have been rehabilitated under the project.; (ii) component 2 - decrease in the scope of the pilot road safety activities, a result of reallocation of funds from this component to component 1 which reduced the amount available for pilot activities. In the RS, delays in the procurement of the road safety consultancy required extension of the Project closing date by six months with time only for a few scaled down pilot activities. These changes 6 At appraisal, the project envisaged the rehabilitation of bridges in the FBH. These were kept in the project, but some of these were financed with funds from outside the project,--one bridge needed major repairs to the foundations, requiring much more funds than envisaged at appraisal. The Results Framework did not include specific indicators for the bridges, and the economic analysis for Component 1 excluded the bridges. 4

17 were effected through Level 2 restructuring of the Project on September 16, 2010 and July 06, 2011; and (iii) component 3 - the initially planned form of the OPBM contract, performance based, changed to a hybrid consisting of traditional works measurement and performance based related to achievement of specified road serviceability standards. These changes were technically acceptable. None of the above changes required Board approval. There were no changes to the implementation arrangements. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry Preparation of the Project was supported by relevant lessons from the RSMP and valuable information on the sector from ongoing major studies particularly the 2007 draft Transport Sector Review study (TranSec) which recommended increased road maintenance as a priority for the sector. Bank dialogue with government, EBRD and EIB on the findings of the studies resulted in consensus on the need to continue efforts under the RSMP to reduce the backlog of maintenance on the magistral and regional roads and to improve road safety based on the recommendations of the RSMCR. This consensus formed the foundation for the design of Project. There was also a desire within FBHRD and RSRD to improve quality and reduce the unit cost of maintenance works. This led to agreement to include pilot testing of the OPBM approach, in conjunction with the EBRD. This resulted in a simple three component design for the Project focused on rehabilitation of roads and bridges (only in FBH), road safety improvements and pilot testing of an OPBM approach. Selection of roads to be rehabilitated was based entirely on the economic assessment of the magistral and regional road network carried out under the RMSP, with those with the highest benefits selected first until all funds were expended. However, the bridges in FBH were not included in the economic assessment notwithstanding the statement in the PAD (p40, para 101) that studies and economic analysis were prepared for the 150 km and for the bridges.. Though the location of the road sections were geographically scattered, this was acceptable as both the Bank and the road directorates had experience from the RSMP in managing needed site supervisions. The road safety component was designed to implement recommendations of the RSMCR that was completed in March To facilitate exchange of regional experience in OPBM, the Bank organized a workshop in Serbia on international experience in its implementation. The RISP was designed to be implemented by the same agencies in the entities that had capably implemented the RSMP. The PDO specified for the Project was well focused and identifiable with each component. The performance indicators were relevant, realistic and easily measurable. The three outcome indicators specified in the PAD in reality were five as the second indicator had three elements needing to be measured which introduced some complexity to their tracking and application. For the outcome indicator reduction in road user costs, it would appear that it was specified in the wrong currency, United State dollar, instead of the Euro. None of the performance indicators related to the rehabilitation of bridges in the FBH, perhaps because at appraisal their estimated cost was a small proportion (about 10 5

18 percent) of planned road rehabilitation. The cost of Project preparation was borne mainly by the FBHRD and RSRD, a sign of their commitment to the Project. An additional sign of the commitment of the entities was their willingness to accept as a project covenant an increase in their expenditure on road maintenance by five percent annually in real terms during the implementation of the Project (but see 2.2). This covenant proved difficult to be achieved during implementation, particularly by the FBH, due deteriorated macroeconomic situation and changes in and decrease in the value added tax 7. At Project preappraisal in March of 2007, agreement was reached with other IFIs and the government that Bank procurement and financial management procedures would apply regardless of source of funds. This was welcomed by counterparts as it would reduce their transaction costs. As with earlier Bank operations, designs and bid documents for roads and bridges to be rehabilitated were based on visual surveys and not available for review during preparation. Costing of the road works were therefore carried out by the Bank team based on rough cost estimates provided by the road directorates and engineering judgments based on review of those designs that were available. For the bridges, preparation did not include their inspection and nominal estimates were used in costing needed repairs. Inherent in the above is the risk of underestimation of costs. However, for the roads, the team considered the risk well mitigated by the high economic rate of return calculated for the potential Project roads implying that a significant increase in the estimated costs would still yield rates of returns higher than the Bank norm of 12 percent. Underlying this position is the assumption that the target length of roads would still be reached notwithstanding a significant cost increase. Significant cost increases were experienced during implementation (see 2.2 below for a discussion of this) but the target length of roads to be rehabilitated was met reflecting perhaps a conservative target. Documentation of the Project in the PAD could have been improved. For example, description of component 1 in the main part of the PAD omitted the length of roads to be rehabilitated in each entity, did not indicate that bridges would be rehabilitated in FBH. Description of component 3 did not indicate the need for implementation of the pilot OPBM as specified in the results framework. Some differences also existed between the cost of roads to be rehabilitated in the RS stated in the PAD under project description (Euro million) and the procurement plan (Euro million) which contributed to a misunderstanding of the amount available for road rehabilitation in the RS leading to procurement delays during implementation. These errors were however well addressed during implementation through intensive engagement and follow up on the part of the Bank team and aggressive seeking of additional funding from other sources (see 1.7) by the implementing agencies when it became clear that project funds would not be sufficient to complete road and bridge works planned under the project. More information could also have been provided in annex 4 of the PAD on the approach to cost estimation, particularly the possible impact of the still prevalent post conflict situation in the country which introduced an element of uncertainty to the estimation of costs. 7 The revenue allocation in the FBH for road maintenance is directly linked to value added tax and changes in the allocation of this between different expenditure heads led a decrease in the amount going to road maintenance. 6

