FOR OFFICIAL USE ONLY Report No: PAD2647 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF EUR 78.8 MILLION (US$90 MILLION EQUIVALENT) TO THE REPUBLIC OF ALBANIA, REPUBLIC OF NORTH MACEDONIA, REPUBLIC OF SERBIA FOR THE FIRST PHASE OF WESTERN BALKANS TRADE AND TRANSPORT FACILITATION PROJECT USING THE MULTIPHASE PROGRAMMATIC APPROACH WITH AN IBRD ENVELOPE IN THE AMOUNT OF US$140 MILLION TO THE WESTERN BALKANS March 21, 2019 Finance, Competitiveness and Innovation Global Practice Transport Global Practice Europe And Central Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective: December 31, 2018) Currency Unit = USD 1 EUR = 1.145 USD 1 USD = 0.873 EUR FISCAL YEAR January 1 - December 31 Regional Vice President: Cyril E Muller Country Director: Linda Van Gelder Global Practice/Senior Director: Alfonso Garcia Mora, Guangzhe Chen Practice Manager(s): Mario Guadamillas, Karla Gonzalez Carjaval Task Team Leaders: Javier Suarez, Romain Pison ABBREVIATIONS AND ACRONYMS AADT Annual Average Daily Traffic AP Additional Protocol BCP Border Crossing Point CBA Cost-benefit analysis CCF Castor Convergence Factor CP Crossing Point CCTV Closed Circuit Television Camera CEFTA Central European Free Trade Agreement CFU Central Fiduciary Unit DMS Dynamic Message Signs EBQMS Electronic Border Queuing Management System EC European Commission ECAAA European Common Aviation Area Agreement EDI Electronic Data Interchange EFI Equitable growth, Finance, and Institutions EORI Economic Operator Registration and Identification EU European Union FCP Freeway Courtesy Patrol GHG Green House Gases GDP Gross Domestic Product GVCs Global Value Chains HAR Highway Advisory Radio IBM Integrated Border Management IPF Investment Project Financing ITS Intelligent Transport Systems M&E Monitoring and Evaluation MAP Multi-Annual Action Plan for a Regional Economic Area in the Western Balkans Six MCA Multi-criteria analysis MDB Multilateral Development Banks MoT Ministry of Transport MPA Multiphase Programmatic Approach MTR Mid-term Review MVDS Microwave Vehicle Detection System NCTS New Computerized Transit System NSW National Single Window PDO Project Development Objective PIU Project Implementation Unit POM Project Operation Manual PrDO Program Development Objective RAMS Reliability, Availability, Maintainability, Safety RCC Regional Cooperation Council RLC Railway Level Crossings RWIS Road Weather Information Systems SCD Systematic Country Diagnostics SEETO South East Europe Transport Observatory SOE State Owned Enterprise TCT Transport Community Treaty TDD Transport and Digital Development Page 1 of 73 ToC Theory of Change TRS Time Release Studies TTS Travel Time Signs VPU Vice Presidency Unit VTMIS Vessel Traffic Management and Information System WB6 Western Balkans Six WBG World Bank Group WIM Weight in Motion WTO World Trade Organization Page 2 of 73 TABLE OF CONTENTS DATASHEET ................................................................................. Error! Bookmark not defined. I. STRATEGIC CONTEXT ...................................................................................................... 9 A. Regional Context .............................................................................................................................. 9 B. Sectoral and Institutional Context .................................................................................................. 10 C. Relevance to Higher Level Objectives............................................................................................. 14 D. Multiphase Programmatic Approach ............................................................................................. 15 II. PROJECT DESCRIPTION.................................................................................................. 17 A. Project Development Objective ..................................................................................................... 17 B. Project Components ....................................................................................................................... 18 C. Project Beneficiaries ....................................................................................................................... 22 D. Rationale for Bank Involvement and Role of Partners ................................................................... 22 E. Lessons Learned and Reflected in the Project Design .................................................................... 24 III. IMPLEMENTATION ARRANGEMENTS ............................................................................ 26 A. Institutional and Implementation Arrangements .......................................................................... 26 B. Results Monitoring and Evaluation Arrangements......................................................................... 27 C. Sustainability................................................................................................................................... 28 IV. PROJECT APPRAISAL SUMMARY ................................................................................... 28 A. Technical, Economic and Financial Analysis (if applicable) ............................................................ 28 B. Fiduciary.......................................................................................................................................... 29 C. Safeguards ...................................................................................................................................... 30 D. Other Corporate Mandates ............................................................................................................ 32 V. KEY RISKS ..................................................................................................................... 34 A. Overall Risk Rating and Explanation of Key Risks ........................................................................... 34 VI. RESULTS FRAMEWORK AND MONITORING ................................................................... 37 ANNEX 1: DETAILED PROJECT DESCRIPTION ......................................................................... 45 ANNEX 2: IMPLEMENTATION ARRANGEMENTS .................................................................... 53 ANNEX 3: IMPLEMENTATION SUPPORT PLAN ...................................................................... 68 ANNEX 4: DETAILED ECONOMIC ANALYSIS ........................................................................... 71 . Page 3 of 73 DATASHEET BASIC INFORMATION BASIC_INFO_TABLE Country(ies) Project Name Albania, North Western Balkans Trade and Transport Facilitation Macedonia, Serbia Project ID Financing Instrument Environmental Assessment Category Investment Project P162043 B-Partial Assessment Financing Financing & Implementation Modalities [✓] Multiphase Programmatic Approach (MPA) [ ] Contingent Emergency Response Component (CERC) [ ] Series of Projects (SOP) [ ] Fragile State(s) [ ] Disbursement-linked Indicators (DLIs) [ ] Small State(s) [ ] Financial Intermediaries (FI) [ ] Fragile within a non-fragile Country [ ] Project-Based Guarantee [ ] Conflict [ ] Deferred Drawdown [ ] Responding to Natural or Man-made Disaster [ ] Alternate Procurement Arrangements (APA) Expected Project Approval Expected Project Closing Expected Program Closing Date Date Date 18-Apr-2019 15-Dec-2025 15-Dec-2027 Bank/IFC Collaboration No Proposed MPA Program Development Objective The Program Development Objective for the MPA is to reduce trade costs and increase transport efficiency in the Western Balkans Six Proposed MPA Program Financing Envelope (US$, Millions): 140.00 Proposed Development Objective(s) The Proposed Development Objective is to reduce the trade costs and increase transport efficiency in Albania, North Macedonia, and Serbia Page 4 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) Components Component Name Cost (US$, millions) Facilitating movement of goods across the Western Balkans 33.80 Enhancing transport efficiency and predictability 51.90 Enhancing Market Access for Trade and Investments 0.30 Suporting Project Implementation and Coordination 4.00 Organizations Borrower: Ministry of Finance and Economy (Albania) Ministry of Finance (North Macedonia) Ministry of Finance (Serbia) Implementing Agency: Ministry of Construction, Transport and Infrastructure (Serbia) Ministry of Transport and Communication (North Macedonia) Ministry of Finance and Economy (Albania) MPA FINANCING DATA (US$, Millions) Total MPA Program Financing (Estimated): 140.00 of which Bank Financing (IBRD/IDA): 140.00 PROJECT FINANCING DATA (US$, Millions) FIN_SUMM_NEW SUMMARY -NewFin1 Total Project Cost 90.00 Total Financing 90.00 of which IBRD/IDA 90.00 Financing Gap 0.00 DETAILS -NewFinEnh1 World Bank Group Financing International Bank for Reconstruction and Development (IBRD) 90.00 Page 5 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) Expected Disbursements (in US$, Millions) WB Fiscal 2019 2020 2021 2022 2023 2024 2025 Year Annual 0.00 3.00 7.00 15.00 24.00 28.00 13.00 Cumulative 0.00 3.00 10.00 25.00 49.00 77.00 90.00 INSTITUTIONAL DATA Practice Area (Lead) Contributing Practice Areas Finance, Competitiveness and Innovation Macroeconomics, Trade and Investment, Transport Climate Change and Disaster Screening This operation has been screened for short and long-term climate change and disaster risks Gender Tag Does the project plan to undertake any of the following? a. Analysis to identify Project-relevant gaps between males and females, especially in light of Yes country gaps identified through SCD and CPF b. Specific action(s) to address the gender gaps identified in (a) and/or to improve women or Yes men's empowerment c. Include Indicators in results framework to monitor outcomes from actions identified in (b) Yes SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) Risk Category Rating 1. Political and Governance ⚫ Substantial 2. Macroeconomic ⚫ Moderate 3. Sector Strategies and Policies ⚫ Moderate 4. Technical Design of Project or Program ⚫ Substantial Page 6 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) 5. Institutional Capacity for Implementation and Sustainability ⚫ Substantial 6. Fiduciary ⚫ Substantial 7. Environment and Social ⚫ Moderate 8. Stakeholders ⚫ Moderate 9. Other ⚫ Moderate 10. Overall ⚫ Substantial Overall MPA Program Risk ⚫ Substantial COMPLIANCE Policy Does the project depart from the CPF in content or in other significant respects? [ ] Yes [✓] No Does the project require any waivers of Bank policies? [ ] Yes [✓] No Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 ✔ Performance Standards for Private Sector Activities OP/BP 4.03 ✔ Natural Habitats OP/BP 4.04 ✔ Forests OP/BP 4.36 ✔ Pest Management OP 4.09 ✔ Physical Cultural Resources OP/BP 4.11 ✔ Indigenous Peoples OP/BP 4.10 ✔ Involuntary Resettlement OP/BP 4.12 ✔ Safety of Dams OP/BP 4.37 ✔ Projects on International Waterways OP/BP 7.50 ✔ Projects in Disputed Areas OP/BP 7.60 ✔ Page 7 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) Legal Covenants Conditions Type Description Effectiveness For Albania, the Additional Conditions of Effectiveness consist of the following:(a) the Borrower has established a Project Implementation Unit (PIU) under terms, conditions, composition, functions, and resources satisfactory to the Bank; (b) the Borrower has adopted a Project Operations Manual (POM) under terms satisfactory to the Bank. Type Description Effectiveness For North Macedonia, the Additional Conditions of Effectiveness consist of the following, namely that the Borrower, through the MoTC, has established a Project Implementation Unit (PIU) under terms, conditions, composition, functions, and resources satisfactory to the Bank Type Description Effectiveness For Serbia, the Additional Conditions of Effectiveness consist of the following:(a) the Borrower has established a Project Implementation Unit (PIU) within MCTI under terms, conditions, composition, functions, and resources satisfactory to the Bank; (b) the Borrower has adopted a Project Operations Manual (POM) under terms satisfactory to the Bank. Page 8 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) I. STRATEGIC CONTEXT A. Regional Context 1. Deepening trade integration is paramount for the Western Balkans Six as part of a growth strategy based on productivity gains. The Western Balkans Six (WB6) face a common set of challenges: how to restructure inefficient and often state-heavy economies to foster growth, productivity, and bolster the creation of private sector quality jobs in societies where too many people remain unemployed. Integration has been linked with productivity gains via increased competition, greater exposure to frontier technologies, and, for small economies, the possibilities of achieving economies of scale.1 Imports introduce competition, causing inefficient firms to exit and increase aggregate productivity. Exports create a larger market for firms, allowing them to achieve economies of scale and increase their productivity. The Western Balkans’ pathway to prosperity hinges on furthering regional and international economic integration. 2. WB6 region integration with international markets is relatively low. The WB6 have a low percentage of exports as a share of GDP compared to other economies in the region. With exports of goods and services close to 40 percent of GDP, Serbia and North Macedonia are the most integrated. By comparison, some regional peers, including Slovakia, Estonia, Lithuania, and Slovenia, have shares equal or higher than 75 percent. The European Union (EU) is naturally the dominant export market for all WB6, capturing about 60-70 percent of the exports of the Western Balkans Six. On average, only 20 percent of their exports went to the neighboring Western Balkans and this has not changed in the last 5 years. Exports to Asia are negligible, accounting for a high of 5 percent in Albania and North Macedonia. Economic complementarities also determine bilateral trade flows. Hence, the Western Balkans Six will trade more with the EU as they produce goods that are complementary to the EU’s production structure and supply chains and will trade less with the Western Balkans region as they produce similar goods to each other. 3. Exploring opportunities for trade within the WB6 is particularly relevant given the sluggish pace of global trade in recent years. There have been five consecutive years of sluggish trade growth and 2016-2017 was the year with the weakest trade performance since the 2008 global financial crisis. The stagnating trade growth can be attributed to a slower pace of trade liberalization since 2000, an increase in uncertainty on economic policies, maturation of global value chains formations and structural changes in the Chinese economy.2 While global trade is expected to grow in 2017 and 2018, increasing risks of inward-looking policies and retaliatory trade practices from major players in the world trade system can stymie the growth path. 4. Deepening regional integration contributes to political and institutional stability. The European Union provides the clearest evidence and example for the WB6. The European project has preceded over a peaceful enlargement of the economic community and a steady income convergence of new members. In addition, the proliferation of preferential trade agreements in the last two decades has strengthened economic relationships and reduced the likelihood of conflict between the trade partners. Given the history of conflict and instability in the Western Balkans region, the additional benefit of political and institutional stability beyond economic growth is desirable. Regional commitments also provide an anchor and rationale for policy reform, reinforcing national authorities’ leverage to implement reforms. The regional approach also allows for joint reforms, such 1 Girma S., Greenaway, A. and Kneller, R. (2004) “Does exporting increase productivity? A micro-econometric analysis of matched firms.” Review of International Economics. Vol. 12: pp. 855-866. 2 Constantinescu and others, 2017. Trade Developments in 2016: Policy Uncertainty Weighs on World Trade. The World Bank. Page 9 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) as the interconnection of information systems; the alignment of documentation, standards, and guarantee systems; or cross-border agreements, when existing, allowing free passage. 5. Coordinated and collective action is necessary to reduce trade transaction costs along regional transport corridors. Trade corridors, such as the TEN-T corridors3, are the geographic interface within the Western Balkan region and the locus of cooperation efforts. A recent resolution of the United Nations General Assembly stressed “the need for continued international cooperation to address the issues relating to transport and transit corridors as an important element of sustainable development.”4 In line with this, the raison d’être of this regional program is to provide appropriate incentives to overcome coordination failures and create positive externalities from collaboration. Coordination creates (a) additional incentives for reforms in individual beneficiaries; and (b) new incentives for collective actions that create added benefits at the regional level. Removing constraints in the trade corridors can allow the formation of Global Value Chains (GVCs) and promote better specialization of industries in the region. There is still major room to lower costs and improve quality of logistics and other services to reduce order-delivery turn-around times and expand participation in GVCs, especially in the EU markets. Adopting a corridor approach is therefore key to promoting integration and competitiveness in both coastal and landlocked areas. B. Sectoral and Institutional Context Sectoral Context 6. Trade in goods is not hampered by tariffs in the region and the greater part of the cost of exporting and importing is related to compliance with procedures and time spent at the Border Crossing Points (BCP) and Crossing Points (CP), which include inspections, and custom clearance procedures. The WB6 are part of the Central European Free Trade Agreement (CEFTA) where they have removed tariffs on all goods. Exports from the Western Balkans Six can enter the EU tariff free, apart from quota restrictions on certain agricultural products. Yet, only 10-20 percent of firms are exporters.5 For example, 87 percent of Albanian firms sell entirely to the local market, 10 percent export to the EU, and only 3 percent sell to other Western Balkans Six. Thus, the crucial actions for trade in goods is not market access but to reduce the non-tariff measures and time and costs to trade. 7. While traders face many obstacles exporting to the Western Balkans, the main obstacles relate to customs procedures and inspections. For instance, the largest obstacle for firms in Serbia is the need for hardcopy documents or certificates hampering exports to the region. The key obstacles faced by Albanian firms are unnecessary physical inspections (11 percent) and inconsistent rules of origin (6 percent). Many of these obstacles can be removed with trade facilitation. 8. Women entrepreneurs in WB6 appear to face higher challenges in dealing with customs and import and export procedures, most likely due to the nature of their shipments. For example, in Serbia, women-managed 3 The Trans-European Transport Network (TEN-T) is a European Commission policy directed towards the implementation and development of a Europe-wide network of transport infrastructure. It consists of two planning layers: (i) The Comprehensive Network: Covering all European regions, and (ii) The Core Network: Most important connections within the Comprehensive Network linking the most important nodes. The ultimate objective of TEN-T is to close gaps, remove bottlenecks and eliminate technical barriers that exist between the transport networks of EU Member States, strengthening the social, economic and territorial cohesion of the Union and contributing to the creation of a single European transport area. The policy seeks to achieve this aim through the construction of new physical infrastructures; the adoption of innovative digital technologies, alternative fuels and universal standards; and the modernizing and upgrading of existing infrastructures and platforms. 4 Role of transport and transit corridors in ensuring international cooperation for sustainable development , A/RES/69/213, adopted on December 19, 2014. 5 Balkan Barometer 2016. Page 10 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) firms reported spending on average 14.3 days to clear imports from customs and 2.5 days to clear direct exports through customs, as compared to only 3 days and 1.8 days, respectively, for their male counterparts.6 Similarly, 6.7 percent of the surveyed women-managed firms identified trade and regulations as a major constraint as compared to 4.6 percent of male-managed firms. It is key to underline that empirical analysis shows that women-headed businesses, which are in majority Small and Medium Enterprises (SMEs), suffer from higher logistics costs due to their low volumes and are forced to rely on intermediaries. Low volumes are de facto and inherently more expensive to serve, regardless of whether the shipper in question is a woman-headed business or a man-headed business. 9. Female entrepreneurship represents an untapped source of employment generation and private sector growth7. A 2015 Mckinsey research8 involving both advanced and developing countries showed that if women play an identical role in labor markets to that of men, 26 percent could be added to global annual GDP by 2025. In this regard, identifying and addressing potential barriers that women entrepreneurs face in undertaking trade across the WB6 can contribute to economic growth. The above findings will be further analysed through the project with an emphasis on using the MPA instrument as a tool to learn more about the gender dimensions and challenges in the Western Balkans region vis a vis trade, trade facilitation, and transport across the Western Balkans (details are provided in the Appraisal Summary and in the learning agenda section). 10. Transport logistic performance for Western Balkans Six remains weak and hampers efficient movement of people and goods (Figure 1). The region has undertaken massive infrastructure investments, including about US$15 billion since 2004 under the South-East Europe Transport Observatory (SEETO)9 Comprehensive Network. The additional financial needs, covering both physical interventions and “soft” measures were estimated in 2014 roughly at about US$10 billion, which is about 10 percent of the total regional GDP. This is a large financial burden on the budgets of the Western Balkans governments and therefore requires careful planning, prioritization and the development of a project pipeline aligned with available financing from national public and private sources, the EU, and International Financial Institutions. However, the benefits of these investments will not be realized unless non-physical barriers are removed. The potential benefits of reducing the cost of connectivity are substantial. Savings could exceed US$ 1.1 billion per year or 1 percent of the region’s combined GDP if logistics costs were brought in line with those of the EU.10 11. Western Balkans Six’s transport infrastructure and key economic sectors, including patterns and volume of trade logistics, are highly vulnerable to several climate risks, including increased likelihood of extreme weather events due to climate change. The GFDRR Think Hazard tool estimates major climate-related risks that are likely to impact the region and that will expose the vulnerabilities in the transport sector. Among them, six risks are rated as high in at least one of the beneficiaries: river flood, urban flood, coastal flood, earthquake, landslide and wildfire. The main areas at risk affecting the transport sector are: i) Landslides and unstable slopes along highways, main roads and railways; ii) Transport infrastructure near river flows and plains which can be affected by floods in spring and summer, rising groundwater levels and snowdrifts in winter periods; and iii) River and sea port infrastructure. Based on available data and current, available climate projections, exposure 6 World Bank Enterprise Surveys http://www.enterprisesurveys.org/ 7 GPFI, IFC 2011 “Strengthening Finance for Women-Owned SMEs in Developing Countries” 8 Mckinsey Global Institute 2015 “The Power of Parity: How Advancing Women’s Equality can add $12 trillion to Global Market” 9 The Transport Community Treaty between the European Union and the Western Balkans, signed in July2017, superseded SEETO. The key objective of the Treaty is to deepen integration of the Western Balkan region with the EU transport market towards common standards, network efficiency and quality of service offered to citizen and businesses. 10 World Bank REBIS study, 2015 update. Page 11 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) to threats from climate change in the region will continue to increase.11 As a clear example, the Western Balkans have experienced serious incidences of extreme weather events in the past two decades, including the floods in May 2014 and April 2016 that caused severe economic losses. The regular occurrence of floods continues to represent a substantial livelihood risk. The most vulnerable regions are the areas along the largest rivers and their tributaries. These areas tend to be rich in agricultural holdings, with an expanding SME (small and medium- sized enterprise) sector, core transport infrastructure and industrial facilities, among which the most important are energy production (i.e. coal mines). Many historical and touristic sites can also be found in these vulnerable areas. During the floods of May 2014, the negative effects of disasters were evident. The extraordinary rainfall affected notably Serbia - the largest precipitation event in 120 years. For instance, Serbia suffered damages and losses amounting to 4.7 percent of GDP as a result of the 2014 floods, with transport being one of the most disrupted sectors. The project will contribute to strengthening climate resilience of transport sector in the WB6 through targeted infrastructure activities at border crossing points, crossing points and railway level crossings, and by introducing early warning systems to monitor and address climate change risks on the road network. Figure 1: Weak logistics sector in the Western Balkans Source: Logistics Performance Index 2018. 