Document of FILE COPY The World Bank FOR OFFICIAL USE ONLY Report No.P-1775a-YU REPORT AND RECOWIENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLICKI FOND VODA (WATER FUND OF THE SOCIALIST REPUBLIC OF SERBIA) WITH THE GUARANTEE OF THE SOCIALIST FEDERAL REPUBLIC OF YUGOSLAVIA FOR THE MORAVA REGION DEVELOPMENT PROJECT: WATER SUPPLY, SEWERAGE AND WATER RESOURCES May 6, 1976 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its conterits may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS * Currency Unit Yugoslav Dinar (Din.) US$1 Din. 18.00 Din. 1 US$0.0555 Din. 1,000 US$55.55 Din. 1,000,000 US$55,555.55 * The Yugoslav Dinar has been floating since July 13, 1973. The currency equivalents given above are as of April 3O. 1976. FISCAL YEAR January 1 - December 31 FOR OFFICIAL USE ONLY INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLICKI FOND VODA WITH THE GUARANTEE OF THE SOCIALIST FEDERAL REPUBLIC OF YUGOSLAVlA 1. I submit the following report and recommendation on a proposed loan to the Republicki Fond Voda (Water Fund of the Socialist Republic of Serbia or SWF), with the guarantee of the Socialist Federal Republic of Yugoslavia, for the equivalent of US$20 million to help finance a regional development project consisting of water suppLy and sewerage systems, as well as water resources and economic development studies. The loan would have a term of 20 years, including 4-1/2 years of grace, with interest at 8-1/2 percent per annum. US$13.5 million of the loan would be on-lent by SWF to five sub-borrowers on the same terms as those of the Bank loan. PART I - THE ECONOMY 2. A basic economLc mission visited Yugoslavia in November 1972; its report entitled "The Economic Development of Yugoslavia" (194a-YU) was distri- buted to the Executive Directors on January 2, 1974. An updating Economic Memorandum (662a-YU) was distributed to the Executive Directors on June 23, 1975. An economic mission visited Yugoslavia in October 1975 and the find- ings of this mission are incorporated in this report. Basic data on the economy are given in Annex I. Economic Trends and Deve:lopment Issues 3. The Yugoslav economy has experienced rapid growth during the last two decades, with total (GDP at constant prices having increased by an average rate of 6.3 percent, and per capita GDP at 5.2 percent annually. In 1973, per capita GNP came to about US$1010 (World Bank Atlas methodology). This impressive record of growth was accompanied by some fundamental structural changes in the economy whtich has moved towards a modern industry/service oriented urban society. The share of agriculture in GDP declined from 38 to 20 percent while the share of industry and mining increased from 16 to 37 percent. 4. The population growth rate averaged 1 percent per year during the last two decades, but with considerable regional variations ranging from an average rate of 1.6 percent for the less developed Republics and Provinces to 0.7 percent for the developed ones. The structural changes in the economy permitted a sizeable transfer of labor force from agriculture to industry and services. However, by 19'74 nearly 45 percent of the resident active labor force was still engaged in agriculture and forestry, mostly on small private farms; industry (including mining) accounted for 21 percent, and other sectors for 34 percent. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. - 2 - 5. The socio-political framework evolved through several constitution- al amendments which were consolidated in the new constitution of 1974. It strengthens three important features of the socio-political system of Yugoslavia. First, self-management, whereby the use and control of the socially owned means of production is entrusted to the workers' collectives, is the fundamental right and obligation of every "basic organization of as- sociated labor" (the smallest technologically identifiable unit of operation) in every sector and activity. Second, the responsibility for most important social and policy decisions has been shifted from the Federation down to the Republics and Provinces, and on to the communes. And third, the management and financial responsibility for social activities (like health, education, welfare, etc.) is transferred from the realm of the state to "communities of interest" (decision-making bodies which comprise delegates of both suppliers and users of the specific services). Responsibility for certain economic activities affecting large segments of the society (like communal services, power production, highways and water management) can be - and progressively is - similarly organized through communities of interest. 6. The social sector, which includes government, most enterprises and public institutions such as libraries, hospitals, theatres and schools, has the leading role in economic and social development; it accounts for 85 per- cent of GDP and employs over half of the total labor force. The private sector is predominantly comprised of peasant farms (with a 10 hectare limit to land holdings) and small enterprises (with a 5 person limit on the number of non- family workers), mainly in handicrafts, construction, trade, transport and tourism. In the past, the private sector had been relatively neglected by government policy. However, lately more attention is being devoted to pri- vate farmers with a view to accelerating the growth of agricultural produc- tion and reducing the rural/urban income disparity. 7. Regional income disparity - with a gradient of per capita income fall- ing generally from North to South - has emerged as one of the most important development issues of the country. Four distinct regions can be distinguished by stage of development. The Republic of Slovenia is the high income region with almost double the national average. The Republics of Serbia and Croatia and the Autonomous Province of Vojvodina make up the middle income regions, ranging from 100 to 125 percent of the national average; however, even within these regions pockets of underdevelopment persist. The Republics of Bosnia- Herzegovina, Montenegro and Macedonia - with per capita income between 67 to 75 percent constitute the upper group among the officially designated "less developed regions". The Autonomous Province of Kosovo, with an average in- come of only 33 percent of the national average, is at the bottom of the spread. These inter-regional disparities can be traced back further to intra-regional disparities. Within Republics and Provinces the spread between communes can extend over the range of 10 to 1, and it is the prevalence of stagnating poor rural communes within the less developed regions which largely determines the disparity between the regions. The rate of economic growth of the less devel- oped regions as a whole was only slightly below the average for Yugoslavia, but - 3 - due to the faster population growth (1.6 percent per year versus 0.7 percent in the more developed regions) the income disparity had tended to widen sig- nificantly during the last two decades. In order to reverse this trend and to accelerate economic growth and social development in the less, developed re- gions, mechanisms have been instituted for sizeable transfers of financial resources. In 1973, credits on highly favorable terms (containing a grant element of around 50 percent) were made available through the "Federal Fund" to the less developed regions in the amount of almost US$250 million, equiv- alent to more than 20 percent of their total investment in the social sector. An additional US$130 million for social services were transferred as budgetary grants. Both categories of transfers have been growing since in line with the growth in total GDP. 8. Open unemployment has not been a serious problem and is estimated to be only around 3-4 percent of the resident labor force in 1974. However, this low rate conceals three important aspects of the employment problem. First, an estimated one million out of a total labor force of around 9 million (in 1974) has assumed temporary employment abroad. Second, there is some evidence of growing regional and occupational imbalances, due to low inter- regional mobility of labor and to unmatched skill requirements in a fast changing economy. Third, severe underemployment persists in the private agricultural sector. Recent Developments 9. In 1974, Yugcslavia recorded a rapid increase of GDP of 9 percent in real terms as compared to 5 percent and 4 percent in 1973 and 1972 respec- tively. Industry was the leading sector with an estimated growth rate of 11 percent in 1974; however, the growth of agricultural production, enhanced by favorable weather conditions, and of services (with the exception of tourism) also accelerated during the year. This rapid expansion of economic activity permeated the whole economy. Investment outlays grew in nominal terms by almost 40 percent (9 percent in real terms) and total consumption expenditures by about 41 percent (12 percent in real terms). The resulting rapid increase in total demand for goods and services was reflected both in the rise of em- ployment and of imports. - both in nominal and real terms - and domestic prices. The gain in total emplcyment amounted to about 5 percent in 1974 and exceeded for the first time the natural increase of the labor force. Industrial pro- ducer prices rose by almost 30 percent while the cost of living rose less rapidly by some 21 percent. Since fiscal policy leaves, for institutional reasons, little room for demand management, the major response to the infla- tionary pressures was in terms of monetary policy and direct controls through prices and income policy, including recent legislation placing greater con- trol on investment expenditures. After an expansionary phase during 1972 and 1973, the money supply increased by only 24 percent as compared to a nominal increase of social product of about 36.percent. The shift to a large deficit in the balance of payments in 1974 also contributed to the increased effec- tiveness of the monetary policy. - 4 - 10. The balance of trade deficit increased from US$1.7 billion in 1973 to almost US$3.7 billion in 1974 both on account of an increase in the volume and the rapid rise in the price of imports and the stagnation of real exports (the terms of trade for the country are estimated to have deteriorated by about 11 percent). The recession in Western Europe has led to a sharp decline in exports to that area. The traditionally large surplus for invisibles (mostly from workers remittances and tourism receipts) failed to compensate for the large trade deficit and the country recorded a current account deficit in excess of US$1 billion in 1974 as compared to a surplus of US$464 million in 1973. In response to the circumstances, the import regime has been grad- ually tightened since August 1974, affecting a large variety of consumer goods and some capital and intermediate goods. In addition, the National Bank raised the intervention point in the foreign exchange market, in effect devaluing the dinar by about 7 percent as against the currencies of Yugoslavia's major trading partners. The large current account deficit has led to some loss of foreign exchange reserves; the official reserves fell by US$345 million in 1974 (com- pared to a gain of US$632 million in 1973). In addition, net foreign borrowing, which averaged US$390 million during 1971-73, increased to around US$650 million in 1974. Commercial import credits from suppliers 'and credits from financial institutions continued to be the major sources of foreign capital. Long-term funds related to financing of development are being made available mainly by the Bank and some bilateral sources (particularly the US Export-Import Bank and Federal Republic of Germany). Yugoslavia has also been one of the beneficiaries of the IMF's Special Oil Facility. Yugoslavia's medium- and long-term external debt outstanding as of December 31, 1973 was US$4,319 million (disbursed only) and is expected to have increased to about US$5.0 billion during 1974. Debt service payments amounted to about 15.9 percent of foreign exchange earnings (including workers remittances) in 1973 and 15.3 in 1974. 11. In 1975, the growth rate of the economy is estimated to have receded to 4.5 percent, due mainly to the combined effects of a restrictive monetary policy, stagnating exports and a reduced growth of personal incomes; economic investment and housing construction provided the major growth stimulus during 1975. The inflationary pressure which built up during 1974 and extended into 1975 receded drastically in the second half of the year; the rate of increase of industrial producer prices decreased from 30 percent in 1974 to an annual rate of 12 percent for the first ten months of 1975 and the index of real net personal income remained unchanged for the same period. The good harvest in 1974 has had a favorable impact on the balance of payments, although meat ex- ports were severely affected by the European Community ban on meat imports. Exports to oil producing countries and to the non-convertible currency area have continued to expand rapidly in 1975, but are not expected to compensate for the sharp decline in exports to the convertible currency area. Workers' remittances and receipts from tourism have increased marginally. The current account deficit for 1975 was estimated to approximate the level of 1974 on the basis of preliminary estimates, but there are now indications that it may have dropped by 20 to 25 percent due to a curtailment of imports and an increase in exports during the last third of 1975. -5- Prospects for 1976 12. The balance of payments is expected to remain the central problem in 1976 as well as for the years to come. The current account deficit is ex- pected to decline somewhat as imports are restrained and there is a recovery in the level of economic activity in Western Europe. The inflationary momen- tum will probably be curtailed further through improved investment control, closer alignment of real -income changes with improvements of productivity and restrictive monetary policy. The real growth rate of GDP is expected to be constrained to about 4.' percent in 1976 with a gradual recovery in subsequent years. Medium- and Long-Term Objectives and Prospects 13. The aggravation of major economic problems during 1974, such as rapid inflation and balance of payments pressures, has led to a reappraisal of development objectives. In the light of the recent shift of relative prices in favor of raw materials, more emphasis will be given to the development of Yugoslavia's own natural resources. In this connection, the development of the energy sector is given the highest priority. It focuses on electric power, where the generating capacity is likely to fall critically short of the rapidly rising power requirements of the expanding economy. The development of the power sector will largely be based on the large unutilized hydropower potential and soft-coal reserves of the country. Other priority activities are ferrous metallurgy, some segments of non-ferrous metallurgy (notably lead, zinc, copper, nickel and bauxite/aluminum), technologically advanced production equipment, basic chemicals including petroleum refining, agriculture and food processing, interrepublic transportation, multipurpose works, and housing and basic con- struction material. 