Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-2452a-YL REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO SMAOUPRAVNA INTERESNA ZAJEDNICA ZA MAGISTRALNE I REGIONAL PUTEVE, SAP KOSOVO, PRISTINA (The Self-Managing Community of Interst for Arterial and Regional Roads, SAP Kosovo, Pristina) REPUBLISKA SAMOUPRAVNA INTERESNA ZAJEDNICA ZA PUTEVE, S.R. CRNA GORA, TITOGRAD (Self-Managing Republic Community of Interest for Roads of the Socialist Republic of Montenegro, Titograd) POKRAJINSKA ZAJEDNICA ZA PUTEVE, SAP VOJVODINA, NOVI SAD (Provincial Community for Roads, SAP Vojvodina, Novi Sad) SOCIJALISTIKA REPUBLIKA MAKEDONIJA (The Socialist Republic of Macedonia) SAMOUPRAVNA INTERESNA ZAJEDNICA ZA MAGISTRALNE PUTEVE, S.R. BOSNIA I HERZEGOVINA, SARAJEVO (Self-Managing Community of Interest for Arterial-Roads, S.R. Bosnia and Herzegovina, Sarajevo) WITH THE GUARANTEE OF THE SOCIALIST FEDERAL REPUBLIC OF YUGOSLAVIA FOR A TENTH HIGHWAY PROJECT March 15, 1979 This document has a restricted distribution and may be used by recipients only In the performance of their oflicial duties. Its contents may not otherwise be disclosed without World Dank authorization. CURRENCY EQUIVALENTS* Currency Unit Yugoslav Dinar (Din.) US$1 Din. 18.53 Din. 1 US$0.0540 Din. 1,000 US$54.00 Din. 1,000,000 US$54,000.00 *The Yugoslav Dinar has been floating since July 13, 1973, as of April 30, 1978, the rate was Din. 18.5340 - $1.00. FISCAL YEAR January 1 - December 31 GLOSSARY OF ABBREVIATIONS BOAL - Basic Organization of Associated Labor COI - Communitv of Interest CRO - Council of Republican and Provincial Roads Organizations CYR - Community of Yugoslav Railways EDI - Economic Development Institute ER - Economic Return GNP - Gross National Product LDR - Less Developed Regions (of Yugoslavia) PMEU - Project Monitoring and Evaluation Unit SAP Socialist Autonomous Province SFRY - Socialist Federal Republic of Yugoslavia SR - Socialist Republic TYH - Trans-Yugoslav Highway FOR OFFICIAL USE ONLY YUGOSLAVIA TENTH HIGHWAY PROJECT Loan and Project Summary Borrowers: Road Organizations of Kosovo, Montenegro, Vojvodina, and Bosnia and Herzegovina, and the Socialist Republic of Macedonia. Guarantor: Socialist Federal Republic of Yugoslavia. Amount: US$148 million equivalent in various currencies. Terms: Amortization in 15 years, including a 3-year grace period, with interest at 7 percent per annum. Project Description: The proposed project provides for direct participation by the Bank in a 3-year (mid-1979 to mid-1982) slice of the 1979-85 highway development programs of the five participating Republics/Provinces. These development programs, which result from the recommmendations of Highway Master Plan Studies which each agency carried out cover: the construction of new roads; the recon- struction and rehabilitation of existing roads; the purchase of specialized equipment to assist the Roads Organizations in monitoring traffic and in acquiring and processing data related to the operations of their networks of interregional and regional (including primary, secondary and feeder) roads; and personnel training to assist the Roads Organizations in improving their stan- dards of administering and maintaining their roads net- works. Benefits of the highway sector loan would be improved communications and the lowering of transporta- tion costs within the five Republics/Provinces. All sectors of the economy will benefit due to these improve- ments, and many outlying regions will be better integrated with the main traffic system, thus permitting a balanced development of the less-developed parts of Yugoslavia. No special risks are anticipated in the execution of the proposed project. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. -2 - Estimated Cost: US$ Million Bank's Local Foreign Total Participation (a) Kosovo (i) Inter-regional roads 26.87 11.46 38.33 7.86 (ii) Regional roads 44.44 19.10 63.54 13.14 (iii) Equipment 0.00 0.90 0.90 0.90 (iv) Training 0.10 0.10 0.20 0.10 Subtotal 71 41 31.56 102.97 22.00 (b) Montenegro (i) Inter-regional roads 27.27 11.69 38.96 9.24 (ii) Regional roads 31.27 13.40 44.67 10.46 (iii) Equipment 0.00 0.20 0.20 0.20 (iv) Training 0.10 0.10 0.20 0.10 Subtotal 58.64 25.39 84.03 20.00 (c) Vojvodina (i) Inter-regional roads 106.73 45.74 152.47 33.28 (ii) Regional roads 7.19 3.01 10.20 2.22 (iii) Equipment 0.00 0.40 0.40 0.40 (iv) Training 0.15 0.10 0.25 0.10 Subtotal 114.07 49.25 163.32 36.00 (d) Macedonia (i) Inter-regional roads 86.08 36.89 122.97 26.49 (ii) Regional roads 26.04 11.17 37.21 8.11 (iii) Equipment 0.00 0.30 0.30 0.30 (iv) Personnel Training 0.10 0.10 0.20 0.10 Subtotal 112.22 48.46 160.68 35.00 (e) Bosnia-Herzegovina (i) Inter-regional roads 180.90 77.55 258.45 31.40 (ii) Regional roads 17.19 7.37 24.56 3.10 (iii) Equipment 0.00 0.40 0.40 0.40 (iv) Personnel Training 0.10 0.10 0.20 0.10 Subtotal 198.19 85.42 283.61 35.00 TOTAL 554.53 240.08 794.61 148.00 Financial Plan: IBRD Loan - 148.00 148.00 Republics '/Provinces' Contributions 554.53 92.08 646.61 TOTAL 554.53 240.08 794.61 Estimated Disbursements: US$ Million FY80 FY81 FY82 FY83 Annual 23.68 42.92 63.64 17.76 Cumulative 23.68 66.60 130.24 148.00 -3- Economic Rates of Return: The proposed investments in the construction elements yield economic returns (ERs) varying from 12 to 50 percent. Weighted average ER of all civil works (which account for 98 percent of total project costs) is 22 percent. Staff Appraisal Report: Report No. 2310a-YU, dated March 15, 1979, Highways and Aviation Division, Projects Department, EMENA Region - 4 - INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO SAMOUPRAVNA INTERESNA ZAJEDNICA ZA MAGISTRALNE I REGIONAL PUTEVE, SAP KOSOVO, PRISTINA (The Self-Managing Community of Interest for Arterial and Regional Roads, SAP Kosovo, Pristina) REPUBLISKA SAMOUPRAVNA INTERESNA ZAJEDNICA ZA PUTEVE, S.R. CRNA GORA, TITOGRAD (Self-Managing Republic Community of Interest for Roads of the S.R. of Montenegro, Titograd) POKRAJINSKA ZAJEDNICA ZA PUTEVE, SAP VOJVODINA, NOVI SAD (Provincial Community for Roads, SAP Vojvodina, Novi Sad) SOCIJALISTIKA REPUBLIKA MAKEDONIJA (the S.R. of Macedonia) SAMOUPRAVNA INTERESNA ZAJEDNICA ZA MAGISTRALNE PUTEVE, S.R. BOSNIA I HERZEGOVINA, SARAJEVO (Self-Managing Community of Interest for Arterial Roads, S.R. Bosnia and Herzegovina, Sarajevo) WITH THE GUARANTEE OF THE SOCIALIST FEDERAL REPUBLIC OF YUGOSLAVIA FOR A TENTH HIGHWAY PROJECT 1. I submit the following report and recommendation on a proposed loan equivalent to US$148.0 million to the Self-Managing Community of Interest for Arterial and Regional Roads, SAP Kosovo, Pristina; the Self-Managing Republic Community of Interest for Roads of the S. R. of Montenegro, Titograd; the Provincial Community for Roads, SAP Vojvodina, Novi Sad; the S.R. of Macedonia and the Self-Managing Community of Interest for Arterial Roads, S.R. Bosnia and Herzegovina, Sarajevo, with the guarantee of the Socialist Federal Republic of Yugoslavia, to finance a part of the foreign exchange costs for a Tenth Highway Project. The loan would bear interest at 7 percent per annum and would have a term of 15 years including a grace period of 3 years. PART I - THE ECONOMY 2. A Basic Economic Mission to review the Social Development Plan 1976- 80 and to assess the economic implications of the new institutional framework emanating from the 1974 Constitution visited Yugoslavia in October and Novem- ber 1976. Its report entitled, "Yugoslavia: Self-Management Socialism and the Challenges of Development", 1615a-YU, was distributed to the Executive Directors on April 5, 1978. Basic data on the economy are given in Annex I. Institutional Setting 3. The social sector in Yugoslavia, which includes government, enter- prises and public institutions has the leading role in economic and social -5- development. It accounts for 85 percent of GDP and employs over half of the total labor force. The private sector is comprised predominantly of peasant farms and small enterprises, mainly in handicrafts, construction, trade, trans- port and tourism. Decision making at all levels is governed by the principle of workers self-management bringing with it its own set of unique institutions and instruments of economic policy. The current system has gradually evolved over the years with important new changes introduced in the Constitution of 1974. These changes reaffirm and further extend the decision making power of workers. The federative structure of the state has been strengthened. Responsibility for important social and economic decisions has been shifted from the federation to the republics and provinces and communes. Concurrently, the control of workers, through their workers collectives, over the socially owned means of production has been potentially increased by a restructuring of all economic organizations. All economic organizations e.g. enterprises, now consist of legally autonomous Basic Organizations of Associated Labor (BOALs) which are the smallest units of production producing a marketable output. The creation of BOALs as the basic decision making cell provides workers with a more wieldy unit to manage particularly as the product of their work becomes more easily identifiable. 4. In addition to strengthening decision-making power of workers at the micro level, recent changes have extended workers self-management to the macro- economic sphere. New instruments of macro-economic policy have been intro- duced which are formulated on the basis of participation of all economic agents. These new measures are expected to strengthen macro-economic manage- ment. The impact of these changes is apparent in incomes, prices and employ- ment policy and in the foreign exchange and commercial policy. The most significant development, however, is the introduction of a new system of planning. 5. The new system of planning--self-management planning--is based as in central planning on an ex ante medium-term view of the development of the economy. Similarly, it is based on legally binding undertakings, in the form of medium term contractual arrangements between all economic units, thus reflecting a strong commitment to plan implementation. However, in sharp contrast to central planning, plan formulation is based on participation of all economic units, including government planning bodies, on a non-hierarchical basis. Following an exhaustive exchange of information, the planning process involves a series of iterations to achieve consistency amongst the plans of economic units. Once an acceptable degree of consistency is achieved, economic units enter into legally binding medium-term agreements on supply and demand. In case agreements cannot be reached by the prescribed date the state can impose a temporary injunction. Economic Trends and Development Issues 6. The economic development of Yugoslavia over the past two decades has been impressive, characterized by rapid economic growth and structural transformation. GDP between 1954-75 grew at an average annual rate of about 7 percent in real terms. The share of investment in GDP has been high through- out the period, averaging 30 percent of GDP in recent years. Since population - 6 - grew at only 1 percent per annum, real per capita income more than tripled during the period to an estimated $1,960 at 1977 market prices. 1/ The social sector, in particular industry, was the driving force of the economy. The share of industry in GDP has increased to 47 percent while agriculture has declined to 16 percent, paving the way for development of a modern industry/service oriented urban society. The past two decades have also been associated with a growing integration of Yugoslavia into the world economy. Between 1954-76 exports and imports of goods and non-factor services have grown by around 8.8 percent and 9.5 percent per annum in real terms, respec- tively; much of this in the convertible currency areas. 7. Although Yugoslavia's overall performance has been impressive, Yugoslavia has been characterized by large regional income disparities. Four of the regions, namely Bosnia-Herzegovina, Macedonia and Montenegro, with two-thirds of the national average per capita income, and Kosovo, with one- third, are officially designated as less developed regions (LDRs). The differ- ence between the most developed region, Slovenia, and the least developed, Kosovo, is 6 to 1. Parallel to these inter-regional disparities there are large intraregional per capita disparities ranging 10 to 1 between communes. These differences are a product of diverse factors notably differing shares of the low productivity agricultural sector and unfavorable demographic conditions e.g. higher dependency ratios and population growth rates. Until recently regional income disparities tended to widen. Since 1971 sizeable concessionary credits (with about 50 percent grant element), equal to about 9.3 percent of the GDP of the LDRs in 1974, have been transferred to the LDRs through the Federal Fund for the Accelerated Development of the Less Developed Regions. 8. Linked to the issue of regional income disparities has been the problem of providing adequate employment opportunities in the expanding modern sector. Between 1954-76 employment in the modern social sector increased by around 4 percent per annum facilitating rapid outflows from the agricultural sector. Despite this impressive record, considerable imbalances exist. Large productivity and income differentials exist between the modern (mainly social) and the traditional (private agricultural) sectors. Large numbers of Yugoslavs have sought temporary employment abroad since the late 1960s. At its peak in 1973 Yugoslavia had 830,000 external migrants in Western Europe. However, since 1973, with changes in policy and the slower growth in the host coun- tries, this trend has been reversed, accentuating domestic imbalances and placing considerable pressure on the social sector to create new work places. Unemployment rates have risen rapidly from about 7 in 1971 to nearly 13 in 1976. 2/ This problem has taken an added urgency as the incidence of unemploy- ment has been highly regionalized. In 1975 unemployment rates ranged from 23.5 in Kosovo to 1.5 in Slovenia. 1/ According to the 1978 World Bank Atlas. 2/ These rates are not strictly comparable to those in other countries. They represent the ratio of registered unemployment to social sector labor force. The ratio of registered unemployment to total resident labor force would have been about 7.5 percent in 1976. -7- Recent Developments 9. Yugoslavia's economic development in recent years has been charac- L--ized by stop-go policies and cyclical behavior. Periods of rapid economic growth and inflationary pressure have resulted in balance of payments diffi- culties, leading to measures restricting the level of economic activity. This has been followed by periods of relatively modest growth and improve- ments in the balance of payments situation. In 1974, rapid domestic economic growth, recession in Western Europe and higher oil prices resulted in a sharp deterioration of the balance of payments situation and a $1.2 billion current account deficit. In the same year domestic inflation (industrial producer prices) fueled by external price rises, accelerated to 29 percent. Both 1975 and 1976 were marked by policies aimed at stabilizing the economy through moderating the rate of growth, improving the balance of payments situation and reducing inflation. GDP grew by 3.6 percent per annum in 1975 and 3.9 percent in 1976, well below the historical trend rate. Weak domestic demand reduced import requirements and placed pressure on enter- prises to export. This, and the recovery of activity in the OECD, led to a 9.6 percent real increase in exports. Imports during the same period fell by 4.0 percent. As a result, the current account deficit was transformed to a surplus of $150 million. Inflation also dropped perceptively to 6 percent. This was partly due to slack domestic demand but also due to stringent price controls. 