12. Building resilience to climate change and geophysical hazards is a vital step in the fight against poverty and for sustainable development. While there is a lack of historical and observational data to monitor the climate change sensitivity/vulnerability of different sectors and ecosystems on the basis of unified and recognized system of indicators, an ongoing World Bank Technical Assistance aims at "Strengthening the integration of disaster risk management and climate resilience in road transport to improve trade and competitiveness in the Western Balkans region". This activity will support the development of a more resilient trade and transport infrastructure in the Western Balkans and the findings and recommendations will be used during implementation of this Project. Also, transport sector significantly contributes to particulate matter air pollution (PM10 and PM2.5), responsible for premature deaths and loss of healthy life years, resulting in lost earnings and increased healthcare costs and constraining productivity and economic growth. Key components of particulate matter air pollution are Black Carbon and its co-pollutants; Black Carbon is a Short-lived Climate Pollutant (SLCP) with a high climate-warming impact. High levels of air pollution are a severe problem in all WB6 (critical in some areas in North Macedonia), but true extent and costs to health and economies are not known due to a lack of information/data. The data that will be collected through GHG (SLCP) emissions monitoring 11Looking beyond the horizon: how climate change impacts and adaptation responses will reshape agriculture in Eastern Europe and Central Asia, Neumann, James E. et al., The World Bank, 2013. Page 12 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) systems in the weather stations on highways will be valuable for policy development and additional activities in pursuing low-emissions development path in the WB6, by linking their specific climate change and development priorities (e.g. improving air quality) to reducing GHG emissions. The MPA will ensure that lessons learned from the first phase are integrated in the design of the second phase of the Project. 13. Lastly, as part of the global effort in combating climate change, the Western Balkan Six committed to reduce their Green House Gases (GHG) emissions and identified a number of policies and measures to achieve such related targets. GHG emissions coming from transport sector constitute a significant share of emission profiles (for instance, from 2000 to 2014, the overall GHG emissions in Serbia increased by 9 percent, which was largely accounted to the increase in emissions from the road transport sector). Therefore, modernizing transport infrastructure and services, as well as improving traffic flows will support the efforts to achieve their climate change mitigation targets, including those that have been put forward as part of their Nationally Determined Contributions (NDCs) under the UNFCCC (where transport is included as a priority sector).12 Specifically, GHG emissions reductions and mitigation co-benefits will be achieved through activities in Components 1 and 2 of the Project: (i) digitalization of customs clearance process through the adoption and implementation of National Single Window (NSW) will reduce the use of paper and demand for traveling and transport of government officials and traders; (ii) faster crossing will reduce truck idling times at border crossing points and crossing points, (iii) construction works at existing and new border crossing points will include installation of solar panels, energy efficiency improvements on buildings, and planting trees around parking areas. Weather stations that will be installed within investments for Intelligent Transport Systems (ITS) will collect data and monitor GHG emissions from road transport (specifically SLCP emissions causing air pollution), and improvements on railway infrastructure will make railway transportation mode more efficient, reliable and attractive, and help towards a modal shift of freight and passenger transport from road to rail. 14. Finally, services exports for WB6 are dominated by tourism and transport, which accounted for over 40 percent of services exports in North Macedonia and Serbia, and over 80 percent in Albania. Services account for a comparatively smaller share of total exports of goods and services. High productivity services such as professional and financial services are a small proportion of services exports on average and there is a considerable potential to expand their share. Services trade within the region remains hampered by restrictions on market access and domestic regulations. Institutional Context 15. Trade and transport facilitation are key elements of WB6’s efforts to deepening economic integration in the region and the EU. The WB6 are committed to this agenda with a clear EU accession perspective and integration into the multilateral trading system. The Western Balkans Six, the EU, and the main regional organizations have all recognized the importance of the regional cooperation and have committed to supporting the integration agenda. The Central European Trade Facilitation Agreement (CEFTA) is spearheading the regional Trade and Investment Integration in the Western Balkans and Moldova. The members of CEFTA have negotiated an Additional Protocol (AP) on Trade Facilitation (AP5) to further integrate the region, modeled on the requirements of the World Trade Organization Trade Facilitation Agreement (WTO TFA). The AP5 entered into force in early 2018 after the first three countries ratified it (North Macedonia, Moldova and Montenegro); followed by ratification in Serbia in October 2018; the process in the remaining WB6 is pending. As WTO members, Albania, North Macedonia, and Montenegro have accepted the requirements of the WTO TFA.13 12www4.unfccc.int/ndcregistry/PublishedDocuments/Bosnia%20and%20Herzegovina%20First/INDC%20Bosnia%20and%20Herzegovina .pdf 13 The WTO TFA came into force on February 2017. CEFTA Parties, which are not yet WTO Members, have committed to the obligations Page 13 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) CEFTA parties also just completed negotiations of an additional protocol that focuses on services liberalization, which is not in force yet. 16. In addition, the Transport Community Treaty (TCT), signed in July 2017 by the EU and the WB6, supports the deepening of European Integration of the Western Balkans in the field of transport.14 The TCT allows for progressive access to the transport market of the EU in exchange for the application of relevant EU norms, including in the areas of technical standards, interoperability, safety, security, traffic management, social policy, public procurement and environment. The permanent Secretariat of TCT, seated in Belgrade, will support, inter alia, the definition and monitoring of the Transport Network and its performance, the improvement and harmonization of regional transport policies and technical standards for the TENT-T corridors, including the Comprehensive Network development, the maintenance of an effective coordination and communication network for the Comprehensive Network, and the integration of the Comprehensive Network development in the framework of the wider Trans European Network. 17. These regional and multilateral processes to furthering the economic integration of the Western Balkans into the world economy have been complemented over the last four years by a high-level diplomatic effort, initiated in Berlin in 2014 (“Berlin Process”), which centers on a yearly summit between Head of Government of the Western Balkans and participating EU members states. This inter-governmental cooperation aims at revitalizing ties between Western Balkans Six and participating EU Members States, and at improving, amongst others, regional cooperation in the Western Balkans on the issues of infrastructural and economic development. The four summits held to date led to the definitions of common priorities around regional cooperation, migration, the rule of law and good governance, and focused on energy connectivity, transport connectivity and trade facilitation.15 The summit held in Trieste in July 2017 led to the adoption of Multiannual Action Plan (MAP) which provides a structured agenda for furthering regional economic integration, focusing on regional circulation of goods, services and capital, mobility of skilled workforce, a dynamic investment space, and digital integration. 16 This proposed program is anchored and fully congruent with these regional efforts. C. Relevance to Higher Level Objectives 18. The Program is aligned with the World Bank Group (WBG)’s twin goals of reducing poverty and promoting shared prosperity and with the Country Partnership Frameworks for the period ending 2021, as well as the priorities outlined in the Systematic Country Diagnostics (SCD). The program will contribute towards enhancing conditions for accelerated private sector and economic growth, boosting employment and improving the business environment in the region. The program will enable increased private sector-led job creation and improved access to new economic opportunities. By strengthening export-driven economies it will contribute to meaningful convergence with the EU. 19. The program is fully congruent with the EU accession process and EU efforts to promote closer integration with the Western Balkans region.17 The objective of the SEE 2020 Strategy is to encourage convergence to EU in the WTO TFA under the CEFTA Additional Protocol 5. 14 The TCT covers all modes of transport, except aviation, which is covered by European Common Aviation Area Agreement (ECAA). 15 Berlin summit in 2014, Vienna Summit in 2015, Paris Summit in 2016, and Trieste Summit in 2017. 16 The MAP stems from the commitments undertaken within the framework of the Central European Free Trade Agreement (CEFTA) and South-East Europe 2020 Strategy (SEE2020) and is based on CEFTA and EU rules and principles as reflected in the Stabilization and Association Agreements (SAAs). It foresees implementation of actions at all levels in the period between 2017 and 2020 (with some actions extending until 2023). 17 EU acquis chapters related to trade and transport include: For trade: (i) Chapters 1 to 3 deal with free movement of goods, labor, and services; (ii) Chapter 12 covers the rules in the area of food safety; (iii) Chapter 28 relates to the protection of consumer goods and ensuring public health and safety; and (iv) Chapter 29 covers issues relating to the Customs Union and the implementation of Customs Page 14 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) standards and levels of income. The WB6 are at different stages of the accession process. Serbia has already opened negotiations, while Albania and North Macedonia have reached candidate status. 20. All the participating beneficiaries have agreed to proceed with this regional program without prejudice to their respective relations and for the purpose of achieving the common goal of facilitating trade and transportation for the benefit of the citizens of the Western Balkans. D. Multiphase Programmatic Approach 21. Rationale for Using MPA. The proposed Multiphase Programmatic Approach (MPA) will facilitate the achievement of the Western Balkans Governments’ goal of reducing trade costs and increasing transport efficiency through a longer‐term, adaptive, and continuous engagement. The MPA has several advantages over the alternative approach of a Series of Projects with multiple borrowers: a) A longer‐term engagement from the Bank on this agenda sends a strong signal to Governments and partners on the importance of the long-term commitment towards EU integration. Improving transport efficiency and reducing trade costs in a context of multiple sectors, multiple stakeholders, multiple borrowers and different political cycles might result in a fragmented or even duplicative approach to program implementation by Government and fluctuating support from development partners. A longer-term programmatic approach with significant Bank financing can anchor the agenda and allow stakeholders to plan for the longer term with greater coherence. b) The MPA emphasizes an adaptive approach and encourages the integration of lessons learned from one phase to another. It will be important to gather feedback from private sector representatives on the effectiveness of project activities in easing customs rules and regulations and increasing transparency and accountability of crossing procedures. For instance, phase 1 will test the sustainability of the technological solutions implemented through the National Single Window (NSW), the Intelligent Transport Systems (ITS) on the corridors, the Vessel Traffic Management Information System (VTMIS) and other technological inputs to the project and assess their efficiency, sustainability and replicability for phase 2. More details on the lessons learned and the learning Agenda of the Program are provided in the related section of the present document. c) The program Theory of Change is structured around the following three key elements: (i) facilitating movement of goods across the Western Balkans; (ii) enhancing transport efficiency and predictability; and (iii) supporting market access for trade in services and investments. Achievements in these three areas should result in increased flows of trade in goods, services and investments within the WB6 and between them and the EU, and, consequently, increased integration and economic growth. 22. The proposed Program includes two phases which will be implemented over five years each. Phase 1 includes Albania, North Macedonia and Serbia. The proposed phasing was determined in consultation with the borrowers and reflects their current level of readiness, political commitment, complementarities with ongoing interventions financed by other International Financing Institutions and donors and or the synergies and prioritization along key corridors. The phases will overlap to ensure complementarity and incorporation of lessons and experience from preceding phases. The design of phase 2 will consider the capacity of institutions, contributions of other partners, and technical competencies and challenges. The phasing is also modular; codes, regulations and procedures; and for transport: (i) Chapter 14 deals with technical and safety standards, security, social standards, state aid control and market liberalization; and (ii) Chapter 21 covers the development of the common-interest projects for the extension of the TEN-T network (energy and transport) into the Western Balkans. Page 15 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) overlap ensures that essential activities in each phase continue without a gap in program roll‐out while subsequent phases are being prepared. The phase 1 is described in detail in this document. The details of phase 2 will be developed based on experience and lessons learned from the preceding operations. Table 1Table 1 summarizes the Program Framework and phased financing supported by the MPA. 23. Program Theory of Change (ToC). The program Theory of Change is structured around the following three key elements: (i) facilitating movement of goods across the Western Balkans; (ii) enhancing transport efficiency and predictability; and (iii) supporting market access for trade in services and investments. Achievements in these three areas should result in increased flows of trade in goods, services and investments within the WB6 and between them and the EU, and, consequently, increased integration and economic growth. Figure 2: Program Theory of Change 24. Phase 1 of the program is a US$90 million IBRD financing, covering 3 out of the WB6 with the highest level of readiness (Albania, North Macedonia and Serbia). Phase 1 will include a combination of investments, technical assistance and regulatory and institutional reforms. It will primarily focus on a) the adoption and implementation of a National Single Window (NSW) solution; b) the improvements in border crossing points and crossing points in selected trade corridors; c) the adoption of an Intelligent Transport System (ITS); and d) technical assistance and support for the implementation of regulatory and institutional reforms needed in line with specific commitments under the Additional Protocol 6 (AP6). In Albania, some activities include but are not limited to the implementation of the NSW, development of the National Transit Application and Economic Operator Registration and Identification (EORI), adoption of Vessel Traffic Management Information System (VTMIS) system and technical assistance and support for the implementation of regulatory and institutional reforms. In North Macedonia, this same technical assistance support will be provided together with NSW implementation/interface with existing systems, and deployment of ITS on the A1 motorway, which is part of Corridor X, including Technical Assistance on ITS implementation of EU Directives (legal and technical). In Serbia, Page 16 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) activities include adoption and implementation of a NSW solution, installation of Electronic Data Interchange (EDI) systems for railways, developing overall ITS architecture and deploying it on Corridor X, and improving specific railway level crossings (RLC) on the network. 25. Phase 2, estimated at US$50 million, will scale up to the remaining Western Balkans Six beneficiaries. This phase will also aim to deepen multi-sectoral engagement to build on phase 1 efforts to establish trade costs reduction and transport efficiency increase as a long‐ term priority with sustained high‐level commitment and a broad set of stakeholders. This phase will institutionalize knowledge transfer and capacity building modalities to improve management and delivery of quality services within the public system and other relevant institutions. The phase 2 will require a specific environmental and social impact assessment, similar to the assessment and analysis done for phase 1; would the risk and impact at phase 2 be higher than phase 1, the project would be submitted to the Board for consideration and approval. 26. Three principles will underlie the proposed program throughout the phases. First, the program design will build in flexibility to ensure a responsive system based on the evolving needs, results and priorities. Second, from the outset, the program will build mechanisms for transferable knowledge and capacity building, both across the region and across different components. Third, adaptive learning, learning from operational roll‐out and experimentation, will continue to be at the core of the program. Table 1: Program Framework Program Development Reduce trade costs and increase transport efficiency in the Western Balkans Objective Sequential or Estimated Amount (US$ Estimated Overall risk Phase IPF or PforR IBRD, IDA, TF, PPP Simultaneous million) Approval Year rating 1 Simultaneous IPF 90 IBRD Q1FY19 Substantial 2 Sequential IPF 50 IBRD Q1FY22 Substantial Estimated engagement for the Program 140 (Phases 1 and 2) 27. Program Development Objective. The proposed PrDO is “to reduce trade costs and increase transport efficiency in the Western Balkans”. The PDO indicators for the Program are: (i) Total trade cost (sum of WB6’ cumulative import and export cost); (ii) Cost to import (average per shipment, disaggregated by beneficiary); (iii) Cost to export (average per shipment, disaggregated by country); and (iv) Average freight transport time on targeted corridors (disaggregated by corridor). II. PROJECT DESCRIPTION A. Project Development Objective 28. The Project Development objective for the first phase is to reduce trade costs and increase transport efficiency in Albania, North Macedonia and Serbia. The PDO indicators for this operation (phase 1) are the same as Program level as they will be aggregated to provide cumulative results.18 18 More details are provided in the Results Framework in Part VIII. Page 17 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) 29. Periodic collection and processing of data will be critical for successful monitoring and development of the MPA. Data collected from Doing Business Reports, GHG (SLCP) emissions monitoring systems, surveys and studies during the program will influence policy development and additional activities to facilitate implementation. The existing and proposed surveys and studies will provide the historical data to support development of the architectural designs for NSW, EDI and other ITS systems to be established in the project and capture citizen feedback, social outcomes and course correction measures. Surveys will use gender disaggregated data to measure economic and social impacts and how the project interventions have changed the way of doing business, including for local SMEs and small entrepreneurs and with specific reference to reduced transport and waiting times at CPs. The findings will serve to inform the design and implementation of the following phase under the MPA. B. Project Components 30. The program is structured around the following four components, which are common across the region and phases, albeit the specific scope of activities is adjusted for each beneficiary. This section provides an overview of each component, with activities identified for phase 1 beneficiaries. Further details are provided in Annex 1. 31. Program Component 1: Facilitating movement of goods across the Western Balkans. The component focuses on (a) the adoption and implementation of the National Single Window (NSW); (b) the improvements of border crossing points and crossing points in selected trade corridors, and c) the implementation of Electronic Data Interchange (EDI). Design and Installation of a National Single Window 32. In Western Balkans Six, the National Single Window (NSW) is a common objective to support trade facilitation and a commitment under the WTO TFA.19 The project finances the design, development and implementation of a NSW solution and the associated reform and modernization of customs and other agencies regulating import and export procedures. The NSW solution will improve transparency and integrity, lower trade transaction costs, improve inter agency coordination and reduce the time taken to clear goods. Also, the digitalization of customs clearance process will reduce the use of paper and travelling of government officials and traders, contributing to the reduction of GHG emissions. Estimated amount of GHG emissions reductions is 28,000 tCO2 (2023-2036). There are two parts to implementing a NSW – a preparation and design part and an automation part – that will generally take 5 years to complete (corresponding to phase 1 under the proposed program). This time framework conforms to the timeline set out under the WTO TFA, where the WB6 have committed to implement a NSW in 5 years. While the automation is an important component, the preparation and design part is crucial to the success of the NSW and it will involve structured and regular engagement with the ultimate users of the NSW. Crucial first steps involve reviewing the current national legal and regulatory framework for trade and other related areas that governs the functions and operations of the single window. The legal review will establish whether there are any legal impediments to the implementation of a NSW and identify any gaps in the current legislations. Then, a blueprint will be developed, including: the governance structure to oversee the single window; the operational model and fee structure to implement the model; an integrated grievance redress mechanism, and change management systems and organizational and human resource management in the customs and agencies regulating import and export procedures. 19 Among first phase beneficiaries, Albania and North Macedonia are already WTO members, while Serbia is under accession. Page 18 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) 33. In addition, and in compatibility with the NSW, the project will support and expand the New Computerized Transit System (NCTS).20 Union Transit governs the movement of goods between the EU Member States. Common Transit is an agreement providing a mutual system for Custom transportation between the EU Member States and the EFTA countries (Norway, Switzerland, Liechtenstein, and Iceland). With regards to non- EU countries and the participating parties, it has been implemented thus far in North Macedonia, Turkey and in Serbia. One of the project’s objectives will be to investigate the details of this system, the functionality of the system in the WB6 it is present in, and the possibility of further roll-out across the remaining WB6. Improvements in Border Crossing Points and Crossing Points in Selected Trade Corridors 34. The project will improve infrastructure and IT facilities at the key border crossing points of Kjafasan/Qafe Thana (North Macedonia/Albania), as well as Deve Bair (North Macedonia/Bulgaria). This will be achieved through establishing single operational one-stop shop when possible (Kjafasan/Qafe Thana) and aligned with bilateral agreements, system and infrastructure upgrade and implementation of Electronic Data Interchange (EDI). This component consists of improvements and repair of selected facilities and accesses, as well as provision of equipment to expedite inspection to speed up the flow of goods. These include but are not limited to new parking spaces, upgrade of administrative buildings, construction of one-way carriage ways exclusive for cargo and improvement of traffic flow through the Customs terminal. The construction of new roads is not envisaged. Main benefits will be improved traffic throughput and reduced truck control and freight inspection time, enabled by modern physical facilities that support procedural modernization. The project also supports the integration of information flows among border agencies and harmonization of their operational procedures, such as opening hours and shift changes. The project supports the development and implementation of local technical solutions for exchange of information. In addition, this component supports information flows between border agencies and traders or transport operators, where gaps remain. In Serbia, the project includes the installation of Electronic Data Interchange (EDI) systems for the railways, to facilitate the exchange of information between the railway agencies and stakeholders. 35. In a context of high climate change vulnerability, this component will improve Western Balkans adaptation to the anticipated impacts of climate change. It will achieve this goal by incorporating climate resilient design to address extreme rainfall events at Border Crossing Points and Crossing Points’ buildings and related infrastructure. Investments in CP such as administrative buildings, carriageways and access roads, and road surfaces will be designed to take into consideration climate change risks. For instance, specifications will include requirements for drainage structures and roofs to handle more intense and frequent storms. Road cuts, embankments and drainage structures will be protected from erosion with appropriate geotechnical and soil bioengineering technologies. 36. Component 1 will also provide contribution towards mitigation by reducing GHG emissions through lower truck idling times at BCP and CP and energy efficiency improvements in existing building, including with the installation of solar panels and the planting of trees in these areas. Investments will indeed constitute an opportunity to undertake mitigation activities in existing buildings, such as energy efficiency improvement in lighting, appliances and equipment and architectural or building changes that enable a reduction in energy consumption. New buildings will use highly efficient architectural designs, energy efficient appliances and equipment, and building techniques that reduce building energy consumption, exceeding available standards and complying with high energy efficiency certification or rating schemes. In addition to energy efficiency 20Europe-wide system based upon electronic declarations and processing and is designed to provide better management and control of Community and Common Transit to decrease the risk of fraud. Page 19 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) improvements, construction works at existing and new border crossing points or crossing points will include installation of solar panels as a secondary electricity source and planting trees around parking areas. 