14. This emphasis on accelerated development of the raw material basis and the deepening of the economic infrastructure requires a more capital- intensive investment pattern, associated with longer time-lags between invest- ment and output. To sustain this development path, both continued high bor- rowing abroad and an increased savings rate will be essential. Since, with the possible exception of private savings, interest rates do not play a signi- ficant role in the determination of the level of aggregate savings, the income policy - i.e. the guidelines governing the distribution of enterprise income between workers' income and accumulation - will have a crucial role. 15. The new Five Year Plan (1976-1980), presently under preparation, will focus on the implementation of these objectives. For growth, an average rate of 7 percent per year is proposed as feasible, comparing with a target growth rate of the previous Plan of 7.5 percent and an expected realized growth rate of 6.5 percent. For employment, the average planned growth rate would come to about 3 percent with annual increments exceeding the natural increase of the labor force by growing margins. This would permit more vigorous pursuit of two major social objectives: the reduction of the number - 6 - of temporary migrants abroad, and an increased absorption of the rural under- employment into the social sector. The economy will continue to be open to the world market although the composition of foreign trade is expected to change with a reduced share for raw material, semifinished products and con- sumer goods on the import side, and an increased share for agricultural pro- ducts and manufactured goods on the export side. Workers' remittances are not expected to increase in real terms, but rising tourism receipts are expected to compensate for the expected declining importance of workers' remittances. 16. The reduction of regional disparities is another priority objective of the new Five Year Plan. To that end, the transfer of financial resources to the less developed regions in the form of loans at concessionary terms for economic investment and budgetary grants for social development will be con- tinued and probably will increase as a proportion of total GDP. Since most of the natural resources of the country, including hydropower, are to be found in the less-developed regions, they will, in addition to the transfers, benefit from the increased emphasis on the development of basic industries and power which will to a considerable degree be financed through direct financial con- tributions from the consuming regions. 17. The new Five Year Plan is being prepared according to the self- management principle as stipulated by the Constitution of 1974. "Self- management planning" is perceived as an iterative process of sequential, con- verging consensus-finding. In the initial stage, broad priorities (as to sec- tors and activities) and general quantitative targets and constraints (like growth rates of social product and the volume of savings and investment) are determined by political consensus of the assemblies of the socio-political communities (Communes, Republics and Provinces, Federation). Subsequently, the planning process starts at the bottom with individual enterprises and communities of interest setting out their expectations and targets. The planning process then proceeds through successive and partially overlapping stages of horizontal adjustments within sectors and branches (aimed primarily at eliminating gross duplications), vertical adjustments between closely in- terdependent sectors and branches (aimed at determining realistic orders of magnitudes of production, conceptually within an input/output framework), and regional adjustments between Republics and Provinces (aimed at both horizontal and vertical consolidation). The socio-political communities participate in this process by ensuring observance of the broad priorities, targets and constraints, and by resolving conflicts which cannot be resolved by the direct participants. The evolving consolidated programs of action, which in their totality constitute the operational portion of the Plan, are codified in the form of "social contracts" or "self-management agreements" which are legally binding for the whole Plan period unless renegotiated in the case of major deviations occuring in the course of Plan implementation. The new Plan, which is currently under preparation, is, thus, expected to differ from the previous Plan in strengthening and formalizing the commitments for implementation by enterprises, banks and government institutions. -7- Creditworthiness 18. In spite of the present balance of payments problems, the prospects for Yugoslavia's continued economic growth during the next decade are good. The country's endowment of natural and human resources, its relatively low dependence on imported primary energy, its pragmatic approach to economic problems and its readiness to undertake institutional changes, combine to give grounds for a favo-able assessment of future prospects. Yugoslavia will need to continue to raise foreign capital on a fairly large scale, mostly from established channels such as the Euro-currency market, suppliers credits and the World Bank. In addition, greater use may be made of credit lines from COtIECON countries and the EC, and efforts are being intensified to open up new sources of capital in OPEC countries. Due to the size and structure of external borrowing during 1974 and the years to come, the debt service ratio is expected to increase from 15.3 in 1974 to 18.2 in 1976. Although the debt service ratio may continue to increase gradually, it is expected to peak around 1980 at about 19 percent and decline thereafter. However, taking into account Yugoslavia's debt service record and the measures taken in the past to control balance of payments problems, as well as the prospective growth of production and structural improvement of the balance of trade, Yugoslavia remains creditworthy for a substantial amount of Bank lending. PART II - BANK GROUP OPERATIONS IN YUGOSLAVIA 19. The Bank has made 35 loans totalling about US$1,160 million to Yugoslavia. Of this amount approximately 50 percent (US$571.4 million) has been for 13 loans for the transportation sector - seven for highways totalling US$220 million, four for railways totalling US$248 million, US$108.4 million for natural gas and oil pipelines, and $44 million for a port project. Bank lending has generally concentrated on infrastructure including, in addition to the transporation loans, power (three loans totalling US$135 million), tele- communications (one loan for US$40 million), three multipurpose projects totalling US$103 milliort and US$6 million for a water supply and sewerage project. Nine loans have also been made for industry and two each for tourism and agriculture. IFC has made investments in nine Yugoslav enterprises total- ling about US$130 million. The Bank disbursed $126 million during FY75, com- pared with $59.4 million in FY74, and about $140 million is projected for FY76. Annex II contains a summary statement of Bank loans and IFC investments as of March 31, 1976, and notes on the execution of on-going projects. 20. The major objectives of current and future Bank lending to Yugoslavia are to accelerate development in the less-developed regions of the country; to promote agiicultural development, particularly among the small private farmers by providing basic infrastructure and credit for the financing of farm develop- ment, equipment and processing facilities; to promote structural reforms in major sectors of the economy through improved coordination and the strengthen- ing of institutions; and to provide Yugoslavia with long-term external capital and thus help to alleviate critical shortages of convertible foreign exchange, while encouraging and promoting Yugoslavia's efforts to tap other sources of medium and long-term capital. These objectives are basically the same as those - 8 - which have guided Bank lending in previous years, but efforts to give special support to the less-developed regions are being strengthened. 21. Proposed loans for the Sarajevo water supply and sewerage project (US$45.0 million), the Sarajevo air pollution control project (US$38.0 million), and a second industrial credit project (us$50 million) have been negotiated and are expected to be submitted shortly for consideration by the Executive Directors. Over the next two years loans envisaged include a second loan for agricultural credit, two loans for irrigation, and a loan for agricultural industries, all for the less developed regions. Highway, railway and power transmission projects during the same period will both assist the less- developed regions and promote structural reforms in the transport and energy sectors. IFC is currently investigating several new investment opportunities to encourage joint ventures which would provide technical, management and marketing expertise as well as long-term capital. 22. In addition to substantial assistance given in identifying and pre- paring projects for Bank financing, the Bank is providing technical assistance in several areas. A series of regional studies of the four less-developed regions of Yugoslavia was initiated three years ago and three studies, cover- ing Kosovo, Macedonia and Bosnia-Herzegovina, have been completed. The fourth study, of Montenegro, will be completed soon. This series will contribute to better assessment of development programs and will assist both the Governments and the Bank in formulating development strategies for these regions. An energy sector review was undertaken by the Bank in cooperation with the Federal Govern- ment to review the energy sector survey which the Federal Government had been undertaking as well as to review the work being done on energy problems in the individual Republics with the objective of analyzing the main problems, issues and policy options for meeting Yugoslavia's future energy needs. A Bank as- sisted study on the improvement of the financial mechanism has been concluded and its recommendations have been included in draft legislation for a new banking law. Bank cooperation in a training program for auditors of the Social Accounting Service, which audits all enterprises and Government activities, including Bank financed projects, has progressed satisfactorily and further training is underway in cooperation with an international accounting firm. Assistance from EDI, as well as through Bank operations, has been directed towards the improvement of project evaluation. 23. The level of Bank lending has remained constant averaging about US$200 million annually during the period FY74-76. Although this represents only a small proportion of the country's need for external finance, it is equivalent to almost one-third of the annual long-term official capital in- flow in convertible currencies. The outstanding debt to the Bank is expected to gradually decline from its current level of less than 10 percent of Yugoslavia's total external debt. Service on Bank loans as a proportion of total debt service was 4.0 percent in 1974 and is projected to increase to about 6 percent in 1980. - 9 - PART III -- WATER RESOURCES SECTOR IN THE MORAVA REGION 24. Water related problems have hindered economic development in many regions of Yugoslavia. Climate and topographical (primarily orographical) characteristics, which cause variable rainfall distribution both in time and place, result in frequent flooding in spring and winter and acute water shortages in the summer and fall, when urban and agricultural demand is highest. Pollution of primary water sources occurs frequently due to dis- charges of untreated sewage, particularly during low flow periods. 25. The Morava River Basin is the second largest river basin in Yugos- lavia; about 80 percent of the watershed is in central Serbia (see Maps 11603 and 11639). It covers 3.8,000 sq. km. (12 percent of the country's area), con- tains an estimated population of 3.6 million (about 16 percent of Yugoslavia's total population and over 50 percent of Serbia's population) and encompasses one of the least developed areas of Serbia. An estimated 60 percent of the population of the region is still rural, engaged mainly in small-scale agri- culture. Due to the generally mountainous terrain, the habitable valleys are densely populated with numerous, relatively small towns (Nis, the largest, has a population of 200,000). Flooding of agricultural land has historically been the main problem, but with an increasingly urbanized and industrialized popu- lation, the flood hazard has increased and problems of urban water supply and water pollution have grown enormously. Almost all towns in the basin have industrial plants, including several which are quite large such as the copper and aluminum processing plant near Titovo Uzice, which make significant demands on water supply and cause pollution. 