10. A strong upturn in economic activity driven by a revival in invest- ment activity began in mid-1976 and has continued since. There was a rapid increase in money supply in 1976. Enterprises began to adjust to the new financial and accounting system introduced early in 1976, which through increasing financial accountability of enterprises, had been an important factor in dampening the level of economic activity in early 1976. GDP is estimated to have grown by 7.5 percent and the industrial sector by 9.4 per- cent in 1977. This upturn led to a revival of inflationary pressure and a sharp deterioration in the balance of payments situation. Inflation increased to 10 percent, exports declined in real terms by 4 percent and imports rose by 14 percent. The current account recorded a deficit of $1.8 billion. There was some slackening in the level of economic activity in 1978. GDP is expected to increase by around 6 percent despite an anticipated drop in agricultural production of 5 percent due to adverse weather conditions. The current account deficit is expected to fall to around $1.0 billion. However, the rate of infla- tion has continued to rise to an estimated 13-14 percent. Policies for 1979 aim at maintaining a 6 percent growth in GDP, a 5 percent growth of exports and a 5 percent growth in imports. The current account deficit is projected to remain around $1.2 billion. 11. Despite the uneven growth rate of GDP since 1974, employment has expanded steadily and rapidly. An important factor in this has been the social pressure on enterprises to create additional work places. Employment grew by 5.4 percent in 1975, 3.5 percent in 1976 and 4.8 percent in 1977. Labor pro- ductivity has as a result grown little during this period. Since real personal incomes have continued to rise, unit labor costs have risen. - 8 - Medium- and Long-Term Objectives and Prospects 12. The external events of 1973 and 1974 have had an important impact on Yugoslavia's medium-term outlook, particularly in two areas. The first is the balance of payments. The sharp increase in the price of oil led to a sudden increase in the country's import bill. More importantly, the decline in the number of Yugoslav workers abroad will inhibit the growth of workers' remit- tances, which account for about one fifth of Yugoslavia's foreign exchange earnings. The prospects for growth of merchandise exports have also deterio- rated because of the slower growth in Western Europe. The balance of payments has consequently become a potentially more binding constraint on economic growth. The second area is employment. External migration was a key factor in allowing the low-productivity, private agricultural labor force to decline rapidly between 1965-73. Return of Yugoslav workers will place considerable pressure on the labor market and in particular the social sector, which is the main source of new jobs. 13. Prospects for the Yugoslav economy, despite the constraint imposed by the balance of payments remain good. Yugoslavia has always shown a consid- erable degree of pragmatism and flexibility in dealing with economic problems. In addition the adoption of the new system of planning enables Yugoslavia to adopt and implement a medium-term development strategy. The 1976-80 Five Year Plan foresees important structural changes to deal with the new external circumstances. On the question of the balance of payments, Yugoslavia has, by and large, opted for the import substitution route. To ensure greater self-sufficiency the Plan calls for a major restructuring of the economy with emphasis on raw materials and intermediate goods, and particularly the power sector. Included in the priority sectors are basic chemicals, ferrous metal- lurgy, parts of non-ferrous metallurgy, agriculture, food processing and inter- republic transportation. These were areas where production had lagged and where import dependency had increased most after 1965, despite considerable possibilities for local production. 14. To achieve these objectives the plan foresees a growth in GDP of 7.0 percent. Exports are projected to rise by 8.5 percent in constant dollars. However, imports are projected to rise by only 4.5 percent reflecting the sig- nificant degree of import substitution anticipated. This, however, appears somewhat excessive and may not be attainable during the plan period. Conse- quently, if Yugoslavia adheres to the ceiling it has set in the plan on the level of indebtedness and debt service ratio, a somewhat more modest growth rate of 5-6 percent is likely to be achieved. Rapid expansion of employment opportunities remain one of the key objectives of the plan. To compensate for the generally more capital-intensive investments involved in developing raw materials and intermediate goods, a number of measures have been introduced to ensure a sufficiently rapid growth of employment opportunities. Emphasis is placed on development of labor-intensive activities and small scale industry. An employment policy has been adopted to facilitate an orderly growth of work opportunities in existing enterprises. New incentives have also been provided to the private sector to encourage investment in productive activities. These measures are expected to lead to a 3-4 percent growth in modern sector work - 9 - places. Such a growth will be sufficient to absorb returning migrants and some outflow of workers from the agricultural sector albeit at a slower pace than in the past decade. 15. Finally, the reduction of regional disparities is also a priority objective of the plan. The previous financial transfer mechanism continues as the principal instrument for regional development. However, in addition to this, provisions have been made for direct joint venture investment by enterprises in the developed, into the less developed regions. This measure is expected to facilitate a transfer of managerial and technological know-how in addition to the financial transfers of the past few years. The regional problem, however, is expected to remain as one of the least tractable issues facing the Yugoslav economy and one that will only be resolved in the longer run. Creditworthiness 16. In the period 1974-76 gross capital inflows averaged around $2.0 billion per annum increasing the total level of medium- and long-term debt outstanding and disbursed to $7.1 billion by the end of 1976. About 80 percent of Yugoslavia's debt contracted during this period was contracted from commer- cial sources in convertible currencies. The bulk of this has been suppliers credits though financial credits in the Euro-currency market have become increasingly important in financing the economy's residual external capital needs. The World Bank is the principal source of non-commercial long-term credit to Yugoslavia. Yugoslavia will continue to need substantial credits in the commercial markets to achieve its medium-term economic objectives. The debt service ratio averaged 17 between 1974-76. The level of borrowing necessary to sustain a growth rate of 6.0 percent is expected to lead to a rise in the debt service ratio to around 20 in the early 1980s. Given Yugoslavia's past debt service record and demonstrable control over the balance of payments, Yugoslavia remains creditworthy for a substantial amount of Bank lending. PART II - BANK GROUP OPERATIONS IN YUGOSLAVIA 1/ 17. The Bank has made 54 loans to Yugoslavia totalling about $2,118 million. Of this amount, approximately 40 percent ($856.4 million) has been for 18 loans for the transportation sector--9 for highways, 5 for railways, and one each for a natural gas pipeline, an oil pipeline, and a port project. Bank lending has generally concentrated on infrastructure including, in addi- tion to the transportation loans, four power loans, one telecommunications loan, two water supply and sewerage and five multipurpose loans (two of which include substantial irrigation components). Seven loans totalling $343 million 1/ Substantially unchanged from Part II of the President's Report for the Bosanska-Krajina Agriculture and Agro-Industries Project (Report No. P-2361a-YU) of September 20, 1978. - 10 - (about 16 percent of the total amount lent to Yugoslavia) have been made for agriculture (including two for irrigation) and agro-industries. Fourteen loans amounting to $300 million (about 14 percent of the total) have also been made for industry and two for tourism amounting to $30 million. The $27 million first Bank loan for air pollution control was approved May 25, 1976. In addition, IFC has made investments in twelve Yugoslav enterprises totalling about $171 million. Annex II contains a summary statement of Bank Loans and IFC investments as of January 31, 1979 and notes on the execution of ongoing projects. 18. The interrelated objectives which the Bank has pursued in its lend- ing to Yugoslavia remain essentially unchanged. These objectives are: (i) to support Yugoslav efforts to address the critical issues of regional disparities and unemployment; (ii) to promote agricultural development in both the individual farmer and social sectors by providing basic infrastructure and credit facilities; (iii) to encourage structural reforms in the major sectors through improved coordination, institution-building and technical assistance; (iv) to help in identifying and financing gaps in basic infra- structure-particularly transport and energy; and (v) to alleviate critical shortages of convertible foreign exchange by providing part of the required long-term capital, encouraging and promoting Yugoslavia's efforts to tap other sources of medium- and long-term capital, and supporting projects which generate or conserve foreign exchange. It is obvious that each and every Bank operation cannot address all these objectives nor be entirely oriented towards the welfare of the less developed regions (LDRs), but the basic thrust of the Bank's activities in Yugoslavia has increasingly been towards the development of the LDRs and the agricultural sector in particular. 19. The Bank's emphasis on assuring the accelerated development of the LDRs is fully in accord with the Federal Government's avowed policy to narrow the gap between the richest and the poorest regions. The new development Plan assigns even higher priority to redressing such disparity, and to that end the Federal Government has now obtained consensus of its constituents, not only on the channeling of domestic resources to the LDRs through the Federal Fund mechanism (see para. 7 of this Report) but also on the distribution of external resources including Bank lending. The Bank has actively cooperated with the Government in evolving a distribution pattern for Bank lending which gives weight to the income levels and population size of particular regions and has - 11 - on this basis over the last three years effectively directed more than two- thirds of its lending to the LDRs. While the Bank's ability to achieve such a distribution is clearly influenced by the ability of the regions to generate viable projects, recent experience in bringing forward well designed and eco- nomically sound projects for the LDRs is cause for confidence in our ability to maintain the level of Bank activity in the LDRs, though there will undoubt- edly be year-to-year fluctuations. 20. In recognition of the fact that such an expanded investment program for the LDRs would need to be preceded by a systematic survey of these regions to take stock of development potential and identify constraints, the Bank undertook and completed economic surveys of the four LDRs (Kosovo, Bosnia- Herzegovina, Macedonia and Montenegro). These regional surveys, coupled with intensified Bank assistance in project formulation and ongoing economic and sector analysis, reinforce the impact of the Bank's participation in the development of these regions. 21. Over the past several years, more than two-thirds of our lending, as noted in paragraph 20 above, has been to the LDRs. Operations, such as this proposed Tenth Highway Project as well as the Bosanska-Krajina Agricul- ture and Agro-Industries Project (approved October 5, 1978), the Macedonia Strezevo Irrigation Project (approved August 8, 1978) and the Third and Fourth Industrial Credit Projects (approved July 11, 1978), as well as operations envisaged for LDRs over the next two years, including loans for water supply and sewerage and multipurpose water resource and agricultural development, emphasize our continuing orientation to the needs of the LDRs. Previously approved loans for a Ninth Highway Project and a Fifth Railway Project (Fiscal Year 1978) and a Middle Neretva Hydro Power project (also Fiscal Year 1978), as well as the Second Power Transmisson Project approved in Fiscal Year 1977, will both assist the LDRs and promote structural reforms in the transport and energy sectors. IFC is currently investigating several new investment oppor- tunities to encourage joint ventures which would provide technical, management and marketing expertise as well as long-term capital. 22. The Bank helped formulate the 1973 "Green Plan", a comprehensive framework for agricultural development, which recognized the need to encourage the role of the individual, low-income sector (which holds almost 85 percent of the cultivated land and employs over 90 percent of the farm population). As a follow-up, the 1976 "Green Plan" calls for even greater attention to agriculture and clearly recognizes that the impetus for accelerated growth must necessarily be derived from the underexploited resources of the indi- vidual farming sector. It is now generally appreciated that the individual farmer sector can generate significant increases in production if provided with sufficient support in terms of extension services, credit for inputs and basic infrastructural facilities. The loans for the Ibar Multipurpose Project (Loan No. 777-YU) and the Metohija Multipurpose Project (Loan No. 1360-YU) in Kosovo, the first and second Agro-Industries Projects (Loans Nos. 894-YU and 1371-YU) in Macedonia, the first and second Agricultural Credit Projects (Loans Nos. 1129-YU and 1477-YU, respectively), the Macedonia Strezevo Irri- gation Project (Loan No. 1616-YU), as well as the Bosanska-Krajina Agriculture and Agro-Industries Project (Loan No. 1621-YU), have given special attention to the needs of the individual farmer sector. - 12 - 23. The agricultural sector deserves attention for a number of develop- mental considerations. It is the obvious vehicle for addressing the problems of rural poverty which underlies regional disparity; it can provide opportuni- ties for productively employing the rural population, thus reducing the pres- sure for creating non-agricultural employment; and it contributes to reducing reliance on imports and improving the prospects for exports of food and other agricultural products. Forthcoming projects for irrigation and rural develop- ment will support agriculture development in general and in particular, the individual farmer sector. 24. Decentralized management, which is the cornerstone of Yugoslavia's socio-economic philosophy, adds to the inherent difficulties involved in formulating coherent sector plans. One of the principal features of the 1974 constitutional changes and subsequent legislation, however, has been to revamp the institutional framework and to introduce mechanisms for coordination. The new system of self-management planning requires that the programs of all enter- prises are discussed, negotiated and reflected in legally binding agreements. In order to support these efforts for improved coordination, the Bank intends to pursue vigorously the initiatives it has sponsored in terms of establishing the basis for evolving coherent sector policies. 