37. Program Component 2: Enhancing transport efficiency and predictability. This component will focus on (a) the adoption of an Intelligent Transport System (ITS) and corridor performance monitoring, and (b) the improvement of Railway Level Crossings (RLC). Intelligent Transport System (ITS) and corridor performance monitoring 38. The project will introduce ITS on the maritime sector and on selected road corridors and will integrate the existing ITS elements in an overall ITS architecture deployment. In Albania, the deployment of a Vessel Traffic Management Information System (VTMIS) would be key to the monitoring of vessel traffic. VTMIS is as an extension of the Vessel Traffic Service (VTS), in the form of an Integrated Maritime Surveillance, which incorporates other telematics resources to allow allied services and other interested agencies in the direct sharing of VTS data or access to certain subsystems to increase the effectiveness of port or maritime activity operations. Therefore, the combination of VTS/VTMIS is a technical, legal, and institutional setup facilitating systematic monitoring of vessel movements and their physical and information tracking, aiming to increase safety standards and traffic efficiency. The project also envisages the implementation of ITS on parts of Corridor X with several devices such as: a system for collecting data on traffic flow from inductive loops that are positioned into the carriageway, Weight in Motion (WIM), elements to control the height of vehicles that access highway, Road Weather Information System (RWIS), which is a system to collect data on weather conditions and air pollution and monitor GHG emissions (specifically SLCP emissions causing air pollution), and a system to detect the transport of dangerous goods. This component will also provide Technical Assistance on ITS implementation of EU Directives (legal and technical dimensions). 39. This component will increase the climate-resilience of transportation networks with the introduction of Intelligent Transport Systems on Highways, more specifically with the installation of Road Weather Information System (RWIS), which consists of road weather stations built to collect data on weather conditions and air pollution and an early warning system along corridor X, which is a system for monitoring stability of bridges, tunnels, embankments, landslides and slopes (resilience dimension). The weather stations shall become part of the meteorological services' monitoring network, which may use the data to further refine their predictions and emit regional alerts related to extreme weather events (such as storms, flooding events, etc.) or alerts on air pollution. This information will be sent to the ITS control centers which, following a previously designed protocol, will display warning messages along the potentially affected areas and provide alternative routing, recommended mitigation measures vis-à-vis air pollution, and safety recommendations to road users. The control centers will also have direct access to the weather stations’ data in order to display warning messages on real time weather conditions or air pollution and improve communication and responses in the event of a natural disaster or pollution. Monitoring GHG emissions (SLCP) will contribute to climate change mitigation and building resilience in participating beneficiaries by supporting policy development and additional activities in pursuing low-emissions development path in the WB6. This data is scarce in all WB6 regional participants, which increases their value for further research related to air quality and reducing SLCP emissions from road transport. Through the Multi Phase Programmatic Approach, the findings and lessons learned will also be used to design the second phase of the Project. 40. The project will support the development of a Corridor Performance Tool, building on the development of an earlier pilot on Corridor Vc, by focusing on expanding the system capabilities to include a large set of key performance parameters for monitoring; testing various technological solutions for more cost efficient Page 20 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) system management and maintenance; exploring win-win arrangements for data collection and data sharing among data providers for system sustainability; and preparing for full scale deployment of the monitoring on corridors in Western Balkans. The improvement of specific Railway Level Crossings (RLC) on the network 41. The project will finance the improvement of 60 Railway Level Crossings from the Core and Comprehensive Railway Network in Serbia. The activities will consist of: a) improving the level of safety on the most unsafe and complex RLC; and b) improving Traffic Signaling, interlocking devices and power supply at the railway crossing. The improvements of railway level crossings will consider the risks related to climate -impacted natural hazards (i.e flood/extreme precipitation events and landslides) and contribute to country’s efforts to adapt to anticipated effects of climate change. The project will also finance Reliability, Availability, Maintainability, Safety (RAMS) system. Railway RAMS is an engineering method that integrates reliability, availability, maintainability and safety characteristics to ensure the operational objectives of a railway system. In the recent years it has become a rapidly growing engineering discipline because it can achieve a defined railway traffic service timely, safely and cost effectively. The improvement of existing rail infrastructure (RLC) included in this component will have mitigation co-benefits by making this mode more efficient, reliable and attractive. This helps towards a modal shift of freight and passenger transport from road to rail. 42. Program Component 3. This component will support the implementation of commitments to improve market access in services and foster regional investments. Activities under this component will consist of technical assistance to implement the regulatory and institutional reforms needed to comply with the WB6 specific commitments to liberalize trade in services. The technical assistance will be anchored in the commitments made at the regional level, including the CEFTA AP5 as well as AP6 on Trade in Services and the MAP. CEFTA parties have concluded technical discussions for a consolidated offer on services liberalization in December 2016 and have committed to adopt the AP6 in 2018. Market access commitments in the AP6 cover all services sectors and parties have made specific commitments across all sectors and the four modes of service delivery.21 In parallel parties have started working on mutual recognition of professional services, which are part of the horizontal EU Acquis all parties will have to comply with under the Services directive (together with the right of establishment). PIU staff will be trained in climate mitigation and adaptation as relates to the transportation sector and infrastructure development, as well as disaster risk management in order to raise awareness on climate change and maximize mainstreaming potential during the life of the Project. They will also learn about the main findings from the World Bank Technical Assistance aiming at "Strengthening the integration of disaster risk management and climate resilience in road transport to improve trade and competitiveness in the Western Balkans region" and will take part in key workshops to ensure smooth implementation. 43. Component 4. This component will support Project Implementation Units (PIU) and provide additional technical support, including for policy coordination, operating costs, and monitoring and evaluation of the program. This component will also support gender-related data analytical activities, and several citizen engagement mechanisms, including: (i) participatory planning and policy-making with regards to the NSW design and implementation; (ii) annual multi-stakeholder dialogues; (iii) corridor performance tool and (iv) an online grievance redress mechanism embedded in the single window platform. PIU staff as well as the Transport Community Treaty Secretariat staff will be informed about GHG monitoring systems within the project and the Page 21 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) potential use of the data for policy development and additional activities in pursuing low-emissions development path in the WB6. 44. The Program components will also be informed by the following cross-cutting areas: Gender and Citizen Engagement. With respect to Gender, the focus will be on barriers and higher costs faced by women-headed businesses, with an emphasis on using the MPA instrument as a tool to learn more about the gender dimensions and challenges in the Western Balkans region vis-a-vis trade, trade facilitation, and transport across the Western Balkans (details are provided in the Appraisal Summary and in the learning agenda section). Finally, with respect to Citizen Engagement, given the mobility and connectivity dimensions of the project that impact many users, the engagement of service users and the final beneficiaries of improved trade and transport facilitation will be prioritized during each phase of the project: participatory planning and policy-making, regular multi-stakeholder dialogues, and the development of an embedded grievance redress mechanism will be an integral part of the operation. Stakeholders and citizens will be kept well informed and will be able to submit their feedback, suggestions and/or complaints to improve the activities envisaged under the project (details are provided in the Appraisal Summary). C. Project Beneficiaries 45. Beneficiaries of phase 1 include but are not limited to producers, traders, exporters, importers and transport service providers, as well as customs and other agencies regulating import and export procedures. The envisaged growth in investment and trade will stimulate new employment and business opportunities, benefitting firms already involved in international trade and enabling new firms, particularly small and medium size ones, to access international markets. The effects are likely to be higher for time-sensitive goods, including perishable agricultural products and intermediate manufactured goods, which feature prominently in global value chains, where lead time and predictability are critical. Finally, the key benefit will be more efficient processing of international trade and transport documentation for both traders and the administration. Such efficiencies will enhance the transparency of transactions and reduce duplications and overlaps. The envisaged significant cost savings are expected to result in lower transport costs, reductions in GHG emissions associated with the decrease in truck idling time, reduced administrative costs to trade, and finally in increased competitiveness on regional and global markets. D. Rationale for Bank Involvement and Role of Partners 46. The World Bank has a unique role to play as convening power in supporting the trade and transport facilitation agenda of the Western Balkans Six and helping leverage and complement existing programs. World Bank has a deep engagement on trade and transport with most of the Western Balkans Six through support to the trade facilitation, and competitiveness agenda as well as via physical development of main regional corridors and connections to the corridors, and through analytical activities and technical assistance for improving the policy and regulatory framework and harmonizing them with the EU acquis. This deep engagement stretches to active cooperation with the main bilateral partners, and International Financial Institutions and partners (e.g. the EU) active in the Western Balkans on the trade and transport agenda. The WBG is uniquely placed to ensure commonalities of interest and complementarities of program with these IFIs and partners. The support from WBG will be crucial in assisting the Western Balkans Six complementing and leveraging resources from various partners and IFIs. The WBG is already ensuring a coordination role among partners in the regions and ensure the alignment of objectives at the national and regional levels. The WBG also Page 22 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) brings in international expertise in trade, custom processes, and National Single Window approaches, from other regions and successful experiences in global contexts. 47. The success of the proposed MPA will hinge on concurrent implementation of borrower-specific project in the phases and effective coordination among participants and stakeholders. This imposes additional burden during preparation across many dimensions, including for building consensus among multiple borrowers on the overarching development objectives, results framework and program design, assessing strategic relevance of supported program, and sequencing and designing of the program. For that purpose, the Bank will continue to engage with participants and stakeholders at different levels: contributing to the high-level policy discussions – including within the Berlin Process; supporting regional processes and fora such as CEFTA, and the TCT– through its convening power and ongoing technical assistance; and engaging with individual borrowers to assess their readiness and commitment to the program and defining details of the components and implementation arrangements. 48. The project design and implementation will also benefit from insights and multiple ongoing parallel technical assistance, which will complement the learning agenda and the rationale for involvement, such as: (i) the IFC/Bank funded Trade Facilitation Support Program (TFSP) which finances the Time Release Studies, the surveys, and the design of the NSW among others, (ii) the TA financed within CEFTA, (iii) the European Commission funded CONNECTA project, a EUR 7 million TA to analyze the border crossing and crossing investments, and the road safety and ITS dimensions, and (iv) a recently-launched project to review and assess non-tariff measures in CEFTA implemented by GIZ and the International Trade Center. The Bank has also mobilized additional Trust Fund resources to support the preparatory work related to the National Single Window. 49. The World Bank Group, through its initiative on Maximizing Finance for Development (MFD), aims at helping partners maximize their development resources by drawing on private financing and sustainable private sector solutions to provide value for money and meet the highest environmental, social, and fiscal responsibility standards, and reserve scarce public financing for those areas where private sector engagement is not optimal or available. This means, including for this proposed project, advising clients on whether a project is best delivered through sustainable private sector solutions (private finance and/or private delivery) while limiting public liabilities, and if not, whether WBG support for an improved investment environment or risk mitigation could help achieve such solutions. The proposed project, targets investments in public goods in areas under the sovereignty of the Western Balkans Six as they include trade regulation, customs and custom officers, and crossings. These investments are essential for strengthening the enabling environment for private sector financing and solutions in the manufacturing, trade and transport sectors. These solutions include the support to private sector participation for the provision of services, the maintenance and the operations of the NSW Portals, and ITS, for which private sector involvement will not only ensure an efficient operationalization but also ensure effectiveness of public financing and reduce illicit financial flows – for instance for the collection of user-based fees for the NSW, or for the potential initiatives on e-tolling systems in the region. Page 23 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) E. Lessons Learned and Reflected in the Project Design 50. Lessons learnt from previous regional engagement in the mid-2000s (two regional APLs, Trade and Transport Facilitation Project in South East Europe I (TTFSE I) and (TTFSE II) are integrated into the project design. The Program design has taken into consideration the recommendations provided by the World Bank Independent Evaluation Group’s review of various regional trade and transport facilitation projects (TTFPs) financed by the Bank in the Balkans region and other projects in Europe and Central Asian region. The two APLs successfully supported trade and transport facilitation in South Eastern Europe in the early 2000s in relation to the reduction of non-tariff costs to trade and transport as well as the reduction in smuggling and corruption at CPs. 2223These outcomes have significantly contributed to improving efficiency at CPs, although as developed above further improvements remain necessary. Key lessons learned from these projects include, amongst others, the need for close coordination between different agencies, and between agencies across the region as interagency cooperation at CPs is essential for delivering results, the need to bring forward a flexible approach to match counterparts needs and to provide adequate training and the need to fully consider the impact of institutional reform investments.24 51. Some of the key takeaways from the various TTFPs considered in the Program design include: a) Need to define precisely and realistically inter agency coordination at national level, and regionally, through specific agency-specific committees and workshops; b) Regular exchange of information, experiences, best practices and lessons between representatives of inter- ministerial committees in each country with other participating beneficiaries for increased harmonization of regulations, procedures and removal of other non-tariff barriers to support faster movement of goods and services; c) Information dissemination, training and capacity building of private sector representative bodies for feedback, suggestions, and participation, for improving project activities and contribute to reform regime on easing customs rules and regulations to increase transparency and accountability of any crossing procedures – are critical to the success of the program. 52. WBG experience with similar programs related to trade facilitation reforms in the Europe and Central Asia (ECA) region highlights that: (i) a clear concept and action plan for reform adopted at the highest levels of government are prerequisites for the reform; (ii) clarity in the mandates of border agency and/or national trade facilitation committees should be developed in consultation with the private sector and be clearly defined. The Bank held extensive consultations with all stakeholders jointly and have a strong commitment from the highest offices in the Western Balkans Six for effecting appropriate reforms to achieve the overall objectives of the Program. 53. Having learned the above for the design of this proposed program, the use of the MPA as an instrument has also the unique advantage of allowing for built-in, multilevel, phase-to-phase learning. The lessons learned from previous projects will be embedded in the learning functionalities provided by the MPA. Given that phase 1 beneficiaries (Albania, North Macedonia, and Serbia) are at different stages of implementing (1) elements towards National Single Windows, (2) Intelligent Transport Systems, and (3) reforms towards better market access, each beneficiary will provide significantly different lessons, learning that can be brought to bear in subsequent phases (for phase 2 beneficiaries). Further, the MPA approach will enable increasingly nuanced risk management, especially relevant for the Single Window and its own risks management for import and export procedures, as lessons are learned, and experiences gained. Feedback will allow the Bank to adjust program details while maintaining program objectives. The MPA will produce a great diversity of lessons and learning approaches to a more robust design of the legal and technical components of the project on the following dimensions: Page 24 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) a. Learning at the institutional and implementation level: the project will set up mechanisms for exchanging views on implementation among the participating beneficiaries, through ad hoc workshops where participating agencies and Ministries can present and discuss specific project-related activities, and a project- specific learning review where lessons learned from one beneficiary in implementing a specific activity can be transferred to another beneficiary. b. Learning at the Customs level: As a first step towards the development and implementation of a National Single Window System and to facilitate an informed decision-making process, the Bank organizes Visioning Workshops for trade facilitation stakeholders, including Representatives of all regulatory agencies with jurisdiction in import/export and transit operations and major private sector stakeholders are expected to participate in this workshop, ideally at the deputy head or department head level. Workshops will introduce the concept of the single window, demonstrate how harmonizing information available to the public, data and laws, and better coordination of import and export procedures, contribute to developing a NSW, and will start the development of a NSW Strategy. c. Learning at the transport data level: Most of the data required can be obtained from computerized sources (for port, rail, and customs for instance). However, all data relating to cargo moved by road require field surveys. A customized methodology will be used for survey data collection, under a Trust Fund for the regional resilience of the infrastructure and the trade strategies in the Western Balkans, managed by the same Bank team, as well as additional intermodal data from another activity, funded under another Trust Fund for the intermodal connectivity in the Western Balkans. The consultants under these two supporting activities will discuss with MoT semi-annual data and monitoring reports and propose actions for addressing identified problems. The Bank will also monitor semi-annual data during supervision missions. Key indicators have already been identified as part of the future Corridor Performance Tool. d. Learning on the gender dimension: A gender-related survey, planned to be undertaken under another IFC/Bank project, the Trade Facilitation Support Program (TFSP), will shed light on some of the gaps that exist around barriers that women traders face in undertaking trade across the Western Balkans at the firm level. This information will enhance the capacity of the respective governments to examine gender-differentiated barriers that women face in relation to business entry and clearance procedures and will be fed into later activities under the phase 1, as well as the design of the Phase 2 program vis-a-vis gender and entry or trade barriers for women. If results are deemed conclusive, activities would be designed and be deployed under Phase 1, including through potential interventions aimed directly at promoting more efficient non-asset based/intermediary logistics markets, which will indirectly help in promoting the scaling up of women- headed businesses. e. Learning on Intelligent Transport Systems (ITS): While Serbia and North Macedonia share a border, and have many similar objectives for the ITS deployment, the two countries are at different stages of sophistication and development. Each beneficiary may for instance adopt a different approach to enacting their legal framework. As such, they will yield up lessons that will facilitate work with Albania, and in other 22 The two APLs consisted of a number of projects in South East Europe dedicated to supporting the movement of trade between borrower and neighboring beneficiaries and to strengthening and modernizing customs administration and other border controls in Romania, Albania, Bosnia and Hercegovina, Bulgaria, Croatia, Serbia, Montenegro and North Macedonia included 9 different projects (P077079, P070086, P091723, P065041, P074090, P073626, P070079, P070088, P070089). 23 Refer to ICRs for the projects which received in majority satisfactory outcome ratings. 24 Cf. lessons learned and recommendations in following ICRs: ICR (IDA-36510), ICR (PPFB-P3720), and ICR (PPFB-P3720). Page 25 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) beneficiaries coming in subsequent phases. The Program will closely monitor these experiences and share lessons among the WB6. f. Learning across beneficiaries on trade barriers and customs: Regular exchange of information, experiences, best practices and lessons between representatives of Ministries and agencies in each country with other participating beneficiaries for increased harmonization of regulations, procedures and removal of other non- tariff barriers to support faster movement of goods and services; g. Feedback for learning: Information dissemination, training and capacity building of private sector representative bodies for feedback, suggestions, and participation, for improving project activities and contribute to reform on customs rules and regulations to increase transparency and accountability of border crossing procedures – are critical to the success of the program. III. IMPLEMENTATION ARRANGEMENTS A. Institutional and Implementation Arrangements 54. At the regional level, the Secretariat for Transport Community Treaty (TCT) will play the role of the regional coordination and liaison office for the Western Balkans Six, for all the transport related dimensions of the project. The CEFTA Secretariat will play the same role for the trade elements of the proposed project. These arrangements will be complemented, during project implementation by periodic workshops, activities at the regional level, to foster coordination and sharing of the lessons/experiences. The European Union, including through its CONNECTA technical assistance, will also be informed and invited to the coordination workshops. Sustainable corridor performance monitoring indeed requires appropriate regional-level institutional arrangements and secure financing. However, establishing such arrangements for systematic corridor performance remains a challenge. Corridor Vc was selected as a pilot with this challenge in mind under a previously funded Bank project, with the objective to scale up the tool for the entire Western Balkan corridors under this proposed project. The establishment of SEETO in the Western Balkans in 2004 to support regional integration of its regional participants in the EU provides an excellent basis for corridor performance monitoring for all the corridors in the region. Monitoring performance to ensure the adequacy of the infrastructure and the efficiency of transport- and logistics-related services is at the heart of the SEETO Secretariat’s functions. While the initial focus of SEETO at the time of its establishment was on the physical development of the regional transport network, there has been an increasing focus in the past few years on policy reforms and on addressing non-physical barriers impeding the full realization of the corridors’ potential. The TCT signed in 2017 will support these efforts. 