26. The Republic of Serbia is formulating a long-term program for developing the water resources of the area in order to accelerate economic development. The first stages of this program aim at improving the planning and management of water resources, including the establishment of the appro- priate institutional framework and providing specific urgent investments required to meet the water supply and sewerage needs of the two small, but relatively important industrial towns of Titovo Uzice and Cacak. Water Resources and Regional Development 27. The Morava River, the dominant physical feature in the region, is a large perennial river with variations in stream flows that are the cause of the many water-related prcoblems in the basin. An estimated 2,800 km2 of val- ley bottom lands, comprising the best agricultural land, as well as most of the towns and economic infrastructure are exposed to flooding. Between 1920 and 1965, a total of 36 L-loods of varying intensity were recorded in the ba- sin, 20 of which lasted Eor more than 30 days. Mlore recent floods have had damages approximately est:imated as follows: 1965 - $61 million; 1969 - $27 million; 1970 - $39 million. Approximately 60 percent of the damages are suf- fered by agriculture. The average area flooded annually in the Basin has been estimated at 1,400 km2, with damages of the order of $14 million annually. - 10 - 28. Soil erosion which takes place in the Basin during periods of intense precipitation has removed high quality topsoil from agricultural land which is then washed into the river system as sediment, reducing channel capacities and further increasing potential flood hazards. 29. Irrigation systems in the Morava region have been utiLized on only about 20,000 ha, compared to an estimated 700,000 ha which have potential for irrigation. In this region the type of irrigation system likely to be most economic is a low cost system providing water for supplementary irri- gation during the dry summer months; however, development of this type of irrigation has been lacking because with sufficient precipitation existing to permit rainfed agriculture during most of the year, farmers have had only modest incentive to turn to the more intensive cultivation that irrigation would permit. In addition, there have been few organized efforts in the agriculture sector to demonstrate the possibilities of low cost supplementary irrigation schemes or efforts to provide the necessary financial and tech- nical assistance for such undertakings. 30. With most of the urban centers located in the river valleys, water supplies for households and industries depend on the river flows or ground- water alluvial aquifers. Increasing urbanization has brought about growing demands which local water supply systems are frequently unable to meet. Urbanization has, along with changed agricultural practices, also contributed to recent and severe degradation in the water quality of the rivers through- out much of the region. Most towns do not have sewage treatment facilities and with the limited dilution capability of the rivers during low flow periods water pollution has become an increasingly worrisome health problem, particularly for downstream communities whose main sources of water supply are the rivers. 31. Although the hydroelectric power potential of the region is esti- mated to total approximately 7,000 GWh/year, only about 5 percent is presently developed, comprising some 20 small plants with a total instalLed capacity of 85 Mlw. Regional Water Resources Planning and Management 32. Initiatives by Serbian water planners to resolve basin-wide problems began in 1958 and by 1965 a master plan had been produced for the regulation of the Morava River flows. However, the master plan programs have concentrated almost entirely on the structural measures (dams and other flow regulation works) to regulate river flows and control flooding, to the exclusion of other aspects of river basin development, such as water supply systems, wastewater treatment and sewerage systems, irrigation systems and hydroelectric power plants. There has also been a lack of meaningful economic analysis, such as the study of alternatives; hence, with a lack of good benefit/cost exposition, the programs have given little guidance to decision makers as to the optimum staging of facilities, much less to the benefits that might accrue commensurate with the costs involved. Although the Republic Water Fund (SWF) was created in 1965 to provide financial resources for this plan and the Morava River Corpora- tion (MRC) was created in 1967 to be responsible for the coordination of plan- ning and construction, few of the programs of the master plan have been imple- mented because they have not had sufficiently demonstrable benefits for the - 11 - communities which would be expected to undertake them. In the context of the Yugoslav system of decentralization of economic and political decision-making individual workers' organizations and enterprises (industrial, power, agricul- tural), towns, and communes have enjoyed considerable autonomy regarding the investment of funds in water-related activities, making it difficult for them to collaborate for regional or multipurpose projects unless the benefits from doing so are clearly demonstrable. 33. In realization of some of these past difficulties in the organiza- tion of this sector, the Serbian Assembly passed new legislation in 1975 calling for a fundamental reform in the management of the Republic's water resources. In accordance with the 1974 constitution of Yugoslavia, Serbia's Law on Water Management calls for the establishment of a Republic Water Com- munity of Interest and three regional communities of interest to coordinate water resource development for the benefit of all users and producers in each region. Such communities of interest are usually established by self-manage- ment agreement among wot-k organizations providing services and consumer groups (enterprises, communes, towns); they are thus replacing both the market mecha- nism and the state as regulating agents with direct and organized cooperation between the affected parties. The Morava Region Water Community of Interest (MRWCI) will be responsible for the M4orava River Basin. The SWF, and probably the MRC, will be phased out after the new law is fully implemented and the Republic Water Community of Interest and the MRWCI have been established. 34. In the water supply and sewerage sector, primary responsibility in the Morava region, as throughout Yugoslavia, has rested with the local munici- palities or communes. Development in this sector has been impeded by a number of problems among which have been the lack of technical expertise at the com- munal level to plan and implement the infrastructure necessary to cope with industrial and urban growth and the lack of capital to construct adequate faciLities. The capital scarcity is being partially overcome in many communes by voluntary self-imposed taxing schemes, but, understandably, such savings campaigns usually get underway only when the physical situation has already deteriorated badly. This frequently results in a considerable lag before suf- ficient funds are raised to enable the improved infrastructure to be con- structed. Republican sources of financing, particularly from the SWF, are limited and directed primarily for river flow regulation facilities. Water Supply and Sewerage Situation in Titovo Uzice and Cacak 35. The town of Titovo Uzice has an estimated population of 46,000 in- cluding nearby Sevojno, site of a large copper and aluminum processing com- plex. Population is preSently growing at about 4.5 percent annually and rapid industrial growth is expected to continue. Titovo Uzice is situated in the steep valley of the Djetinja River at the headwaters of the Zapadna Morava River (see Mlaps 11637 and 11638). The water supply situation for the inhabit- ants and local industry is very bad. Only 55 percent of the population are connected to the system, shortages are significant and increasing, and the lack of safe water suppl:ies has caused epidemics, most recently in 1974 when some 2,000 people were ai-fected and several hundred hospitalized by a diar- rheal epidemic. The limited capacity of the public water system has forced - 12 - five industries to provide their own supplies. A network of sewers removes sewage from only 65 percent of the Titovo Uzice premises connected to the water system. All sewers discharge directly into the Djetinja River without treatment. At Sevojno an industrial waste treatment plant has been con- structed but is not yet operational. Other industries, including textile, metal and leather factories, discharge untreated wastes directly into the river, which during low flows depletes the dissolved oxygen in the water and makes it incapable of supporting fish life. 36. The town of Cacak has an estimated population of 44,000 which is increasing at about 4.8 percent annually. The town is a traditional agri- cultural center, situated in a valley of the Zapadna Morava River (see Maps 11640 and 11641). Local shallow wells have previously served as the town's water source but the alluvial aquifer has become increasingly polluted as urbanization and industrialization have proceeded. The piped water supply serves only an estimated 60 percent of the population from a series of wells recharged by river water pumped into infiltration basins. Limited source capacity caused shortages and delayed system expansion in earlier years. Cacak has separate sanitary and storm drainage sewers, with only 55 percent of the water consumers connected to the sewers and the remainder using septic tanks or pit privies. The pulp and paper factory and a bottling plant dis- charge their untreated wastes directly into the river. PART IV - THE PROJECT 37. Yugoslavia first requested Bank assistance for the project in May 1972 when it sought financing for eight independent sub-projects, comprising seven dams and a water supply system for a small town. A series of Bank mis- sions, beginning in May 1973 and aided by staff from the FAO cooperative pro- gram and by consultants, have carried out several reviews of the planning procedures and proposed project components. Project objectives and, to a greater extent project definition, have evolved considerably as a consequence of the appraisal process. It has become more of a water resources and river development planning project, viewed as a first step to encourage the genera- tion of future priority projects for the broader economic development of the Mtorava River Basin. The Morava project will start with water supply and sewerage systems for two towns (Titovo Uzice and Cacak), two pilot irrigation projects, and three studies for river basin development. A second phase envisages siltation and flood control works, irrigation, water supply and pollution control systems, and possibly a rural development program. 38. Negotiations were held in March, 1976 in Washington. The Yugoslav delegation was led by Mr. Branco Jovanovic, Secretary for Agriculture, Forestry and Water Economy for the Republic of Serbia. - 13 - Project Objectives and Description 39. The proposed loan and project are summarized in Annex III and the project is described in detail in the report "Appraisal of Morava Region Development Project: Report No. 991-YU, dated May 3, 1976" which is being distributed separately to the Executive Directors. The project objectives are threefold: first, to assist the planning and management of water re- sources within the Morava region in order to promote accelerated economic development in some of the least-developed areas in the region; second, to provide improved water supplies to meet the demands of about 90 percent of the population in the towns of Titovo Uzice and Cacak by 1980, to provide adequate supplies of water to industry, and to extend the sewer networks in the two towns; third, to demonstrate the feasibility of low cost irrigation systems. 40. The components of the project designed to assist in the improvement of water resources planning and management and economic development in the Morava Basin would include the following studies: (a) A study of methods to accelerate economic development in three of the least developed regions in the Morava River Basin (Prokupulje, Leskovac, and Vranje) in order to identify and describe specific investment opportunities for projects and programs and to make recommendations for new policies, programs and projects in all sectors of the economy in the regions; (b) A study of measures to adjust to the flood hazards throughout the basin in order to mitigate property damage, improve land use and protect life in the Morava River Basin; (c) A study to develop a program to improve water quality in part of the Morava watershed, as a pilot project for the entire basin; and (d) Staff training for MRWCI. 41. The proposed water supply and sewage disposal systems for the town of Titovo Uzice would include: (a) A concrete arch dam (70 m high) on the Djetinja River; (b) A water transmission line from the main reservoir; (c) A water treatment plant; (d) Transmission and distribution pipelines; - 14 - (e) Pumping stations and distribution reservoirs; (f) A sewerage system; (g) Engineering services, including the final design for the future sewage treatment plar,t; and (h) Construction of offices and workshops. 42. The proposed water supply and sewage disposal systems for the town of Cacak would include: (a) A wellfield development 2 km upstream of Cacak; (b) Collector pipeline and balancing reservoir; (c) Transmission and distribution pipelines; (d) Pumping station and distribution reservoirs; (e) A sewerage system; (f) Storm drains to alleviate local flooding; (g) A water supply system development study; and (h) Engineering services, including the final design for the future sewage treatment plant. 