19 Safeguards, financial and procurement assessments followed standard Bank guidelines. The design provided for all civil works to take place within existing road rights of way thus triggering no land acquisition. No Resettlement and Land Acquisition Framework (RLAF) was prepared for the Project. The engineering designs used appropriate good engineering practices to ensure that works would be carried out without adverse environmental impact. Issues raised by the financial and procurement assessments were mitigated using standard Bank instruments (see discussion under risk assessment below). The road directorates were encouraged to increase their then existing procurement staff to cater for the additional duties related to the implementation of the overall program (PAD p55). According to the staff of the RSRD, it would have been good to see clauses relating to safety of works in the bid documents given more emphasis in the assessment of bids. The objective in this would be to ensure that adequate provision is made for undertaking this activity in during the civil works 8. An agreement was reached between the implementing agencies, the Bank, EBRD and EIB for a common format to be used for project progress reports. The Bank team at appraisal rated the Project risk as low largely because the Project built on the earlier successful RMSP whose implementation mechanisms and organizational structure would be used for the RISP. The team however identified three risks: (i) bidders charging a large premium for the OPBM contracts; (ii) inadequate coordination and cooperation among all relevant agencies in the implementation of the road safety interventions; and (iii) misuse of project funds. Mitigation measures, which proved effective, were: (i) involvement of contractors and road agencies in awareness raising activities on the OPBM; (ii) obtaining strong political commitment to addressing road safety issues which came with the passage of the State level Road Safety Law; and (iii) inclusion in the Financial Management Manual of an appropriate internal control framework, enforcement of funds flow mechanisms, auditing of project accounts by independent auditors and conduct of regular financial management supervision and procurement prior and post reviews. Two additional risks could have been flagged: (i) dilution of the capacity of the implementing agencies through staff departures given that in design, the Project placed a high premium on the capacity of the implementing agency; and (ii) potential under estimation of the costs of civil works and cost inflation given the approach to civil works cost estimation, the scale of the planned investments under RISP and by EBRD, EIB and the still prevalent post conflict situation which created uncertainty. Dilution of the capacity of the RSRD occurred during pre-appraisal of the Project with its experienced head departing and both the financial and procurement management positions vacant. It is a standard requirement that key project staff changes be notified to the Bank before being implemented. Had this been done, it would have availed the Bank team at least an opportunity to prevent and or influence the timing of the staff changes that took place. The procurement position was not filled in a timely fashion leading to delay in implementing the procurement plan The cost overruns in relation to the rehabilitation of roads that emerged during implementation would perhaps not have been so problematic, had physical and price contingencies been stated as unallocated in 8 By the time of the ICR mission, all civil works had been completed so it is not possible to make an observation on this issue directly in relation to the Project. However, during the field visit related to the ICR mission, the mission witnessed very bad practices by contractors with regard to safety of works. 7