55. At the national level, the institutional arrangement for project implementation agreed with participating beneficiaries in phase 1 is that Project Implementation Units (PIU), (placed either within the Ministry of Finance, or under a line Ministry, as detailed in Annex 2 for each country) have primary responsibility for project execution ensuring that the project development objectives are met. The implementing agency in each country will establish a Project Implementation Unit (PIU) with the overall responsibility for project implementation and ensuring that financial resources are budgeted, disbursed, expended, accounted and audited. In addition to the project specific arrangements, implementation of trade facilitation activities will also be supported by existing inter-ministerial coordination mechanisms, namely the National Trade Facilitation Committees (NTFCs) established in line with regional (CEFTA) and multilateral (WTO) trade facilitation commitments. The section on “Risks for Institutional Capacity for Implementation and Sustainability” below discusses the capacity of the implementation units and measures to strengthen to it. The respective NTFCs will Page 26 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) provide policy guidance and ensure inter-ministerial coordination and linkages with other line ministries to support integration of investments and activities undertaken. Details are provided in Annex 2. B. Results Monitoring and Evaluation Arrangements 56. The monitoring indicators apply both at the Program and project levels (phase 1). The chosen indicators would be replicated and adapted in subsequent phases to allow the effective measurement of the outcome and results and aggregated to provide cumulative results at Program level. 57. A detailed Results Framework (RF) for this operation is provided in Section VII. Progress on results and implementation will be monitored on a routine basis throughout the life of the program. Learning from Monitoring & Evaluation (M&E) data from each phase, including beneficiary feedback, will provide critical information for the development of the subsequent phases. Data on the progress towards achieving the phase 1 PDO and for intermediate indicators will be collected through the existing information systems and platforms. 58. A comprehensive M&E framework has been established for phase 1 to provide stakeholders with timely data regarding the progress and results. The Intermediate Results Indicators for phase 1 to achieve the objectives of the M&E, as well as the agencies responsible for monitoring, is given in Section VII. Other indicators, such as the GHG emissions monitoring, will not be captured in the M&E framework, but will be monitored by the Transport Community Treaty (TCT) Secretariat to provide insights on climate-change related progress at the regional level. 59. The overall responsibility for M&E of the outcomes under phase 1 will formally lie with the project implementation units (PIUs). These PIUs will prepare progress reports, with contributions from other stakeholders in each participating beneficiary and forward it to the World Bank for review. The PIUs will also rely on data and knowledge from regional fora (e.g. CEFTA, TCT), gathered through the relevant national authorities. 60. A Mid-Term Review (MTR) of the project (phase 1) will be conducted jointly by the governments of Albania, North Macedonia, Serbia and the Bank to assess the overall implementation progress towards meeting the PDO and take corrective measures, if any required. A stock-taking exercise will be conducted for each preparation and design step for each phase 2 beneficiary. In addition, beneficiaries under phase 2 will be invited to the MTR to allow for cross learning, project timeline permitting. Prior to the MTR, the PIUs will prepare a detailed report describing implementation progress and progress towards meeting the PDO and the intermediate indicators/targets, and remedial measures if any required to address limitations and or restrictions towards achieving the PDOs. 61. A robust system of monitoring and evaluation is paramount for this MPA and can rely on various data sources to analyze the impact of the components. Component 1 is expected to result in a reduction in administrative burden, measured by the number of documents and processing time, and feedback from users and other beneficiaries. The measurable indicators are a reduction in the time to trade, as well as, the design and implementation of a National Single Window linking key agencies together to reduce the time to import and export. The reduction in trade costs can be measured by the time taken through the Border Crossing Points (BCP) and Crossing Points (CP). The baseline scenarios for the WB6 are collected in the Time Release Studies (TRS), which measures the actual performance of Customs and other agencies activities as they directly relate to trade facilitation at the BCP and CP. The TRS are supported by the IFC/Bank Trade Facilitation Support Program (TFSP) and in the case of North Macedonia, the USAID REG Project. Currently there are TRS for all WB6, except Albania and Bosnia and Herzegovina, which have committed to undertake TRS. After the implementation of the NSW, TRS can be conducted to collect information about trade costs in the post-intervention scenario. Page 27 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) 62. The project will develop a full Corridor Performance Tool which will focus on time, reliability and cost of moving a container as well as bulk cargo along the main corridors on the Western Balkans. Reliability will be measured as the variance of the time to accomplish each stage of movement. Data would be collected for several stages that cargo goes through the Balkans: (i) dwell time at the port of Durres (ii) transit through country A, (iii) time at border crossing point or crossing point in country A, (iv) time at border crossing point or crossing point in country B, (v) transit through country B. The ability to track container movement using their identification numbers and bulk/cargo is at the center of the system that will be developed. The Bank will also monitor data during supervision missions and report on beneficiary feedback. C. Sustainability 63. The sustainability of the various facilitation measures to be supported by the program has endorsement of the participating governments, public and private sector beneficiary stakeholders. Extensive consultations were held with State and industry representatives to identify impediments in the functioning of various trade corridors. Solutions and suggestions emerging from these consultations have been incorporated in the project design. These participatory consultations will be further strengthened through continued efforts to collaborate with other corridors (outside the targeted corridors in the three beneficiaries under phase 1) to demonstrate course corrections and replicate systems to expeditiously unify the corridor traffic management systems for enhancing transport logistics in the region. 64. The social infrastructure for NSW will be mainstreamed within the domestic institutional framework, to evolve towards offering fee-based services. Since most of the investments financed under the Program are primarily directed towards supporting policy changes, establishment of institutional systems and Intelligent Transport Systems (ITS) related infrastructure, in addition to the costs of upgrading physical infrastructure at CPs, the Operation and maintenance (O&M) costs for these systems could be in the long-run recovered from collection of user fee charges. The project will analyze whether these costs could be supported by user fees, through the participation of a third or private sector party. This approach aligns with the WBG initiative on Maximizing Finance for Development (MFD), with the sustainability dimension related to revenue-making from the road network and its infrastructure, potentially with the participation of the private sector. IV. PROJECT APPRAISAL SUMMARY A. Technical, Economic and Financial Analysis (if applicable) 65. The design of this project was guided by global evidence that a package of high‐impact interventions of intertwined activities, delivered at scale and focused on the critical bottlenecks of transport and trade corridors can significantly increase growth and help economic integration. The WBG has supported and continues to support policy-lead reforms in the Western Balkans that highlight the importance of prioritizing infrastructure investments where the constraints are most binding, redoubling efforts to maintain existing infrastructure, and finding ways to augment scarce public resources to support these efforts. The proposed integrated technical design therefore relies on three intertwined components on 1) National Single Window and Entry Points, 2) Domestic Predictability and Safety of Freight Flow, and 3) Market access for services and Investments. 66. Within that paradigm, the soft measures for improving trade and transport facilitation such as streamlining crossing procedures are paramount to the transformative success triggered by infrastructure investments. Indeed, global experience from the WBG shows that the return on investment from costly Page 28 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) investment in infrastructure is substantially lowered if corridors are not well managed or if the time saved on the road is then wasted waiting at Crossing Points. The frustration felt by business people is palpable.25 Annual savings in the Western Balkans could exceed US$ 1.1 billion, about 1 percent of regional GDP, if logistics costs were brought in line with those of the EU. 67. With coordination, cooperation, and political will, coupled with ad-hoc investments such as the NSW, significant improvements in trade and transport facilitation are possible. Implementing joint controls and harmonized national single windows, introducing an Authorized Economic Operator system to reduce the need for customs inspections, and developing a system for joint risk management at customs can significantly improve efficiency at a low cost. In Singapore introducing a single window reduced the time to process trade documents from 4 days to 15 minutes. Collaboration among the Western Balkans Six would bring significant network and corridor effects to a systematic and comprehensive approach, and a real need to monitor performance to help sustain achievements, on both the transport and trade dimensions. 68. A detailed economic analysis, based on direct and indirect costs and benefits is conducted for component 1 focusing on the NSW, improvements at the CPs as well as for component 2 for the Intelligent Transport System. While these components are common across the three beneficiaries of Phase 1, the details of each component differ. For example, each beneficiary will implement a NSW solution, but their current systems and the amount of improvement and work needed are different, and some will have various type of CP improvements. Thus, the methodology used in the economic analysis will be the same but Economic Internal Rate of Return (EIRR) and Net Present Value (NPV) will be different. For all beneficiaries, the components are found feasible with high EIRR. The NPV and EIRR for the NSW and CPs improvement and ITS are described in Table 2. The detailed analysis and description of the methodologies are provided in Annex 4. Table 2: Summary of the costs and benefits of project components Country NPV (US$) EIRR (%) (1) National Single Window and CP improvements Albania 131 61 North Macedonia 220 84 Serbia 600 113 (2) ITS Albania 5 16 North Macedonia 20 23 Serbia 59 49 Note: The NPV is calculated over 10 years at a discount rate of 6 percent, in alignment with the World Bank 2016 note “Discounting Costs and Benefits in Economic Analysis of World Bank Projects” adapted to the Western Balkans’ context and GDP of Albania, North Macedonia, and Serbia. B. Fiduciary 69. Financial management arrangements have been instituted for each country within respective implementing entities, relying on same principles and best practices in all elements of financial management. Financial management arrangements for the project covers planning and budgeting, accounting, financial reporting, disbursement and flow of funds, internal controls and external audit. The arrangements are finalized for each beneficiary, based on the institutional arrangements for the project in all involved beneficiaries. In beneficiaries with more than one implementing entity, appropriate split of roles and responsibilities between 25 Doing Business Indicators, 2019. Page 29 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) entities, as well as channels of communication are ensured. Preferred arrangement in terms of financial management is having one implementing entity in each country in charge of fiduciary function for the project. Underlying implementation principles in each country is to have one designated account per country and appropriate internal controls and procedures, which are described and supplemented in Annex of the present document and the Project Operations Manual. The loan proceeds will be disbursed following standard Investment Project Financing disbursement procedures. Quarterly interim unaudited financial reports (IFRs) will be prepared by each beneficiary, in the same form and substance based on acceptable standards. Annual project financial statements will be audited by independent audit firm acceptable to the Bank based on the standard Terms of Reference for the audit of Bank IPFs. Appropriate financial management information systems are set to be in place in implementing entities to ensure efficiency and transparency in the use of funds. More details on a country per country basis are provided in Annex 2. 70. Synergies will be used where possible to ensure adequate fiduciary support to project implementation. While separate implementation arrangements including fiduciary have been designed for each country, in the area of financial management it is recommended that staff responsible for this function in each country exchange experiences at least on annual basis given the same project components and nature of activities. As mentioned above, the form and content of interim and annual reporting follows the same standard, and it is thus comparable and enables analysis of the financial data for the whole project. Similarly, during the preparation of the POM, the project specifics should be jointly considered in participating beneficiaries and adequate procedures designed and formalized in the POM. 71. Procurement under the Project will be carried out in accordance with the World Bank Procurement Regulations for IPF Borrowers “Procurement in Investment Project Financing for goods, works, non-consulting services and Consulting Services” (July 2016, revised Nov 2017 and Aug 2018). The project will also be subject to the World Bank’s Anti-Corruption Guidelines, dated July 1, 2016, and further will be governed by the provisions stipulated in the Financing Agreements (FAs) with respective country. The Implementing Agencies (IAs) in each country will use the Systematic Tracking of Exchanges in Procurement (STEP) system. STEP is a planning and tracking system, which would provide data on procurement activities, establish benchmarks, monitor delays, and measure procurement performance. Based on procurement capacity assessment conducted for the IAs in charge with project implementation in respective country, it was determined that the procurement risk varies from “Substantial” to “High”. 72. A Project Procurement Strategy for Development (PPSD) was prepared by each beneficiary, to outline the selection methods to be followed by the borrowers during Project implementation in the procurement of goods, works, and non-consulting and consulting services financed by the Bank. The underlying Procurement Plan for each country will be updated at least annually or as required to reflect the actual Project implementation needs and improvements in institutional capacity. The identified risks and the mitigation measures are detailed in the PPSD prepared in three participating beneficiaries; Annex 2 of the PAD includes summary of PPSD and details on the procurement arrangements and assessments, for each beneficiary. C. Safeguards Social Safeguards 73. Overall social impacts of the Project are expected to be positive. Improved trade and transport mobility as well as improvements at the Crossing Points will not only facilitate increased trade among the Western Balkans Six and contribute to economic prosperity in the Western Balkan region, but also support greater mobility of people. The project will finance upgrading of Crossing Point infrastructure such as construction of new parking Page 30 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) spaces and one-way carriage ways, and of administrative buildings. Small scale physical interventions such as infrastructure development at Crossing Points, where joint crossing facilities will be built, may require minor acquisition of private lands. No physical displacement is expected, and impact on livelihoods of local people will be limited, if at all. Whether or not land acquisition is necessary will be determined during implementation when the final list of physical investments is developed. OP 4.12 is triggered for precautionary purpose. A Resettlement Policy Framework (RPF) was prepared for each of the three Phase I beneficiaries. RPFs were disclosed with public consultations on the following dates: October 10 and 22 in Serbia, November 1 and 16 in Albania and November 5 and 9 in North Macedonia. The associated social risk at this stage can be considered as low, but since the detailed activities are not yet known and the project will encompass three beneficiaries and three PIUs the risk is assessed as moderate for now and will most likely decrease during the actual implementation of the project. Phase 2 will require a specific environmental and social impact assessment, similar to the assessment and analysis done for phase 1; would the risk and impact at phase 2 be higher than phase 1, the project would be submitted to the Board for consideration and approval. Environmental Safeguards 74. The project has been assessed as Category B (Partial Assessment) under OP 4.01 (Environmental Assessment) taking into consideration the associated environmental impacts . Components 1 and 2 will have low to moderate, mainly site-specific environmental impacts at the Crossing Points supported under the Project. These include reconstruction related impacts (dust, noise, waste management, traffic management) that are readily mitigated through the site specific ESMPs and good construction practices. In the deployment phase, impacts will mainly relate to custom terminal modifications, traffic safety issues during the modifications, including for the deployment of ITS systems for Component 2. None of the impacts is expected to be large-scale or irreversible; as such, the Project has been classified as Category “B” in accordance with World Bank operation policies. Components 3 and 4 meanwhile are not expected to have any adverse environmental impacts. 75. An Environmental and Social Management Framework (ESMF) has been prepared for each participating beneficiary in the project, Serbia, Albania and North Macedonia. Each of the ESMFs sets forth the screening procedures for the activities that the project will likely finance and provides two templates of Environmental and Social Management Plans (ESMPs) that are most relevant for each beneficiary. The ESMFs are done for each country as they combine the environmental due diligence based both, on the World Bank operational policies, but also the country’s legislation regarding environmental protection. The screening within the ESMF ensures that no Category A equivalent is financed and that no additional safeguards are triggered. The ESMFs were disclosed with public consultations on the following dates: October 10 and 22 in Serbia, November 1 and 16 in Albania and November 5 and 9 in North Macedonia. The associated environmental risk at this stage can be considered as low, but since the detailed activities are not yet known and the project will encompass three beneficiaries and three PIUs the risk is assessed as moderate for now and will most likely decrease during the actual implementation of the project. Other Safeguards 76. No other safeguard policies are triggered by the project. Grievance Redress Mechanisms 77. Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported project may submit complaints to existing project-level grievance redress mechanisms or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to Page 31 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) address project-related concerns. Project affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WBG non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/en/projects-operations/products-and- services/grievance-redress-service. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org. D. Other Corporate Mandates Gender 78. To reap maximum benefits from trade logistics reforms, the earlier examined barriers that affect women, as well as those that affect men, must be addressed. Whilst the program is not designed to address the broader issues e.g. inequalities in access to resources (land and finance), lower levels of financial literacy or domestic work relating to women’s access to regional trade, it provides a good opportunity to improve the capacity of governments to examine barriers in trade with a gender perspective. These efforts are closely aligned with CPFs of the respective beneficiaries, the EU’s efforts and the SEE 2020 strategy to promote gender equality in the WB6 in all spheres of life including in the labor market, as well as the World Bank’s Gender Strategy that expects the Bank’s operations to strive towards removing constraints for more and better jobs including improving the conditions for women’s entrepreneurship, as and when relevant. 79. The project will endeavor to learn and record the potential challenges that women traders are facing in terms of import and export procedures in the WB6. The Gender Survey planned to be undertaken under the IFC/Bank Trade Facilitation Support Program (TFSP) will shed light on some of the gaps that exist around barriers that women traders face in undertaking trade across the Western Balkans at the firm level. Empirical analysis shows that women-headed businesses, which are in majority SMEs, suffer from higher logistics costs due to their low volumes and are forced to rely on intermediaries. Low volumes are inherently more expensive to serve, regardless of whether the shipper in question is a woman-headed business, and one of the key reasons why there are intermediaries in logistics markets is to reduce the cost of low-volume logistics by consolidating cargo across numerous shippers and by accessing transport capacity at levels that SMEs would not be able to do on their own. The project under phase 1 offers to understand better the correlation between issues within transportation of freight and the conduction of trade transactions across the Western Balkans with women- headed business, through specifically crafted surveys. This information will enhance the capacity of the respective governments to examine gender-differentiated barriers that women face in relation to business entry and clearance procedures and will be fed into later activities under phase 1, as well as the design of the phase 2 vis a vis gender and entry or trade barriers for women. If results are deemed conclusive, activities will be deployed under phase 1, including through potential interventions aimed directly at promoting more efficient non-asset based/intermediary logistics markets, which will indirectly help promoting the scaling up of women- headed businesses. Page 32 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) Climate Change 80. The Project will support climate action and contribute to addressing climate change challenges and priorities of the regional participants in multiple ways, by reducing GHG emissions, implementing adaptation measures, and enhancing climate resilience. On the mitigation side, direct GHG emissions reductions and mitigation co-benefits will be achieved through activities in Components 1 and 2: (i) digitalization of customs clearance process through the adoption and implementation of National Single Window (NSW) will reduce the use of paper and demand for traveling and transport of government officials and traders; (ii) faster crossing will reduce truck idling times at crossing points and border crossing points; (iii) construction works at existing and new buildings will include installation of solar panels, energy efficiency improvements on buildings, and planting trees around parking areas. Reduced travelling demand for government officials and traders through the digitalization of customs clearance process at NSW will result in direct savings of around 28,000 tCO2 (2023- 2036). On the adaptation side, the Project will contribute to the efforts of the regional participants to adapt to specific anticipated effects of climate change through targeted infrastructure activities at crossing points and border crossing points, and railway level crossings, and by introducing early warning systems to monitor and address climate change risks on the road network. These activities will specifically consider high vulnerability to extreme natural events exacerbated by climate change (e.g. floods, extreme precipitation, landslides) and contribute to strengthening climate resilience of the regional participants. Also, improvements on railway infrastructure will make railway transportation mode more efficient, reliable and attractive, and help towards a modal shift of freight and passenger transport from road to rail. 81. In addition to introducing early warning systems to monitor and address climate related risks on the road network, the weather stations that will be installed within Intelligent Transport Systems (ITS) in Component 2 will collect data and monitor GHG emissions from road transport (specifically Short-Lived Climate Pollutants (SLCP) emissions connected with air pollution). This data is scarce for all regional participants, which increases their value for further research related to air quality management and climate action. The information that will be collected through GHG (SLCP) emissions monitoring systems will help linking specific climate change and development priorities (e.g. mitigation, adaptation and improving air quality) and be a valuable support to governments of the WB6 in developing regulatory and policy reforms and institutional strengthening for pursuing low-emissions development. Component 3 of the Project foresees trainings of PIU staff on mitigation, adaptation and climate resilience topics related to transport sector. Trainings will target country-specific climate risks and vulnerability to extreme natural events exacerbated by climate change (e.g. floods, extreme precipitation, landslides), as well as the links between climate change and development priorities (e.g. mitigation of GHG emissions and air pollution) related to transport sector. Within these trainings PIU staff will be informed about the GHG monitoring systems conducted within the Project and the potential use of the data. Component 4 foresees targeted support by the World Bank at climate change related aspects of the Project to ensure their effective implementation and maximize the use of the collected data for climate action for all the regional participants and globally. Through the Multi Phase Programmatic Approach (MPA), the findings and lessons learned will be applied in the design of the second phase of the Project. Citizen Engagement 82. During the process of preparing the Project, extensive consultations were held with multiple stakeholder groups, including relevant state agencies, chambers of commerce, and business associations , and traders’ associations. In addition, a supporting Technical Assistance funded under a Trust Fund, and targeting the resilience of trade strategies and corridors in the Western Balkans, includes the surveying of firms in the logistics, Page 33 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) transport, and shipment sectors. This process helped shape the design of the project and the processes through which the users and beneficiaries will be engaged. 