43. In order to demonstrate the feasibility and economics of low cost irrigation schemes the project would include the construction, operation and monitoring of pilot irrigation schemes covering approximately 400 ha in the area of Milosevac and 200 ha in Aleksinac (see Map 11603). The Borrower 44. As noted in paragraph 33, institutional arrangements within the water resources sector in Serbia are in a transitional state. The water law enacted in July 1975 provides for the establishment of a new socio-economic entity, the Morava Region Water Community of Interest (MRWCI) to manage water resources in the proposed project area. However, pending the establishment of MRWCI, which is not expected to become fully staffed and operational before 1977, SWF has been selected as the borrower of the proposed loan. When MRWCI becomes fully established, when it has access to adequate financial resources, and when a manager and staff have been appointed, MRWCI would assume, on terms and condi- tions acceptable to the Bank, all the obligations entered into by SWF under the Loan Agreement (Loan Agreement Section 6.01(o)). Provision has been made in the proposed project for training future staff or expert groups engaged by MRWCI and it has been agreed that MRWCI would formulate a program for staff training for review by the Bank (Loan Agreement Section 3.04). - 15 - Project Execution 45. As a consequence of the fact that the proposed project deals with several aspects of the development of the Morava River Basin, many components of the proposed project would be under the operational responsibility of five different entities. SWF, and later MRWCI, would be the borrower and fiscal and coordinating agent for the proposed loan, but would be only directly respon- sible for the construcl:ion of the Vrutci Dam and the carrying out of the flood hazard and water qualil:y studies. The regional development study would be administered and partly financed by the Republic Fund for the Promotion of Development of Underdeveloped Regions (SFUR). For the towns of Titovo Uzice and Cacak, project components would form part of the investment programs for the enterprises operatlng water and sewerage services (Bioktos and Cacak Vodovod, respectively). The pilot irrigation studies would be the respon- sibility of the two cooperative agricultural enterprises in Milosevac and Aleksinac. For those components dealing with physical works, the Bank would enter into four separate Project Agreements with the four entities concerned: Bioktos, Vodovod, and t:he Milosevac and Aleksinac agricultural enterprises. The communal assemblies of Titovo Uzice and Cacak in their capacities as supervisory municipal authorities for Bioktos and Vodovod, respectively, are parties to the respective Bioktos and Vodovod Project Agreements. The separate administrative and financial arrangements for these four entities and SFUR are discussed briefly in sections below. 46. SWF (see paragraphs 32 and 44) was established in 1965 for the pur- pose of collecting and administering funds on behalf of the Republic for various aspects of river basin development. SWF has a management committee of 19, of which 6 are nominated by the Executive Council (i.e., Government) of Serbia and the remainder by various water enterprises. SWF has a full-time staff of only 10-12 people who are technical, economic, accounting, legal and administrative specialists concerned with the administration of its funds and it does not itself undertake operational or construction work. This staff would be increased to fulfill its responsibilities under the project. SWF's main operations are carried out under contract with various water management organizations, either for planning or construction work. General supervision of SWF's work is exercised by the Republic Executive Council. 47. Water Resources and Economic Development Studies: SWF would be re- sponsible for the studies concerning adjustments to flood hazards and water quality improvement. Implementation of the regional development study would be the responsibility of SFUR. Since SFUR is primarily a financial conduit through which funds are made available by the Republic for projects in the less-developed areas of Serbia, it does not possess an operational staff other than that needed for financial administration; therefore, technical assistance is expected to be provided to it, primarily by the Serbian Institute for Social Planning, which preparE-d the initial proposal. SWF and SFUR would engage ex- perienced and qualified consultants to undertake each study on terms and con- ditions acceptable to the Bank (Loan Agreement Sections 3.05(a) and 3.05(d)). The studies are expected to commence in 1977 and require the following periods for completion: adjustments to flood hazards - 30 months; water quality im- provement - 18 months; and regional economic development - 12 months. - 16 - 48. Facilities for Titovo Uzice: The Communal Enterprise "Bioktos"- Titovo Uzice (Bioktos) would implement the water supply and sewerage components of the project for the town of Titovo Uzice. Bioktos is an Organization of As- sociated Labor. It is operated on the principle of workers' self-management, as are all enterprises in Yugoslavia, but because it provides vital public services the workers share control of certain activities with the Titovo Uzice communal authorities. The town's communal assembly approves Bioktos'working statutes, work program, functional or organizational changes, appointment of manager and tariff rates. Bioktos is responsible for the water and sewerage systems of the commune, as well as for other municipal services including street cleaning, refuse collection, septic tank emptying and storm drainage. The administration of Bioktos is satisfactory. 49. The construction and operation of the Vrutci dam and reservoir would be the responsibility of SWF. All previous planning and the final designs currently underway for the dam have been prepared by the Jaroslav Cerni Insti- tute, Yugoslav consultants with limited experience in the implementation, as opposed to planning, of large-scale projects; therefore, SWF has agreed to engage suitably qualified and experienced consultants to assist in procurement and supervision of construction of the dam (Loan Agreement Section 3.05(b)). Because of the complexity of the thin concrete arch design of the dam, assur- ances have been obtained that a panel of highly qualified and internationally experienced engineers would be engaged to provide independent expert advice during the construction period (Loan Agreement Section 3.05(c)) and that acceptable consultants to the Bank would be engaged to periodically inspect the dam after its completion to ensure that operation and maintenance proce- dures are satisfactory (Loan Agreement Section 4.01(f)). 50. The Vrutci Reservoir will be operated to serve multiple purposes: supply of water for Titovo Uzice; release of flows downstream for industrial abstraction; augmentation of low flows for enhancement of river quality; and storage of flood waters. Consequently, detailed operating rules would be re- quired and agreement has been reached that such operating rules would be pre- pared before December 31, 1978 for review by Bioktos and the Bank (Loan Agree- ment Section 4.03). 51. Bioktos has been assisted by consultants in preliminary planning for its water supply and sewerage systems and it has recently strengthened its technical staff for project implementation, but further consultant assistance in the final design, procurement and construction supervision of the water sup- ply and sewerage systems and preparation cf the final designs for the sewerage treatment plant would be required (Bioktos Project Agreement Section 2.02). 52. Construction of the Vrutci Dam would begin in the fall of 1976 and it is expected to be completed by end 1979. Construction of the associated water supply facilties would begin by mid-1976 and are expected to begin operating at the end of 1979. Temporary facilities constructed and financed by Bioktos are expected to augment the water supply in the interim period. - 17 - 53. Facilities for Cacak: The Water Supply and Sewerage Enterprise Vodovod-Cacak (Vodovod) would implement the water supply and sewerage compo- nents of the project for the town of Cacak. As in the case of Bioktos, Vodovod is an Organization of Associated Labor, shiaring control of certain of its acti- vities with the town's, communal assembly. Vodovod is responsible for the water and sewerage system of Cacak and the town's stormwater system. Although over- all administration of Vodovod is satisfactory, medium and long-term planning in both technical and financial matters needs to be improved. Vodovod is con- sidering reorganization and would consult the Bank prior to undertaking any proposed reorganization (Vodovod Project Agreement Section 3.03). 54. Vodovod has been assisted by consultants in the preliminary design for most project facilities in Cacak, but separate consultants had been en- gaged by the local water economy enterprise associated with MRC for final designs of certain water supply facilities; these were related to the Semedraz Dam, the construction of which has been postponed and for which MRC would have been responsible. It has been agreed that Vodovod would have sole respons- ibility for all facilities in Cacak to be financed by the proposed Bank loan (Vodovod Project Agreement Section 5.05). Vodovod would engage consultants to assist in final designs, procurement, and construction supervision of the project facilities and for the final design of the sewerage treatment plant (Vodovod Project Agreement Section 2.02(b)). 55. The groundwater source to be developed in an unpoiluted water aquifer upstream from Cacak, together with an existing source, should meet Cacak's re- quirements until about 1984. To meet demand thereafter, several possible sources of additional water have been identified, including the Semedraz Dam. Consequently, Vodovod would engage qualified consultants to undertake a system planning study, on terms and conditions acceptable to the Bank, of future demands and alternative sources to determine an optimum development program. This study would be canpleted within 18 months from the date of the Loan Agree- ment (Vodovod Project Agreement Section 2.02(c)), and Vodovod and SWF would not undertake any investments for additional water source facilities for Cacak prior to the completion of this study (Loan Agreement Section 4.05 and Vodovod Project Agreement Section 3.04). 56. The groundwater facilities to augment Cacak's water supplies are ex- pected to begin operating by end 1976. Water supply and sewerage networks would be extended in phases throughout the project period 1976-1979. 57. Pilot Irrigal:ion Projects: Construction, operation and maintenance of both pilot projects would be undertaken by agricultural enterprises in Milosevac and Aleksinac. Preliminary feasibility studies have been undertaken by Yugoslav consultantS and reviewed by the Bank. In Milosevac, where land consolidation has already been carried out at the initiative of the farmers, the construction and operation of the pilot irrigation project would be under taken by the Milosevac Farmers' Cooperative. In Aleksinac, the commune has given assurances that a program would be authorized for land consolidation or - 18 - adjustment of farm boundaries within the project area and the Aleksinac Agro- Industrial Kombinat would implement the irrigation project (Aleksinac Proj- ect Agreement Section 3.03). Consultants would be engaged to assist in the final design, procurement and construction of the pilot projects. Appropriate arrangements also would be made with the Republic of Serbia's Secretariat for Agriculture to monitor, evaluate and disseminate the results of these projects (Loan Agreement Recital M and Section 7.01(g)). Project Cost Estimates and Financing Plan 58. The total estimated cost of the project is US$51.4 million. The es- timate includes duties and taxes (about 5 percent of project costs) and al- lowances for physical contingencies of 25 percent for the Vrutci Dam, 10 per- cent for water pipelines, and 15 percent for all other items. Price contingen- cies of about 12 percent per annum in the years 1977-79 have been provided. Project expenditures for the water supply, sewerage and storm water systems in Titovo Uzice and Cacak account for 91 percent of total project costs, includ- ing the Vrutci Dam which accounts for 27 percent of the total. The foreign exchange costs are estimated at US$16.2 million and include estimates of the foreign exchange component of internationally and locally bid contracts ex- pected to be won by Yugoslavs (see paragraph 66). Interest during construc- tion on the proposed loan would add an additional US$4.5 million in foreign exchange costs. Details of the cost estimates are shown in Annex III. 59. The proposed loan of US$20 million would cover about 36 percent of the estimated project financial requirements and 97 percent of the foreign exchange requirements, including interest during construction on the Bank loan. SWF would onlend the respective portions of the loan on the same terms as those of the Bank loan. The following table summarizes the cost estimates and financing plan for the project: Project Cost Estimates and Financing Plan SWF Bioktos Vodovod SFUR Milosevac Aleksinac Total (US$ millions) Project Requirements: Project Cost 16.61 18.68 14.28 0.51 0.81 0.55 51.54 Interest During Construction 1.31 1.58 1.38 0.06 0.08 0.06 4.47 Total Requirements 17.92 20.26 15.66 0.57 0.89 0.61 55.91 Sources of Funds: IBRD Loan 6.46 7.26 5.55 0.20 0.32 0.21 20.00 Other Funds Republic 8.60 0.37 0.57 0.40 9.94 Local 2.86 13.00 10.11 _ __89 25.97 Total Sources 17.92 20.26 15.66 0.57 0.89 0.61 55.91 - 19 - In addition to the Bank loan, the remainder of the financial requirements for the project would come from the Republic of Serbia (18 percent), and other local funds (46 percent). The bulk of such other local funds would be capital contributions from the communities of Titovo-Uzice and Cacak. The internal cash generations of the Bioktos and Vodovod enterprises provide the balance (Bioktos and Vodovod Project Agreements, Sections 4.04 and 4.03, respectively). 