25. Given the complexity of the Yugoslav system, which requires reaching a consensus of all parties affected by any substantive decision, the process of dealing with problems and of evolving acceptable solutions is cumbersome. The Bank sees it important, however, to continue exerting its influence in shaping the policy framework and having a further beneficial impact on foster- ing coordination, particularly in the power and transport sectors where sig- nificant progress has already been achieved. For instance, the Eighth Highway Project (Loan No. 1377-YU) approved March 15, 1977, provides for studies of road-user charges and railway costs which the Government and we believe essen- tial for developing intermodal coordination and devising a policy framework for the transport sector. The Second Power Transmission Project (Loan No. 1469-YU approved June 28, 1977), an extension of the interconnected transmis- sion system, partly financed by the Bank in 1972 (Loan No. 836-YU), will enable the supply of power throughout the country and thereby encourage power exchange coordination among all Republics/Provinces. The promise of further progress in the coming years is reassuring and additional improvements in sector coordination and policy are foreseen in conjunction with the proposed project and other upcoming projects. 26. A persistent foreign resource gap looms as the major impediment to Yugoslavia's ability to maintain its growth momentum and ability to address the critical issues of unemployment and regional disparities. While the Yugoslavs are making concerted efforts to open up and enlarge access to Western finan- cial markets and institutions (including the European Investment Bank), there is no concrete evidence of substantial additional inflows. The Bank, there- fore, remains a major source of long-term external capital for the foreseeable future, and its significant level of operations in Yugoslavia not only consti- tutes the largest source of long-term external capital but, equally important, - 13 - is regarded by international financing institutions as evidence of inter- national confidence in Yugoslavia's economic performance, policies and prospects. In financing of infrastructure as well as industrial and agro- industrial projects, we continue to devote particular attention to possibili- ties for attracting co-financing. In our support of projects in the directly productive sectors, we have and will continue to devote attention to those which generate or conserve foreign exchange. 27. Yugoslavia's debt to the Bank amounts to about 9.2 percent of Yugoslavia's total debt, outstanding and disbursed. The outstanding debt to the Bank is expected to remain a fairly stable ratio of Yuguslavia's total debt outstanding and disbursed. Service on Bank loans as a proportion of total debt service was 4.7 percent in 1976 and is projected to be about 6 percent by 1980. PART III - THE TRANSPORT SECTOR A. The Transport System 28. Two main factors have influenced the development pattern of Yugo- slavia's transport network. First, topography has dictated the use of the broad river valleys as transportation corridors, with the result that the country's principal road/rail links follow the fertile Sava/Danube flood plains on an approximate northwest to southeast alignment. The southern and coastal mountains have proved formidable and costly obstacles to transport development in the transverse direction and it is the misfortune of some of the less-developed regions of Yugoslavia that they have the added burden of expensive access routes either to the coast or to the hinterland (Map IBRD 13850). 29. Secondly, for historical reasons, the northwestern and central regions of the country achieved levels of development in some sectors, transport included, on a par with western Europe. By contrast, in the poorer regions to the south, the pace of development was much slower. Moreover, Yugoslavia's geographical location is such that it is an important crossroads in the European transport system. It provides access to the sea for many of its northern neighbors, and is as well an important link in the east/west route between Europe and the Middle East. 30. Transport is therefore a dynamic sector of the Yugoslav economy. The system is well diversified; there are 7 major ports, nearly 10,000 km of rail lines, 100,000 km of roads, 15 airports (10 catering for international flights) and a sizeable network of inland waterways. Pipelines also have come into increasing use in recent years. Government's broad aim is to ensure the balanced development of all modes of transport to meet the needs not only of Yugoslavia's own market-oriented economy, but to improve the country's inte- gration with the world economy. The attainment of regional balance in eco- nomic development has also been an explicit objective of the Government. - 14 - Increasingly emphasized is the improvement of transport links between the economically-advanced and the less-developed Republics and Provinces and within the less-developed areas. 31. Roads and railways are the backbone of the transport system but traffic growth for these and other modes has been rather uneven. During the last ten years the freight traffic (ton-km) on railways increased by about 3 percent per annum compared to an increase of about 12 percent per annum on highways. The passenger traffic on railways remained practically unchanged during the same period, in contrast with an increase of about 20 percent per annum on highways. The railways, however, continue to be the main carrier of bulk commodities over relatively long distances for key industries (see also para. 35). River transport has retained an important place, carrying about 10 percent of total freight traffic. Ports have more than doubled their cargo handling since the early 1960s and currently move about 20 million tons per annum. B. Transport Policy, Planning and Coordination 32. Since the mid-1960s the administration of Yugoslavia has steadily moved towards decentralization of decision making, with enterprises, operating under workers' self-management in a market-oriented economy. During the late 1960s and in line with this policy, the principal responsibility for transport within Government was transferred from Federal to Republican/Provincial author- ities. In 1975 the Federal Secretariat for Transport was replaced by a Federal Committee, whose President and Vice-President are Federal officials, and whose other members are the Republican and Provincial Secretaries responsible for transport. This committee has now been left with a mainly coordinating func- tion as Governmental responsibility for planning, financing, implementation and regulation of the road network is being transferred to Communities of Interest (COIs) in each of the Republics/Provinces. Each COI consists of one or more transport enterprises and their users, and their authority is confined to one Republic or Province. Transport enterprises are constituted as associa- tions of Basic Organizations of Associated Labor (BOALs--see para. 3), each BOAL consisting typically of a few hundred workers. The BOALs are the prime sources of authority in the enterprise and enjoy a large measure of autonomy. 33. The transfer of authority to the "grass roots" agencies and transport organizations has increased the number of decision-making bodies, and has made the country-wide planning and coordination of transport more difficult, especially coordination between road and rail. Until recently there has been no overall, clearly stated transport policy, although the basic rationale for one is implicit in the country's main economic principles: free choice by users and competition in a market economy among autonomous transport enterprises. In late 1976, however, with a view to creating the necessary conditions for integrated development of transport, the Federation, the Republics and the Autonomous Provinces mutually agreed to establish a long- term transport policy for the country. Since then considerable progress has been made in this direction, and the authorities have concluded, in early 1977, Social Agreements on the various aspects of future transport policy. - 15 - 34. According to these Social Agreements, the Government's principal objectives for the transport sector are: (i) to build up a transport infra- structure in support of the developments taking place in other sectors of the economy; (ii) to develop the various modes of transport as an integrated network and in such proportions and combinations as will meet the total needs of the economy at minimum cost to the community; (iii) to open up less-developed regions and foster interdependence and economic integration of the regions of the country; (iv) to provide the national network with adequate facilities for connection to the network of neighboring countries; and (v) to rationalize the use of energy in transportation and to reduce the negative effects of transportation on environment. 35. To these ends, the authorities intend to encourage the use of rail and water transport for long- and medium-distance commodity hauls and of road transport for short hauls. Priority is to be accorded to railway and air transport for transportation of passengers on medium and long distances. Given the availability of two or more parallel transportation routes (railway lines, rivers, highways), highway transport should be used to complement and integrate with other transport modes. A standard methodology is to be estab- lished to assess the allocation of resources to all branches and forms of transport infrastructure, commensurate with the utilization and relative advantages of each. Much of the success in translating the transport policy into a concrete action program will depend on the effectiveness of the decen- tralized decision-making process. C. Bank Role in the Sector 36. In tandem with the broad strategy of the Bank, as detailed in Part II of this report, and as an integral part of our endeavors to support Yugo- slavia's economic development, we have emphasized the need for policy and investment coordination. The Yugoslav authorities are also acutely aware of the need for a sound institutional framework within which various transport agencies and enterprises can collaborate effectively. The Bank has provided some stimulus in promoting these institution-building policies, resulting in: (i) the establishment of the Federal Committee (originally a Secretariat) for Transport and Communications; (ii) the establishment of the Secretariats or Committees for Transport in most Republics and Provinces; (iii) the establishment of the Council of Republican and Provincial Roads Organization (CRO--see para. 43); and (iv) strengthening the Community of Yugoslav Railways (CYR). 37. In the past one of the Bank's main objectives in Yugoslavia's trans- port sector has been the development of the local skills needed to operate the modal institutions. Under the Third and Fourth Highway Loans 608-YU and 678-YU the laws and decrees related to the highway subsector were reviewed, the organizations for road maintenance and their operations were overhauled - 16 - and improved, and traffic counting, which earlier had been rudimentary, was reorganized on a systematic and planned basis. Subsequent highway and railway loans (Loans Nos. 751-YU, 990-YU, 1026-YU, 1143-YU, 1377-YU) provided techni- cal assistance in the formulation of standardized guidelines for the prepara- tion of feasibility studies, personnel training, action plans, highway master plans and other important studies like road users' charges and rail costs. These latter two complementary studies (included as a component of the Eighth Highway Project--Loan No. 1377-YU of April 13, 1977) are designed to establish an appropriate basis for developing a policy framework (including tariffs) which would permit the orderly economic development of the transport sector, and are expected to provide a firm basis for the efficient and economic utilization and coordination of transport facilities. Both studies are now in progress; the Road User Charges Study is expected to be completed shortly and the Rail Costs Study towards the end of 1979. Further progress in consolidat- ing these endeavors has resulted in the formulation of the proposed project described in Part IV of this report. D. The Highway Sub-sector 38. Prior to 1955, the development of road transport was rather limited under a Government policy which accorded priority to the railways. Since then, the Government's policy has been aimed towards creating economic conditions equally favorable for the development of all transport modes, and hence road transport has expanded rapidly. In the past decade, the number of cars has increased about threefold, and the numbers of trucks and buses have almost doubled. Freight and passenger traffic on the network (in ton-km and passenger- km) has likewise increased about two to three times during the same period. Most of the vehicle fleet increases was met from domestic production. Where a decade ago domestic production of cars and trucks was about equal to imports, now annual domestic production is about three times higher than the total annual imports.s Although private car ownership is steadily rising as per capita incomes grow, per capita private car ownership in the different regions of the country varies widely, but is in line with their states of development. For example, Slovenia, the most developed Republic has six inhabitants per car, whilst Kosovo, the least developed, has about 100 inhabitants per car. 39. The accelerated development of the paved network began in the early 1960s, at which time only about 9,000 km of paved roads were open to traffic; since then the paved length has increased about fivefold. Of the about 100,000 km of roads which existed at the beginning of 1977, about 41,000 km were paved. However, improvements to the highway network have not kept pace with the growth of road traffic. Many roads are by modern standards inadequately designed both in geometry and pavement capability. With high traffic volumes, unacceptable levels of traffic congestion often result. In general, most of the roads are inadequate for the traffic they are now carrying. 40. Although highway expenditures for investment and maintenance have increased steadily over the last decade, they have not been sufficient in view of the rapid expansion and modernization of the economy, and inflation has - 17 - eroded a substantial portion of the increased outlay. Highway expenditures for new construction and upgrading increased from about US$150 million per annum during 1966-70, to an aver4ge of about US$290 million per annum under the 1971-75 and about US$350 million per annum during 1976-80 Five-Year Plans. accounting for about 70-75 percent of total highway expenditures. The remain- ing 25-30 percent of highway expenditures was for highway maintenance which has been, in general, satisfactory. Overall highway expenditures for new construction and upgrading in 1977 amounted to about 72 percent of total highway expenditures with the remaining 28 percent earmarked for highway maintenance. 41. The Federal Government's role in highway financing has been phasing out since 1970, when it was decided that the Federation should cease its participation and only carry out obligations under previous commitments. In 1977, the Federal Government's remaining contribution to highway financing was only about 2 percent of the total expenditure. The main source of highway financing is the revenue from taxes on gasoline and diesel oil, license fees, and the revenues from taxes paid by foreign motorists on entering Yugoslavia, and collected by the Federation. In Yugoslavia the total revenue from these road-user charges was estimated for the first time in 1970 and amounted to US$183 million equivalent. This amount exceeded the total expenditures on inter-urban highways during that year of US$144 million equivalent. Since then, although both the revenue for these road-user charges and the expendi- ture on roads have each increased about three to fourfold, the same pre- ponderance of revenue over expenditure still exists. Only a proportion of these revenues is, however, specifically earmarked for road development and maintenance purposes. In the year 1977, such earmarked revenues covered about 40 percent of the total expenditures for highway development and main- tenance, and the balance of the outlay on these items was made up from foreign and domestic loans (24 percent), contributions by the Republics, Provinces, Communes (21 percent), the Fund for Less Developed Regions (4 percent), contributions by the Federal Government (2 percent), and other sources (9 percent). In view of the earmarked revenues covering about 40 percent of the total expenditures, the road development plans of the respective Republican/ Provincial Roads Organizations (para. 43) depend also upon budgetary alloca- tions, public loans, bank credits and voluntary contributions. Administration and Organization 42. The main responsibility for highway administration is now centered in the Republics and Provinces (para. 32), with the Federal Government playing a role now confined to common policy and regulatory matters such as the control of vehicle weights and dimensions, road safety, and the international aspects of highway administration and road transport. 