83. Several citizen engagement mechanisms will be therefore mainstreamed into the implementation of the project: (i) participatory planning and policy-making during phase 1 of the project; (ii) annual multi-stakeholder dialogues; and (iii) a grievance redress mechanism. As the Project will involve the development of new policies and procedures within the NSW, each country will engage different end users and beneficiaries (including exporters and importers, supply chain operators, and truckers and railway companies) in a participatory planning and policy formulation process throughout the first phase of the Project. The project will draw on the knowledge of these stakeholder groups in an iterative process of dialogue-design-review which will keep stakeholders fully engaged and informed. Subsequently, regular national-level multi-stakeholder dialogues will be organized in each country to proactively disseminate user-friendly information and obtain feedback from the various private stakeholders and citizens about the design of NSWs, crossing point procedures and trade and customs regulations. This dialogue will regularly bring together diverse stakeholders to update information, discuss new processes, and collect their suggestions and feedback, and provide an opportunity to discuss issues raised through the GRM. Information dissemination will encourage and improve the quality of participation of private sector representative bodies and thus help develop effective procedures and policies that contribute to reform regime on easing customs rules and regulations to increase transparency and accountability of crossing procedures. This linked set of citizen engagement activities is considered critical to the success of the MPA and program. 84. A comprehensive grievance redress mechanism (GRM) will be developed and integrated into National Trade Portals in each country to enable just-in-time feedback from users on the one window platform and prompt action by government to address concerns. This online GRM will be fully embedded into the portal and thus allow stakeholders and citizens to submit their feedback, suggestions and/or complaints with the same ease of access as the one window services. The staffing, system and awareness building will be detailed in the project operations manual. V. KEY RISKS A. Overall Risk Rating and Explanation of Key Risks 85. The overall risk to achievement of the MPA development objectives is substantial. Categories which impose a greater risk include Political and Governance, Technical design of the Program, and Institutional Capacity for Implementation and Sustainability. All other categories of risks are deemed moderate. The risks are summarized in the Standardized Operations Risks-rating Tool (SORT) Table 3 below. 86. There are substantial political and governance risks, despite high level commitment and momentum for furthering regional cooperation and integration. At the political level, the various degrees of political stability faced in the WB6, including those triggered by political cycles, and the historical regional sensitivities within WB6, could lead to the resurgence of bilateral tensions at any time. While international commitments, including the perspective of EU adhesion, provide a solid long-term anchor, momentum for cooperation and implementation of regional project could be temporary undermined and delayed. This risk is mitigated through the inclusion of activities that will yield partial benefits to individual borrowers regardless of the conjectural political momentum and progress in the WB6. Page 34 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) Table 3: Program Risk Ratings Summary Table Risk Category Rating 1. Political and Governance ⚫ Substantial 2. Macroeconomic ⚫ Moderate 3. Sector Strategies and Policies ⚫ Moderate 4. Technical Design of Project or Program ⚫ Substantial 5. Institutional Capacity for Implementation and Sustainability ⚫ Substantial 6. Fiduciary ⚫ Substantial 7. Environment and Social ⚫ Substantial 8. Stakeholders ⚫ Moderate 9. Other ⚫ Moderate Overall ⚫ Substantial 87. The risks related to technical design of the program are also deemed substantial. The Program is multi- sector and multi-dimensional and spans topics as diverse as market regulations, intelligent transport systems, crossing point infrastructure and equipment. The deployment of a National Single Window in the three beneficiaries of the first phase is a new concept, except in North Macedonia where the EXIM system will constitute the core element of the system to be deployed. The Railway Level Crossings in Serbia are spread across different railway lines, making their improvement more difficult. The Intelligent Transport System devices are difficult to procure, install, and kick-start in operations. The access to market services will need to adapt to the needs of each country, based on their own status in the negotiations and the sub-topics for which they seek support. This situation is compounded by the regional dimension of the proposed program, as well as the presence of ongoing interventions from other IFIs and donors in that space. Extensive consultations with public and private stakeholders across sectors, as well as with external and regional partners, have been conducted to mitigate this risk and enable the identification of a strategically relevant program. The MPA approach will further mitigate the technical design risk by providing a common structure and approach to the projects. 88. The program entails substantial risks related to Institutional Capacity for Implementation and Sustainability. Even in the presence of strong high-level political commitment to this agenda, the multiplicity of agencies and their uneven, and often weak, institutional capacity entail high inter-agency coordination within and within the WB6 region and transaction cost which could delay or stall implementation. The regional dimension of the program compounds this risk by adding an additional requirement for coordinating and synchronizing policy and procedural reforms across the WB6, which are all at various stages of preparedness and capacity vis a vis inter-agency coordination and coordination between transport and customs. However, the regional dimension provides an opportunity to overcome domestic resistance if through regional bodies (e.g. CEFTA and TCT) which can be leveraged to support oversight, knowledge sharing, and spur peer pressure. The Bank is aware of the capacity of several of the proposed implementing agencies through ongoing initiatives (see the section on “Rationale for Bank Involvement and Role of Partners” above). The Bank assessed the capacity of the remaining implementing agencies and built the design on their strengths and mitigate the risks. In addition to leveraging the regional dimension as a means for risk mitigation, the risk is further mitigated by (i) the fact that each the Prime Minister of each Western Balkan country has nominated a focal point, a working Page 35 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) group, or a high-level representative to prepare, implement and monitor this project, and (ii) the use of local and international consultants for coordination and implementation support. 89. The overall risk related to social and environmental dimensions of the program is deemed substantial based on existing practices at crossing points in the Western Balkans. After completion of Appraisal and the completion of the Environment and Social Management Framework, risk is kept as “Substantial”. The main vested interest groups likely to be impacted by the program are officials in agencies, whose discretionary power to extract rents from private agents engaged in export and import transactions is expected to be significantly reduced thanks to the program. The existing risks and practices related to corruption, smuggling, drug and human trafficking, will be mitigated by the work on compliance instructions under the NSW deployment, as well as the support to the inter-agency coordination among all agencies and capacity building of the authorities at the crossing points, as follows: a. Border and Migration Police Departments (BMP), whose responsibility is, among others, to combat cross-border crime including trafficking in human beings, organization of illegal migration and illegal crossing of the state border, smuggling, forgery and fraudulent use of documents, will be part of the overall project governance system through the NSW. b. The control procedures and inspection protocols are implemented at the crossing points, and the reinforcement of the procedures under the NSW are not expected to adversely increase the occurrences of practices such as corruption, smuggling, drug and human trafficking . Nevertheless, the Bank will work with the authorities to help ensure that the more efficient processing and clearance do not have adverse consequences and will seek experiences from implementation in the EU. c. NSW will increase the e-coordination and coordination of the agencies regulating import and export procedures, potentially reducing related risks – as control functions are guided by the principles of integrated border management (IBM), and agencies conduct simultaneous inspections for selected cargo. d. The reduction in waiting times at crossing points, along with the shift to electronic payments and a single payment window, will reduce the opportunity for corruption. Information dissemination and training for the private sector on customs rules and regulations, as part of the project, will help provide a check on unscrupulous officials by making the legal requirements for clearance more transparent, thereby further reducing opportunities for corruption. 90. Measures and investments supported under the program are expected to yield efficiency gains which do entail a redistribution or elimination of economic rents. Phase 2 will require a specific environmental and social impact assessment, similar to the assessment and analysis done for phase 1; would the risk and impact at phase 2 be higher than phase 1, the project would be submitted to the Board for consideration and approval. . . Page 36 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) VI. RESULTS FRAMEWORK AND MONITORING Results Framework COUNTRY: Western Balkans Western Balkans Trade and Transport Facilitation Project Development Objective(s) The Proposed Development Objective is to reduce the trade costs and increase transport efficiency in Albania, North Macedonia, and Serbia Project Development Objective Indicators RESULT_FRAME_T BL_ PD O Indicator Name DLI Baseline End Target To reduce the trade costs and increase transport efficiency Total annual costs to export and import for all shipments of 224,392,589.00 201,059,449.00 Albania, North Macedonia, and Serbia (Amount(USD)) Cost to export (Amount(USD)) 295.00 261.00 Cost to export in Albania (Amount(USD)) 65.00 57.00 Cost to export in North Macedonia (Amount(USD)) 148.00 130.00 Cost to export in Serbia (Amount(USD)) 82.00 74.00 Cost to import (Amount(USD)) 374.00 338.00 Cost to import in Albania (Amount(USD)) 87.00 79.00 Cost to import in North Macedonia (Amount(USD)) 200.00 180.00 Cost to import in Serbia (Amount(USD)) 87.00 79.00 Average freight transport time on targeted corridors (Hours) 13.00 11.00 Average freight transport time on corridor Durres Skopje 6.00 5.00 Page 37 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) RESULT_FRAME_T BL_ PD O Indicator Name DLI Baseline End Target (Hours) Average freight transport time on corridor Skopje Belgrade 7.00 6.00 (Hours) PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_T BL_ IO Indicator Name DLI Baseline End Target Component 1: Facilitating movement of goods across the Western Balkans Average time to import (Hours) 36.00 27.00 Average time to export (Hours) 32.00 25.00 Number of recommended border regulations that are adopted 0.00 3.00 (Number) Number of firms that benefit from reformed custom/border 0.00 600.00 services (Number) Percentage of cargo inspected by border agencies (Percentage) 30.00 15.00 Stakeholders reporting that the design/blueprint of the NWS is aligned with their needs and their contributions in the planning 0.00 80.00 process (citizen engagement) (Percentage) Component 2: Improving transport efficiency and predictability Deployment of Intelligent Traffic Systems (ITS) (Number) 0.00 3.00 Preparation and submission to Parliament of ITS Law (North 0.00 1.00 Macedonia) (Number) Component 3: Supporting market access for trade and investments Capacity of authorities to examine barriers in trade in services No Yes through the production of an action plan to remove barriers Page 38 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) RESULT_FRAME_T BL_ IO Indicator Name DLI Baseline End Target (Yes/No) Capacity of authorities to examine gender-differentiated barriers in trade in services through the production of an No Yes action plan to remove barriers (Yes/No) IO Table SPACE UL Table SPACE Monitoring & Evaluation Plan: PDO Indicators Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection Doing Total annual costs to export and import Business, Annual Customs, PIUs for all shipments of Albania, North Surveys, Macedonia, and Serbia Customs data Doing Business Annual 2018, MoFs, PIUs and Customs Cost to export additional surveys Doing Business Annual 2018, MOF, PIU, Customs Cost to export in Albania additional surveys Page 39 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) Doing Business Annual 2018, MoF, PIU, Customs Cost to export in North Macedonia additional surveys Doing Business Annual 2018, MOF, PIU, Customs Cost to export in Serbia additional surveys Doing Business Annual 2018, MOFs, PIUs, Customs Cost to import additional surveys Doing Business Annual 2018, MOF, PIU, Customs Cost to import in Albania additional surveys Doing Business Annual 2018, MOF, PIU, Customs Cost to import in North Macedonia additional surveys Annual Doing PIU, MOF, Customs Cost to import in Serbia Business Page 40 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) 2018, additional surveys Floating car Average freight transport time on Annual Floating car technique PIUs technique targeted corridors Average freight transport time on corridor Durres Skopje Average freight transport time on corridor Skopje Belgrade ME PDO Table SPACE Monitoring & Evaluation Plan: Intermediate Results Indicators Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection Doing Annual Business, PIUs, Customs Average time to import Surveys Average time to export Customs agencies, Official government Number of recommended border Annual Customs and PIUs publications, regulations that are adopted independent business associations and Page 41 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) newspapers (focus groups or surveys). Custom Administratio n and Revenue Authority database and ASYCUDA if ASYCUDA is in use, other border clearance agencies, Number of firms that benefit from Annual Customs Chamber of reformed custom/border services Commerce, Industry associations. Number of importers and exporters need to be identified through their unique ID if this exists. Custom Percentage of cargo inspected by border Annual Customs Administratio agencies n and Page 42 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) Revenue Authority, other border clearance agencies, pre- shipment inspection companies (PSI), destination inspection companies (DI) Once after the Surveys, Stakeholders reporting that the blueprint National design/blueprint of the NWS is aligned PIUs for the Trade with their needs and their contributions in NSW is Committees the planning process (citizen engagement) finalized Progress Deployment of Intelligent Traffic Systems Annual PIUs reports (ITS) ITS Law has been prepared Preparation and submission to Parliament and submitted to MOTC MOTC PIU of ITS Law (North Macedonia) Parliament (North Macedonia) Capacity of authorities to examine PIUs, Progress Ministry of Trade, barriers in trade in services through the Annual reports Ministry of Economy production of an action plan to remove barriers Page 43 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) Capacity of authorities to examine Ministry of Trade, gender-differentiated barriers in trade in Annual PIU Ministry of Economy services through the production of an action plan to remove barriers ME IO Table SPACE . Page 44 of 73 The World Bank Western Balkans Trade and Transport Facilitation (P162043) ANNEX 1: DETAILED PROJECT DESCRIPTION COUNTRY: Western Balkans Western Balkans Trade and Transport Facilitation 1. Albania attained middle-income status in 2008. This impressive achievement was due to strong growth prior to the 2008 financial crisis when growth averaged 5.7 percent (2001-08), driven mostly by domestic consumption, boosted by foreign transfers and remittances. From 2002 to 2008, poverty declined from 25.4 percent to 12.5 percent. However, the financial crisis of 2008 slowed down the growth to around 2 percent (average 2009-15). Only over the last three years has growth started picking up (growth was 3.4 and 3.8 percent in 2016 and 2017 respectively; estimated at 4.2 percent in 2018). However, concerns about the competitiveness of Albania’s economy remain as the share of merchandise export in GDP is still below 7 percent, one of the lowest levels in Europe. 2. While Albania is ranked 24th in terms of trading across borders in the 2019 Doing Business surveys, it does not perform well in other competitiveness indicators on its trade and transport infrastructure. Albania is ranked 75th out of 137 countries in the 2017-18 Global Competitiveness Index (GCI). In the GCI executive surveys, the executives scored Albania 4 out of 7 for the burden of customs procedures (with a rank of 77 th) and 3.2 out of 7 for the quality of its transport infrastructure (with a rank of 92nd). In the 2018 Logistics Performance Index (LPI) that is a narrower competitiveness measure, Albania is ranked 88th out of 160 countries, where it scored the lowest in the category measuring the quality of its trade and transport infrastructure. 26 3. North Macedonia, an upper middle-income country that has made great strides in achieving macro-fiscal stability over the last decade. However, more efforts are needed to generate and sustain economic growth that creates jobs and improve living standards for all. Following strong economic growth during the period 2002–2008 averaging 4.3 percent, average GDP growth has declined to 2 percent per year since 2009, and country went through two recessions, in 2009 and 2012. While there was some recovery between 2012 and 2016 when growth averaged 3.3 percent per annum, economy stagnated in 2017. Over the recent period, North Macedonia managed to significantly increase exports of goods, from around 26 percent of GDP prior to 2008 international crisis, to an estimated 40.4 percent of GDP in 2017.Unemployment remains high, although it has declined from a high of 38 percent in 2004 to 22.4 percent in 2017. While unemployment fell significantly, its unemployment rate is still second highest in the region. 4. North Macedonia is ranked 29th in terms of trading across borders in the 2019 Doing Business surveys and 81th in the 2018 Logistics Performance Index (LPI). North Macedonia improved its performance in its trade and transport infrastructure between 2016 and 2018: in 2016 it was ranked 106th out of 160 countries in the LPI, where it has the lowest scores in the category measuring the efficiency of customs and border management clearance. 5. Serbia is the largest economy in the Western Balkans region and only just recovered from the slowdown and challenges it faced following the global financial crisis that began in 2008. Between 2001 and 2008, 26The LPI is a benchmarking tool developed by the World Bank Group that measures performance along the logistics supply chain within a country. It is based on a worldwide survey of global freight forwarders and express carriers, conducted every two years. The LPI analyzes countries in six components: 1) The efficiency of customs and border management Clearance; 2) The quality of trade and transport infrastructure; 3) The ease of arranging competitively priced shipments; 4) The competence and quality of logistics services; 5) The ability to track and trace consignments; 6) The frequency with which shipments reach consignees within scheduled or expected delivery times. Page 45 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) supported by a favorable global economy and implementation of structural reforms, Serbia made considerable progress in terms of both growth and poverty reduction. Real GDP growth averaged 5.9 percent annually, and the poverty headcount declined from 14.0 percent in 2002 to 6.6 percent in 2007. As in many countries in emerging Europe, Serbia’s growth was driven by high domestic demand fueled by significant capital inflows and came at the expense of accumulating internal and external imbalances. The 2008 international economic crisis and drying up of capital inflows impacted heavily on Serbia, resulting in a first recession in 2009. A slow and indecisive response to the crisis prolonged its impact, and the economy was further affected by droughts and flooding in 2012 and in 2014, leading to two more recessions. Since 2015, and despite an ambitious fiscal consolidation, economy started to recover. Growth over the previous three years averaged 1.8 percent. Economic growth stood at 4.2% in 2018, an upgrade from the 3% forecasted earlier. The strong growth in the first half of the year (of 4.8% year-on-year) was broad based, with all sectors increasing value added compared to the same period in 2017. Growth in the construction sector (of 26.4% y-o-y) was particularly encouraging. The Serbian economy is expected to expand by roughly 4% a year over the medium term. 6. Serbia performs weakly in competitiveness indicators of its trade and transport infrastructure. Serbia is ranked 23rd in terms of trading across borders in the 2019 Doing Business surveys while it is ranked just behind Albania at 78th out of 137 countries in the 2017-18 Global Competitiveness Index (GCI). In the GCI executive surveys, the executives scored Serbia 3.9 out of 7 for the burden of customs procedures (with a rank of 92nd) and 2.9 out of 7 for the quality of its transport infrastructure (with a rank of 104th). In the 2018 Logistics Performance Index, Serbia ranks 66th out of 160 countries ahead of Albania and North Macedonia. 7. The components of this phase, for the three beneficiaries, include the following: 8. Component 1: Facilitating movement of goods across the Western Balkans. This component builds on regional commitments, including under the CEFTA AP5 and the Transport Community Treaty, as well as commitments by the WB6 which are members of the WTO TFA. The component will focus on (a) the adoption/implementation of a National Single Window (NSW) solution and the associated reform and modernization of Customs and other border management agency requirements; and (b) the improvements of crossing points in selected trade corridors. The main benefit of this component will be more efficient processing of international trade and transport documentation, which will enhance the transparency of transactions and reduce duplications and overlaps, lower trade transaction costs, and support effective collaboration among government agencies, improve inter agency coordination and reduce the time taken to clear goods. The envisaged significant cost savings are expected to result in reduced time and cost of trading across the Western Balkans, lower transport costs, and finally in increased competitiveness on regional and global markets, as the WB6 will trade more with the EU as they as they produce goods that are complementary to the EU’s production structure and supply chains and will trade less with the Western Balkans region as they produce similar goods to each other. Key activities envisioned for support include: a) National Single Window System (Albania, North Macedonia, Serbia). This sub-component will support the design and implementation of a National Single Window System (NSW) solution. Single Window systems are a means to establish improved information sharing between government agencies and businesses involved in trade across the Western Balkans. A Single Window can be used as a “one-stop shop” for traders and other commercial organizations to exchange information with the government agencies that, based on regulation and control procedures, require data on a variety of aspects of the trade transactions and the flow of goods through the international supply chain. The implementation of a NSW faces complicated challenges that relate not only to the technical aspects of NSW systems, but also to the organizational and inter-organizational, managerial, financial, political, legal, and national and international settings. Moving towards a NSW would require first to undertake a stocktaking exercise of the performance of the existing systems, including any of Page 46 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) the databases of other agencies involved in the trade process with the view of streamlining processes, simplifying and automating existing procedures and regulatory and documentary requirements. Once implemented, the system will allow traders to submit and process all required import, export and transit documentation electronically via a single gateway instead of submitting essentially the same information numerous times to different government entities some that are automated and others that still rely on paper- based documentation. Thus, through the introduction of an electronic online solution, the NSW solution will facilitate faster and more transparent international trade procedures, reduce transaction time and costs for the trading community and provide consistency and certainty in the overall clearance process, from the start of the regulatory requirements to the final clearance of goods. Online solutions will also reduce the use of paper and travelling of government officials and traders and reduce truck idling times at border crossing points and crossing points, which reduces GHG emissions and contributes to climate change mitigation action in participating beneficiaries. b) Improvements at Crossings Points in Selected Trade Corridors (Albania, North Macedonia, Serbia). It will be achieved though establishing single operational one-stop shop when requested and aligned with bilateral agreements, system and infrastructure upgrade/reconstruction and implementation of Electronic Data Interchange (EDI). Unpredictability of crossing times remains an issue for both rail-based and road-based cargo. The causes of this problem are multiple and include at times inefficient customs procedures, weak interagency coordination among border authorities, capacity bottlenecks in the infrastructure around Crossing Points as well as limited or deficient investments in systems to facilitate cross agencies coordination. If the operational environment in the region would reach EU average levels, the order of magnitude of possible savings is about 1 percent of the region GDP or about US$ 1,1 billion per year. At the heart of modern inter- modalism are data handling, processing and distribution systems that are essential to ensure the safe, reliable and cost-effective control of freight movements being transported by several modes. Electronic Data Interchange (EDI) is one of the answers, as an evolving technology that is helping companies and government agencies (customs documentation) cope with an increasingly complex global transport system. The main physical improvements at BCPs relate to the BCP of Kjafasan/Qafe Thana (North Macedonia/Albania), and Deve Bair (North Macedonia) with Bulgaria. BCP improvement will also include climate change mitigation activities in new and existing buildings, such as energy efficiency improvement in lighting, appliances and equipment and architectural or building changes that enable a reduction in energy consumption. In addition to energy efficiency improvements, construction works at BCPs will include installation of solar panels as a secondary electricity source and planting trees. 