60. It has been agreed that the Republic of Serbia would provide or secure additional funds to meet any project costs related to those parts of the project to be carried out by SWF, SFUR, Aleksinac and Milosevac in excess of present estimates which the borrower would be unable to secure (Loan Agree- ment Recitals K and L, and Section 7.01(g)). For the Bioktos and Vodovod components of the project, arrangements have been made with a commercial bank to provide guarantees for any additional funds necessary to meet construction cost overruns (Loan Agreement Recitals G and I, and Section 7.01(h)). In ad- dition, the respective communal assemblies have agreed to provide or secure additional funds necessary to meet Bioktos' and Vodovod's construction costs in excess of present estimates (Bioktos and Vodovod Project Agreements, Sec- tions 5.01). Financial Performance 61. SWF. The majority of SWF's present funds come from the assignment by the Republic of a certain percentage of general taxes and from direct contributions voted periodically by the Republican Assembly. Certain direct sources of revenue related to water usage are also available to it. In order to administer the Bank loan for the entire project, including the re- lending of funds to the other participating enterprises, SWF would establish and maintain, in consultation with the Bank, adequate accounting arrangements. 62. Bioktos and Vodovod. To generate the funds needed for the project and future system operation (including an appropriate share of the Vrutci Reservoir operating and amortization costs) Bioktos would increase its tariffs by 50 percent in 1976 and in 1977, followed by annual increases of 40 percent in 1978, 1979, and 1980. Due to the difference in project costs, arising from the inclusion of the Vrutci Dam in Bioktos' system, Vodovod would require lower tariff rate increases to generate the funds needed for its project and future system operation. It would increase its tariffs by 20 percent annually frDm 1976 to 1979. In each subsequent year, after 1979 for Vodovod and after 1981 for Bioktos, tariffs would be set so as to ensure a contribution of not less than 30 percent from internal funds towards a three-year average of capital investment requirements (Vodovod and Bioktos Project Agreements, Sections 4.03 and 4.04, respectively). The respective communal assemblies in each town have agreed to approve Vodovod's and Bioktos' requests for tariff increases to meet the above requirements (Vodovod and Bioktos Project Agreements, Sections 5.02(b)). 63. Bioktos' and Vodovod's rates of return on average net fixed assets for water and sewerage services combined were each 9.3 percent in 1973 and 9.0 percent and 13.8 percent, respectively, in 1974, and are estimated to - 20 - average about 5.9 percent and 5.0 percent, respectively (on annually re- valued average net fixed assets), during the 1976-80 period and each would be about 4 percent in 1984. In both cases, these rates are reasonable in view of the fact that the projected internal cash generation of funds would be adequate and that a large portion of the fixed assets would have been financed by contributions from consuners, local enterprises and the respec- tive towns (implying increased local taxation) reflecting substantial local participation and local community sacrifice. 64. Bioktos' and Vodovod's debt equity ratios in 1974 were 7:93 and 17:83, respectively, reflect[ng their low levels of debt. With the increase in borrowing for the project, Bioktos' debt equity ratio would rise to 39:61 in 1981 and Vodovod's to 39:61 in 1983. Both Bioktos and Vodovod have agreed that, except as the Bank shall otherwise agree, they would not incur addi- tional debt unless their respective net cash generation before depreciation and interest exceeds 1.5 times their respective debt service in any future year, including debt service on the amount to be borrowed (Bioktos and Vodovod Project Agreements, Sections 4.05 and 4.04, respectively). 65. Pilot Irrigation Projects. In addition to the portions of the proposed Bank loan to be allocated to Milosevac and Aleksinac, the Republic of Serbia would make available counterpart funds to permit construction of works, provide working capital to cover operation and maintenance pending receipt of crop sales revenues and provide agricultural credit sufficient to cover the capital outlay of farmers to convert to higher yielding crops (Loan Agreement Recital L and Section 7.01(g)). Procurement and Disbursement 66. Equipment and materials contracts estimated to cost more than US$100,000 would be awarded after international competitive bidding (ICB), in accordance with the Bank Guidelines for Procurement. For the purpose of bid comparison, qualified domestic manufacturers of these goods would be given a margin of preference of 15 percent or customs duties, whichever is lower. Civil works contracts estimated to cost more than US$500,000 would be awarded after ICB. The other equipment supply and civil works contracts would be awarded on the basis of competitive bidding advertised locally, in accordance with local procedures which are acceptable. Local contractors are expected to win contracts for most of the construction work in the towns of Titovo Uzice and Cacak, but Bioktos and Vodovod will carry out minor works by force account (such as renovations and modifications to existing facilities or installing new pipes) using their existing staff and equipment. The total value of such works carried out by force account would be limited tc US$4.0 rillion (8 percent of the project cost). Most equipment supply and civil works con- tracts are expected to be won by Yugoslav firms. Retroactive financing from January 1976 is proposed for expenditures of about US$1.0 million which are expected to be incurred prior to loan signature (Loan Agreement, Schedule 1, Paragraph 4). - 21 - 67. The proceeds of the proposed loan would be disbursed as follows (Loan Agreement, Schedule 1): (a) 100 percent of foreign expenditures and 35 percent of contracts won locally (including disbursements of up to US$1.4 million on force account work for Titovo Uzice and Cacak) for all civil works and Equipment contracts. (b) 100 percent of the foreign cost of consultants, engineering services and training for MRWCI staff and 35 percent of the cost of local consultant costs. (c) 100 percent of interest and other charges on the Bank loan. Disbursements would begin in the last quarter of 1976 and be completed for the total project by December 1980. Audit 68. All participants in the project, even though they have somewhat dif- ferent accounting procedures, must follow the regulations and controls estab- lished by the Social Accounting Service (SAS), including the preparation of annual financial statements. The accounting procedures established by SAS for capital works projects are satisfactory. With Bank encouragement, the SAS started a program in January, 1974 under which its staff is being trained by foreign consultants in auditing methods consistent with modern auditing standards. The program is currently in its second phase in which additional SAS staff is being trained, under the consultants' guidance, by those who participated in the first phase. SWF, Aleksinac, Milosevac, Bioktos and Cacak gave the Bank assurances that the group of specially trained auditors would be asked to conduct their audits beginning with the accounts for the financial year 1976, or such other later year as shall be agreed between the enterprises and the Bank. Until such time, Bioktos and Vodovod, along with all other beneficiaries in the project would prepare separate annual finan- cial statements for project activities in a manner acceptable to the Bank and such statements would be audited by SAS. Justification 69. The major objective of the project is to improve the planning and management of water rEsources within the Morava region in order to overcome water-related problems and accelerate the economic development of the least developed areas in thE region. To this end, the water resources and economic development studies are designed to generate programs whose benefits are ex- pected to be substantial, though unquantifiable; these would include reduction of flood damage, siltation control, improved irrigation practices, improved water supplies and river pollution control. In the next five years, SWF and its successors expect to spend US$104 million on flow regulation structures in the Morava region and the decisions concerning these investments could be - 22 - greatly improved as a result of the recommendations of the studies concerning adjustments to flood hazards and water quality improvement, which together would cost less than 3 percent of the proposed five-year investment plan. SFUR invested approximately US$59 million in the period 1971-74 for projects to accelerate development in the lesser developed areas of Serbia. Similar financial assistance is expected to continue and as a result of the proposed regional economic study, such assistance would be directed more effectively towards economically sound projects. 70. A national objective in Yugoslavia, as well as in Serbia, is to assist small farmers to increase agricultural output and improve their standard of living. One method of accomplishing this in the Morava region would be to increase agricultural production through the use of low cost, supplemental irrigation schemes, the potential for which is considerable in the valley lands of the area. Preliminary information indicates that such schemes as the pilot irrigation projects in Milosevac and Aleksinac would be economically viable, providing rates of return of approximately 20 percent. The main benefit expected from these projects is the demon- stration to farmers and agricultural planners throughout Serbia that low cost supplementary irrigation schemes are technically feasible and econ- omically viable. This could lead to substantial benefits to small-scale farmers throughout the Morava region and Serbia in the future. 71. With the increasing concentration of people in urban areas in Serbia, generally along the river valleys and flood plains, a major constraint to future economic development in the Morava basin will continue to be the shortage of continuous supplies of water for people and industry. In both Titovo Uzice and Cacak, the industrial and domestic requirements for treated water exceed the available supplies. In Titovo Uzice additional supplies of untreated water for industrial processes must also be assured. In both towns existing facilities are inadequate, with less than 60 percent of the residents supplied by the water systems. With the expansion and improvement of the water supply and sewage disposal systems, adequate potable water would be available to 90 percent of the population and the threat of water-borne diseases would be significantly reduced. There would be a variety of bene- fits, including medical cost savings, increased productivity of workers, and savings on future septic tank expenditures. Both towns would become better places in which to live and work. Conventional economic analysis of the re- commended investments for Titovo Uzice and Cacak does not produce meaningful information because of the difficulty in quantifying these project benefits. However, for each town, the project facilities are the least cost solution to meeting the project objectives. PART V - LEGAL INSTRUMENTS AND AUTHORITY 72. The draft Loan Agreement between the Bank and the Republicki Fond Voda; the draft Project Agreement between the Bank and the Skupstina Opstine Cacak and Komnalna Organizacija Udruzenog Rada za Vodovod i Kanalizaciju - 23 - "Vodovod"-Cacak; the draft Project Agreement between the Bank and the Skupstina Opstine Titovo Uzice acnd Komunalno Preduzece "Bioktos"-Titovo Uzice; the draft Project Agreement between the Bank and Zemljoradnicka Zadruga "Milosevac"; the draft Project Agreement between the Bank and the Poljoprivredno-Industrijskl: Kombinat Alekslnac; the draft Guarantee Agreement between the Socialist Federal Republic of Yugoslavia and the Bank; the report of the Committee provided for in Article III, Section 4(ili) of the Articles of Agreement; and, the text of a draft resolution approving the above loan, are being distributed to the Executive Directors separately. 73. Provisions of the agreements of special interest were noted In paragraphs 44 through 67 of this report. Special conditions of effective- ness (Loan Agreement Section 7.01) are: 1. The execution and delivery of each of the Project Agree- ments on behalf of the respective signatories have been duly authorized or ratified by all necessary corporate and governmental action; 2. The execution and delivery of each of the Subsidiary Loan Agreements on behalf of the Borrower and Vodovod and Bioktos, respectively, and arrangements between the Bor- rower and SFUR, Milosevac and Aleksinac, respectively, to make such portions of the loan allocated to such entities available to them, have been duly authorized or ratified by all necessary corporate and governmental action, all such agreements and arrangements to be satisfactory to the Bank; 3. All local financing arrangements referred to in paragraphs 59 and 60 of this report have been completed and are in full force and effect; and 4. The Republic of Serbia has made arrangements satisfactory to the Bank for the monitoring of the execution of the pilot irrigation schemes. 74. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATIONS 75. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments May 6, 1976 TALE *A Pa4 1 4 YUGOSLAVIA - SOCIAL INDICATORS DATA SWEET YUGOSLAVIA REFERENCE COUNTRIES (1910) TOTAL 25S.8 MaST RECENT A5. L JI. 27s.a1 19170 ESTRMATE R6MANIA, REP SPAIN G0131sy, ?ED. VUP. GNP PfR CAPITA tushl 360.0 140.0 1010.0 n.a. /j 1Z60.0 4210.0 POPULATtnN AND VITAL STATISTICS POPULATION IMID-YR, MILLIONi) 18.4 20.4 21.0 20.3 33.6 60.7 POPULATION DENSITY PER SQU4ARE fl. 72.0 8O.o 82.0 85.0 66.0 240.0 PER SQAUARE KM. AMaC. LANC .. . 1145.0 VITAL STATISTICS 2. 96 1. CRunE BIRTH RATE PER THOUSAND 24.0 17.8 18.0 21. 19.t 13.4 CRUDf DEATH RATE PEP THOUSAND 10.0 8.9 8.7 9.5 8.5 12.1 INFANT MORTALITY RATE I/THOU) 68.0 55.5 43.3 49.4 21.9 23.6 LIFE FXPECTANCY AT BIRTH IYRSI 62.0 67.0a 68.0 68.6 71.0 70.3 GROSS REPRODUCTION RATE 1.3 1.3 1.3 0.9 1.4 1.2 POPULATION GROWTH RATE 48) 1.0 .1 1.0 TOTAL 1.2 1.1 1.01.1110 URBAN 6.0 4.6 .. 3.4 1.9 14.1 URBAN POPULAFION,I1 OF TOTALI 27.2 38.7 39.0 41.0 59. 1 82.14 AGE STRUCTURE IP(RCFNTI 0 (l1 14 YEARS, 31.0 26.9 j6 9 25.9 27.a 23.2 IS to 64 YEARS 63.0 65.1 &5.1 65.5 62.5 63.D 65 YEARS AND OViER 6.0 8.0 8.0 8.6 9.7 13.2 AGE UEPFNOENCR R4TIO 0.6 0.5 0.5 0.5 0.6 0.6 FCONOMIC DEPENDENCY RATIO 1.0 .. 0.9 0.l/g I.E 0.9 FAMILY PLANNING- ACCEPTORS ICUMULATIVE, THOU) .. . .. USERS It OF MARRItO WOMEN) .. .. .. EMPLOYMENT TOTAL LABOR FORCE ITHOUSANOI 8300.0 .. 