43. At the Republican and Provincial levels, authority for administering regional and inter-regional roads outside the boundaries of communes (urban and municipal areas), is vested in the Republican or Provincial Road Organiza- tions. As described earlier (para. 32), these organizations are, by the involvement of road-user groups, changing their characters to Communities of - 18 - Interest (COI). This change is still going on and has progressed quicker in some of the Republics than in others. These Roads Organizations and the evolving COIs are, or will be governed by "Boards" on which are represented members of various groups each with an interest in roads, such as transport companies, industrial enterprises, agricultural cooperatives, professional and road user organizations. The membership of these Boards is usually large, so the members elect Executive Boards which are responsible not only for day-to- day administration, but also for the preparation of proposals for highway development. These proposals are co-related through the planning system with the plans from other sectors, screened, and submitted for approval to the Republican or Provincial Governments. Purely local roads are under the jurisdiction of local communities which have special departments for this purpose. In cities, the planning authorities are viewing with growing concern the problems resulting from increasing vehicle use, and are seeking ways and means to rationalize the use of all transport facilities especially through the development of public mass transport. In an effort to relieve urban areas of through traffic, recent Bank-financed highway projects have included the construction of by-passes of towns and cities. Coordination among the Road Organizations is provided through the Republican Assemblies, the Federal Committee for Transport and Communications, and the CRO (para. 36), the latter having been established in 1971 by the Roads Organizations of all the Republics/ Provinces. The CRO has been active in the national standardization of engineer- ing and design criteria, data collection and other technical matters. Performance Under Past Highway Projects 44. Out of the nine highway projects for which the Bank has provided financing, five have been successfully completed; all the roads in the Sixth Project are also open to traffic and the remaining projects are well in hand. Project Performance Audit Reports on the Third and Fourth Highway Projects (Reports Nos. 1385 of December 10, 1976 and 1632 of June 15, 1977, respec- tively) emphasize that the projects have been successfully completed with most civil works carried out close to appraisal schedule. The Third Highway audit report stresses the need, however, to ensure that tolls imposed do not reduce the optimal use of tolled facilities; this point has been taken into account in subsequent projects and the loan agreements for road projects have included a clause to this effect where relevant. However, in the currently proposed highway sector program, there are no specific proposals to levy tolls. Progress regarding the overseas training program under the Fifth and Sixth Highway Projects has been slow owing largely to language difficulties encountered (insufficient candidates proficient in English). Consequently, a training program was arranged in October 1978 in Yugoslavia and in colla- boration with Economic Development Institute (EDI) staff with simultaneous translation services in English and Serbo-Croatian. Following the initial assistance from the EDI, the CRO hopes to continue with EDI-type courses on its own on a regular basis. Regarding the Seventh Highway Project (Loan No. 1143-YU of July 18, 1975), work is in progress on all the project roads of Serbia, Slovenia and Montenegro, but in the case of Slovenia, progress has been slow due to difficulties presented by swampy terrain. Regarding the Eighth Highway Project (Loan No. 1377-YU of April 13, 1977), work on all the - 19 - project roads of Serbia, Bosnia and Herzegovina, Macedonia and Kosovo has already begun and the progress is satisfactory. Finally, concerning the Ninth Highway Project (Loan No. 1535-YU of April 13, 1978), the Bank has already approved the contract prequalification of all project road sections as well as the bid evaluation for construction contract award of road sections in Croatia for which contracts have now been awarded. The schedule of equipment to be procured has been finalized. In general, performance under highway projects has been extremely satisfactory; problems, when encountered, have related to land acquisition where unforeseen difficulties have delayed construction, such as was the case under the Fourth Highway Project (Loan No. 678-YU of May 28, 1970). Cost overruns resulting from exchange rate adjustments and higher than anticipated inflation have not been excessive (between 8 percent and 12 percent). IV. THE ROAD SECTOR PROGRAM AND THE PROJECT A. Background 45. To accord with the transport policy objectives articulated in Social Agreements (para. 34) dating from early 1977, Yugoslavia is giving increased emphasis to projects which would improve the lot of the less-developed regions. Better transportation is recognized as catalytic to development in most other sectors, but to reach outlying communities, many of which have poor access to centers of employment and commerce, not only inter-regional roads, but also regional roads and feeder roads must be included in highway development pro- grams. Thus, there has followed acceptance of the need for each Republic/ Province to assess its total requirements in the highway subsector in a comprehensive overview operation based on a highway master plan study. Accordingly, with the encouragement of the Bank and the Federal Authorities, each of the concerned administrations of the less-developed Republics/Province and of SAP Vojvodina has prepared such a study covering the period up to 1985. From the findings of these master plan studies, each Republic/Province has developed a relatively firm three-year investment program. These plans and programs, which represent an important step towards introducing systematic planning into the highway subsector of Yugoslavia, usher in a new era in the Bank's highway lending in Yugoslavia, as they form the basis of the sector loan to the individual Republics/Provinces. Each Republic/Province now recognizes sector lending as the natural progression from the Bank's earlier ''section-by-section" lending which aimed at financing only specific lengths of road. 46. The new approach provides the opportunity of comparing projects one with another within a particular Republic or Province and ranking these according to economic priorities. This would ensure that critically needed investments in regional, secondary and feeder roads, so essential for the less-developed regions to cater for and induce economic development in the outlying areas, are not obscured by the visibly more pressing needs of the arterial network. In addition, sector lending also offers the opportunity for - 20 - overall appraisal of the program, the institutional and financial capability and of the broader sector policies necessary to provide coordination between roads and development in other sectors. B. The 1979-85 Road Sector Program 47. The main objectives of the 1979-85 Road Programs are to: (i) support agricultural and industrial development plans, and improve access to social services through a balanced development of main, secondary, and feeder roads, such development programs being within the financial and tech- nical capabilities of the governments concerned; (ii) ensure adequate maintenance of the existing highway network; (iii) strengthen, as needed, through technical assistance and training, the operations and administration of the Road Organizations so as to improve the implementation of, and their capability to monitor the road Programs; and (iv) reinforce the achievements realized under earlier Projects to foster a stable and effective domestic contracting industry, and to develop the capabilities of local consult- ing organizations. 48. The present program will involve construction, reconstruction and rehabilitation of about 2,100 km of inter-regional and regional roads in the five participating Republics and Provinces, including on-going works. The Program also provides for the maintenance of the existing and planned networks of about 15,500 km of roads of which about 10,300 km are paved; for training of technical staff of the Road Enterprises, for Consultants' services and for equipment needed to improve planning and operational functions of the Roads Organization. In terms of constant 1977 Prices the increase in road expendi- ture for these five Republics and Provinces in 1979-85 compared to 1972-78 is expected to be about 35 percent. The local contracting industry and Road Maintenance Enterprises are capable and well organized and are expected to accomplish the programmed targets on time under the overall supervision of the Road Organizations. Broad Strategy of the Planned Program 49. SAP Kosovo. During the past decade, SAP (Socialist Autonomous Province) Kosovo has concentrated network construction on inter-regional connections and has not given as great an importance to the regional road network connecting the principal centers of Kosovo. The proposed investment program emphasizes, therefore, the upgrading and expansion of the regional network, including secondary and feeder roads, to improve the level of regional service, and the strengthening, widening and rehabilitation of existing inter-regional links. - 21 - 50. The maintenance program in Kosovo is aimed at strengthening the supervision function of the Maintenance Department through training, organiza- tion and improvements in administration. 51. S.R. Montenegro. In the past few years the thrust of transport investment in Montenegro has been towards construction of the Belgrade/Bar railway and the development of the port of Bar. During this period, invest- ment in road infrastructure took a secondary place. Now, with these major improvements completed, the Republic in its proposed road program is addressing three primary objectives: (i) to improve access from Titograd, the Republican capital, to the northern Adriatic coast for socio-economic integration to facilitate the growth of key industries and to develop tourism; (ii) to open up undeveloped areas in the hinterland presently with meager access; and (iii) to improve from the inter-regional point of view, the road links with Bosnia- Herzegovina to the west. In addition, through the proposed maintenance program it will strengthen and modernize its operations. 52. SAP Vojvodina. The long-term development strategy of Vojvodina in which the proposed road program will play its part, visualizes the decentral- ization of activity from the capital, Novi Sad, to five other primary centers. Each, in addition to its spatial separation from the others, is already the focus of particular activities (agriculture, petrochemicals, metal processing, etc.), and accounts in its own right for a significant contribution to the Province's income. There will be strong transportation links (principally highways) between Novi Sad and these five independent satellites. In its turn each primary center is the development focus of its adjoining areas with which each primary center should have sound transportation links. Thus, a web-like pattern of primary, secondary and feeder roads for the Province is in the course of evolution. In the short run, however, first priorities will be given to eliminating bottlenecks on the Province's two primary routes; the north-south E5 and the east-west E-94 which also forms part of the trans- Yugoslav highway. 53. S.R. Macedonia. During the last decade (Road Plans 1971-75 and 1976-80), road development plans were mainly concerned with the expansion of the network of regional roads to serve key areas of development in the Republic. Although more expansion of the network will still be made to pro- vide needed links, the emphasis is now being turned to the consolidation of previous investments in terms of the improvement and upgrading of roads to better provide for the increasingly heavy vehicle flows, to stimulate activi- ties in the under-developed parts of the Republic and to cater to the needs of other expanding sectors of the economy--diversion and dispersion of indus- try throughout the Republic. 54. S.R. Bosnia and Herzegovina. Since the early 1960s Bosnia and Herzegovina has devoted a major proportion of its budget to providing a transport network to meet the needs of its hundred-odd diverse communities. The largest of all Yugoslavia's lesser developed regions, the rugged nature of its terrain and its extreme climate has made any effort to improve transporta- tion a difficult and costly task. Now with the first objective of providing a - 22 - basic network substantially completed, the Republic is turning its efforts to improving quality of services its roads can provide by increasing capacity of its major inter-regional and regional routes. First priority is being given to improving the geometric design and capacity of clearly identifiable "bottle- neck" sections, all too many of which are the cause of considerable traffic congestion now. The high costs of road works in the rocky mountainous terrain dictate that an alignment decision can only be taken after a careful review of all reasonable alternatives has been made. The Republic has been prudent in this respect as it is fully aware that it gets less road per Din,r invested than do its neighbors with easier terrain to traverse. Assessment of the Program 55. The Roads Sector Programs are well conceived. The development programs of the five Republics/Provinces are the results of a long and patient review process and they take into account the capability of the Roads Orga- nizations to execute the works proposed and their ability to finance them. The Bank has focussed on the establishment of a Monitoring and Evaluation Unit in each of the participating Roads Organizations to bring forward sound sub- projects envisaged within the Program in a timely manner, to monitor implemen- tation of these road works and to evaluate their impact. 