9. Component 2: Prioritization of ITS planning in the Western Balkans is essential as it has become an integral component of international transport networks today. In the Western Balkans region, and in view of the limited use of ITS to date, interventions in this area are expected to have high rates of economic returns. The use of information and communication technologies in the field of transport, be it related to infrastructure, vehicles or users is fast becoming one of the most important areas in the EU to deliver improvements in network capacity, traveler mobility and therefore enhance economic productivity. In the Western Balkans, ITS activities will trigger improvements in congestion management, incident detection and recovery, advice on diversion and rerouting, real time travel information and better journey time estimate. Harmonization or interoperability of systems is also essential for seamless and safe transport movements across the Western Balkans. 10. The measures under this component are chosen based on the commitments agreed upon by the WB6 in the TCT. The component will focus on (a) the adoption of Intelligent Transport Systems (ITS) and b) increasing transport safety and efficiency. Key activities envisioned for support include: Page 47 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) c) Intelligent Transport System (ITS) (Albania, North Macedonia and Serbia). Prioritization of ITS planning in the Western Balkans is essential as it has become an integral component of international transport networks today. In the Western Balkan region, and in view of the limited use of ITS to date, interventions in this area are expected to have high rates of economic returns. The use of information and communication technologies in the field of transport, be it related to infrastructure, vehicles or users is fast becoming one of the most important areas in the EU to deliver improvements in network capacity, traveler mobility and therefore enhance economic productivity, as well as the resilience of the transportation network, thanks to systems for monitoring stability of bridges, tunnels, embankments, landslides and slopes (resilience dimension). In the Western Balkans, ITS will aim to support improvements in congestion management, incident detection and recovery, advice on diversion and rerouting, real time travel information and better journey time estimate. Harmonization or interoperability of systems is also essential for seamless and safe transport movements across the Western Balkans. The project therefore envisages implementation of ITS with several devices such as, but not limited to: a system for collecting data on traffic flow from inductive loops that are positioned into the carriageway, Weight in Motion (WIM), elements to control the height of vehicles that access highway, a system for monitoring stability of bridges, tunnels, embankments, landslides and slopes (resilience dimension), a Road Weather Information System (RWIS), which consists of road weather stations built to collect data on weather conditions and air pollution and a system to detect the transport of dangerous goods. Weather stations that will be installed within investments for ITS will also collect data and monitor GHG emissions from road transport (specifically SLCP emissions causing air pollution), delivering valuable and scarce information for climate change adaptation and mitigation action in the WB6. This component will also provide technical assistance on ITS implementation of EU Directives in North Macedonia. d) The improvement of specific Railway Level Crossings (RLC) on the network (Serbia). According to the European Railway Agency in the European Union every year on RLC occurs over 1,200 traffic accidents. The operationalization of functioning RLC is key to the objective of improving transport efficiency and predictability for the railway trade flows in the Western Balkans. EU Member States reported that in 2015, more than 400 RLC users were killed and 400 were seriously injured in a total of about 700 accidents occurring on more than 120,000 RLC in the EU. These accidents represented approximately 30% of all railway fatalities. These accidents also result in damage to infrastructure and rolling stock and delays in rail and road traffic, with substantial associated costs in rail operations. As such, RLC remain one of the core safety and efficiency challenges for Western Balkans rail networks, especially in Serbia. In Serbia, 60 RLC have been identified as potential weak points in rail infrastructure that significantly jeopardize traffic safety and efficiency. The list of the 60 RLC includes 30 RLC for which about 200 accidents/incidents happened in 2017 only, making the related lines dangerous and inefficient. The map of the 60 identified RCL as Appraisal stage is provided here after, with the majority of these RLC being localized on the SEETO Core Rail Network. Improvements of railway level crossings will also consider high vulnerability to extreme natural events exacerbated by climate change (e.g. floods, extreme precipitation, landslides) and contribute to strengthening climate resilience in Serbia. 11. Component 3. This component will support the implementation of commitments to improve market access in services and foster regional investments. Technical assistance will be provided to government agencies to implement the commitments made under the CEFTA AP6 to liberalize trade in services. Trade in services is–more than trade in goods–influenced by a wide range of domestic regulations (e.g. licensing requirements, competition framework, network services regulations, universal access provisions, etc.). The quality of regulations (and the corresponding enforcing agency/institutions) is therefore a key determinant of whether services trade (and investment) liberalization will translate into economic and social gains. A good understanding of the regulatory situation – at a horizontal as well as sector specific levels – and ensuring it is adequate will be critical as the WB6 Page 48 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) engage in services sector liberalization. For the WB6 more advanced in their EU accession process, this component will also support specific measures and reforms undertaken by the WB6 to implement the Acquis and prepare their economy to enter the single market. 12. Component 4. This component will support project implementation units and provide additional technical support, including policy coordination, operating costs, and monitoring and evaluation of the project. This component will support several citizen engagement and gender related tools: (i) public consultations during the first phase of the project; (ii) annual multi-stakeholder dialogues; (iii) service charters; (iv) a grievance redress mechanism; (v) corridor performance tool, and (vi) three business inspection services and user satisfaction surveys (a detailed description is provided in the Appraisal Summary). Through another World Bank Group funded and executed Technical Assistance project, several dozens of firms in the business, i.e. shippers, freight forwarders, will be surveyed, and will inform the monitoring, assessment and evaluation of the project. 13. The project content for phase 1 can be described at the country level, by looking at activities and inputs for each country, along the following breakdown: Albania (Total US$ 20 million) Component 1 (US$ 12 million) National Single Window (NSW) (US$6 million): The general objective is to facilitate and enhance the access to and exchange of data and information among various government agencies and among the government and the business community. More specifically, the project aims at providing conditions for submission of import/export/transit data only once and on one place and for more efficient coordination of all controls and inspections. Development of the National Transit Application and EORI (Economic Operator Registration and Identification) fully compatible with EU- NCTS (New Computerized Transit System) (US$3 million): In addition, it will to provide management support for implementation of the system on project management, quality assurance and technical training in customs. Improvement of the BCP of Qafe Thana (Border Crossing Point with North Macedonia) towards joint BCP (US$ 3 million): The proposed project is part of this Corridor VIII. Modernizing and developing this CP will result in promoting international and transit movements of people and goods with the EU and its regional neighbors. Improved accessibility between Albania and North Macedonia will have a positive impact on logistics costs, attracting more international road users and increasing economic opportunities for long distance truck drivers and local road users. Improvements of the Crossing Points of Qafe Thana anticipates the following activities but not limited to: a) refurbishment of the building and facilities including installation of solar panels and energy efficiency improvements; b) Installation of booths for customs to streamline processes; c) Alignment of legal frameworks to mutually recognize certificates; d) installation of an expanded truck parking facility (herringbone configuration) with at least another 20 spaces to improve traffic circulation and the planting of trees; e) Change of truck flow by moving all import and export trucks to an inland clearance depot (ICD); f) installation of an extra weight scale. Component 2 (US$5.5 million) Implementation of VTS/VTMS system in Albania: This component will focus on the adoption and implementation of an Intelligent Transport System (ITS) for the maritime sector. VTS/VTMIS is a technical, legal, and institutional setup by competent authorities, facilitating systematic monitoring of vessel movements and their physical and information tracking. This results into increased safety standards and traffic efficiency. This component has two parts: a) preparation of Feasibility Study; and b) implementation of VTMS. Project coverage area for VTS/ VTMS implementation under phase 1 is the whole sea costal line of Albania (316 km). Component 3 (N/A) This component is covered by grant resources from other development partners, which complements the support from Page 49 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) the World Bank Group. Component 4 (US$0.5 million) This component will support project implementation units and provide additional technical support, including for policy coordination, operating costs, and monitoring and evaluation of the project. Contingencies (US$2 million) North Macedonia (Total US$30 million) Component 1 (US$9.7 million) National Single Window (NSW) (US$ 5 million): The objective is to facilitate and enhance the access to and exchange of data and information among various government agencies and among the government and the business community. The project aims at providing conditions for submission of import/export/transit data only once and on one place and for more efficient coordination of all controls and inspections. The project will include adoption/implementation of a National Single Window System solution. Moving towards a NSW would require first to undertake a stocktaking exercise of the performance of the existing systems such as EXIM and CDEPS and including any of the databases of other agencies involved in the trade process with the view of streamlining processes, simplifying and automating existing procedures and regulatory and documentary requirements. The system will therefore be designed to interface with existing systems such as the EXIM system and is not expected to replace any satisfactorily functioning legacy systems in participating agencies: a) Hardware Equipment; b) Technical equipment; c) Upgrade of Software for Single Window. Improvements of Deve Bair Crossing Point (US$ 3.3 million): Modernizing and developing the Deve Bair CP will result in promoting international and transit movements of people and goods with the EU and its regional neighbors. Improved accessibility to the Bulgarian border will have a positive impact on logistics costs, attracting more international road users and increasing economic opportunities for long distance truck drivers and local road users. Improvements of the border crossing Deve Bair anticipates following activities but not limited to : a) Improvements of the administrative building, including installation of solar panels and energy efficiency improvements b) Extension of the border passage on the exit from North Macedonia with the construction of a one-way carriageway that would be used exclusively for cargo vehicles; c) Improvements of the access road to the customs terminal of the entry North Macedonia in order to be able to use it even in winter; d) improvements of the asphalt surfaces on the border line and of the border area with the planting of trees; e) Installation of weigh bridge for trucks; f) Improvement of signage and pavement markings. Improvement of the BCP of Kjafasan (Crossing Point with Albania) towards joint BCP (US$ 1.4 million): Modernizing and developing this CP will result in promoting international and transit movements of people and goods with the EU and its regional neighbors. Improved accessibility between Albania and North Macedonia will have a positive impact on logistics costs, attracting more international road users and increasing economic opportunities for long distance truck drivers and local road users. Improvements of the Border Crossing Point of Kjafasan anticipates following activities among others: a) Installation of weigh bridge in other lanes; b) Installation of booths for Customs to streamline processes; c) Alignment of legal frameworks to mutually recognize certificates; d) installation of an expanded truck parking facility (herringbone configuration) with at least another 20 spaces to improve traffic circulation and with the planting of trees; e) Change of truck flow by moving all import and export trucks to an inland clearance depot (ICD); f) installation of an extra weight scale. Page 50 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) Component 2 (US$19 million) The development of an ITS (intelligent Transport Systems) strategy and legal framework for ITS, combined with the deployment of ITS and WIM (Weight -in Motion) on A1 motorway, part of Corridor X: The M1 (north-south) road is an integral part of the Corridor X whereas for the most part it is built as a highway A1. It is equipped with basic traffic signalization and equipment. The project envisages introduction of ITS and WIM on A1 Motorway, part of Corridor X, section Tabanovce - Gevgelija in the length of 175 km, Road Weather Information Systems (RWIS), which are a road weather stations built to collect data on weather conditions and air pollution, including systems for monitoring GHG (SLCP) emissions. This component will also provide technical assistance on ITS implementation of EU Directives. Component 3 (US$0.3 million) Activities under this component will consist of technical assistance to implement the regulatory and institutional reforms needed in line with North Macedonia’s commitments country specific commitments under the AP5 and AP6. Component 4 (US$1 million) This component will support project implementation units and provide additional technical support, including for policy coordination, operating costs, and monitoring and evaluation of the project. Serbia (US$40 million) Component 1 (US$11 million) National Single Window (NSW) (US$8.5 million): A National Single Window (NSW) is a common need in Serbia trade facilitation infrastructure and is a commitment made in the AP5 and in the WTO TFA. The key objective of the NSW is to facilitate traders in discharging all the regulatory obligations related to import or export with relevant authorities of their country. The NSW can help to reduce the administrative costs in trade and provide more transparency and predictability for traders in the document submission process. Additionally, it will provide a foundation for future cooperation with the customs agencies of trade partners. The crafting of the NSW will include a gap analysis (to assess legal and regulatory framework, and IT and technical capacity of all the different agencies relevant for NSW). The Electronic Data Interchange (EDI) (US$2.5 million): Implementation of EDI system based on recommendations from the World Bank study “Rail electronic data interchange in a border crossing point in South East Europe: And assessment of options”, including at Dimitrovgrad. Component 2 (US$27 million) Deployment of Intelligent Transport Systems (ITS) on Corridor X (US$12 million): ITS is in the initial phase of development. Until now ITS has been introduced on public roads in segments. There is a need to draw up a design for the installation of equipment for traffic management as well as the procurement and installation of equipment on the motorway of Corridor 10, as the most frequently used road in the Serbia, with the aim of more efficient and safe traffic running. ITS equipment that can be carried out within the first phase is, but not limited to, the following: (i) a system for collecting data on traffic flow in the form of inductive loops that are positioned into the carriageway; (ii) Weight in Motion (WIM); (iii) Elements to control the height of vehicles that access highway; (iv) Road Weather Information Systems (RWIS), which are a road weather stations built to collect data on weather conditions and air pollution, including systems for monitoring GHG (SLCP) emissions; and (v) A system for detecting the transport of dangerous goods. The improvement of specific Railway Level Crossings on the network (US$ 13 million): Along the Serbian Railway Network, there are 2,133 RLCs in total. 1,594 (74.7%) of these RLCs are unsecured. Half-barriers with warning light signals or full barriers are installed at 509 RLC (23.9%), out of which 228 have been secured by full barriers and 281 by half-barriers with warning light signals and finally 26 have been secured with just warning light signals (1.2%). The project will be implanted on 60 LCs and is consisted of 2 parts: a) Raising the level of safety on complex RLC and b) Raising the level of safety on simpler RLC. Both parts include the objective to increase resilience to extreme events exacerbated by climate change Project includes: Works and equipment of Traffic Signaling Project; Works and Page 51 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) equipment of RLC; and Works and equipment of interlocking devices and power supply for RLC. Reliability, Availability, Maintainability, and Safety system (RAMS) development (US$ 2 million): The project will comprise development of Feasibility study for RAMS implementation in Serbia. Component 3 (N/A) This component is covered by grant resources from other development partners, which complements the support from the World Bank Group. Component 4 (US$1.5 million) This component will support project implementation units and provide additional technical support, including for policy coordination, operating costs, and monitoring and evaluation of the project. Contingencies (US$0.5 million) Page 52 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) ANNEX 2: IMPLEMENTATION ARRANGEMENTS Project Institutional and Implementation Arrangements Regional learning and coordination level 1. At the regional level, the Secretariat for Transport Community Treaty (TCT) will play the role of the regional coordination office for the 6 participating beneficiaries, for all the transport related dimensions of the project. The CEFTA Secretariat will play the same role for the trade elements of the proposed project. These arrangements will be complemented, during project implementation by periodic workshops, activities at the regional level, to foster coordination and sharing of the lessons/experiences, which will allow to track progress at the regional level. The Corridor Performance Tool, which has a regional monitoring dimension, will be managed and used by the TCT, ensuring a regional data benchmarking, use and sharing. National implementation level 2. At the national level, the institutional arrangements for project implementation agreed with participating beneficiaries in phase 1 varies from country to country on which entity shall be the implementing agencies and will have the primary responsibility for project execution and ensuring that the project development objectives are met. The implementing agency in each country will establish a Project Implementation Unit (PIU) with the overall responsibility for project implementation and ensuring that financial resources are budgeted, disbursed, expended, accounted and audited. In addition to the project specific arrangements, implementation will also be supported by existing inter-ministerial coordination mechanisms, namely the National Trade Facilitation Committees (NTFCs) established in line with regional (CEFTA) and multilateral (WTO) trade facilitation commitments. The respective NTFCs will provide policy guidance and ensure inter-ministerial coordination and linkages with other line ministries to support relevant activities undertaken. Finally, project implementation will also benefit from existing coordination and consultation mechanisms at the regional level, including CEFTA’s Trade Facilitation Committee, the Secretariat for Transport Community Treaty (TCT), and Regional Cooperation Council (RCC). Project Implementation 3. PIUs in each country will be established and assume direct responsibility for project management, coordination and implementation/execution. The PIU will be headed by a Project manager in each country, either recruited externally, or assigned internally from the Administration. He/she shall be supported by a team of officers and staff drawn from relevant line ministries in addition to external consultants for the project, hired through the PIU to support the planning, coordination, implementation and monitoring of the project performance. This should be in line with the approved implementation schedule and he/she should ensure inter- institutional/inter-ministerial and inter-agency coordination both within and outside the country. 4. In all participating beneficiaries, the PIUs shall ensure the delivery of the project in its execution and implementation, the timely execution of annual procurement, safeguards, physical, financial and performance audits of all project components in the respective beneficiary, as well as the coordination for data gathering, Page 53 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) progress and any necessary inputs, with the respective line Ministries and agencies such as Customs. The PIU will also coordinate with the focal points, who will be will be responsible for monitoring and reporting on implementation in their respective entities. Other responsibilities include but are not limited to preparation of consolidated annual work programs and related budget requirements, fiduciary management, annual procurement plans, procurement of goods and services, semi-annual progress reports, process disbursement of project funds, review fund utilization and accountability, quality assurance of annual performance audits, oversee review meetings, supervise project staff and consultancy assignments, and other such work as required by the Project from time to time. In addition to the above, the PIUs shall also facilitate recruitment of consultancies to the following, but not limited to: a) Support the design and implementation of automated systems and innovative technologies to facilitate trade; b) Develop IT based corridor traffic management control systems and operational database to track corridor performance for easing movement of goods and services; c) Develop a National Single Window (NSW) system to merge the IT systems of customs, inspection services and electronic documentation for internal and movement of goods and transport services across the Western Balkans; d) Implement an Electronic Data Interchange (EDI) to reduce waiting time at Crossing Points and barrier free movement of goods and transport both within the Western Balkan region; e) Simplify, streamline and harmonize trade procedures and documents to reduce time and cost to trade; f) Provide technical assistance on ITS implementation of EU Directives; g) Implement policies/practices and jointly work (with other PIUs) towards regional solutions to facilitate the recognition of agreed upon standards for goods across the Western Balkans; h) Market the targeted trade and transport corridors in the project through dissemination of information using multiple media and other avenues to generate interest towards using these corridors as gateways of interregional trade. i) Carry out thematic studies and analysis of various regulatory and institutional reforms required to increase investments and trade, product market regulations, service trade restrictiveness and competitiveness, investment policy barriers, etc. as required and or directed by the respective Project Directors. j) Ensure the implementation and monitoring of the WBG Safeguards policies and procedures, including on the carrying out of the monitoring activities for the social, environmental, and citizen engagement activities. Carry out activities related to climate change mitigation and adaptation aspects of the Project, including but not limited to: coordination of activities; collection and evaluation of data from GHG (SMCP) emissions monitoring systems when existing (ITS) and coordinating the use of the data for supporting WB6 in pursuing low-emissions development path; carrying out analyses and studies of regulatory and policy reforms and institutional strengthening for reducing GHG(SLCP) emissions and increasing climate resilience of transport sector in WB6, in coordination with the TCT Secretariat; inclusion of climate change related lessons learned from the first phase in the design of the second phase of the Project. 