8900.0 9900.0 11900.0 26500.0 LABOR FURCE IN AGRICULTURE 171 57.0 .. 45.0 49.0 24.8 8.9 UNEMPLOYEO IS OF LABOR FORCF) 7.0 /a .. 3.3 La . . 2.0 La 0.7 INCGHE DtSTRIBUTION Y OF PRIVATE INCCME RFC U BY- HIGHFST sxr OF H8JRHII/S 16.4 lb 15.1 ...6.3 lb HIGHEST 201 OF HErLDS 41 5 7w- 41.4 ** LnWSFT ZO OF HJDDsH0lS 6.9 7S 6 .6 *- 24.3 /c LOWEST 401 OF HoUsEHO L90 .4 *- *- *- OISTRISUTION OF LA4D CWNERSHIP I OWNED BY TOP 10OY noERs .. O RS. /b E COWNED SY SNALLEST lot OWNERS . 84.9 ..7. HEALTH ANI) NUTRITION POPULATIcN PER PHYSICIAN 1400.0 /a 1010.0 900.0 680. o 750.0 /b 580.0 POPULATION PER NURS INC PERSON 500.0 7 410.0 380.0 200.0 1430.0 350.0 POPULATIGN PER HOSPITAL dEn L90.0 /a 160.0 170. 0O 120.0 220.0 90.0 PEk CAPITA SUPPLY OF - CALGRIES 13 OF AEUUIREMENTSI 115.0 124.0 1ZS.0 118.0 107.0 12L.0 PROTEIN IGRAMS PER DAY) 91.0 92.0 94.0 92.0 81.0 88.0 -OF wHICH ANIMAL ANU PULSE 27.0 29.0 .. 28.0 40.0 56.0 UEATH RATE I/THOU) AGeS 1-4 4.7 /a 2.5 2.5 3.0 0.9 0.9 ECUCAT ION AnJuSTFD ENROLLHENT RATIO PRIMARY SCHOOL 96.0 94.0 96.0 112.0 131.0 117.0 /a SECCNOARY SCHOOL 34.0 45.0 48.0 146.0 57.0 45.o 7a YFARS OF SCHOOLING PROVIDED IFIQST AND SECUJND LEVEL) 12.0 12.0 12.0 14.0 13.0 15.0 VOCATIONAL ENPOLLMENI I7 OF SECONDARY) 12.0 72.0 74.o 58.0 /d 20.0 48.0/a ADULT LITERACY RATE (3) r7.0 65.0 U. 99.0 94.0 99.0 HOUS ING PFRSCNS PER ROOM (AVERAGE) 1.7 .. 1.3 1.3 /a .. 0.7/b OCCUPIEO DWELLINGS WITHOUT PIPED WATEP (3) .. .. 66.0 b 89.0 /e!. . 0.3/ ACCFSS TO ELECTRICITY (I OF ALL DWELLINGS) 55.0 *- 88.0 49.0 /e *- 100.0 RIIRAL DWELLINGS CONNECTED TO ELFCTRICITY 48) 36.0 .. 80.0 27.U le CONSUMPTION IRAUDO RECEIVERS (PER THOU POCP" 84.0 163.0 176.0 152.0 214.0 31d.0 PASSENGER CARS (PER THOU POP) 3.0 35.0 54.0 .. 70.0 223.0 ELECTRICITY IKwH/YR PER CAP) 529.0 1288.0 1570.0 1615.0 1627.0 4128.0 NEWSPRINT 1KG/VR PER CAP) 2.3 4.3 3.5 2.6 5.8 17.5 SFE NOTES AND DEFINITIONS ON RIEVFRSE Pap 2 of 4 pagea Unles n othezeiao noted, data for 1960 refer to any year between 1959 and 1961, for 1970 between 1968 end 1970, end for Most Recent Estimate between 1971 end 1973. - Sele-tion of Jedesmi Repblic of Ge-mecy As en objective country is beaed on the close eoomic ties caintainod by the two countries, as well as on the fact that the greater pert of YugolalAial 'sAround one millio workers temporarily abroad have found eaployment in the Federel Republic of Germany. rUOOIAVIA EL ag1962i Lk 1963; Zg, Including midwivo end midwifery, end nursing cuxelaries. IE Z 1966-67i 4k Agriculture land held by Social Sector Kombinats; /. Agriculture lend held by prisate smell- holders. MST CZHT KSTIMATIo La RAtio of registered job seekers to active population; /b Government hospitals only; /c Water piped inside. 82MvaRA 12O / The calculation of theme fipree in under discussion; based on information supplied by the Rocsnien Oc-eonet, end using a currency convrsion rate of 20 isi to the US$, the per capita GNP would enount to $890 for 1973, end the preliminary estimate for 197h would be $910. These figures are, however, not strictly co-parable with those for other reference countries, Ls presented herel & Percent of salaried workrsm earning sor then 2, 500 tel; /, Percent of salaried wor-kers searning loes then 1,100 Iai; Ld pull-tine education onlyl /s 1966; If Piped water inaide only; ag Ratio of population under 15 end 65 and movr to total labor force. SPuN 1970 /a Registered unemployed; /b Registered, not all practicing in the couatry'. CZRMAn. 115. REP. 1970 La Includes the relevent date relating to Berlin for which sepamate data haer cot been supplied; /b Total, urban end rurl;I / inside only. 8L12, May 3, 1976 DEFINITIONS OP SOCIAL IRDICATORS Land Ace. (thou he I Ocatlo" r mursiti ceon - population divided by nicber of pra-ti- Total - Total surface are comprising land eras and inland wtaters cPOg. mleltsd fel grdute nurses, 'trained" or "certified" curses, Anric. - moot recas.t estitate of agricultural area used tnporerily or pot- end auxiliary porsonnel with training or esporieoce. emaently for crope, pastures, mkarkt & kitchen, gardena or to lie fallow Population Fee h-piastl bed - Population dividcd by number of hospital beds available in public aod private gener-l and opeialiced hoopita1 GRP gar capita (UiS$ - IMP pertapita estimates at market Prices, calculated and rehabilitation centers; excludes nursing hones and est.blisheects by sam conversion method as World Bank Atlas (1972-74 basis). for custodial cod preventive care. Per capita supply of calcries 1 of requirenenta) - Conputed fron PpoplatIon acd vita sttistics ene rgy squiv-lot of not fond supplies -vilable in country par 'onulatie (md:-yr mlliona - As of July first; if cot -viloble, -orogc capita per day; -valblab ouppliea conpriss doneetic production. of tws sod-year estimates, imports I..a exporto, and changes in stock, net supplies e-clude animal feed, needs, qusotitien used in fond processing and lossin Ppoplation density - per square be - Mid-year population per square kilo- distribution; requirinenots were eotimated by FAO based on physio- meter (ISO hectares) of total area logical needs for normal activity end health considering environ- Ppoplation deons ty - per square ko of acrlc. land - Computed as shows for meotal tmperature, body weights, aga and sea distributions of agricultural land only. population, and all1wing 107. for wears at household lsvel. Per capita supply of pr.tein icran pur day) - Protein content of pot Vital satistiics capita,net aupply of fond por day; net supply of fond is defined as Crude birch rate cur thousand - Annusl live birth. per thsuund of mid-year above ; requiromento for all coutries establiahed by USDA Econonic population; usually five-year -vrages coding is 1960, 1970 and 1975 fsr tesearch Services provida for a ainio ol11usoe of 60 gram of de-sloping countries, total pr.tais per day, and 20 gram of animal ad pubs protein, of Crude death rate par thouaand -AOnnuaI deaths per thowasd of mid-year which 10 grams chould be aninal protein; the.se tandards are lowr population; usually five-year averages ending in 1960, 1970 and 1975 for than those of 75 grams of total protein and 23 gram of animal developing countries, protein as an average for the world, propesed by P60 In the Third Infant mortnldity rate r(thou) - Annusl deaths of infants u-der ons year of age World rood Survey. per thousan live birhs per capita pr.t.in uol fro anma nsd pulse - Protein supply of food Liesnoutency at birth (Yre) - A-erce number of years of life reaaIning deie ro nmlsadplesi rmsprdy at birth; usually five-yer -ercga.e ending in 1960, 1970 and 1975 for Death rate i/thou) ace 1-4 - Annual deaths per thousand in age group develsping countries. 1-4 years, to children in this sge group, suggested 1 an indicator Crone reproduction rate - Average number of live daughtere a womn will hear of malntrition. in her norma reproductive period if she enperiences present ges-epecii fertility rate. , -sualy five-yea --erges ending in 1960, 1970 and 1971 Education for develsping netries. Adbsted enrollent ratio - primary school - Enroll1ent- of all ages as opLatio grouth rats t!t- na - Compmsd annual growth rates of mid-yar percentage of primary school-age population, includes children aged Popultinfine 1906 60-70, end 1960 to mont recent year. 6-11 years but adjusted for different lengths of primcry education; Population 'arowth rats ('15 urban - Conputed like growth rate of total fsr countries with usiveroe1 education, enrolment may exceed 1001 population; different definition of urban areas may affect comparability sinc som pupil ar ho or above the official school age. cf data among coutries. Aldjusted'enrollment aratio- aecondar shonl - Computed aa above; Urban population (. of total) - Ratio of orban to total population, diffe- secondary education requires at lean.t four years of approved primary reot definitions of urban areas may affect comparability of data among instruction; provides general, vocational or teacher training coutries. instruction. for pupils of 12 to 17 years of age, correspondence Age trut, rrcnt)- Children (0-14 years), working-age (15-64 years), courses are generally eacloded. and retired (5 years and over) a. percentages of mid-year population. Years ofiZcoolins nro,,ided (first and second levelsl - Tsta1 years of Axe dependency ratio - istic of population under 15 and 65 and over to these schooln ; at seodary lovel, vocational instruction1mey be par- of ages 15 through 6.4, tially or coupletety e.ciuded. Econonic dependency -ans - Ratio of population under 15 and 65 and over to Vocational enrollment ('1 of secondary) - Vocational institutions~ the labo force Inage groupZ.of 1-4yars include technical, industrial or sther program which, operate inde- famiy Plemis - ccetors(cuulatve,thou C-CmlatIve number of pendently or as deparctuet ofaeonay institution.. acceptors of birth-control devices under auspices of national famitly plan- Adult literacy rate ('1) - Literate adults (able ts read and write) as ning program selce inception. p.erctage of total adu1Lt PoPulation aged 15 year.ansd over. Famil slnig-uersn ftofmarred wince -Prcentages of married nwome of chtidHarn ag 1-4yas h secbirth-cotrol devcst osn .ll cuarried unoun is same age group. Pe,rsons our room(average) - Average number of persons er ron in ocuid covntoa deling in urban areas. dwellings eclude tonloyonot non-permanet strutures and unoccupied parts. Total labofrc thouaasd) Econonical1y active persons, including armd Occuieddelnswtotppdwtr(. cutdcnetoa forcs ad nemplyedbutecclnding housewive, students, etc. ; defini- dwligsi rbnadua aeas without Inside or outside piped Ltinse in various countries are not conprable. water facilities a. percentage of all occupied dwellings. Lbor force in agriculture ill - Agricultural labor force (is farming, Access to electriit (7 fal wllns - Conventional dwellings forstry hutn ad fishing) .o percentage of total labor force, with electricityinlvg qu rteraspcetotoldwlig Unemployed C7. of labor forc.) - Unemployed are usually defined as persns in urban and rural areas. who are able and willing to take a job, out of a job on a give day, coral dw 1"ellg onced to electricity (%) - Computed as above for remined cut sf a job, and seeking wsrk for a specified moiniu periodruadwlig ony not exceeding one week; ney not he comprable between countries due to dIfferent definitions of unouplsysd and source of data, e.g., employment Consumption office ettiatico, ouPle suvy,compulsry uneplcyment insurance. Rladio rece:ivers four thou P-P) - All types of receivers for radio bresdcsts to gersl public Per thousand of population; ...cIndeo Scne disttribution - P.erctage of private incon (both in cah and kind) unlicensed rece ive re in counries and in years when registration of received by richest57., richest 207., pooreet 20%, and poorest 40% of radio sets wsa is sffect; da ta for rdecant years may not be Coomper- households, able sice most countrins abolished licensing. P .. eager cars (per thou pop) - Psa..enger cars comprise mtotr cars, Distribution of land ownerhip - Percentges of lacd owned by welthiest seating le.. than eight persona; excludes ambulances, hearses and 10%X and poru 0.o and owners, military vehicles. Electricity (kwhn/yr. ourcant - Annual consumption of industrie1, con- Health and Nutrition ourcial public edpIvae electricity in kilowatt hour per Psnultich our physician - Population divided by comber of practicing capita; geo-rally based on production data, wihout allowance for pyiians qualified from a medical school at university level, lessen in grids but cll1wing for imports and exports of electricity. Newnprlnt (kg/yr our caS Per capita annual cosuption in kilogrgam estimated from d rscaic production Plus net imports of newsprint. ANNEXI Page 3 of 4 ECONOMIC DEVELOPMENT DATA (Amo-ats is Millio US Dollars) 3/ Actual I/ Projected NATIONAL ACCOUNTS 1972 1973 197C 19752/ 1976 1965-72 1972-75 1973-76 1972 1974 1976 Constant 1974 Prices god Eachange Rate of 81=17.0 Din. AveraRe Annual Crouch Bates As Percent of CDY Gross Doentic Predunt 21,638 22,720 24,765 25,887 27,033 5.6 6.2 6.0 97.8 100.0 100.6 GCins from Terms nf Trade (+) +468 +681 - -175 -150 2.2 - 0.6 Gross Domestic Income 22,106 23,401 24,765 25,712 26,884 5.5 5.2 4.7 100.0 100.0 100.0 Imports (incl. NTS) 6,588 7,60C 8,312 8,036 8,216 12.6 6.9 2.6 29.7 33.6 30.6 Exports (iecl. N'S) 5.437 5.780 5.694 5.678 6.187 8.8 1.5 2.3 24.5 23.0 23.0 Resource Cap 1,151 1,812 2,618 2,358 2,029 Cesonsption Enpanditures 16,139 17,710 19,953 20,151 20,639 6.7 7.7 5.2 73.0 80.6 76.8 Investment Enpenditures (inl. stocks) 6,650 6,811 7,429 8,095 8,424 6.0 6.8 7.3 30,0 30.0 31.3 Notional Savings 6,904 6,80t. 6,241 7,169 7,756 6.6 1.3 4.5 31.2 25.2 28.8 Domestic Savinis 5,499 5,00e 4,812 5,736 6,394 3.1 1.4 8.5 24.9 19.4 23.8 MERCHANDISE TRADE Annual Iota At Current Prices As a Pereentooc of Total Imports Capital Goods 688.6 1003.1: 1306.0 1909.5 2132.3 Pctrole-m 82.5 219.1: 681.2 730.9 818.4 21.3 17.4 23.6 Intermediate Coeds 1953.9 2589.3 4560,8 4659.8 5268.8 63.1 69.7 67.5 Consumption Poods 502.3 698.3' 970.0 792.3 798.3 15.6 12.9 8.9 Total M-roh. Imports (c.i.f.) 3227.3 4510.:' 7518.0 8092.5 9017.8 100.0 100.0 100.0 Exports Capitol Goods 316.1 389.1 514.0 655.0 776.9 14.1 13.5 16.0 Toxtile end Leather Products 382.4 409.:! 477.0 548.0 650.0 16.2 12.5 13.4 One-Fr..us Mctiiurgy 272.0 324.', 556.0 458.0 585.1 12.2 14.6 12.1 Agricultural produee (innl. food) 476.0 621.1, 604.0 503.0 591.2 21.3 15.9 12.2 Other 810.7 1107." 1654.0 1824.0 2248.3 36.2 43.5 46.3 Total Merch. Eports (f.o.b.) 2237.2 2852.c; 3805.0 3980.0 4851.5 100.0 100.0 100.0 MERCILkDISE TRADE INDICES 1974=100 Enport Prcco Idc 63.0 76.') 100.0 107.0 108.0 Inport Price Ioden 58.0 68.') 100.0 111.0 121.0 Terms of Trade Index 109.0 112.0 100.0 96.0 98.0 Elpert VOltm loden 93.3 98.4 100.0 100.0 110.0 VALUC ADDED BY SECTOR Annual Data is Censtant 1974 Prices and Enchasege Rate of $1-17.0 Die. As Peccentace of Total Agricelture 3213 3496 3765 3727 3876 2.7 5.1 3.5 15.6 16.0 15.1 Mas.factucrig & Mining 6374 6712 7471 7930 8379 6.6 7.6 7.7 31.0 31.8 32.6 Other 10956 11362 12276 12927 13418 5.4 5.7 5.7 53.3 52.2 52.3 Total 20543 21570 23512 24584 25873 5.3 6.2 6.0 100.0 100.0 100.0 PUBLIC FINANCE Current Prie.s As Perceet of GDI/Mnket Prices Current Receipts 2772.0 3489.2 .. .. .. .. .. .. 