56. The adequacy of the Programs' planned level of maintenance has been reviewed and is considered realistic. Most of these Road Organizations have established strong maintenance units and have demonstrated their capacity to plan and execute road construction and improvement projects to satisfactory standards. Their highway programs have been generally responsive to the needs of the various parts of the Republics/Provinces and flexible enough to meet changing circumstances. Wherever necessary, the program aims at strengthening the supervision function through training, improvements in administration and provision of equipment, particularly to develop a traffic flow information system. C. The Project Introduction 57. The proposed project, which is summarized in the Loan and Project Summary at the beginning of this Report and described in detail in the report "Staff Appraisal of a Highway Sector Project" No. 2310a-YU dated March 15, 1979, was appraised by a mission which visited Yugoslavia in September 1978. Negotiations were held in Washington during February 5-12, 1979. The Yugoslav delegation was led by Mr. Avdo Zvonic, Deputy President, Federal Committee for Transport and Communications, and included representatives of the five borrow- ing Roads Organizations and the CRO. Annex III summarizes key events leading to Board presentation, special Bank actions needed for project implementation and the special conditions provided for in the Loan Agreement. - 23 - General Project Description General 58. The proposed Tenth Highway Project comprises the first phase (a three-year tranche from mid-1979 to mid-1982) of the 1979-85 highway sector programs of Kosovo, Montenegro, Vojvodina, Macedonia, and Bosnia and Herzegovina and consists of the following: (i) improvement, construction and maintenance of inter-regional and regional roads (previously classified as class 1, 2 and 3 categories); (ii) strengthening of management and operations of the partici- pating Roads Organizations through personnel training and provision of equipment; (iii) establishment of a Monitoring and Evaluation Unit in each of the participating Roads Organization to monitor implementa- tion of the road works and to evaluate their impact. Detailed Description 59. Civil Works. The physical construction targets would consist of: (i) rehabilitation, strengthening, widening and new con- struction of about 150 km of inter-regional roads and about 180 km of regional roads in SAP Kosovo; (ii) strengthening, widening, new construction and paving of gravel roads of about 50 km of inter-regional roads and about 75 km of regional roads in SR Montenegro; (iii) rehabilitation, strengthening widening and new construc- tion of about 75 km of inter-regional roads and about 10 km of regional roads in SAP Vojvodina. (iv) rehabilitation, strengthening, widening and new con- struction of about 195 km of inter-regional roads and about 110 km of regional roads in Macedonia; (v) strengthening, widening, new construction of about 300 km of inter-regional and about 60 km of regional roads in Bosnia and Herzegovina. 60. Tentative lists of specific sections to be improved and/or upgraded within these Republics and Provinces have been compiled on the basis of the priorities derived from the detailed highway master plan studies. The sub- projects are taken from a three-year time slice of a relatively homogeneous investment program. Completion of detailed engineering to the extent that the - 24 - first year's contracts can be awarded has been considered adequate to allow construction work on the program to begin, and to provide a satisfactory basis for refined cost estimates for the remainder of the program. Engineering, according to acceptable design standards, has been carried out by competent Yugoslav engineering consulting firms (design institutes) and by institutes for geology, soil mechanics and civil engineering. Further engineering for additional links scheduled later in the program would be done sequentially. The entire program will be reviewed annually by the Borrowers and the Bank, and any changes thereto mutually agreed. 61. Maintenance. Routine and recucrertL muaintenance of inter-regional and regional roads of about 1,800 km of roads in Kosovo, about 1,700 km of roads in Montenegro, about 2,500 km of roads in Vojvodina, about 3,000 km of roads in Macedonia and about 6,500 km of roads in Bosnia and Herzegovina, are an integral part of the project. 62. Equipment and Training. The project provides for automatic traffic counters and portable scales, maintenance equipment for culvert cleaning, mowing, snow removal and structure inspection. 63. Training of staff and provision of consultancy services to improve road planning, construction and maintenance operations and strengthening of the Roads Organizations through the establishment of a Project Monitoring and Evaluation Unit (PMEU) in each were discussed with the Borrowers during nego- tiations, and agreement was reached to this e'fect (Loan Agreement Sections 3.02, 7.01(d) and Schedule 2, Part II(B)). Project Cost and Financing 64. The total cost of the proposed project is estimated at about US$794.6 million or US$699.3 million excluding taxes and duties with a foreign exchange component of about US$240.1 million. The Bank Loan amount of US$148.0 million would finance about 40 to 80 percent of the total foreign exchange component of the five participating Republics/Provinces depending on their respective financial needs. 65. The following general apportionment of the Bank Loan would be com- mitted to broad categories of expenditure in the following amounts: - 25 - TENTH HIGHWAY LOAN - CATEGORIES OF EXPENDITURES ----(US$ m)--- Mid-1979 to Mid-1982 Total SAP Kosovo Capital Works Inter-regional Roads 7.86 Regional Roads 13.14 Equipment 0.90 Training 0.10 Subtotal 22.00 S.R. Montenegro Capital Works Inter-regional Roads 9.24 Regional Roads 10.46 Equipment 0.20 Training 0.10 Subtotal 20.00 SAP Vojvodina Capital Works Inter-regional Roads 33.28 Regional Roads 2.22 Equipment 0.40 Training 0.10 Subtotal 36.00 Macedonia Capital Works Inter-regional Roads 26.49 Regional Roads 8.11 Equipment 0.30 Training 0.10 Subtotal 35.00 Bosnia-Herzegovina Capital Works Inter-regional Roads 31.40 Regional Roads 3.10 Equipment 0.40 Training 0.10 Subtotal 35.00 Total 148.00 - 26 - 66. The foreign exchange component of the new civil works included in the proposed project is based on the assumption that, as in the past, local contractors will win the awards of construction contracts after international competitive bidding. A 10% physical contingency has been included to allow for unforeseen increases in quantities of work in road construction. Price escalation has been calculated using annual rates of 9 percent in 1977, 8 percent in 1978, 7 1/2 percent in 1979, and 7 percent in 1980 through 1982. Based on past experience, local and foreign costs have been escalated at the same rates. 67. Full commitment of Loan proceeds to the broad categories indicated (para 65) would be subject to a balanced progress of subproject implementa- tion in the entire three-year (mid-1979 to mid-1982) program including main- tenance operation. Although all the subprojects which the Bank would finance have not been finally identified yet, it is expected that the subprojects would be selected from the tentative lists mentioned earlier (para 60) and that commitments would be made in accordance with the table in para 65. A condition of effectiveness of the Loan Agreement (Section 7.01(b)) requires that each of the participating Republics/Provinces will have adopted regulations authoriz- ing the construction and financing of their respective road programs, includ- ing the provision of guarantees to cover possible cost overruns. General Sector Conditions 68. Bank participation in the roads sector program is conditional upon the respective Roads Organizations and other subsector agencies taking mea- sures on a continuing basis, to maintain and protect the existing road system and to ensure timely implementation of the road program. These conditions require the Borrowers to: (i) meet physical completion targets for construction/ improvement of the roads included in the program; (ii) maintain the existing road network in accordance with sound engineering and financial practices, and providing promptly as needed therefore the funds, facilities, services, and other resources required; (iii) implement a program of personnel training as mutually agreed; (iv) procure necessary equipment on an agreed schedule; (v) update the road program annually; and (vi) continue to ensure that the dimensions and axle loads of vehicles using the roads do not exceed the design 7imits of the roads. 0 - 27 - Conditions for Subprojects 69. As a condition of effectiveness of the Loan Agreement (Section 7.01(d)), a Project Monitoring and Evaluation Unit (PMEU) will be established in the concerned Republican/Provincial Roads Organizations to bring forward sound subprojects in a timely manner, to monitor their implementation, and to evaluate their impact. After Loan Effectiveness and before funds would be committed for specific road construction and improvement, the Bank would require (Loan Agreement 3.03(b)) substantially completed detailed engineer- ing, bidding documents and economic analyses based on updated traffic flows demonstrating the viability of the subprojects which must yield returns not less than 12 percent. The respective Roads Organization, through its PMEU, will ensure that for each sub-project being financed from the loan, the required information is made available to the Bank in a timely manner. The PMEU will also prepare program and progress reports for submission to the Bank through the CRO and in due course the Project Completion Report (Loan Agree- ment Section 3.05(b and c)). The Loan and Project Execution 70. For the construction, training and equipment components of the pro- posed Tenth Highway Sector Project the loan would be made to the Roads Orga- nizations of Kosovo, Montenegro, Vojvodina, and Bosnia and Herzegovina and the Socialist Republic of Macedonia in the amounts of US$22.0 million, US$20.0 million, US$36.0 million, US$35.0 million and US$35.0 million respectively and guaranteed by the Socialist Federal Republic of Yugoslavia. Supervision of the construction and maintenance works would be effected by the concerned Roads Organizations themselves, including the Roads Organization of Macedonia, assisted as in the past by the Yugoslav Consulting Engineers and Technical Institutes. As under the Seventh, Eighth and Ninth Highway Projects (Loans Nos. 1143-YU, 1377-YU and 1535-YU, respectively), the CRO would act as fiscal agent for the project, coordinator of disbursement requests on the Bank, and act as liaison aggnt between the concerned Republics/Provinces and the Bank on project-related matters. The CRO would also be responsible for the pro- curement of traffic counters, road maintenance and load monitoring equipment and training programs provided for under the loan. For this purpose, the Federal Government, through its Federal Committee for Transport and Communica- tions, would ensure that the necessary authority is delegated to the CRO (Loan Agreement, Section 7.01(c), Guarantee Agreement, Section 3.02). The delega- tion of the foregoing authorities to the CRO by the Federal Government and the Borrowers would be a condition of effectiveness of the proposed loan (Loan Agreement, Section 7.01(c)). Procurement and Disbursements 71. Construction contracts based on unit prices would be awarded after international competitive bidding in accordance with the Bank's "Guidelines for Procurement" for all Bank-assisted civil works subprojects. Contracts would be of such a size as to encourage the participation of foreign contrac- tors, but yet to permit maximum participation of the local industry, allowing firms to bid for one or more sections up to their prequalified capacity. Con- tractors would be prequalified for the works and prequalification procedures - 28 - began in November 1978. Bids for the first installment of contracts would be in- vited around May/June 1979 leading to contract awards to the lowest evaluated bidders in August/September 1979. Contracts will include a satisfactory price escalation clause. The equipment to be purchased under the project will be procured by International Competitive Bidding in accordance with the Bank's "Guidelines for Procurement," giving a preference to domestic manufacturers. 72. The proceeds of the loan would be disbursed on the basis of: (i) 30 percent of total expenditures. representine the estimated foreign exchange element, for civil works contracts subject to the maximum amount of Loan commitment to participating Republics and Provinces; and (ii) 100 percent of the foreign costs of personnel training, technical assistance, and equipment. 73. The proposed loan is expected to be fully disbursed by June 30, 1983. Project Risk and the Environment 74. The proposed project would be the Tenth in the Highway subsector to be executed in Yugoslavia. The Roads Organizations concerned with civil works have all participated satisfactorily in earlier Bank highway projects. Each entity executes efficiently its annual program of work. It is recognized that this is the first time that a highway loan is being proposed on a sectoral basis; supervision of the project will be more demanding in that some of the normal appraisal operations, such as the economic and technical review of sub- projects prior to their implementation, will be carried out on such missions. Insofar as physical implementation is concerned, the Bank's past experience with the Borrowers does not suggest the presence of any significant risk. 75. The project is not expected to have an adverse environmental impact. In fact, by reducing traffic congestion, a reduction in accidents and air pollution will also result. In some cases the alternative routes to be built will enhance urban environments by the diversion of heavy traffic. Project Benefits 76. The proposed project would support road development in all the less- developed regions of Yugoslavia and the Province of Vojvodina. Several agri- cultural and industrial centers which are directly served by the proposed road programs and which produce the bulk of the underdeveloped regions' out- put of construction materials, fuels, agricultural commodities, wood and wood materials and chemical products will receive benefits in the form of reduced transport costs. The favorable impact of the project will be felt particu- larly by local traffic and therefore by the farming communities served by proposed road sections. In several cases the project roads will open new areas of the country for agricultural development and light processing indus- tries, and will provide social services in presently isolated remote areas. - 29 - 77. The proposed project will also make significant improvements to the transportation infrastructure of Yugoslavia's most important agricultural region, Vojvodina, which provides half the wheat, almost two-thirds of the maize and half the sugar beet, pork and beef sold in the market. The proposed highway program would improve some of the principal arteries linking the pri- mary centers in the northern and southern parts of the Province, and would facilitate the social and economic integration of several important population and economic centers in the area. Improvement of the east-west Trans-Yugoslav Highway section within the Province would also eliminate a present bottleneck to smooth traffic flow between Central/Western Europe and the Balkans/Near East. 78. The broad economic analyses of the inter-regional and regional road network carried out in the concerned Republics and Provinces take into account savings in vehicle operating costs, road maintenance costs and passenger travel time (in the case of congested primary roads). Benefits due to in- creased comfort, convenience and safety have not been considered. These analyses will be updated and firmed up on a continuing basis with better traffic flow information becoming available. Economic Rates of Return (ERs) 79. Based on the preliminary list of priority sections, the most prob- able estimates of traffic growth, construction costs and vehicle operating costs, the proposed investments in the project road sections produce ERs ranging from 12 to 50 percent in Kosovo; 13 to 19 percent in Montenegro; 18 to 32 percent in Vojvodina; 13 to 21 percent in Macedonia and 13 to 24 percent in Bosnia and Herzegovina. The weighted average ERs of all civil works in the proposed Tenth Highway Project accounting for 98 percent of total capital costs is 22 percent. Subprojects which are technically and economically viable and which yield rates of return not less than 12 percent shall be selected by agreement between the Borrowers and the Bank in accordance with the provisions of the Loan Agreement. Further, the subproject pipeline will be continuously reviewed by the Borrowers in consultation with the Bank on a rolling plan basis so that, if necessary, it can be adjusted to meet changing developments. The road improvement and maintenance programs proposed on the basis of highway master plan studies have a sound rationale and merit early implementation. PART V - LEGAL INSTRUMENTS AND AUTHORITY 80. The draft Loan Agreement between the Bank and Samoupravna Interesna Zajednica Za Magistralne I Regional Puteve, SAP Kosovo, Pristina (The Self- Managing Community of Interest for Arterial and Regional Roads, SAP Kosovo, Pristina); Republiska Samoupravna Interesna Zajednica Za Puteve, S.R. Crna Gora, Titograd (Self-Managing Republic Community of Interest for Roads of the S.R. of Montenegro, Titograd); Pokrajinska Zajednica Za Puteve, SAP Vojvodina, Novi Sad (Provincial Community for Roads, SAP Vojvodina, Novi Sad); Socijaistika - 30 - Republika Makedonija (the Socialist Republic of Macedonia) and Samoupravna Interesna Zajednica Za Magistralne Puteve, S.R. Bosnia i Herzegovina, Sarajevo (Self-Managing Community of Interest for Arterial Roads, S.R. Bosnia and Herzegovina, Sarajevo); the draft Guarantee Agreement between the Socialist Federal Republic of Yugoslavia and the Bank, and the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement are being distributed to the Executive Directors separately. 