5. Each PIU shall develop a Project Operation Manual (POM) which shall provide detailed implementation and coordination arrangements for the project in the respective country. The details shall include roles and responsibilities of implementing agencies and each executing agency associated in implementing the activities Page 54 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) under each project component, including preparation of periodic progress reports and updating of implementation plans, along with detailed performance of fiduciary functions. Project Management in Serbia 6. In Serbia, the project implementation will be anchored in the Ministry of Construction, Transport and Infrastructure (MCTI) and procurement and fiduciary roles are hosted in the Central Fiduciary Unit (CFU) within the Ministry of Finance. The MCTI will be ultimately accountable for execution of project activities and the project implementation would rely on its existing structures, with the additional support of the Project Implementation Unit (PIU) that will be established under the project. Decisions will be made by the MCTI in coordination with the PIU. Implementation arrangements place an emphasis on continually strengthening the MCTI’s capacity to promote long-term sustainability of the system. Day-to-day activities under the Project will be managed by a PIU housed in the MCTI and headed by a Project Coordinator. The PIU will report to the MCTI management and will be responsible for day-to-day project implementation, for preparing TORs, reviewing documents, overall project coordination, monitoring activities, safeguard, and reporting. The PIU within the Ministry will be staffed with a mix of staff financed from the MoF and from the Project (component 4). The main PIU will coordinate and obtain technical data from focal points in the Ministries and agencies involved in the Project. The proposed structure and staffing are shown in the diagram below: 7. The capacity of the CFU is assessed to be adequate, and it consists at the moment of the CFU Director, Head of Operations, Senior Financial Management Officer and Senior procurement Officer. The CFU is providing fiduciary support at the moment to four World Bank supported projects and the capacity vis-à-vis the workload will be monitored. Coordination structure and procedures between the CFU and the PIU are described in detail in the Project Operational Manual (POM). The cost of CFU consultants will be shared across all the portfolio of activities supported by them. 8. CFU will support implementation from procurement and financial management aspects. For this purpose, CFU capacity may need to be expanded, by selecting additional a procurement specialist, financial management specialist, and a procurement assistant. This would be complemented by small technical teams to support project implementation in each of the participating ministries and agencies, partly financed by the Project (Component 4). The PIU within the Ministry will be staffed with a mix of staff financed from the MoF and from the Project. The Page 55 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) main PIU will coordinate and obtain technical data from focal point in the Ministries and agencies involved in the Project. 9. The overall coordination, management, implementation and oversight of procurement and finance will be carried out by the CFU. The project’s budget will be prepared by the MCTI with support from the CFU. There is sufficient capacity for planning and budgeting within the MCTI in order to manage project funds in an optimal manner from aspects of funds allocation, liquidity and overall performance. Variances of actual versus budgeted figures should be monitored on a regular basis, appropriately analyzed, and corrective actions taken. The CFU will prepare in-year financial plans and cash forecast based on the project’s budget, thus ensuring adequate liquidity management and withdrawal of funds. Project Management in North Macedonia 10. In North Macedonia, a Working Group formed by a representative of each of the key stakeholders involved in the proposed project (Customs, Ministry of Finance, Ministry of Transport, Ministry of Interior, Food and veterinary Agency, Ministry of Economy, State sanitary and health inspectorate) has been established. The Working Group is coordinating with their respective agencies and Ministry, and the WBG, for the preparation and design of the project. The main implementing agency of the Project will be the PIU within the MoTC. The Project Implementation Unit (PIU) that will be anchored at the MoT would be ultimately accountable for execution of project activities and the project implementation would rely on the PIU with the additional support from the existing structures in the MoTC. Decisions will be made in coordination between the PIU and the MoTC. Implementation arrangements place an emphasis on continually strengthening the MoTC’s capacity to promote long-term sustainability of the system. The PIU with support of MoTC will be responsible for implementation for procurement and financial management aspects. Day-to-day activities under the Project would be managed by a PIU and headed by a head of PIU. The PIU would report to the MoTC management and would be responsible for preparation of TORs, reviewing documents, overall project coordination, project and activities execution, monitoring activities, safeguard, and reporting. PIU staff will be financed by the project (component 4). The PIU will coordinate and obtain technical data from focal point in the Ministries and agencies involved in the Project. The proposed structure of the PIU is as follows: Page 56 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) Project Management in Albania 11. In Albania, the project implementation unit (PIU) will be anchored at the Ministry of Finance and Economy. The General Directorate of Financing and Contracting of EU, WBG and other donors’ (GDFC) will be responsible for fiduciary aspects for the implementation. The Ministry of Infrastructure and Energy (MIE), the Ministry of Interior, the General Directorate of Customs, and General Maritime Directorate will share responsibility on technical aspects for project implementation, but they will not be responsible for financial management. A Project Implementation Unit (PIU) will be hosted in the MOFE to support with project coordination and management activities. The GDFC is intended to act as procurement and financial management unit of the overall implementation arrangements and provide such support and service to the MOFE as the primary implementing entity. The PIU staff is detailed in the procurement plan. The PIU will work in close liaison and coordination with the technical teams of the Ministries and agencies involved in the project. The PIU staff will be financed by the Project (Component 4). The proposed structure of the PIU is as follows: Monitoring and Evaluation 12. The overall program has designed and includes a set of monitoring indicators that are intended to work at both the national and corridor levels, in line with the results framework. The indicators would be replicated in subsequent phases to allow the effective measurement of the outcome and results of the project(s) and aggregated to provide results for the overall program. The overall responsibility of monitoring, evaluation and reporting lies with the PIU in each country. 13. Monitoring of progress on indicators and evaluation of results during implementation will be in accordance with the agreed Results Framework and based on published data, surveys, field visits, feedback from stakeholders, and mission reports. Each PIU will prepare semi-annual reports with data for the Results Framework, to be reviewed and discussed with the Bank and other project counterparts, as applicable. The PIU shall ensure that the progress reports also contain a summary of the status of compliance of ESMF, ESMPs and or RAPs (if applicable) in addition to physical and financial progress reported for the preceding six months. Thus, progress against PDOs will be assessed on an ongoing basis. In addition, a midterm review will be held on or before March 2020. Within 6 months of closure of phase 1, the World Bank will complete and disclose an Implementation Completion and Results (ICR) report for the project. Page 57 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) 14. Sustainable corridor performance monitoring also requires appropriate institutional arrangements. However, establishing such arrangements for systematic corridor performance remains a challenge. Corridor Vc was selected as a pilot with this challenge in mind, with the objective to scale up the tool for the entire Western Balkan corridors. The establishment of SEETO in the Western Balkans in 2004 to support regional integration of its regional participants in the EU provides an excellent basis for corridor performance monitoring for all the corridors in the region. Monitoring performance to ensure the adequacy of the infrastructure and the efficiency of transport- and logistics-related services is at the heart of the SEETO Secretariat’s functions. While the initial focus of SEETO at the time of its establishment was on the physical development of the regional transport network, there has been an increasing focus in the past few years on policy reforms and on addressing non- physical barriers impeding the full realization of the corridors’ potential. The TCT signed in 2017 will support these efforts. Reporting: The Project Director of each PIU shall submit their project’s audit, performance and semi-annual progress reports to their respective NPSC for the latter’s review and approval before submission to the Bank. Procurement Arrangements 15. Procurement will be conducted by three PIUs in the 3 beneficiaries according to the World Bank’s Procurement Regulations for IPF Borrowers’ (the Regulations), issued in July 2016, and revised November 2017 and August 2018 for the supply of goods, works, and non-consulting and consulting services, and the Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants, dated October 15, 2006 and revised in January 2011 and as of July 1, 2016. Under the Regulations the Project Procurement Strategy for Development (PPSD) is used to analyze and determine the optimum procurement approach to deliver the right procurement result. The PPSD prepared by Implementing agencies (IAs) for the project entailed a strategic assessment of the operating context and beneficiaries’ capabilities, as well as the market, the different stakeholders, and the risks impacting procurement processes, and it informed the Procurement Plan. 16. As per the requirement of the Regulations, a Project Procurement Strategy Document (PPSD) has been developed by the IAs in each country and finalized after review by the Bank. Extensive market analysis has been carried out for different packages of procurement and based on the findings, decisions on packages and lots are finalized for goods and technical services to ensure adequate participation of bidders. Consultancy contracts are also framed based on market research and packaging of the same in terms of scope of services are decided. Based on the PPSD, the procurement plan for each country has been prepared to set out the selection methods to be followed by the IAs during project implementation in the procurement of goods, works, technical services and consulting services financed by the Bank. General Procurement Notice (GPN). It will be prepared by IAs/PIUs and submitted to the Bank after negotiations. The World Bank will arrange for its publication in United Nations Development Business online and on the World Bank’s external website. The GPN will contain information concerning the Borrowers, amount, and purpose of the loan; scope of procurement reflecting the procurement plan; the name, telephone (or fax) number, and address(es) of the borrower’s agencies responsible for procurement; and the address of a widely used electronic portal with free national and international access or website where the subsequent Specific Procurement Notices will be posted. Moreover, it will provide information on the scope of major procurements for the project and soliciting expressions of interest from prospective bidders and/or consultants for this project. 17. Procurement of Goods, Works, and Non-Consulting Services. Goods may be procured by PIUs/IAs using procedures and methods (Request for Proposals, Request for Bids, Request for Quotations and Direct Selection) Page 58 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) in accordance with Section VI. Approved Selection Methods: Goods, Works and Non-Consulting Services of the Regulations. 18. Procurement of consulting services. Selection of consulting firms will be done by PIUs/IAs using the World Bank standard procurement documents, such as Request for Proposal. Selection methods are: Quality-and Cost- Based Selection, Least Cost Selection, Fixed Budget Selection, or Quality Based Selection following provisions of Regulations for Borrowers, Section VII. Approved Selection Methods: Consulting Services. For contracts below USD 300,000 equivalent, the Selection Based on Consultants’ Qualification (CQS) method may be used. The short list can entirely comprise national consultants if the contracts with the firms are below USD 300,000 equivalent. Individual consultants are selected from those that expressed interest in response to a REOI. For direct selection of individual consultants, due justifications under the circumstances specified in para. 7.39 of Section VII of the Regulations apply. 19. Procurement supervision. Procurement reviews and supervision will be conducted by the Bank APS (Accredited Procurement Specialist) assigned to the Project. In addition, one supervision visit is expected to take place per year when ex post reviews will be conducted. Procurement documents will be kept readily available for the Bank’s post review during supervision missions or at any other point in time. A post review report will be prepared annually and shared with the PIUs/IAs. Procurement Assessment for Serbia 20. The overall coordination, management, implementation and oversight of procurement and finance will be carried out by the CFU. The initial procurement risk rating is high due to imminent issue with CFU and MCTI staff capacity as described above. The prior review thresholds for high risk projects as provided in the ECA Regional Procurement Maximum Thresholds, effective January 2, 2014 (revised November 15, 2017) will apply: Works - $5,000,000; Goods, IT System and Non-Consulting Services – $1,500,000; Consulting Firms – $500,000; and Individual Consultants – $200,000. Direct Selection will be in accordance with paras. 6.8 to 6.10 for Goods, Works and Non-Consulting Services and paras. 7.13-7.15 for Consulting Services of the Procurement Regulations. All TORs are subject to the Bank’s review and no objection irrespective of post review status. For the most part, the risks for selection of consulting services are low, since there is a robust market for the services required and they are not high value contracts. Below is the table of procurement risks and mitigation measures proposed. Risks Mitigation Measures CFU capacity to handle additional projects Hire additional staff (one procurement specialist, one financial management specialist, and a procurement assistant. New staff are not familiar with STEP. The Bank will conduct regular STEP training and consultation. Lack of experience of CFU in procuring works The Bank will conduct refresher training on procurement of works. contracts PIU capacity in preparing TORs and technical Select in advance qualified PIU staff to be financed under the specifications ongoing Corridor X Project to prepare activities for the project. PIU capacity in evaluation expressions of interest CFU Procurement Specialist to brief Evaluation Committee members and technical proposals due to lack of experience in on the selection procedure. PIU staff will also be encouraged to working with World Bank-financed projects. attend procurement training/workshops conducted by the Bank. Coordination challenges between the PIU, the focal Regular meetings between the PIU and the CFU and submission of points, and the CFU staff progress reports to the Bank. Page 59 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) 21. Procurement Plan. The CFU/MCTI prepared an initial procurement plan for the first 18 months of the project as part of the PPSD. The procurement plan will be updated in agreement with the Bank at least annually or as required to reflect the actual project implementation needs and improvements in the PIU’s institutional capacity. Procurement Assessment for North Macedonia 22. The MoTC does not have experience with Bank financed projects. Therefore, the direct responsibility for project management, coordination and implementation, including procurement and financial management under the project, will be delegated to a Project Implementation Unit (PIU). The PIU will be established within the MoT. A Senior Procurement Specialist needs to be hired within the PIU, with general experience in procurement, preferably in managing procurement under projects financed from international financial institutions, as well as good knowledge of English language. This carries risk for the timely commencement of planned activities under the project. The potential risks for procurement and the proposed mitigating measures are included in the Project Procurement Strategy for Development. Below is the table of procurement risks and mitigation measures proposed. Risks Mitigation Measures Delay in commencement of project Formal decision on establishment of PIU to be issued as soon as implementation as there is no formal decision feasible, but not later than Board Approval of the Project adopted on establishment of PIU. Selection process of PIU members will not start Selection process of PIU members to be initiated after Board approval prior to project effectiveness. of the Project. Terms of Reference (TOR) for relevant PIU Start drafting TORs for the relevant PIU members as early as possible, members are not drafted yet. to allow internal coordination between the stakeholders and agreement with the Bank. The Bank will provide guidance and as relevant sample TORs for the respective positions Lack of availability of seasoned Procurement Hiring a seasoned Procurement Specialist, with knowledge and Specialist. experience in procurement, and preferably with some experience in procurement under projects financed from international financial institutions and/or World Bank Use of World Bank’s procurement policies and Formal or on-the-job training of relevant staff in the PIU on the procedures, standard procurement documents respective procurement policies and procedures and applications. and relevant procurement applications (STEP) Project focal points not appointed Issuing a formal decision on appointment of a project focal point Need to clearly elaborate the roles and Elaborate roles and responsibilities in detail in the Project Operations responsibilities of various stakeholders in the Manual. project management Initiate drafting of a Project Operations Manual as soon as PIU is established STEP is a new operational tool and there is no World Bank to provide initial and training to the relevant PIU staff experience in the MoT who will use STEP and refresher trainings on an as-needed-basis 23. Procurement Plan. The MoT prepared an initial procurement plan for the first 18 months of the project as part of the PPSD. The procurement plan will be updated in agreement with the Bank at least annually or as required to reflect the actual project implementation needs and improvements in the PIU’s institutional capacity. Procurement Assessment for Albania Page 60 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) 24. The procurement capacity conducted by the Bank on Nov 2018 to the GDFC/MoF showed that the GDFC has experience in World Bank procurement procedures and has satisfactory performance in procurement for Bank- financed projects. The GDFC has a solid management structure and is staffed with experienced procurement specialists. Diligence is also observed in record keeping and quality of evaluation. The procurement processing and contract management was rated Satisfactory, and the Implementation Completion and Results Report of the previous projects rated the performance of the implementing agency Satisfactory. The implementing agency is familiar with the World Bank’s bidding documents and procedures; however, continuous training on the Procurement Regulations for IPF Borrowers is needed. Despite adequate capacity, the lack of experience of GDFC in procuring in civil work contracts can be perceived as a potential risk. 25. Procurement Plan. The GDFC/MoF prepared an initial procurement plan for the first 18 months of the project as part of the PPSD. The procurement plan will be updated in agreement with the Bank at least annually or as required to reflect the actual project implementation needs and improvements in the PIU’s institutional capacity. Financial Management 26. The assessments concluded that appropriate arrangements and capacity exist in all participating beneficiaries, however the assigned risk is substantial due to relative project complexity related to involving three beneficiaries under Phase 1. The legal covenants in the area of financial management will include in each country delivery of interim un-audited financial reports (IFRs) and annual audited financial statements. The form and content of interim and annual reporting follows the same standard, and it is thus comparable and enables analysis of the financial data for the whole project. Other key arrangements include having a traditional based disbursement with a designated account used solely for project funds being opened in an acceptable institution. Appropriate controls and procedures will be described in Project Operations Manuals. The Bank accredited Financial Management Specialists responsible for relevant beneficiaries will conduct financial management implementation support and supervision and will exchange findings and conclusions for each beneficiary in order to assess overall project’s risk and performance. It will be monitored and ensured that there is continuous implementation capacity in each participating beneficiary. Assessment for Serbia 27. The CFU will follow traditional financial management arrangements. The Project Operations Manual (POM) will detail implementation arrangements, including the division of responsibilities between the MCTI and the CFU. 28. Accounting System. Acceptable accounting software is in place and administered by the CFU, and it will be used for project accounting and reporting. Accounting records should include appropriate analytics of expenditures per contracts and each specific payment. The project will follow cash basis of accounting (cash based IPSAS), recording transactions when actual payment is done, rather than when they are incurred. Transactions should be accounted for within 8 days after incurring. There should be appropriate back up of accounting records on external drives, as well as appropriate security regulation with regard to access and editing rights of the financial information. 29. Internal controls. Procedures and controls to be applied on the project will be detailed in the POM. Some of the key internal controls to be applied for the project should include: (i) appropriate authorizations and approvals of all purchases, relevant documentation, transactions of payments etc.; (ii) segregation of duties as different persons are responsible for different phases of a transaction; (iii) reconciliations between project accounting records and other relevant sources of information (Client Connection, bank account statements etc.) performed Page 61 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) at least monthly by the Senior Finance Management Officer; and (iv) original documentation supporting all project transactions properly filed. 30. Contract management. Contract implementation will be monitored in the software and checks and controls of the total contract amount and payments which are due will be checked before each payment under contracts. Respective technical staff and financial department will review and approve invoices and accompanying documentation against contracts provisions for ceilings, dynamics of payments and quality of deliverables. 31. Financial Reporting. Interim un-audited financial reports (IFRs) which will include financial information relating to the whole project will be prepared for each quarter and will be due 45 days after the end of each quarter. IFRs will be prepared in line with cash basis of accounting. The format of the IFRs will be agreed between the GoS and Bank and attached to the minutes of negotiation. The CFU will be responsible for preparation of the IFRs, as well as annual project financial statements. The reporting currency will be EUR. IFRs are intended to comprise the following reports (subject to any modifications agreed with the implementing entity between the date of the report and negotiations): (i) Cash Receipts and Payments, including comparison of budgeted versus actual amounts; (ii) Uses of Funds by Activity; (iii) Designated Accounts statement; and (iv) Accounting policies and explanatory notes. 32. External audit. The annual audit of the project financial statements will be conducted by a private audit firm acceptable to the Bank. The audit report will be submitted to the Bank no later than six months after the end of the audited period. The audit will be conducted by a private audit firm acceptable to the Bank and in line with agreed Terms of Reference (ToR). The ToR will be agreed between the GoS and Bank and attached to the minutes of negotiation and the POM. In addition, the audit will review compliance with procedures laid out in the POM. The audit of project financial statements will be funded by the project. The audited project financial statements will be posted by the client on the MCTI website within 2 weeks upon the audit report being accepted by the World Bank. 33. Financial management covenants. The financial management covenants for the project will be as follows: (i) CFU to maintain an adequate financial management system, (ii) CFU to prepare interim un-audited financial reports (IFRs) for each calendar quarter and deliver to the Bank no later than 45 days after the end of the reporting quarter, (iii) Annual project financial statements audited by a private audit firm acceptable to the Bank and such audit to be delivered to the Bank not later than six months after the end of the audited period. 