17.5 . Current Eenditures 2520.8 3154.8 .. .. .. .. .. .. 1.6 Budgetry S-viegs 251.2 334.2 .. .. .. .. .. .. 1.6 Public Sector Invest-ent 224.9 281.3 .. .. .. .. .. .. 1.4 :K/ ~~~~~~~~~~~~~~~~~VALUE ADDED PER WORKER (CONSTANT 1974 PRICES AND EXINANCE LABOR FORCE AND OUTPLT PER WORKER 1974 I l TOTAL LABOR FORCE RATE OP 51=17 0 Din.) EX-7' In Millions % of Tate) 1972-74 In US Dollars Percen.t of A-ergor 19______ 6/ 1972 1974 1972 1974 Average Annual Gro6th Rats 1972 1974 1972 1974 A-crage Annual Grovtl. kate A.gricul ture 3.9 3.8 47.8 45.0 -1.9 823 1003 32.7 35.6 10.4 Manafacturing and Mining 1.6 1.7 19.1 20.4 4.3 4075 4395 162.1 155.8 3.9 Other 2.7 2.9 33.1 34.6 3.2 4050 4258 161.1 150.9 2.5 Total 6/ 8.2 8.3 100.0 100.0 1.0 2514 2821 100.0 100.0 5.9 j/ Preliminary. 2 Estimate. 3/ Figures may net add ecactly due tc rounding. F/ Pderctsen, Republics and Aut-naes Provinces. and Ceao-me; figures cannoi be projected b.causa of the far amachirg affects of the nme( tomatitutei me the role of h.e lS.e, ad the nice of its budget. 5/ Total resident active labor force. 6/ Labor force tn agriculture and non-agricultural private employment, and, accordingly, total employment economy are estimates. Esrope, IMiddle East 6 North Africa Region February 12, 1976 ANNEX I Page 4 of 4 BALANCE OF PAYMENTS AND EXTEP.NAL ASSISTANCE AND DEBT Average Annual Actual Estimated Projccted Growth Rates 1972 1973 1974 1975 197&, 1972-75 SUMMARY OF bALANCE OF PAYMENTS Exporto (ecl. NFS) 3425 4407 5694 6088 7319 21.1 ImPorts (incl. NFS) 3821 5168 8312 8891 9961 32.5 Resource Balance (X-NH) -395 -761 -2618 -2803 -2642 Interest -165 -222 -285 -305 -407 22.7 Worker. Re-crLo-ces 889 1310 1511 1700 1926 24.1 OLher loctor ervices net 17 50 93 70 - 60.3 Current Transfers (.et) 74 87 110 120 132 17.5 8alaece on Current Account 419 4S4 -1189 -1218 -991 1/ .L MALT Lue-e Disb-rsoneort 943 1170 1426 2101 2449 30.6 -Repayments -570 -686 -814 -1106 -1279 24.7 Net Disbursements 373 484 612 995 1170 38.7 Gopitol Transactions e.e.i.- -117 -285 139 320 - Uce of-Reserves -675 -663 438 -97 -179 Actual 2/ Estimated C8ANT AND LUAN COHMITTIENTS DEBT AND DENT SERVICE 1972 1973 1974 1975 Officoal Grants 6 Grant-like - - - - Public Debt Out. & Disbursed Poblic NhLT Looas Interest en Public Debt 63.1 96.4 102.6 114.5 1SRD 75.0 104.9 256.5 - Repayments no Public Debt 154.1 208.0 288.1 313.3 IDA - - - - Total Public Debt Service 217.3 304.4 390.7 427.8 Other Moltilaterl - - - - Other Debt Service (net) 634.5 722.6 821.4 975.1 Gov-r-meots 182.9 175.0 612.7 _ Total Debt Service (net) 851.8 1027.0 1212.1 1502.9 Suppliers 82.3 3.1 .6 - 4/ F-nancial Institutions 142.0 19.4 367.5 - Burdes on Export Earnisgt(%) Bonds - - - Public Loans n.e.i. - - - - Public Debt Services Ratib 5.0 5.3 5.4 5.5 Total Public MOLT Leans 482.2 302.4 1237.3 Total Debt Service Ratio 19.7 18.0 16.8 19.3 TDS - Direct Investment Inc. - - - - Actual Debt Outstanding on Dec. 31, 1974 EXTERNAL DEBT Disbursements Only Percent Average Terms of Public Debt World Bank 424.6 19.9 IDA - - Int. as % Prior Year L'O&D 4.7 5.9 5.4 5.4 Other Multilateral 6.9 .3 Amort as 7 Prior Year DORD 11.4 12.8 15.1 14.7 Governments 1149.7 53.8 Suppliers 143.6 6.7 IBRD Debt Outs. & Disbursed Financial Institutions 392.5 18.4 " as % Public Debt OD 19.5 18.4 19.9 - Bonds 19.0 .9 "as % Public Debt Services 14.7 12.6 11.3 11.6 Public Debt nc.i. .3 2136.6 100.0 Other MALT Debts 2833.2 Short-term Debt (disb. only) - 1/ Includes direct forecgu investment. 2/ Includes errors and ommissions, short term loans, net export credits, IMF account, Nationsl BHak and Conme,rcial Rank Credits. 3/ Figures on debt service do not correspond with balance of payments figures due to differences in coverage. 4/ Includes workers remittances. Europe, Middle East 6 North Africa Region February 12, 1976 ANNEX II Page 1 THE STATUS OF BANK GROUP OPERATIONS IN YUGOSLAVIA A. STATEMENT OF BANK LOANS (as at March 31, 1976) US$ million Amount (less cancellations) Number Year Borrower Purpose Bank Undisbursed Fifteen Loans fully disbursed 434.7 657 1970 Yugoslav Investment Bank Telecommunications 40.0 0.2 751 1971 SFRY Roads 35.0 0.4 752 1971 Hotel "Bernardin", Piran Tourism 10.0 3.6 777 1971 SFRY Multipurpose Water 45.0 34.7 782 1971 "Babirm Kuk" Hotelsko Turisticki Centar,Dubrovnik Tourism 20.0 9.9 836 1972 Twelve! Electric Power Enterprises in Yugoslavia Power 75.0 23.1 894 1973 Stopanska Banka, Skopje Agricultural Industries 31.0 12.3 916 1973 Naftagas Gas Pipeline 59.4 24.8 947 1973 Kikinda Iron Foundry 14.5 4.3 965 1974 IMT Tractor Factory 18.5 1.5 966 1974 FOB Iron Foundry 15.0 8.5 990 1974 Bosnia-Herzegovina Road Funds Roads 30.0 4.4 1012 1974 Stopaaska Banka, Skopje Industrial Credit 28.0 22.2 1013 1974 Privredna Banka Sarajevo Industrial Credit 22.0 18.6 1026 1974 Commuaity of Yugoslav Railways Railways 93.0 76.3 1060 1974 Port of Bar Harbor Expansion 44.0 43.8 1066 1974 Vodovod Dubrovnik Water Supply and Wastewater 6.0 6.0 1129 1975 Vojvodjanska Banka Agricultural Credit 50.0 50.0 1143 1975 Republic Road Organization in Slovenia, Montenegro and Serbia Roads 40.0 40.0 1173/a 1975 Jugoslavenski Naftovod Pipeline 49.0 49.0 Total (less cancellation) 1160.1 433.6 of which has been repaid 136.3 Total now outstanding 1023.8 Amount sold 7.8 of which: Amount repaid 6.2 1.6 Total now held by Bank 1022.2 Total undisbursed 433.6 /a Not yet effective. ANNEX II Page 2 B. STATEMENT OF IFC INVESTMENTS (as at March 31, 1976) Type of Amount in US$ million Year Obligor Business Loan Equity Total 1970 International Investment Corporation Investment for Yugoslavia Corporation - 2.0 2.0 1970 Zavodi Crvena Zastava Fiat S.P.A. Automotive Industry 5.0 8.0 13.0 1971 Tovarna Automobilov in Mororjev Automotive Maribor (TAM)/Klockner-Humboldt Industry 7.5 2.1 9.6 Deutz A.G. (KHD) 1972 FAP-FAMOS Belgrade/Daimler Automotive Benzz A.G. Industry 12.7 2.7 15.3 1972 Sava/Semperit Tires 4.0 1.5 5.5 1973 Belisce/Bell Pulp and Paper 13.3 - 13.2 1974 Zelezarna Jesenice/ARMCO Special Steel 10.0 - 10.0 1974 Salonit Anhovo Cement Plant 10.0 - 10.0 1975 Rudarsko Melaturski Steel 50.0 - 50.0 Total Gross Commitments 112.5 16.3 128.8 less cancellations, terminations, repayment and sales 57.8 2.2 60.0 Total commitments held by IFC 54.9 14.1 68.8 Total Undisbursed 36.6 5.8 39.4 C. PROJECTS IN EXECUTION 1/ Loan 657 Telecommunications: US$40.0 million Loan of February 20, 1970; Effective Date: August 30, 1970; Closing Date: March 31, 1976. After initial delays the Bank-financed part of the project is pro- ceeding satisfactorily and is now nearing completion. The installation of trunk exchanges which are not financed by the Bank, has been delayed and will be fully completed shortly. We are in communication with the borrower with respect to the undisbursed balance of $200,000. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with under- standing that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. ANNEX II Page 3 Loan 751 Fifth Highway: US$35.0 million Loan of June 18, 1971; Effective Date: June 2, 1972; Closing Date: December 31, 1977. After an initial delay of about eight months in fulfilling the con- ditions for effectiveness of the loan, construction work on all sections has progressed well. All road sections but one are open for traffic. Completion of the remaining section has been delayed due to lack of funds. While costs have increased, future earmarked revenues from fuel taxes, particularly on purchases of fuel by Italian motorists crossing the border to buy cheaper fuel in Yugoslavia, have decreased. The final section is now expected to be completed by September, 1977. Loan 752 Bernardin Tourism: US$10.0 million Loan of June 18, 1971; Effective Date: May 31, 1972; Closing Date: June 20, 1977. There have been delays in implementation of the project due to delays in making the loan effective, appointing consultants, providing the necessary infrastructure and approvals by local authorities. As a result disbursements are behind schedule. Bids received in July 1974 indicated that the project, if it were to be implemented as originally envisaged (2,500 beds) would cost approximately 100 percent above the originally estimated cost of US$25.6 million. This increase was mainly due to rapid inflation in construc- tion costs. The Bank and the project sponsors have agreed to finance a re- duced complex containing some 1,616 beds (Amendment to Loan 752-YU, December 16, 1974, R74-258). The total cost would be US$39.9 million requiring addi- tional financing of about US$14 million. Financing for the revised project has been agreed upon. The port hotel is scheduled for pre-opening occupancy in April, 1976 and the village hotel complex is scheduled to open in May 1976; however, serious construction problems with regard to the foundations were encountered in the case of the cliff hotel, the completion of which has been delayed until October, 1976. Loan 777 Ibar Multipurpose Water: US$45.0 million Loan of June 20, 1971; Effective Date: May 31, 1972; Closing Date: December 31, 1976. The start of project work was delayed for one year. Construction is now underway with the main dam scheduled for completion by late 1976. A small part of the irrigation network has been completed with the remainder expected to be completed in 1'78. Project costs have been above appraisal estimates but the overrun financing is being provided by the Province of Kosovo. Delays have been encountered in the arrangements for boundary adjustment and agricul- tural extension servLces. Consultants have been recently engaged to help find solutions. ANNEX II Page 4 Loan 782 Babin Kuk Tourism: US$20.0 million Loan of July 21, 1971; Effective Date: June 12, 1972; Closing Date: July 31, 1977. There have been delays in the implementation of the project due to delays in making the loan effective and in mobilizing consultants. Ac- cordingly disbursements are behind schedule. Although these problems have now been largely resolved, the project is almost two years behind schedule. Bids for civil works and estimates for other components indicated that the project would cost at least twice as much as originally estimated (US$49.9 million). This increase is largely due to rapid inflation in construction costs. The Bank and the project sponsors have agreed to finance a reduced complex containing some 2,034 beds (Amendment to Loan 782-YU, December 16, 1974, R74-259). The total cost would be US$51.5 million requiring additional financing of about US$1.6 million. This additional financing for the revised project has been arranged but in light of the increased financial commitments necessary from the local banks and a re-evaluation of the financial capabilities of the sponsor necessary to implement a project of this size, the local banks and the Borrower have proposed and are discussing with the Bank a change in sponsorship. This proposed change in sponsorship will be submitted to the Executive Directors for their consideration after being fully reviewed by the Bank. Meanwhile, construction is proceeding well and all civil works are near completion. The hotels are scheduled to open in June, 1976. Loan 836 Power Transmission: US$75.0 million Loan of June 23, 1972; Effective Date: December 29, 1972; Closing Date: June 30, 1977. Project execution began about one year behind schedule mainly be- cause of coordination difficulties and inherent delays in reaching agreement among 12 borrowers. This is the first attempt at countrywide coordination in the sector. All main contracts have been awarded and construction is proceeding satisfactorily; however, the cost of the project has increased 84 percent from $225 million to $415 million chiefly due to escalation in overall costs, including both civil works and equipment. The cost overrun is expected to be financed from funds from the Federal Republic of Germany and the borrowers' own resources. Action on appointment of management con- sultants to help improve planning operation and management of the inter- connected power system is still pending. Early difficulties with reporting, changes in the organization of the sector, and determination of the financial performance of individual borrowers have largely been resolved. Loan 894 Agricultural Industries (Macedonia): US$31.0 million Loan of May 25, 1973; Effective Date: November 28, 1973; Closing Date: December 31,1978. Sub-projects accounting for all but Din 7.75 million ($430,500 equivalent) of the amount allocated have been approved by the lending insti- tution. Private sector demands for sub-loans have by far been in excess of financing available under the project. Twenty-one sub-projects have been ANNEX II Page 5 completed and eighteen are under construction in the social sector. Of the three studies encompassed by the project the one on irrigation has been completed while the other two on marketing and private farm production are in the final draft 3tage. Loan 916 Naftagas Pipeline: US$59.4 million Loan of June 25, 1973; Effective Date: March 22, 1974; Closing Date: June 20, 1977. Bids received on pipes and equipment exceeded appraisal estimates and civil works costs have increased so that project costs are now about 71 percent above the appraisal estimate. Accordingly the project has been re- defined. Phase I is a reduced version of the original plan. Phase II would provide for a pipeline extension to link up with the pipeline to be con- structed under the proposed Sarajevo Air Pollution Control Project, for which additional Bank financing will be proposed. Naftagas has obtained additional local currency financing required for Phases I and II. The pro- posed change will be submitted to the Executive Directors for their con- sideration. Loan 947 Kikinda Iron Foundry: US$14.5 million Loan of November 30, 1973; Effective Date: May 28, 1974; Closing Date: March 31, 1978. Effectiveness was delayed about five months due primarily to the extra time required for the ratification of the Guarantee Agreement by the Federal Assembly. Project implementation is about four months ahead of schedule. Total project costs now are about 13 percent (Din. 79.0 million, about US$4.6 million equivalent) above appraisal estimates due to large in- creases in local costs. Financing of this cost overrun has been arranged