81. Special conditions of loan effectiveness are described in paragraphs 67, 69 and 70 of this Report and set forth in Section 7.01 of the Loan Agree- ment. These conditions specify that: (i) the Autonomous Provinces of Kosovo and Vojvodina and the Republics of Montenegro, Macedonia, and Bosnia and Herzegovina have each given a guarantee to cover the financing of their respective subprojects, including cost overruns, and have adopted regulations authorizing such construction; (ii) a Monitoring and Evaluation Unit will be established in the concerned Republican/Provincial Roads Organizations to bring forward sound subprojects in a timely manner, to monitor their implementation and to evaluate their impact; and (iii) consents and approvals have been given for the CRO to under- take the obligations referred to in the Loan Agreement, namely to act as fiscal agent for the project, coordinator of dis- bursement requests to the Bank, and liaison agent between the Borrowers and the Bank on project-related matters. 82. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATIONS 83. I recommend that the Executive Directors approve this proposed loan. Robert S. McNamara President Attachments March 15, 1979 Washington, D.C. - 31 - ANNEX I TABLE 3A Page 1 of 6 YUGOSLAVIA - SOCIAL INDICATORS DATA SHEET REFERENCE GROUPS (ADJUSTED AVERAiES YUGOSLAVIA /a LAND AREA (THOUSAND Sq. KM.) - MOST RECENT ESTIMATE) TOTAL 255.8 SAME SAME NEXT HIGHER AGRICULTURAL 144.2 MOST RECENT GEOGRAPHIC INCOME INCOME 1960 lb 1970 lb ESTIMATE fb REGION fc GROUP /d GROUP Le GNP PER CAPITA (USS) 380.0 840.0 1960.0 1898.8 1796.4 2839.0 * ENERGY CONSUHPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 872.0 1459.0 1930.0 1869.3 1525.0 2376.4 POPULATION AND VITAL STATISTICS TOTAL POPULATION, MID-YEAR (MILLIONS) 18.4 20.4 21.7 URBAN POPULATION (PERCENT OF TOTAL) 27.9 35.1 38.7 43.0 52.2 POPULATION DENSITY PER SQ. [M. 72.0 80.0 85.0 81.4 27.6 55.8 PER SQ. KM. AGRICULTURAL LAND 124.0 139.0 150.0 135.2 116.4 83.6 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 30.7 28.3 26.3 26.2 34.8 40.0 15-64 YRS. 63.2 64.3 65.4 63.4 56.0 55.3 65 YRS. AND ABOVE 6.1 7.4 8.3 9.9 5.7 3.8 POPULATION GROWTH RATE (PERCENT) TOTAL 1.2 1.0 0.9 0.8 1.6 2.9 URBAN 3.6 3.6 2.4 2.2 3.4 CRUDE BIRTH RATE (PER THOUSAND) 26.8 21.0 18.2 19.2 27.0 31.7 CRUDE DEATH RATE (PER THOUSAND) 11.5 9.1 9.2 9.0 9.9 7.9 GROSS REPRODUCTION RATE 1.4 1.3 1.3 1.3 1.9 1.6 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. .. .. USERS (PERCENT OF MARRIED WOMEN) .. .. .. 38.0 19.3 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1970-100) 90.9 100.0 122.5 113.7 103.8 114.7 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 115.0 124.0 137.0 127.4 110.4 113.4 PROTEINS (GRAMS PER DAY) 91.0 92.0 97.5 92.8 77.7 89.9 OF WHICH ANIMAL AND PULSE 27.0 29.0 35.4 39.3 22.2 48.0 CHILD (AGES 1-4) MORTALITY RATE 4.5 2.6 1.7 1.6 1.9 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 63.7 67.7 68.0 68.9 63.0 60.2 INFANT MORTALITY RATE (PER THOUSAND) 88.0 55.5 40.5 34.5 38.2 22.1 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. .. .. 68.3 67.7 83.0 URBAN .. .. .. 74.3 83.5 100.0 RURAL .. .. .. 64.4 41.5 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. .. .. 94.0 70.3 57.8 URBAN .. .. .. 94.0 90.7 99.3 RURAL .. .. .. 93.0 38.3 POPULATION PER PHYSICIAN 1400.0 /f 1010.0 850.0 686.5 1310.8 976.9 POPULATION PER NURSING PERSON 1350.0 /f 410.0 450.0 339.0 849.2 676.1 POPULATION PER HOSPITAL BED TOTAL 200.0 170.0 170.0 178.0 275.4 325.8 URBAN .. 70.0 70.0 70.0 129.9 250.0 RURAL *- 1610.0 1770.0 1770.0 965.9 770.0 ADMISSIONS PER HOSPITAL BED .. 17.0 17.0 15.3 18.9 18.7 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 4.0 3.8 3.8 .. 3.9 URBAN 3.3 3.2 3.3 RURAL 4.4 4.3 4.1 AVERAGE NUMBER OF PERSONS PER ROOM TOTAL 1.6 1.4 .. 0.9 0.9 URBAN 1.7 1.3 .. 0.8 0.8 RURAL 1.5 1.5 *- 1.0 1.0 ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL 55.4 87.9 .. 57.5 59.2 URBAN 92.7 98.4 .. 99.0 78.0 RURAL 36.1 80.1 .. .. 12.5 - 32 - ANNEX I TABLE 3A Page 2 of 6 YUGOSLAVIA - SOCIAL INDICATORS DATA SHEET REFERENCE GROUPS (ADJUSTED AVERAGES YUGOSLAVIA A& - HOST RECENT ESTIMATE) SAME SANE NEXT HIGHER MOST RECENT GEOGRAPHIC INCOME INCOME 1960 Lb 1970 Lb ESTIMATE Lb REGION /c GROUP Ld GROUP Le EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 96.0 94.0 97.0 108.0 97.6 104.1 FEMALE 91.0 89.0 93.0 99.5 87.4 120.3 SECONDARY: TOTAL 34.0 46.0 54.0 62.8 47.8 44.7 FEMALE 24.0 42.0 51.0 63.6 42.6 46.0 VOCATIONAL (PERCENT OF SECONDARY) 72.0 72.0 73.0 28.2 22.7 18.7 PUPIL-TEACHEP RATIO PRIMARY 33.0 24.0 , 22.0 24.9 25.4 30.6 SECONDARY 13.0 27.0 36.0 17.3 24.9 16.3 ADULT LITERACY RATE (PERCENT) 77.0 85.0 *- 88.3 96.3 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 3.0 35.0 72.0 90.4 32.3 53.4 RADIO RECEIVERS PER THOUSAND POPULATION 85.0 163.0 193.0 199.0 201.9 195.5 TV RECEIVERS PER THOUSAND POPULATION 1.4 88.0 132.0 132.5 97.7 108.4 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 69.0 85.0 87.0 97.1 70.9 108.0 CINEMA ANNUAL ATTENDANCE PER CAPITA 7.0 4.0 3.9 6.6 4.4 EMPLOYMENT TOTAL LABOR FORCE (THOUSANDS) 8340.0 8910.0 9150.0 A* FEMALE (PERCENT) 35.4 36.0 36.0 32.4 17.4 26.9 AGRICULTURE (PERCENT) 61.0 41.9 33.8 32.8 38.4 25.7 INDUSTRY (PERCENT) 17.6 23.8 26.7 PARTICIPATION RATE (PERCENT) TOTAL 45.0 43.3 43.1 39.1 33.7 40.1 MALE 59.6 56.4 56.0 56.7 50.8 55.8 FEMALE 31.1 30.7 30.1 29.7 12.6 24.7 ECONOMIC DEPENDENCY RATIO 1.0 0.8 0.8 0.9 1.4 1.6 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 16.4 /h 15.1 *- 31.9 20.2 HIGHEST 20 PERCENT OF HOUSEHOLDS 41.5 lh 41.4 .. 59.7 47.9 LOWEST 20 PERCENT OF HOUSEHOLDS 6.9 /h 6.6 .. 4.0 3.2 LOWEST 40 PERCENT OF HOUSEHOLDS 19.0 /h 18.4 .. 12.9 13.7 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. RURAL .. .. .. 194.9 157.9 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. .. 295.1 448.8 RURAL .. .. 350.0 309.2 313.1 ESTIMATED POPULATION BELOW POVERTY INCOME LEVEL (PERCENT) URBAN .. .. .. 18.2 23.2 RURAL .. .. 30.0 24.2 54.5 Not available Not applicable. NOTES /a The adjusted group averages for each indicator are population-weighted geometric means, excluding the extreme values of the indicator and the most populated country in each group. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1973 and 1977. /c Europe; /d Upper Middle Income ($1136-2500 per capita, 1976); Ie High Income (over $2500 per capita, 1976); If 1962; / Including about 800 thousand migrant workers working outside; /h 1963. September, 1978 -33 - ANNEX I DEFINTIONS OF SOCIAL MIDICATORS Page 3 of 6 So: The odluoted group averages for each indicator are popoiation-wsighted gsometric means, excluding the axtreme.values of the indicator and the soat populated country in each group. Coverage of countries asong the indicators depend on availability of data And is not uniform Due to lack of dat. grop averages for Capital Surplus Oil Exporters and indicators of accs., to water and excrets disposal, housing, income distribution and poverty are utople population-waighted goo-etria means vithout the seclusion of extree values. LAND AREA (thoosond sq. kn) Popuiation per hoopital bed - total, urban. and rural - Population (total, Total - Total outface area comprising land area and inland waters. urban, and rural) divided by their respective number of hospital beds Agricultucal - Moot recent estimate of agricultural ares used temporarily available in public and private general and specialized hospital "'d or pernooeotly for crops, pastares, mrket and kitchen gardens or to hsbilitatioo centers. Hospitals are establishments permanently otaffed by le fallot. at least one physician. Establishments providing principally custodial care are not included. Rural hospitals, however, include health and medi- SNP PER CAPITA (CiQ) - CNP per capita estimates At current market prices, cal centera not permansotly staffed by a physician (bht by a medical s culculated by same cooversion method as World Bank Atlas (1975-77 basis); sistant, nurse, midwife, etc.) which offer in-patient acoo-nodation and 1960, 1970, And 1977 data. provide a limited range of medical facilities. Admissions per hospital bed - Total number of admissions to or discharges ENERGY CONSUEPTION PER CAPITA - Annual consumption of commercial energy from hospitals divided by the number of beds. (cool and lignite, petroleum, natural gas and bydro-, nuclear And geo- itormal electricity) in kilograms of coal equivalent per capita. HOUSING Average size of household (persons per household) - total. arban, and rural- POPULATION AfD VITAL STATISTICS A household consists of a group of individuals ho. s ra living qurteral Total population-, id-year (iillioun) - As of July 1; if not available. snd their main mels A boarder or lodger my or may 00t be included in acorage of two end-year estimates; 1960, 1970, and 1977 data, the household for statistical purposes. Statistioal definitions of house- thbar population (percent of total) - Ratin of urban to total popula- hold vary. cieo; differont defioitioon of urbhaa eras -my affect compa-rbility Av.rage number of porsoos per room - total. arban, and rural - Averoge sue- of dita amonn coutries. ber of persona per room in s11, urban, and rural occupied conventior lI Popolatios density dwelings, respectively. Dvellings euclude non-permanent structures and Per us. kc. -Mohid-yeor popoletion per square kilomet-r (lOO bectares) unoccupied parts. of total area. Access to electricity (percent of dwellings) - total, urban. and rural - Pt s. h- grcuture land - Computed as above for agricultural land Conventional dwellings with electricity in living quarters ss percentage only. a f tatl, urban, and rural dwellings reepservely. Popolution aSg structure (percent) - Children (0-14 years), working-age (15-64 yearn), and retired (65 years end over) As procentages of rid- EDUCA7ION year populatios. Adlusted enrollment ratios Population growth rate (percent) - total, and urban - Compound annual Primary school - total, and female - Total and female enrollment of a11 ages growth rates of total and urban mid-year populations for 1950-60, At the primary level as percentages of respectively primary school-sge 1960-70, and 1970-75. populations; normally includes children aged 6-11 years but adjusted fur Crode birth rate (per thousand) - Annual live births per thous-and of different lengtha of primary education; for cou.tries with universal edu- cid-year population; ten-year arithmetic averages ending in 1960 and cation enrollment my emceed 100 percent since some pupils are below or 1970 and five-year average ending in 1975 for most recent eatimate, above the ufficia1 school age. Crude death rate (per thousand) - Anu.al deaths per thouand of mid- Secondary school - total. and female - Computed as bove; secondary educa- year populatisn; ten-year Arithmetic averages ending in 1960 and 1970 tion requires at least four years of approved primary instruction; pro- acd five-ypor uverage ending in 1975 for most rscent satimate. vides general vocational, or teacher training instructinna for pupils Gro- reproduction rate - Avera-e number of daughters A woman will bear usually of 12 to 17 years of age; correspondence courses are geterally in her nornal oepr-ductive period if she experiences present age- excluded. sp-cific fertility rates; usually five-year averages ending in 1960, Vocational enrollment (percent of secondary) - Vocationa1 institutions in- 1970, asd 1975. lude technical, industrial, or other pronrala which operate independently Pa=ilv planning - acceotors. annual (thousanda) - Annual number of or as departments of secondary institutione. acceptors of birth-cuotrol devices under auspices of national family Pupil-teacher ratio - primary, and secondary - Tota1 students enrolled in ploconi. progran. primary And secondary lev-ls divided by numbers of troahora in the carte- Partly planning - users (percent of married wones) - Percentage of sponding levels. married women of child-bearing age (15-44 years) who use birth-control Adult literacy rate (percent) - Literate adults (Able to read -ad write) as devices to all married mo-.n in sass Age group. A perrenatge of total Adult population aged 15 yearn and over. POOD AND IPTETTION CONSUMPTION Inrdo of food production per capita (1970-100) - Inden number of per Passenger cars (per thousand oopulation) - Passenger caru comprise motor cars capita annual production of all food coseodities. seating less than eight persona; excludes ambulanoes, hearses and military Pot capita supply cf calories (percent of resuiraments) - Computed from vehicles. energy equivalent of net food supplies available in country per,capita Radio receivers (per thousand population) - All types of receivers for radio pet day. Available supplies comprise domestic production, imports lens broadcasts to general public per thousand of population; excludes unlicensed exports, and hangea in stock. Nat supplies exclude animal feed, seeds, receivers in countries and in years when registration of radio sets was in quantities used in food processing, and loeses in distribution. Re- effect; data for recent yearsn my not be cosparable since eost countries qoirenents t ere eStimAted by FAO based cn physiological needs for nor- abolished licensing. ail activity and health considering enviromeental temperature, body TV receivers (per thousand populstion) - TV recaivers for broadcast tc generA weights, age and sen distributions of population, and allowing 10 per- public per thousand population; excluden unlices-ed TV receivers in coon- c-nt for waste at household level, tries snd in years when registration of TV' -cs was in effect. Per capita supply of protein (grams per day) - Protein content of per Newspaper circulation (per thousand population) - Shows the average circola- capita net supply of food per day, Net Supply of food is defined as tion of "daily general interest newspaper", defined as a periodical publi- ahoc. Requtrrnents for s11 countries esthblilhed by JSDA provide for cation devoted pri-orily to recording gnnera1 -ew. It is coonidered to a minimum allowance of 60 grams of total protein par day and 20 grams be "daily" if it appears at least four tilea s week. of ani=al and pulse protein, of which 10 grams shnuld be animal protein. Cinema annual attendance per capita per year - Based on che number of tickets Thesr st.odattd are lower than thone of 75 grmas of total protein and sold during the y-ar, includisg admisnions to drive-in cisenan and nobile 23 grams of animal protein an an average for the world, proposed by units. FAO ic the Third World Pood Survey. Per capto proe nuocly from animal and pulse - Protein supply of fond eMPLY7MENT derived item aoimals And pulses In grams per day. Total labor force (th.u..aid.) - foonnnioslly active persona, including armed Chried (ates Ii) ottoity rPaUte (per thousand) - Annual deaths per thoun- forcas and unemployed but eocluding housewives, stcdents, etc. Defini- and ic 0ge group 1-4 ye-rn, to ehildren in this Age group. noon in venous. counties Are not comparable. Pe..Je (percent) - Pemale labor force as percentage of total labor f-rce. HEALTH Agriculture (percent) - Labor force in famicg, forestry, hboting and fishing Life nopectancy at birth (vears) - Average number of years of life as percentage of total labor force. -ecaining at birth; usually five-year averages ending in 1960, 1970, Industry (percent) - Labor force in mining, construetion, na. ufacturing and and 1975. eletricity, water and gas as percentage of total labor force. Infant nortality rate (per thousand) - Annual deaths of infsats under Participation rate (percent) - total, male, and female - Total, msle, snd coo yesr of age per thous.nd live birhts. 