20 the project costing. Given the impact of these two risks during implementation, the Project risk assessment at appraisal may more correctly have been moderate. There was no Quality at Entry assessment of the Project done by QAG. 2.2 Implementation Implementation of the Project was rated in the ISR as satisfactory up to the time of its mid-term review. Subsequently, the rating was downgraded to moderately satisfactory up to Project closing except for one occasion when the rating was satisfactory. Implementation of the project experienced some delays which could not be fully recovered leading to extension of the Project closing date by six months. Effectiveness of the Project was delayed by about nine months due to the complex administrative approval process at the State and entity levels. Significant delays were experienced in launching procurement due to the late effectiveness of the Project. In the RS, additional delays arose due to their use of a road design approach lower in standard than agreed during preparation which meant that they would be less safe and durable. The RS made an error in trying to deal with higher than estimated bid prices they had launched under other IFI projects. High international oil prices contributing to these higher costs, raising the price of civil works inputs such as asphalt. Dealing with the cost overruns led to significant delays in the procurement of the civil works. It also led to the curtailment of other planned activities under the Project, particularly the road safety pilot. Given these difficulties, it is commendable that the civil works were able to be completed within the initial project closing date: it was completion of the road safety activities and signing of the OPBM contract in the RS that necessitated extension of the project closing date. This recovery of lost time in implementing component 1 was due to good technical guidance provided by the Bank team to ensure that roads rehabilitated would be safe and of good quality, good project management evidenced by timely restructuring of the Project and subsequent effective follow up. The entities and the road directorates contributed to this achievement also by their willingness to adhere to the full rehabilitation of roads as agreed during preparation and timely action in sourcing additional funds from the EBRD (in the case of RS for three road sections) and in the case of FBH from own funds and the EIB. That these IFIs agreed to the requests demonstrated good cooperation between the government and the IFIs in implementing the overall program. A total of eight Bank supervision missions were carried out during implementation of the Project in line with the regional norm of two supervision missions per fiscal year. There were however notable gaps in their timing with the first twelve months after negotiation and ten months after approval. It was during this period that errors occurred in the design approach applied in the RS to road rehabilitation under component 1. Project supervision consultants did not accompany the Bank team and counterpart staff during field visits. This is a good practice that would allow the consultants to make direct contributions to discussions on issues discovered during such visits and allow the Bank team to assess their competence. The Project experienced late submission of progress and financial audit reports. However, improved Bank team monitoring of this issue led to their more timely 8

21 submission later. Outcome of supervision missions were well documented in the aide memoire and related ISR with key issues highlighted. Within the ISR, the Bank team was provided guidance by sector and country management particularly in relation to ensuring that project progress reports were provided timely by the implementing agencies. The Bank project team flagged timely to management that the project covenant relating to road maintenance was unlikely to be met by the FBH. There is no documented evidence that the option of waiver of this covenant was suggested for inclusion in the first or second restructuring. This suggestion could have come from the Bank, given the economic downturn, the deteriorated financial situation of the State and thus of the entities since appraisal: moreover discussions on a development policy loan (DPL) operation had been initiated by the Bank. In the end, this covenant was not enforced by the Bank. The agreement during project preparation to have common formats for project reports would appear not to have been followed up, particularly since the implementing agencies had the information readily available. This was a missed opportunity for the Bank team to obtain information on cost of contracts being financed by EIB and EBRD which could have been useful to the Bank in dealing with cost overruns. There is no documented evidence of coordination between the Bank and EBRD in regard to the covenant on maintenance funding which was also a covenant in the Loan agreement of EBRD. The Minister of Communications and Transport in the RS complained about the quality of road rehabilitation works being carried out. The May 17, 2010 mission of the Bank undertook a thorough review of the works completed and ongoing and could not find clear evidence on this. Subsequent missions including for the ICR have confirmed the good quality of works carried out under the Project. The Project Mid Term Review (MTR), initially planned for January 2010, was conducted in October 2010 due to delayed effectiveness of the Project. By the MTR, progress with implementation was good with disbursement at about sixty percent, a sign that the initial delays had been recovered. The MTR included field visits to four project sites in the RS where contract amendments had been made to correct road design deficiencies and the quality of works were considered good and of correct scope. Bank participation in a follow on project focusing on upgrading and reconstruction of tunnels and bridges with some road rehabilitation was requested during the mission. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization The results framework for the Project was adequate and had indicators appropriate for monitoring the achievement of the PDO. There was some element of complexity in defining some of the outcome indicators with some reflecting two discrete activities or outputs. The outcome indicator relating to road safety had three parts establishing road safety offices, preparing road safety strategies and conducting pilots - which made it somewhat complex. Some baseline data relating to road safety were not available during appraisal and were to be measured during the first year of implementation. No specific arrangement was however put in place to ensure their timely measurement. As earlier noted, there was no indicator to measure achievements in relation to the bridge works in FBH. 9