with a local bank. Loan 965 IMT Tractor Factory Expansion: US$18.5 million Loan of February 22, 1974; Effective Date: June 11, 1974; Closing Date: December 31, 1977. The factory was officially inaugurated on March 7, 1976. Completion work on minor portions of the project, however, is continuing. Loan 966 FOB Iron Foundry: US$15.0 million Loan of February 22, 1974; Effective Date: May 28, 1974; Closing Date: December 31, 1977. There presently is a 3 month delay in project implementation but completion is expected to be on schedule. Local costs are about 27 percent (Din. 173 million, about US$10.0 million equivalent) above appraisal estimates due to design changes and domestic inflation. Financing of this local cost overrun has been arranged with a local bank. Loan 990 Sixth Highway: US$30.0 million Loan of May 31, 1974; Effective Date: December 10, 1974; Closing Date: December 31, 1977. Two out of six road sections are complete and the remainder should be completed by the enc of 1976. Two requests for changes in road align- ments have been agreed; both changes were requested to accommodate communi- ties which would be better served by the realignments. ANNEX II Page 6 Loan 1012 Macedonia/Kosovo Industrial Credit: US$28.0 million Loan of June 21, 1974; Effective Date: December 19, 1974; Closing Date: December 31, 1978. It is expected that the loan would be fully committed by September 1976 and disbursed by end-1977, ahead of appraisal estimates. The reasons being: use of Bank funds to finance a greater than anticipated proportion of the foreign exchange requirements of projects financed by the banks; the suitability of Bank funds for investors' projects and the overall scarcity of investment resources in Yugoslavia; and the banks' ability to adapt quickly to the methodology proposed by IBRD for appraisal of projects submitted for Bank financing. Loan 1013 Bosnia Herzegovina/Montenegro Industrial Credit: US$22.0 million Loan of June 21, 1974; Effective Date: December 19, 1974; Closing Date: December 31, 1978. The note under Loan 1012 above applies also to this loan. Loan 1026 Fourth Railway: US$93.0 million Loan of July 10, 1974; Effective Date: February 12, 1975; Closing Date: December 31, 1977. The project consists of the 1974-76 slice of the railways' invest- ment plan. After serious delays in 1974, project execution improved sub- stantially in 1975 but remains somewhat below appraisal forecasts. Delays have been due principally to financial difficulties. Government and the Community of Railways are having difficulties in raising tariffs sufficient to cover inflationary costs and the Bank is currently reviewing this matter with the Government. There has been good progress on investment planning and project management. Loan 1060 Port of Bar: US$44.0 million Loan of December 11, 1974; Effective Date: June 13, 1975; Closing Date: June 30, 1978. In general the Project is progressing well, but settlement of com- pensation to occupiers of expropriated land and construction of alternative housing must be accelerated to enable the construction of the railway mar- shalling yards serving the new port facilities in due time. The Bank con- tacted the Government of the Republic of Montenegro which has intervened in this matter. Loan 1066 Dubrovnik Water Supply and Wastewater: US$6.0 million Loan of December 24, 1974; Effective Date: June 26, 1975; Closing Date: December 31, 1978. Preliminary works are underway, and services to the Bank financed Babin Kuk hotel complex (Loan 782-YU) will be finished in time for the initial operation of the hotel complex. ANNEX II Page 7 Loan 1129 Agricultural Credit: US$50.0 million Loan of June 20, 1975; Effective Date: February 12, 1976; Closing Date: December 31, 1979. Two sub-projects from the autonomous Province of Vojvodina have al- ready been approved and more sub-project applications from the other Republics are presently being reviewed for approval. Loan 1143 Seventh Highway: US$40.0 million Loan of July 18, 1975; Effective Dat:e: March 30, 1976; Closing Date: June 30, 1979. This loan was declared effective on March 30, 1976. Loan 1173 Naftovod Oil Pipeline: US$49.0 million Loan of November 19, 1975; Closing Date: December 31, 1979. Terminal date for declaring effectiveness is June 30, 1976. ANNEX III Page 1 YUGOSLAV[A: MORAVA REGION DEVELOPMENT PROJECT: WATER SUPPLY, SEWERAGE AND WATER RESOURCES Loan and Project Summary Borrower: Republicki Fond Voda (Socialist Republic of Serbia Water Fund). Guarantor: Socialist Federal Republic of Yugoslavia. Beneficiaries: Portions of the loan would be on-lent to the following organizations: (a) Komunalno Preduzece "Bioktos"-Titovo Uzice (Communal Enterprise "Bioktos"-Titovo Uzice) (b) Komunalna Organizacija Udruzenog Rada za Vodovod i Kanalizaciju "Vodovod"-Cacak (Communal Organi- zation for Water Supply and Sewerage Systems "Vodovod"-Cacak) (c) Zemljoradnicka Zadruga "Milosevac" (Milosevac Farmers' Cooperative) (d) Poljoprivredno-Industrijski Kombinat Aleksinac (Aleksinac Agro-Industrial Kombinat) (e) Republicki Fond za Poststicanje Razvoja Nedovoljno Razvijenih Podrucja (Republic Fund for the Promo- tion of Development of Underdeveloped Regions or SFUR) Amount: US$20 million equivalent in various currencies, of which US$13.5 million would be on-lent to the beneficiaries. Terms: Amortization in 20 years, including a 4-1/2 year grace period, with interest at 8-1/2 percent. Relending Terms: Same as those for the Bank loan. Project The project has three primary objectives and components: Description: (a) Assistance to the Republic of Serbia to improve the planning and management of water resources within the Morava region in order to promote accelerated economic development in the least-developed areas of the Morava River Basin, to include: (i) a study of ways to accelerate economic devel- opment in three of the least-developed areas of the Morava River Basin; ANNEX III Page 2 (ii) a study of measures to adjust to the flood hazards throughout the Morava River Basin; (iii) a study to develop a program to improve water quality in part of the Morava water- shed, as a pilot project for the entire Basin; and (iv) staff training for MRWCI. (b) Provision of improved water supplies and extension of the sewer networks in the towns of Titovo Uzice and Cacak, to include: (i) water supply and sewage disposal systems for the commune of Titovo Uzice comprising: - a concrete arch dam (70 m high), - a water transmission line from the main reservoir, - a water treatment plant, - transmission and distribution pipelines, - pumping station and distribution reservoirs, - sewage disposal systems, and - engineering studies, including the final design for a future sewage treatment plant. (ii) water supply and wastewater disposal systems for the commune of Cacak comprising: - a wellfield development 2 km upstream of Cacak, - collector pipeline and balancing reservoir, - transmission and distribution pipelines, - pumping station and distribution reservoirs, - a sewage disposal system, - storm drains to alleviate local flooding, - engineering studies, including a water supply system development study and the final design for the future sewage treatment plant. (c) Demonstration of the feasibility and economics of low cost irrigation schemes, to include the construction, operation, and monitoring of pilot irrigation schemes covering approximately 400 ha in Milosevac and 200 ha in Aleksinac. ANNEX III Page 3 Estimated Cost: US$ Million Percent (of total Beneficiary and Project Components Local Foreign Total project cost) Serbian Water Fund (SWF) (a) Vrutci Dam 10.1 3.7 13.8 26.9 (b) Flood Hazard Adjustment Study 1.3 0.5 1.8 3.5 (c) Water Quality Study 0.5 0.4 0.9 1.8 (d) MRWCI Staff Training 0.05 0.05 0.1 0.2 Titovo Uzice-"Bioktos" (a) Water Supply and Sewerage System 12.2 6.5 18.7 36.3 Cacak-Vodovod (a) Water Supply and Sewerage System 8.3 3.8 12.1 23.6 (b) Storm Drainage System 1.5 0.6 2.1 4.2 Republic Fund for the Promotion of Development of Under- developed Regions (SFUR) (a) Regional Development Study 0.4 0.1 0.5 1.0 Milosevac Farmers Cooperative (a) Milosevac Pilot Irrigation Project 0.5 0.3 0.8 1.4 Aleksinac Agrokombinat (a) Aleksinac Pilot Irrigation Project 0.4 0.2 0.6 1.1 Total Project Cost 35.3 16.1 51.4 100.0 Interest During Construction on Bank Loan 4.5 4.5 Total Project Financial Requirements (including interest during construc- tion) of which: 35.3 20.6 55.9 Physical Contingencies 3.2 1.7 4.9 9.6 Price Increases 6.3 2.9 9.3 18.0 ANNEX III Page 4 Financing Plan: SWF Bioktos Vodovod SFUR Milosevac Aleksinac Total (US$ millions) Project Requirements: Project Cost 16.61 18.68 14.28 0.51 0.81 0.55 51.44 Interest During Construction 1.31 1.58 1.38 0.06 0.08 0.06 4.47 Total Requirements 17.92 20.26 15.66 0.57 0.89 0.61 55.91 Sources of Funds IBRD Loan 6.46 7.26 5.55 0.20 0.32 0.21 20.00 Other Funds Republic 8.60 0.37 0.57 0.40 9.94 Local 2.86 13.00 10.11 _ 25.97 Total Sources 17.92 20.26 15.66 0.57 0.89 0.61 55.91 Expenditures to be (i) Equipment and Materials--100 percent of the c.i.f. Financed by the Loan: cost of directly imported equipment, materials and pipes; 35 percent of locally procured equip- ment, materials and pipes; (ii) Civil works--100 percent of foreign expenditures and 35 percent of expenditures for locally won construction and installation contracts (for the Vrutci Dam, Titovo Uzice, Cacak, Milosevac, and Aleksinac facilities) including 35 percent or up to US$1.4 million of force account work in Titovo Uzice and Cacak; (iii) Consultant Services--100 percent of the foreign cost of consulting and engineering services; 35 percent for local consultants; 100 percent of foreign training costs of MRWCI staff; (iv) Interest During Construction--100 percent of interest and other charges on the Bank loan during construction. Estimated Disbursements: Amount (US$ million) Calendar Year Annual Cumulative 1976 1.4 1.4 1977 5.5 6.9 1978 6.2 13.1 1979 5.3 18.4 1980 1.6 20.0 ANNEX III Page 5 Procurement Equipment and materials contracts estimated to cost more Arrangements than US$100,000 would be awarded after international com- petitive bidding (ICB) in accordance with the Bank Guide- lines for Procurement. For the purpose of bid comparison, it is proposed that qualified domestic manufacturers of these goods would be given a margin of preference of 15 percent or custom duties, whichever is lower. Civil works contracts estimated to cost more than US$500,000 would be awarded after ICB. The other equipment supply and civil works contracts would be awarded on the basis of competitive bidding advertised locally, in accordance with local procedures which are acceptable. Local contractors are expected to win contracts for most of the construction work in the towns of Titovo Uzice and Cacak, but Bioktos and Vodovod will carry out minor works by force account (such as renovations and modifica- tions to existing facilities or installing new pipes) using their existing staff and equipment. The total value of such works carried out by force account would be limited to US$4.0 million (8 percent of the project cost). Most equipment supply and civil works contracts are expected to be won by Yugoslav firms. Expenditures of about US$1.0 million are expected to be incurred prior to loan signature on the water supply and waste- water systems of Bioktos and Vodovod. Retroactive financing of not more than US$1.0 million is proposed. Technical (a) SWF: About 20 manyears for assistance with final Assistance: design, tender documents, and supervision of con- (Consultants) struction of the Vrutci dam; about 70 manyears for assistance to carry out the flood hazard adjustinent and water quality improvement studies; and, a panel of internationally experienced engineers to provide independent expert advice on the Vrutci dam construction. (b) Bioktos: About 35 manyears for assistance with final design, tender documents, and supervision of construction of the water supply and wastewater components and about 5 manyears for assistance of the design of the future wastewater treatment plant for Titovo Uzice. (c) Vodovod: About 20 manyears for assistance with final design, tender documents, and supervision of construction of the water supply and sewerage and storm drainage components; about 5 manyears for assistance for the design of the future sewage treatment plant for Cacak; about 5 manyears for assistance to complete a water supply system development study. ANNEX III Page 6 (d) SFUR: About 23 manyears for assistance to carry out the regional development study. (e) Milosevac Farmers' Cooperative and Aleksinac Agrokombinat: About 3 manyears for assistance with final design and supervision of construction for the pilot irrigation system. Rate of Return: Benefits not sufficiently quantifiable to calculate a rate of return on most project components. Pilot irrigation components would provide economic rates of return of approximately 20 percent. Estimated Project Completion Date: December 31, 1979 Appraisal Report: Report No. 991-YU Date May 3, 1976 Water Supply & Sewerage Division EMENA Projects Department -UII .W AUNOA1 f | t / t yA2r2 YUGOSLAVIAA, No"^'°' ,ADMr~~ffe Ro^3ANIA D _ ,/ X MORAVA REGION DEVELOPMENT PROJECT 22H ORBIT AKIO 0v _ ~ >WATER RESOURCES PROJECTS IN THE MORAVA RIVER BASIN Y!OLO A'V I A PI- ;g f21 'ri WAV d ,z J V" ' I I. - !, , Ro -sdl [ABAN_AT SMrdrl) h.9> 1i 04 , '-- O N 2t 2 . - D- ~ Co,, !5'4'OOOO 'cr-OPT)lo _2.l / / \ F l/ JRt5In 31/r \ --0 K C DPRA TR SO, K lPLJE / 2K-.- Pczn~~~~~~~~~~~~~~~~~~N-.> ½~~~~~~. 22202 --T',N il /--j-- ¶-Fl I0 Bou-dent ot Reprlc n A.t.--u, P- sILrEcES uh, blrnlr ....n, .. -cr pur dI i-r re ............. ed ivofros IBRD 11639R] I9~~~~~~5 200 ~~~~~~~~~~-¸Z) (N 2O~~~~~~~~~~~~~~~~~4 APRIL 1976~~~~~~~~~~ARI 17 YUGOSLAVIA MORAVA REGION DEVELOPMENT \ 'r PROJECT j C'SCE*s PDS?,O.A GTRANS00SAIAN MAINS f _ _-.> 000i Ui NAIl OCAt d,*C 00,AtCAV 1500 liD>>< uNAJJ(S … I A II I A TAA T -I CONTOOUAP ID MATER ITEARVIAS -,sr _y/^g -S?01S /;i/ F.- ~~~ ~ ~ ~ - ~X -_ 0-N- ' ...... ._.. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ I _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __-_ _ _ _ _ _ __J_ 0 18BRD 11641RI YUGOSLAVIA MORAVA REGIOAN DEVELOPMENT PROJE WASTEWATER AND STORM\ . 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