'eale labor force a percentages of tbeir repeotive ppol-oios Acc-sn to safe cater (percent of population) - total, urban, nd rural - These are ILOs adjusted participatfon rates reflectisg agr-rec Nohber of people (tota1, urban, and rural) with reasonable access to utro-tore of the popultion. and lone tine trend. safe cater nupply (includes treated surface watsr or untreated bht Einuomni dependency racio - Ratio of populactio u-der 15 asd 65 *nd over to urcontasinated water such as that from protected boreholen, springs, the labor force in age group of 15-64 years. aod nanitary wells) as percentages of their r-apeoti-e popolations. It en urban area a poblic fountain or stsndpost located not mare INCOME DISTRIBUTION than 200 meters fron a house may be considered as being within rea- Percentage of private income (both in -sh end kind) received by richest 5 sonable access of that house. In rural areas reasonable ccess would percent, richest 20 percent, poorest 20 percent, and puoorst 40 percent Ispl ohat rho ho.useife or =nabers of she household do not have to of ho..aholds. spend a disproportiorate part of the day in fetching the family's water crds. POVERTY TARGET GROUPS Accnssutoaoc'reta discosal (percent nf nonulation) - total, urban. and Estimated absolute Dovertv incoe level (US per cPita) - urban and rural - -rl - Nunber of people (total, urban, and rural) scrved by o-retn Absolute poverty income level is that in.oe level below which a minimal disposal as percentages of their respective populations. Encreta nutritionally adequate diet plan essential non-fond requirements is not disposal aY includ thre collectioc and disposal, with or without affordabl. ctea-nt, of hocac excrcta aod asta-water by water-borne systema Escimated relative poverty iooe level (USS per capita) -urban asn rural - -r thi cue of pit privies and si=ilar i.stallations. Relative poverty inoose level is that income level less than one-third Peculation pet physician - Populstion divided by number of practicing per capita personal income of the coutry. uhysiciaco qualified from a nedical school at univra-ity level. fatimaat population helov poverty inccne lesel (percest) - arhan and rur-l - pLzulatloc per cursing Person - Population divided by somber of Pernent of population (urban and rural) wbo are either "absolute poor" or practicing male acd feoale graduste nurses, proctical nurses, and "relative poor" whichener is greater. E.conoic and Social Data Diviaio- Econonic Analysis and Projections Departoent - 34 - ~~~~~~~~~~ANNEX I ~ 34 ~ Page 4 of 6 ECONOMIC DEVELOPMENT DATA SHEETS ACTUAL EST. PROJECTED 1970 1975 1976 1977 1978 1979 1985 NATIONAL ACCOUNTS/ (US$ mil. at 1975 Prices) Gross Domestic Product (GDP) 22519.9 30931.9 32138.2 34548.6 36794.2 38817.9 55063.9 Gains from Terms of Trade 148.9 .0 70.7 -42.3 333.6 372.6 770.7 Gross Domestic Income 22668.8 30931.9 32208.9 34506.3 37127.8 39190.5 55834.7 Imports 6519.8 8831.0 8467.7 9671.5 9620.4 10097.4 13871.1 Exports--Volunie -5022.7 -6379.0 -6991.0 -6722.8 -6846.7 -7351.8 -11666.4 Exports--Terms of Trade Adjusted -5171.6 -6379.0 -7061.7 -6680.6 -7180.3 -7724.4 -12437.1 Resource Gap 1348.2 2452.0 1406.0 2990.9 2440.1 2373.0 1434.0 Consumption 16339.6 23169.5 22787.7 25958.5 27773.8 29321.4 39903.0 Investment 7677.4 10214.4 10827.2 11538.7 11794.1 12242.1 17365.6 National Savings 6993.2 9182.4 10972.1 10077.7 10961.5 11326.6 16868.1 Gross Domestic Savings 6329.2 7762.4 9421.2 8547.8 9354.0 9869.0 15931.6 GDP at current US$ 13766.4 30931.9 37466.3 42336.6 47840.3 53581.2 105759.7 SECTOR OUTPUT (share of GDP at 1975 prices) Agriculture 0.182 0.152 0.160 0.156 0.139 0.130 0.097 Industry 0.410 0.480 0.472 0.480 0.485 0.492 0.515 Services 0.408 0.368 0.367 0.364 0.376 0.378 0.388 PRICES (1975 = 100) Exports Price Index 51.17 100.00 104.53 116.94 128.66 137.23 198.71 Imports Price Index 49.69 100.00 103.49 117.68 122.68 130.61 186.40 Terms of Trade Index 102.96 100.00 101.01 99.37 104.87 105.07 106.61 GDP Deflator 61.13 100.00 116.58 122.54 130.02 138.03 192.07 Annual Average Exchange Rate 12.50 17.39 18.19 SELECTED INDICATORS 1976-78 1978-85 ICOR 4.80 5.32 Import Elasticity 0.94 0.91 Average National Savings Rate 0.30 0.29 Marginal National Savings Rate -0.00 0.34 Imports/GDP 0.27 0.26 Investments/GDP 0.33 0.32 Resource Gap/GDP 0.07 0.04 /1 Components may not add up because of rounding. ANNEX 0 - 35 - Page 5 of 6 BALANCE OF PAYMENTS AND EXTEaNAL ASSISTANCE ACTUAL EST. PROJECTED 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1985 Suimyary of Balance of PavYents Exports (iscluding NFS) 3439.0 4437.0 5748.0 6379.0 7308.0 7862.0 8808.9 10088.6 11588.5 13311.8 15291.6 23182.3 Imports (including NFS) 3822.0 5170.0 8355.0 8831.0 8763.0 11381.8 11802.4 13187.9 14749.4 16497.8 18455.7 25855.2 Reseurce Balasce -383.0 -733.0 -2607.0 -2452.0 -1455.0 -3519.8 -2993.5 -3099.3 -3160.9 -3186.1 -3164.1 -2672.9 Net Factor Service Incase 802.0 1218.0 1423.0 1420.0 1605.0 1736.9 1952.7 1894.5 1810.6 1766.0 1720.9 1826.6 Net Interest Payments -156.0 -179.0 -198.0 -275.0 -100.0 -283.1 -269.3 -471.9 -697.8 -892.9 -1097.5 -1530.2 Of =hich on Public Loans -63.2 -98.4 -105.3 -127.9 -143.0 -162.2 -85.2 -74.2 -68.8 -74.7 -86.1 -138.3 Direct Investment Income .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 Workers Remittanees 958.0 1397.0 1621.0 1695.0 1705.0 2020.0 2222.0 2366.4 2508.4 2658.9 2818.5 3356.8 Current Transfers .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 Current Account Balance 419.0 485.0 -1184.0 -1032.0 150.0 -1782.9 -1040.9 -1204.8 -1350.3 -1420.1 -1443.2 -846.2 Direct Private Investnent .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 Grants and Grant-Like Flows .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 Public liediu and Long-Term Loans Disbursements 426.7 448.8 448.9 610.0 556.1 286.8 -62.4 -61.4 20.9 67.0 88.2 95.2 Amortization -154.3 -208.7 -288.1 -316.9 -159.7 -322.0 -127.3 -104.1 -18.6 11.1 55.5 22.5 Net Disbursements 272.4 240.0 160.7 293.2 396.4 -35.2 -189.7 -165.5 2.3 78.2 143.7 117.8 Other Medium- and Lone-Term Loans Disburne=ents 1055.3 1216.1 1108.1 1492.9 1863.4 2592.2 2705.8 3309.7 3317.5 3819.5 4365.0 5042.9 Amortization. -566.0 -635.5 -681.9 -633.4 -976.2 -1034.1 -1405.0 -170d8.1 -1708.8 -2185.6 -2738.6 -3855.1 Net Disbursements 489.3 580.6 426.2 659.5 887.2 1558.1 1300.8 1601.7 1608.8 1633.9 1626.4 1187.9 Ule of tHY Resources 18.2 -73.6 140.9 19.7 189.0 .0 .0 .0 .0 .0 .0 .0 Short-Tern Capital -97.0 -205.0 263.0 -87.0 -27.0 280.0 .0 .0 .0 .0 .0 .0 Capital N.E.I. -408.7 -437.7 -109.8 -12.6 6.4 .0 .0 .0 .0 .0 .0 .0 Changes in Reserves -693.2 -589.4 297.1 159.3 -1602.0 -20.0 -70.2 -231.4 -260.8 -292.0 -327.0 -459.4 Reserves (end of period) 731.0 1338.0 1147.0 896.0 2075.0 2069.0 2139.2 2370.6 2631.4 2923.4 3250.3 4486.0 - 36 - ANNEX I Page 6 of 6 DEBT AND CEDITWORTHINESS ACTUAL 1972 1973 1974 1975 1976 Medium- & Long-Term Debt (Disbursed only) Total Debt Outstanding (DOD)(end of period) 3439.9 4278.7 4921.5 5818.0 7145.6 Including Undisbursed 4728.6 5543.5 7705.3 8805.7 9696.7 Public Debt Services -217.5 -307.1 -393.5 -444.8 -302.7 Interest -63.2 -98.4 -105.3 -127.9 -143.0 Other Medium- and Long-Term Debt Service -638.2 -746.4 -822.6 -989.7 -1134.7 Total Debt Service -855.7 -1053.5 -1216.1 -1434.5 -1437.4 Debt Burden Debt Service Ratio 24.9 23.7 21.2 22.5 19.7 Debt Service Ratio-L 19.5 18.1 16.5 17.8 16.0 Debt Service/Gross Domestic Product 5.4 5.2 4.5 4.6 3.9 Terms Interest on Total DOD/Total DOD 3.9 4.9 5.0 4.8 3.1 Total Debt Service/Total DOD 24.9 24.6 24.7 24.7 20.1 Dependency Ratios for Medium- & Long-Term Debt Gross Disbursements/Imports 38.8 32.2 18.6 23.8 27.6 Net Transfers/Imports 16.4 11.8 4.1 7.6 11.2 Net Transfers/Gross Disbursements 42.3 36.7 21.9 31.8 40.6 Exposure World Bank Disbursemtents/Gross Total Disbursements 3.5 3.0 5.8 7.3 4.9 World Bank & IDA Disbursements/Gross Total Disbursements 3.5 3.0 5.8 7.3 4.9 World Bank DOD/Total DOD 9.2 8.2 8.6 9.6 9.2 World Bank & IDA DOD/Total DOD 9.2 8.2 8.6 9.6 9.2 World Bank Debt Service/Total Debt Service 3.7 3.6 3.6 3.9 4.7 World Bank & IDA Debt Service/Total Debt Service 3.7 3.6 3.6 3.9 4.7 /1 Including workers' remittances. - 37 - ANNEX II Page 1 of 10 pages THE STATUS OF BANK GROUP OPERATIONS IN YUGOSLAVIA A. STATEMENT OF BANK LOANS (as at January 31, 1979) US$ million Amount (less cancellations) Number Year Borrower(s) Purpose Bank Undisbursed Twenty-two Loans fully disbursed 567.6 777 1971 SFRY Multipurpose Water 45.0 15.5 782 1971 "Babin Kuk" Hotelsko Turisticki Centar, Dubrovnik Tourism 20.0 0.3 836 1972 Twelve Electric Power Enterprises in Yugoslavia Power 75.0 1.6 894 1973 Stopanska Banka, Skopje Agricultural Industries 31.0 1.9 916 1973 Naftagas Gas Pipeline 59.4 20.7 990 1974 Bosnia-Herzegovina Road Funds Roads 30.0 0.3 1012 1974 Stopanska Banka, Skopje Industrial Credit 28.0 0.7 1013 1974 Privredna Banka Sarajevo Industrial Credit 22.0 0.9 1026 1974 Community of Yugoslav Railways Railways 93.0 23.4 1060 1974 Port of Bar Harbor Expansion 44.0 12.0 1066 1974 Vodovod Dubrovnik Water Supply and Wastewater 6.0 4.6 1129 1975 Vojvodjanska Banka Agricultural Credit 50.0 19.1 1143 1975 Republic Road Organizations in Slovenia, Montenegro and Serbia Roads 40.0 9.1 1173 1975 Jugoslavenski Naftovod Pipeline 48.4 12.5 1262 1976 Republicki Fond Voda Water Supply, Sewerage & Water Resources 20.0 13.3 1263 1976 Sarajevo Water Supply & Water Supply & Sewerage Enterprise Sewerage 45.0 36.7 1264 1976 Sarajevo Gas Enterprise Air Pollution & Naftagas Gas Unit Control 38.0 30.6 1277 1976 Privredna Banka Sarajevo, Stopanska Banka Skopje, Investiciona Banka Titograd, Kosovska Banka Second Industrial Pristina Credit 50.0 20.6 1360 1977 Management Organization Multipurpose Water 54.0 53.3 "Metohija" - 38 - ANNEX II Page 2 of 10 pages US$ million Amount (less cancellations) Number Year Borrower(s) Purpose Bank Undisbursed 1370 1977 Investiciona Banka, Agriculture Titograd Industries 26.0 24.2 1371 1977 Stopanska Banka, Skopje Agriculture Industries 24.0 22.9 1377 1977 Republic Road Organiza- tions in Bosnia- Herzegovina, Serbia, Macedonia, and Kosovo Roads 56.0 27.3 1469 1977 JUGEL and six Electric Power Organizations in Second Power each Republic Transmission 80.0 69.6 1477 1977 Vojvodjanska Banka Second Agricul- tural Credit 75.0 73.2 1534 1978 Community of Yugoslav Railways Railways 100.0 100.0 1535 1978 Republic Road Organiza- tions of Slovenia, Croatia and Serbia Roads 80.0 67.2 1561 1978 Elektroprivreda Bosne i Hercegovine Hydro Power 73.0 69.1 1611 1978 Kosovska Banka Pristina Third Industrial Credit 40.0 40.0 1612 1978 Privredna Banka Sarajevo Fourth Industrial Credit 20.0 20.0 1613 1978 Stopanska Banka Skopje Fourth Industrial Credit 20.0 20.0 1614 1978 Investiciona Banka Fourth Industrial Titograd Credit 20.0 20.0 1616 1978 Stopanska Banka Skopje Macedonia Strezevo Irrigation 82.0 82.0 1621/a 1978 Privredna Banka, Bosanska Krajina Sarajevo Agriculture and Agro-Industries 55.0 55.0 Total (less cancellation) 2,117.5 967.6 of which has been repaid 225.2 Total now outstanding 1,892.3 Amount sold 8.2 of which: Amount repaid 7.4 0.8 Total now held by Bank 1,891.5 Total undisbursed 967.6 /a Not yet effective. - 39 - ANNEX II Page 3 of 10 pages B. STATEMENT OF IFC INVESTMENTS (as at January 31, 1979) Type of Amount in US$ million Year Obligor Business Loan Equity Total 1970 International Investment Investment Corporation 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 Motorjev Automotive Maribor (TAM)/Klockner-Humboldt Industry 7.5 2.6 10.1 Deutz A.G. (KHD) 1972 FAP-FAMOS Belgrade/Daimler Automotive Benz A.G. Industry 13.8 3.4 17.2 1972/78 Sava/Semperit Tires 11.3 3.8 15.1 1973 Belisce/Bel Pulp and Paper 13.3 - 13.3 1974 Zelezarna Jesenice/ARMCO Special Steel 10.0 - 10.0 1974 Salonit Anhovo Cement Plant 10.0 - 10.0 1975 Rudarsko Metalurski Steel 50.0 - 50.0 1977 Frikom ro Industrija Smrznute Food and Food Hrane Processing 4.0 2.5 6.5 1977 Tvornica Kartona i Ambalaze Cazin Pulp and Paper Products 15.7 2.6 18.3 1978 Soko Mostar Hermetic Compressors 7.0 - 7.0 Total Gross Commitments 147.6 24.9 172.5 less cancellations, terminations, exchange adjustment, repayment and sales 76.1 2.6 78.7 Total commitments held by IFC 71.5 22.3 93.8 Total Undisbursed 24.5 6.7 31.2 - 40 - ANNEX II Page 4 of 10 pages C. PROJECTS IN EXECUTION 1/ Loan 777 Ibar Multipurpose Water: US$45.0 million Loan of June 30, 1971; Effective Date: May 31, 1972; Closing Date: December 31, 1979. The start of project work was delayed for one year. The main dam is completed and the reservoir is now filled. A small part of the irrigation network has been completed with the remainder expected to be completed by 1980. Project costs have been above appraisal estimates, but the overrun financing is being provided by the Province of Kosovo and from Federal sources. Delays have been encountered in the arrangements for boundary adjustment. Consultants have been engaged to help find solutions, and the Kosovo Government has enacted appropriate legislation. After a delay of about five years, a law has been enacted by the Kosovo Government which will assist in the provision of agricultural extension services to the individual sector. Loan 782 Babin Kuk Tourism: US$20.0 million Loan of July 21, 1971; Effective Date: June 12, 1972; Closing Date: June 30, 1979. There were initial delays in the implementation of the project due to lateness in making the loan effective and in mobilizing consultants. 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), largely due to rapid inflation in construction costs. The Bank and the proj- ect sponsors agreed to finance a reduced complex containing some 2,034 beds (Amendment to Loan 782-YU, December 16, 1974, R74-259) at a total cost of US$51.5 million, requiring additional financing of about US$1.6 million and a change in sponsorship which has been approved by the Bank (Amendment to Loan 782-YU, October 4, 1976, R76-237). The hotels were inaugurated and opened for occupancy in June 1976. Occupancy rate for 1977 was below expecta- tions notwithstanding 100 percent occupancy during high season. This gave rise to financial liquidity problems which were overcome with the assistance of the sponsoring Yugoslav banks. The 1978 season was good. A further exten- sion of the Closing Date, from December 29, 1978 to June 30, 1979, has been necessary to permit disbursement of the small balance of the loan (approxi- mately $300,000) earmarked for the final payment against a computer instal- lation scheduled for spring 1979. 