22 The FBHRD and RSRD had a good database on their road network from the asset management system created under the RMSP which facilitated calculation of user benefits using HDM-4. They also collected data in relation to the condition of the road network (e.g. roughness index) although this was not included in the results framework. The consultants that carried out the road safety studies were able to help these directorates establish the values of the road safety outcome indicators. In particular, the road safety studies led to the establishment of the socio-economic cost of road accidents in both entities. Thus the road directorates and the Bank team were able to adequately report on achieving the PDO. Monitoring of the indicators in the ISR was good with both sector and country management units providing clear guidance to the team on issues raised with the notable exception of the possible waiver of the covenant relating to funding of maintenance by the entities when, particularly in the FBH, compliance was proving difficult. (see 2.2) The initial ISR contained the PAD indicators (5 outcome indicators and 8 intermediate indicators). However, in the fourth ISR, the outcome indicators were reduced to 3 to reflect the FA by combining to one three indicators relating to road safety. In addition, one indicator, length of roads rehabilitated, was put as an outcome indicator and the intermediate indicators reduced to 3 by combining some specified singly in the PAD into a single indicator. While it was possible to still identify within the composite outcome and intermediate indicators their PAD identify, these changes had the effect of reducing the clarity of reporting on the different elements of the indicators. During the above mentioned amendment, two Bank core indicator roads rehabilitated, non-rural and roads in good and fair condition as a share of total classified roads (%) were introduced in line with new Bank guidelines. It is noted that the ISR reflected the indicator relating to the OPBM as complete a satisfactory OPBM with no indication of the definition of satisfactory. The FA text suggests that satisfactory could mean lessons drawn. During the Project, from the survey carried on the pilot in FBH, lessons were however drawn. The entities have found the indicators useful in reporting on the impact of their efforts to improve the condition of the magistral and regional road network. This should help them going forward in making the case for undertaking interventions similar to those carried out under the RISP. The road safety indicators would also help the entities better design their awareness raising campaigns and measure their impact. Determination of the socioeconomic cost of road accidents, the first time it has been done in the entities, has been helpful in drawing attention to the macro-economic dimension of road safety. For example, according to the Ministry of Finance of RS, they now appreciate the positive impact of a focus on road safety in a road project. 2.4 Safeguard and Fiduciary Compliance Compliance with safeguards policy is rated satisfactory. Environmental safeguards. The RISP was implemented in full compliance with the relevant environmental safeguards policy of the Bank for an Environmental Category B project (the Project triggered only OP 4.01 on Environmental Assessment). The Environmental Assessment, carried out during project pre-appraisal, was thorough, with disclosure and public consultations carried out prior to Project Appraisal. Typical sites 10

23 were visited in both entities and discussions held with staff of the environmental units of FBHRD and RSRD to assess their experience in implementing the ongoing RMSP project. The site specific Environmental Management Plans (EMPs) were developed for each of the Project sites, with adequate public disclosure and consultations. From experience in implementing the RSMP EMP, some monitoring functions in the EMP for the RMSP were agreed to be transferred to the supervision engineers in the EMP for the RISP. All of the identified potential environmental impacts within the EMPs (dust generation, noise, waste management, and traffic disruptions) were mitigated through standard practices of good engineering and EMP forms were included in the tender documents and contracts for subcontractors. No changes to the runoff patterns were made in the rehabilitation activities. In addition, there have been no incidences of noncompliance with the EMP, nor have there been any formal or informal complaints. Social safeguards. The Project did not finance activities that involved any form of land acquisition or restriction of access to sources of livelihoods. All works were conducted within existing publicly owned right-of-way. In a case when a design proposal required some acquisition of land, the Bank team encouraged revision of the design to avoid land take. It is noted that had a RLAF existed, its application would have allowed accommodation of the proposed design. The FBHRD and RSRD were required to prepare community surveys to assess the impact of the (i) road and bridge rehabilitations; (ii) road safety pilots; and (iii) user perceptions of the OPBM contract. These were carried out only in the FBH due procurement delays and the results from these are reported under section 3. Fiduciary Compliance with fiduciary requirements is rated as moderately satisfactory. Financial risk mitigation measures put in place proved adequate during implementation. This is notwithstanding staffing issues encountered in the RSRD. Financial management performance is rated as satisfactory. There were material delays in carrying out procurement tasks in the directorates, particularly RSRD. Deficiencies in documenting the procurement plan in the PAD also contributed to observed delays during implementation. The procurement threshold for International Competitive Bidding (ICB) was US$500,000 potentially restricting participation of domestic contractors or increasing their transaction costs: in Moldova, the threshold at the time of appraisal of the RISP was US$1,000,000. These elements contributed to overall implementation delays as a result of which procurement performance is rated moderately satisfactory. A Country Portfolio Fiduciary Review (CPFR) was carried out between December 7 and 18, 2009 found the RISP marginally satisfactory regarding procurement and satisfactory regarding financial management. The findings of the CPFR were discussed by the team with counterparts with follow on remedial measures proposed concerning financial and procurement management. As of December 2012, the revised amount of the credit was US$25.62 million against the original US$25.00 million. The difference is due to changes in the exchange rate. There was no cancellation but an amount of US$0.15 million was undisbursed. 11