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 the under- standing that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. - 41 - ANNEX II Page 5 of 10 pages Loan 836 Power Transmission: US$75.0 million Loan of June 23, 1972; Effective Date: December 29, 1972; Closing Date: June 30, 1979. The Project construction has progressed slowly, but has virtually been completed, about two years late. Its cost has increased to about $428 million (up 90 percent) chiefly due to escalation in prices. The resulting cost overrun is being financed from funds received from the Federal Republic of Germany, local loans and from the Borrowers' own internal sources. Appoint- ment of management consultants was delayed until mid-1976, but their recom- mendations have now been made and are being discussed with JUGEL and the Borrowers and implementation of many of the recommendations is underway. Loan 894 Agricultural Industries (Macedonia): US$31.0 million Loan of May 25, 1973; Effective Date: November 28, 1973; Closing Date: October 31, 1979. All loan funds provided under the project have been committed by subloan agreements through Stopanska Banka. Out of 43 subprojects financed under the project, 42 are completed, one is under construction. Progress on the latter is satisfactory. The Closing Date of the loan, originally December 31, 1978, has been postponed to October 31, 1979, to permit comple- tion on disbursements to suppliers of equipment. Loan 916 Naftagas Pipeline: US$59.4 million Loan of June 25, 1973; Effective Date: March 22, 1974; Closing Date: December 31, 1979. The costs of equipment and civil works increased so that project costs were about 71 percent above the appraisal estimate. As a result of this and of a reallocation of priorities in the use of natural gas, the proj- ect has been redefined (Amendments to Loan 916-YU, May 13, 1976, R76-116). Phase I is a reduced version of the original plan. Phase II provides for a pipeline extension to link up with the pipeline to be constructed under the Sarajevo Air Pollution Control Project, for which additional Bank financing was obtained. Naftagas has obtained additional local currency financing required for Phases I and II. A delay of more than two and one-half years in project implementation has occurred as a result of the increased project costs and revision of the project. Construction started in late June 1976, and the project is scheduled for completion by end-1979. Loan 990 Sixth Highway: US$30.0 million Loan of May 31, 1974; Effective Date: December 10, 1974; Closing Date: June 30, 1979. All road sections are open to traffic. Two requests for changes in road alignments have been agreed in order to provide better service to two communities. Procurement of engineering and laboratory equipment has been contracted and payments are now being finalized. An EDI type training course was given in Yugoslavia in October 1978. The Closing Date of the loan, originally December 31, 1978, was postponed to June 30, 1979 to permit com- pletion on disbursements to suppliers of equipment which is expected to be delivered in the first quarter of 1979. - 42 - ANNEX II Page 6 of 10 pages Loan 1012 Macedonia/Kosovo Industrial Credit: US$28.0 million Loan of June 21, 1974; Effective Date: December 19, 1974; Closing Date: June 30, 1979. Progress has been satisfactory. The loan is fully committed. Loan disbursements accelerated after a slow start. The Closing Date of the loan, originally December 31, 1978, was postponed to June 30, 1979 to allow full utilization of project funds and completion of disbursements to equipment suppliers. Loan 1013 Bosnia-Herzegovina/Montenegro Industrial Credit: US$22.0 million Loan of June 21, 1974; Effective Date: December 19, 1974; Closing Date: June 30, 1979. 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: June 30, 1979. The project consists of the 1974-76 slice of the Railways' 1973-77 Investment Plan. Government efforts to combat inflation caused railway tariffs to lag behind inflation and gave rise to financial and administrative difficulties which, in turn caused substantial delays in project implementa- tion. Tariff increases approved in 1977 and 1978 and institutional develop- ments, including improved investment planning and management, the formation of COIs and the signing of Social Agreements on railway and transport policies have resolved the major problems. Rate of disbursement, initially behind schedule, is now improving. Undisbursed balance of $24.6 million is fully committed. Loan 1060 Port of Bar: US$44.0 million Loan of December 11, 1974; Effective Date: June 13, 1975; Closing Date: June 30, 1980. In general the project has progressed well. Except for railway facilities outside the port area and the grain silos, most of the project has been completed, about six months behind schedule. The railway facilities and grain silos are scheduled for completion by early 1979 and end-1979, respectively. 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, 1980. Delays in preparation of final designs and tender documents have put construction about a year behind schedule. Services to the Bank financed Babin Kuk Hotel Complex (Loan 782-YU) were, however, completed in time for its initial operation and the remaining water supply component has now been com- pleted. Construction is progressing satisfactorily on the sewerage component. - 43 - ANNEX II Page 7 of 10 pages Loan 1129 Agricultural Credit: US$50.0 million Loan of June 20, 1975; Effec- tive Date: February 12, 1976; Closing Date: December 31, 1979. The Project Operations Unit of Vojvodjanska Banka, established in March 1976, is working satisfactorily. Project operations have shown encour- aging progress with respect to appraisal methodology and related aspects of institution building. Ninety-two percent of the loan has been committed. Disbursements are behind appraisal projections, given initial organizational and learning curve problems, delays in procurement, unfamiliarity of participa- ting banks with withdrawal applications, timetaking translations and the time lag between commitments and disbursements. However, disbursements have accelerated during the year and, as of February 14, 1979, 64 percent of the loan proceeds were disbursed. Loan 1143 Seventh Highway: US$40.0 million Loan of July 18, 1975; Effective Date: March 30, 1976; Closing Date: June 30, 1979. With the award of the last two contracts in Montenegro, work is now in progress on all the project roads of Serbia, Slovenia and Montenegro. The Serbian road sections have been substantially completed and are open to traf- fic. Work in Slovenia is on schedule but progress in Montenegro is somewhat slow owing to contract delays. Nevertheless, all road works should be com- pleted by the loan closing date. Loan 1173 Naftovod Oil Pipeline: US$49.0 million Loan of November 19, 1975; Effective Date: July 28, 1976; Closing Date: December 31, 1979. Due to slower than anticipated progress of design and procurement it is estimated that a one year slippage in the completion will occur. The revised cost estimates of the project indicate that there will be a cost overrun of about 45 percent because of required changes from original project components and increases in local costs. The Borrower has taken steps to obtain supplementary financing from various sources both foreign and local. The economic viability of the project remains sound. Upon review of the award of a site preparation contract in one case, and the procurement procedures regarding a telemetry supervision control system in another case, the Bank concluded that the procurement procedures were not in accordance with the Bank's Guidelines for Procurement and the relevant portion ($470,000 and $112,000, respectively) that would have otherwise been eligible for disbur- sement were cancelled from the Loan. Loan 1262 Morava Regional Development Project - Water Supply, Sewerage and Water Resources: US$20.0 million Loan of June 14, 1976; Effective Date: November 3, 1976; Closing Date: December 31, 1980. The regional development study is finished, has been reviewed by the Bank and discussed with the relevant Yugoslav authorities. The flood control and water quality studies are underway after initial delays in selecting consultants. Construction of the Vrutci Dam has begun. - 44 - ANNEX II Page 8 of 10 pages Construction is completed on the principal parts of the Cacak component, the remainder is well advanced. Construction is also underway in Titovo Uzice. Final designs of sewage treatment plants in Cacak are underway, ani in Titovo Uzice, are dependent upon the recruitment of suitable foreign assistance to local consultants. The pilot irrigation components which were delayed pending the establishment of suitable monitoring arrangements, are underway. The creation of the Morava Region Water Community of Interest was delayed due to the longer than anticipated process of seeking agreement among all the Yugoslav parties concerned on the structure of the organization. Staffing has been strengthened in the water authorities in Cacak and Titovo Uzice and in the Morava Region Water Community of Interest. Loan 1263 Sarajevo Water Supply and Sewerage: US$45.0 million Loan of June 8, 1976; Effective Date: November 9, 1976; Closing Date: June 30, 1981. Major contracts for supply and installation of water pipes and severs have been awarded and construction is underway. Tendering for the sewage treatment plant has begun and award is expected shortly. Loan 11764 Sarajevo Air Pollution Control: US$38.0 million Loan of June 8, _976; Effective Date: May 31, 1977; Closing Date: June 30, 1981. Gas is scheduled to be available in Sarajevo by end 1979, one year later than originally planned. Difficulties in finalizing contracts for the supplv of gas were the the major cause of delay. All contracts for supply and installation of gas distribution network and high pressure loop-line, as well as for gas transmission line, have been awarded and construction is underway. Loan 1277 Second Industrial Credit: US$50.0 million Loan of June 14, 1976; Effective Date: October 29, 1976; Closing Date: December 31, 1980. Progress has been satisfactory. The loan is fully committed except for a small part of the Kosovan bank's portion for which a project has been submitted to the Bank. Disbursements are, however, somewhat behind appraisal estimates. Loan 1360 Metohija Multipurpose Water: US$54.0 million Loan of February 3, 1977; Effective Date: July 27, 1977; Closing Date: December 31, 1982. Local consultants, with the assistance of foreign consultants, have been retained as project consultants and are proceeding with final designs on the project components and preparation of bidding documents. Two local con- struction contracts have been awarded as well as the major contract for the construction of the dam. Overall project progress is about six months behind schedule. - 45 - ANNEX II Page 9 of 10 pages Loan 1370 Montenegro Agriculture and Agro-Industries: US$26.0 milli-n TLoaa of March 10, 1977; Effective Date: July 27, 1977; Closing Date: June 30, 1983. Institutional arrangements have been completed, and the implementa- tion of the project is proceeding on schedule. ICB procurement for the winery has been completed; the procurement for the cold stores is in progress. Loan 1371 Macedonia Agriculture and Second Agro-Industries: US$24.0 million Loan of March 10, 1977; Effective Date: July 27, 1977; Closing Date: June 30, 1982. Sub-loans for five out of seven agro-industrial sub-projects have been approved by the Borrower. Eleven sub-projects in the individual sector have been approved committing 34 percent of loan proceeds. Loan 1377 Eighth Highway: US$56.0 million Loan of April 13, 1977; Effective Date: September 7, 1977; Closing Date: March 31, 1981. All road contracts have been awarded and work is satisfactorily in progress. The contract for the Highway Master Plan for Kosovo has been completed by the consultant awarded. The studies on Road-User Charges and Rail Costs are substantially complete. Disbursement rate is satisfactory. Loan 1469 Second Power Transmission: US$80.0 million Loan of July 11, 1977; Effective Date: January 31, 1978; Closing Date: December 31, 1982. Contracts totalling about 70 percent of the loan amount have been let and physical execution has started with the most critical sub-stations and lines. Submission of the least cost development study and tariff study is imminent. Loan 1477 Second Agricultural Credit: US$75.0 million Loan of July 29, 1977; Effective Date: January 30, 1978; Closing Date: June 30, 1981. All participating banks have identified the main investors and indicated that funds will be committed faster than under the first project. As of December 31, 1978, 15 percent of loan proceeds were committed. Loan 1534 Fifth Railway: US$100 million Loan of April 13, 1978; Effective Date: September 28, 1978; Closing Date: June 30, 1982. Contracting has progressed somewhat faster than expected and the majority of the loan has already been committed. Loan 1535 Ninth Highway: US$80 million Loan of April 13, 1978; Effective Date: August 10, 1978; Closing Date: December 31, 1981. Contractor prequalification for all project road sections has been approved, and the construction contracts have been awarded for a road section in Croatia. - 46 - ANNEX II Page 10 of 10 pages Loan 1561 Middle Neretva Hydro Power: US$73 million of May 31, 1978; Effective Date: September 29, 1978; Closing Date: June 30, 1982. Contracts for equipment totalling about 55 percent of the loan amount have been let. Physical progress is satisfactory and relatively problem free. Loan 1611 Third Industrial Credit: $40.0 million loan of July 26, 1978; Effective Date: November 16, 1978; Closing Date: December 31, 1982. The loan became effective November 16, 1978. Loans 1612, 1613 and 1614 Fourth Industrial Credit: $20.0 million each Loans of July 26, 1978; Effective Dates: November 14, 1978; Closing Dates: December 31, 1982. The loans became effective November 16, 1978. Loan 1616 Macedonia Strezevo Irrigation: US$82 million loan of August 23, 1978; Effective Date: February 14, 1979; Closing Date: September 30, 1982. Major contracts for construction of the dam, alimentation canal and main canal have been let and are expected to be awarded soon. Loan 1621 Bosanska-Krajina Agriculture and Agro-Industries: US$55 million loan of November 6, 1978; Effective Date: Not yet effective; Closing Date: June 30, 1983. Terminal date for declaring effectiveness is April 30, 1979. - 47 - ANNEX III Page 1 of 2 YUGOSLAVIA TENTH HIGHWAY PROJECT Supplemental Project Data Sheet Section 1: Timetable of Key Events (a) Time taken by country to prepare project: Fourteen months (July 1977- September 1978) (b) Agency which prepared project: 1. Roads Organization of Kosovo; 2. Roads Organization of Montenegro; 3. Roads Association of Vojvodina; 4I". Roads Organization of Macedonia; 5. Roads Organization of Bosnia and Herzegovina; 6. Institute for Highways, Belgrade; 7. Institute of Social and Environment Economic Research, Titograd; 8. French Consultant, BCEOM, Paris 9. Environmental Planning Institute (Ohrid); 10. Faculty of Civil Engineering, University of Skopje; 11. Zavod Za Saobracaj of the Civil Engineering Faculty, Sarajevo. (c) First presentation to Bank: February 1978 (d) First Bank mission to consider the project: Preappraisal February 1978 (e) First Appraisal mission departure: August 1978 (f) Negotiations substantially completed: February 12, 1979 (g) Loan effectiveness planned: July 1979 Section II: Special Bank Implementation Actions The Bank will maintain close cooperation with the Borrower in order to review the project pipeline annually and to ensure that follow-up action is taken by the Borrower to firm up the next phase (up to 1985) of the road program based on prevailing traffic trends. - 48 - ANNEX III Page 2 of 2 Section III: Special Conditions As conditions of effectiveness, the Borrowers: (i) will have given a guarantee covering the financing of their respective mid-1979 to mid-1982 road programs including possible cost overruns (para. 67); (ii) will have adopted the legal authority for constructing the roads detailed in their development programs (para. 67); (iii) will have delegated authority to CRO to act as fiscal agent for the project, as coordinator of disbursement requests on the Bank, as liaison between the Borrowers and the Bank on project-related matters, as coordinator of the personnel training programs and to procure the equipment to be provided under the project (para. 70); and the Roads Organizations: (iv) will establish a Monitoring and Evaluation Unit within each of its organizations to bring forward sound sub-projects in a timely manner and to monitor implementation of these sub-projects and evaluate their impact (para. 69). 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