34. Designated account, Funds Flow and Disbursement Arrangements. The Designated Account in foreign currency for administering the project funds will be opened in the National Bank of Serbia (NBS) and will be managed by the MCTI, while the CFU will process the payments in scope of their fiduciary role. The control environment in the NBS is considered to be acceptable. Statement of Expenditures (SOEs) based disbursement will be applied, with advances being the primary disbursement method, but direct payments and reimbursement also allowed. Project funds will flow from: (i) the Bank - either as an advance, via a Designated Account to be opened in the NBS, which will be replenished under transaction based disbursement method, and managed as described below in the section on disbursement arrangements, or (ii) by direct payment on the basis of direct payment withdrawal applications and other disbursement letter envisaged in the disbursement letter (iii) reimbursement of the budget expenditures. The Designated Account will be administered as follows: (i) The CFU will prepare withdrawal applications for replenishment of the Designated Account which ought to be signed by the MCTI senior officials designated as authorized signatories for the account, (ii) payments from the Designated Page 62 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) Account are executed by the means of payment orders as approved by the MCTI and processed by the CFU. After all the procedures with respect to flow of documents, verifications and authorizations described in internal controls section are applied, including confirmation by the technical staff in the PIU that service rendered/goods delivered are of acceptable quality and in line with the respective contracts, payment order signed by the MCTI authorized signatories is submitted by the CFU to the NBS. In the case of Direct Payment, the application form for such method payment is submitted to the Bank with the same authorized signatories as described above. The Ceiling for the Designated Account is defined in the disbursement letter, as well as thresholds for minimum withdrawal application amount and direct payment threshold. Documentation requirements for replenishment would follow standard Bank procedures as described in Disbursement Handbook. Monthly bank statements of the Designated Account, which have been reconciled, would accompany all replenishment requests. Assessment for North Macedonia 35. The Project Implementation Unit, within the Ministry of Transport and Communication, will ensure the delivery of the project in its execution and implementation, the timely execution of annual procurement, safeguard, physical, financial, and performance audit of all project components. The focal points at Customs Administration (CA), Ministry of Economy, and Public Enterprise of State Roads (PESR) will be responsible for monitoring and reporting on implementation in their respective entities. The MoTC will rely mostly to the PIU and external experts for preparation of various technical specifications and terms of references. The newly hired Procurement Specialist in the PIU will need to be receive on-the-job training on the relevant procurement policies and procedures of the Bank, including in the various standard procurement documents and use of STEP. The Project will follow traditional financial management arrangements. The Project Operations Manual (POM) will detail implementation arrangements, including the division of responsibilities between the PIU at MoT and the CA and PESR. The POM will detail procedures and processes about planning and budgeting, accounting, financial reporting, internal controls, flow of funds and external audit for the project. It will also describe roles and responsibilities and communication channels and modes between the CA, PESR and the PIU. 36. Accounting system. Acceptable accounting software administered by the PIU needs to be used for project accounting and reporting. Accounting records should include appropriate analytics of expenditures per contracts and each specific payment. The project will follow cash basis of accounting (cash based IPSAS), recording transactions when actual payment is done, rather than when they are incurred. There should be appropriate back up of accounting records on external drives, as well as appropriate security regulation regarding access and editing rights of the financial information. 37. Contract management. Contract implementation will be monitored in the software and checks and controls of the total contract amount and payments which are due will be checked before each payment under contracts. Respective technical staff and financial department will review and approve invoices and accompanying documentation against contracts provisions for ceilings, dynamics of payments and quality of deliverables. 38. Internal controls. Key internal controls to be applied for the project should include: (i) appropriate authorizations and approvals of all purchases, relevant documentation, transactions of payments etc.; (ii) segregation of duties as different persons is responsible for different phases of a transaction; (iii) reconciliations between project accounting records and other relevant sources of information (Client Connection, bank account statements etc.) performed at least monthly by the Senior Finance Management Officer; and (iv) original Page 63 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) documentation supporting all project transactions properly filed. 39. Financial reporting. Interim un-audited financial reports (IFRs) which will include financial information relating to the whole project will be prepared for each quarter and will be due 45 days after the end of each quarter. IFRs will be prepared in line with cash basis of accounting. The format of the IFRs will be agreed between the MoT and Bank and attached to the minutes of negotiation. The PIU will be responsible for preparation of the IFRs, as well as annual project financial statements. The reporting currency will be EUR. IFRs are intended to comprise the following reports (subject to any modifications agreed with the implementing entity between the date of the report and negotiations): (i) Cash Receipts and Payments, including comparison of budgeted versus actual amounts; (ii) Uses of Funds by Activity; (iii) Designated Accounts statement; (iv) Accounting policies and explanatory notes. 40. External audit. The borrower will provide annual audited project financial statements to the Bank within six (6) months of the end of each fiscal year and at the closing of the project. The audit will be conducted by a private audit firm acceptable to the Bank and in line with agreed Terms of Reference (ToR). The ToR will be agreed between the MoT and Bank and attached to the minutes of negotiation and the POM. The audited project financial statements will be posted by the client on the MoT website within 2 month upon the audit report being accepted by the World Bank. 41. Financial management covenants. The financial management covenants for the project will be as follows: (i) the PIU within the MoTC to maintain an adequate financial management system, (ii) the PIU within the MoTC to prepare interim un-audited financial reports (IFRs) for each calendar quarter and deliver to the Bank no later than 45 days after the end of the reporting quarter, (iii) Annual project financial statements audited by a private audit firm acceptable to the Bank and such audit to be delivered to the Bank not later than six months after the end of the audited period. 42. Designated account, Funds Flow and Disbursement Arrangements. Once the project becomes effective, a Designated Account will be opened in the NBRM, to which the funds will be transferred. A transit treasury Denar account will be opened within the Treasury Single Account to serve as an operating account for withdrawals from the foreign currency account. The Designated Account will be managed and operated by the PIU with the authorized signatories, which include a ministerial (MoT) representative. All transfers will take place through it, with a corresponding transfer of the Denar‐equivalent amount from the foreign exchange account. The loan proceeds will be disbursed based on standard Bank disbursement methods for investment projects, including advances, direct payments, reimbursements and special commitment. The procedures relating to the flow of funds, including paths for authorization and approval of payments will be described in detail in the updated Financial Management section of the POM. The procedures should clearly describe all steps of the process, as well as authorized signatories for administering the account funds, data flow between the PIU and other beneficiaries of the project, including authorization/validation process from their side of transactions. Bank statements indicating turnover and balance on the transit treasury Denar subaccount and the bank statements indicating balance on the Designated Account will be submitted daily. The PIU will include balances on all project‐related accounts in the quarterly IFRs. The ceiling for the Designated Account will be indicated in the Disbursement and Financial Information Letter that will be agreed on at negotiations. Applications for replenishment of the Designated Account will be submitted at least quarterly or when one‐third of the amount has been withdrawn, whichever occurs earlier. Documentation requirements for replenishment would follow standard World Bank Page 64 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) procedures as described in the Disbursement Handbook. Bank statements of the Designated Account, which have been reconciled, would accompany all replenishment requests. Assessment for Albania 43. The General Directorate of Financing and Contracting of EU, the World Bank and other donors’ (GDFC) will be responsible for procurement and fiduciary aspects of the project. The GDFC, established under sub ordinance of Ministry of Finance and Economy, will act as procurement and financial management unit of the overall implementation arrangements and provide such support and service to the MOFE as the primary implementing entity. The GDFC’s organization structure is adequately designed to achieve the organization objectives. It properly defines, authority line, roles and responsibilities of departments and employees, ensures segregation of duties, provides a system of coordination for integrating the activities of individuals and departments and ensure four eye principles, is honored. The WBG projects division consists of two units dealing with financial management and procurement. It has an excellent track record and compliance in disbursement and reporting during the implementation of Bank assisted projects. The division comprises 9 staff. GDFC has good track records of implementing World Bank projects, which have been acknowledge in different Bank’s supervision missions and also external audits. The team has been involved in the procurement and financial management of several trust funds some multi-donor trust funds. Diligence is also observed in record keeping and quality of evaluation. 44. The procurement processing and contract management capacity is deemed adequate. It was rated Satisfactory, and the Implementation Completion and Results Report of the previous projects rated the performance of the implementing agency Satisfactory. The implementing agency is familiar with the World Bank’s bidding documents and procedures; however, continuous training on the Procurement Regulations for IPF Borrowers is needed. Despite adequate capacity, the following risks were identified during the Appraisal mission: (a) undefined roles and responsibilities of the PIU and beneficiary agencies in the procurement processing of the project and (b) lack of experience in work contracts with Prior review threshold. Based on the assessment, the project procurement risk is kept to substantial. 45. Similarly, the financial management arrangements for this project are deemed adequate. The FM arrangements proposed are similar to those of ongoing Bank assisted projects implemented through GDFC. In addition, GDFC has maintained compliance with Bank reporting and disbursement requirements during the implementation of ongoing projects, with accurate and reliable project accounting records, and adequate controls over processing of payments and invoices. Finally, the GDFC FM staffing level is adequate and they are by now familiar with implementation of the Bank-financed/assisted projects. The Bank will continually monitor workload and any gaps that may emerge during implementation. Moreover, some areas shall be further strengthened before Project implementation starts, including: (i) establish financial management and disbursement procedures, notably internal controls and document as part of the POM (project effectiveness condition). The POM should describe roles and responsibilities and communication channels and modes between the Albanian MOFE, PIU, and GDFC as well as other parties involved in the project, (ii) provision of continuous training and support on Bank FM and disbursement procedures for both the FM specialist and staff in the GDFC. 46. The GDFC will follow traditional financial management arrangements. The Project Operations Manual (POM) will detail implementation arrangements, including the division of responsibilities between the GDFC and other agencies involved in implementation. The proposed Project will utilize the existing financial management Page 65 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) arrangement in the GDFC. However, it is to be noted that the agency is no relying in the functionalities of the Albanian Government Financial Information System (GFIS) for fund flows, accounting and reporting of the donor and IFI funds. 47. Internal Controls. The GDFC has adequate systems, controls and staffing in place to implement the proposed project. The current organization structure facilitates adequate controls and segregation of duties over the implementation of the project. Accounting and administrative systems and controls are documented in an operational manual, prepared separately for each project under the responsibility of the GDFC. These systems and controls do no vary between projects, however since the division serves different beneficiaries and implementation agencies on each project, the assignment of the roles and responsibilities of all the parties involved is reflected in the respective Project Operational Manual (POM). The POM shall reflect project description, project management arrangement, project stakeholders/ beneficiaries, the roles and responsibilities between the line ministries and agencies involved and the PIU, and the resulting flow of information/documentation. The adoption of POM is an effectiveness condition. 48. Project Accounting and Financial Reporting. The GDFC uses the most updated version Alpha PMR software for accounting and financial reporting of the Bank supported trust funds, installed in 2016. The software/system which has security features is capable of multi-currency financial reporting and automatically generates interim financial reports (IFRs) for submission to the Bank and the donors, and for project management. Quarterly Interim Financial Reports (IFRs) would be used for overall monitoring and supervising of the project. The IFRs, which format and content are standard, will be submitted within 45 days after the end of each quarter. Content wise the IFRs will include: a) the statement of sources and uses of funds (with expenditure classified by category and component), (b) contract monitoring, and (c) a designated account (DA) statement. The template for IFRs will be included in the POM. The first quarterly IFRs will be submitted after the end of the first full quarter following the first disbursement. The annual project financial statements will be prepared in accordance with International Public-Sector Accounting Standards on a cash basis. The financial reports will be prepared in loan currency. 49. External audit. The project financial statements would be audited on annual basis. The audit will be conducted by independent auditors acceptable to the Bank and in accordance with consistently applied auditing standards acceptable to the Bank. The auditor will be contracted by the MOFE under the existing ‘global’ audit arrangements, where the MOFE annually appoints auditors for the entire portfolio of Bank funded projects. GDFC will be responsible for coordination, providing access and responding to auditor inquiries, as well as follow up on the auditor findings. The audited project financial statements will be submitted within 6 months from the end of the fiscal year and will be made publicly available on the MOFE website within two months after received by the Bank. 50. Designated account, Funds Flow and Disbursement Arrangements. A Designated Account denominated in loan currency would be opened at the Bank of Albania. The operation will utilize the regular Project investment financing disbursement mechanism including advance to Designated Account (DA), direct payment, reimbursement and special commitments. Statement of Expenditures (SOEs) based disbursement will be applied. As the Bank of Albania does not transfer funds to the consultants and suppliers, the GDFC would open one or two bank accounts at a commercial bank to transfer funds and execute payments of project expenditures to third parties i.e. consultants, contractors and suppliers. As of date there are no lapsed loans in the Albania portfolio. The funds will flow outside the treasury system. Project funds will flow from the Bank, either (i) via DA, which will be replenished on the basis of documentation specified in the Disbursement Letter, or (ii) by using the direct Page 66 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) payment method or the Special Commitment. Once the funds have been deposited in the DA, the Treasury Department at MoFE, at the GDFC’s request, will transfer loan proceeds from DA to GDFC project bank accounts that will be maintained in a commercial bank, acceptable to the MoFE. These bank accounts (one denominated in loan currency and one Albanian Leke) will be managed by GDFC. The Bank will require either copies of the original documents evidencing eligible expenditures (“Records”) or summary reports of expenditure (“Summary Reports”). For Direct Payments records would be required. Records include such documents as invoices and receipts. Further details on the project disbursement arrangements will be provided in the Project Disbursement Letter. In all cases GDFC is required to maintain original documents evidencing eligible expenditures and making them available for audit or inspection. These documents should be maintained for at least two years after receipt by IBRD of the audit report and for a period required by local legislation. 51. Supervision Plan. As part of its Project implementation support missions, the Bank will conduct risk-based financial management within the first year of Project implementation, and then at appropriate intervals based on the assessed risk and performance of the Project. The first FM supervision will be conducted in May/June 2020. During Project implementation, the Bank will supervise the Project’s financial management arrangements in the following ways: (a) review the Project’s Interim Un-audited Financial Reports (IFRs) as well as the Project’s annual audited financial statements and the auditor’s management letters and remedial actions recommended in the auditor’s management letters; and (b) assessment of continued adequacy of overall financial management systems and controls for project implementation during the Bank’s on-site missions. The following key areas will be considered: (i) Project accounting and internal control systems; (ii) budgeting and financial planning arrangements; (iii) disbursement arrangements and financial flows, including counterpart funds, as applicable; and (iv) any incidences of corrupt practices involving Project resources. Page 67 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) ANNEX 3: IMPLEMENTATION SUPPORT PLAN 1. The Implementation Support Plan (ISP) for the proposed Operation outlines the approach the Bank will take to support the various stakeholders’ efforts to implement the Program activities and manage the key risks to achieving results. 2. In addition to ensuring compliance with Bank Policies (OP/BP) and the Program’s financing agreement, and based on the main conclusions of the preparatory assessments, the following areas have been identified as most critical to concentrate the Bank’s implementation support efforts: a) Introduction of the National Single Window systems: While some agencies like in North Macedonia, and in Serbia, have a considerable experience in deploying instruments, software and hardware that constitute the customs supporting transactions for imports and exports, the introduction of a National Single Window (NSW) will be a new function. One of the goals of the first phase of the proposed Program is to introduce the NSW and replicate it in the future for the phase 2. The priority for strengthening within MoT and the Customs, which are in the three participating beneficiaries the lead institutions for trade, and customs related activities, shall be to institutionalize the capacity to integrated trade-data with other agencies, and, more broadly, the capacity of MoT and Customs to assist the various agencies that are key to customs, clearances and inspection. b) Limited coordination among Ministries and agencies: The Bank will work with the participating Ministries to ensure that all participating agencies have capable procurement and implementation staff and receive necessary procurement training. The Fiduciary Systems Assessment will identify specific measures to improve the fiduciary performance of the Program, and support from the Bank will help execute these measures. The Project Implementation Units will also need specific coordination support, from the fiduciary, procurement, and project management dimensions. The Project Implementation Plan will address the coordination challenges by providing recurrent coordination and project management support. 3. During the first two years of implementation, the Bank’s support will focus on strengthening the Program systems, especially the Project Implementation Unit’s environmental, social, and fiduciary performance. The Bank will also support the establishment of an M&E system for the Program, as well as the deployment of a Corridor Performance Tool. It is anticipated that the first two years will require significant implementation support from the Bank and selected specialists. After the initial two first years, the Bank will begin to support the Project Implementation Unit. Monitoring of the systems performance will switch from the sub-project preparation phase to activity implementation. 4. The proposed operation in the three participating beneficiaries of the phase 1 (Albania, North Macedonia, Serbia) will require considerable focused support from the Bank particularly during the early stages. One challenge will be to coordinate the actions agreed in the phase 1 of the program with the deployment of operational activity on the ground, ensuring that information flows effectively between the Project Implementation Unit, the lime Ministries, as well as various agencies, and the regional entities. While channels of communication are generally good within the Western Balkans, there will be a significant flow of new information to authorities (Customs, Border and Migration Police Departments, Inspection Agencies, Railways…) during the Page 68 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) early stages of the Program relating to National Single Window and Crossing Points. Customs agencies involved in the Program will need to make a rapid shift in the focus of their planning to ensure that available funding can be absorbed, and results delivered in time and within expected budget envelopes. 5. The Bank will also be needed to ensure effective implementation of climate change related aspects of the Project and leverage the potential of data collection and lessons learned in supporting low-emissions and climate resilient development of the WB6. The Bank’s leadership in climate and development finance and the corporate commitments aimed at supporting client countries in low-emissions and climate resilient development are paramount to the project. The support will include integration of the findings of ongoing WBG work on climate change mitigation, adaptation and resilience in the design of the Project and vice versa. Implementation Support for Financial Management 6. As part of its Project implementation support missions, the Bank will conduct risk-based financial management within the first year of Project implementation, and then at appropriate intervals based on the assessed risk and performance of the Project. During Project implementation, the Bank will supervise the Project’s financial management arrangements in the following ways: (a) review the Project’s Interim Un-audited Financial Reports (IFRs) as well as the Project’s annual audited financial statements and the auditor’s management letters and remedial actions recommended in the auditor’s management letters; and (b) assessment of continued adequacy of overall financial management systems and controls for project implementation during the Bank’s on-site missions. The following key areas will be considered: (i) Project accounting and internal control systems; (ii) budgeting and financial planning arrangements; (iii) disbursement arrangements and financial flows, including counterpart funds, as applicable; and (iv) any incidences of corrupt practices involving Project resources. Table A3. 1: Bank Skills Mix Requirements for Implementation Support (Phase 1, per year) Skills Needed Number of Staff Weeks Number of Trips (field and office) Task Team Leader / Management 18 3 Fiduciary and Procurement 8 3 Environmental/Social/Citizen 8 3 Climate Change 4 3 Customs/ IT/Trade 18 3 Transport/ITS 18 3 Page 69 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) Table A3.2: Key focus of Implementation Support from the Bank Time Focus Skills Needed Resource Estimate First 12 months Design of blueprint for NSW and Governance; 3 implementation support governance (change management) procurement; missions 3 x 6 schemes – including considerations of financial people x 2 weeks = 36 long-term sustainability; development of management; weeks institutional strengthening plans for social and plus 6 X 6 weeks = 36 customs and coordination with agencies; environment; Total 72-person weeks over procurement of activities, blueprint and customs; trade; 12 months studies for the Crossing Points; baseline transport for M&E on the impact on the activities on trade and corridor performance tool 24-60 months Reviewing implementation progress, Fiduciary; social 2 implementation support cross checking linkage and results and missions per year plus between Customs, Transport and Trade, environment; midterm review and review results of corridor road specialist; 2 x 3 years x 8 people x 3 performance tool monitoring and weeks = 144 weeks plus evaluation; 2 x 8 people x 3 weeks = 48 economics and weeks finance; customs Total 192-person weeks and trade over 36 months Page 70 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) ANNEX 4: DETAILED ECONOMIC ANALYSIS 1. The main objective of the project is to reduce the costs and time of trading to increase trade. The economic analysis evaluates whether the reductions in current cost of trade that can generate new trade flows are worth the investment cost that is needed to produce them. Even though the development objectives are expressed as a reduction in costs of trade, it is ultimately linked to the top-level goals of promoting economic growth and poverty reduction: a reduction in trade costs will increase trade flows, which is a key factor in economic growth. 2. The project components target different segments of the trading process firms encounter, reducing the costs they will face. The major benefits of the project components to the traders will be time savings for import and export clearance procedures, queuing, and travelling between Crossing Points. The process of a firm exporting and shipping its goods by road can be used to illustrate this point. Goods travelling from factory or warehouse to the Crossing Points will face a reduced transport costs with a smoother trip after the installations of the ITS. Upon reaching the CPs, the truck will face a shorter queueing time with an improved CPs either through better queueing facilities such as parking areas and more lanes. When the truck reaches the clearance point, the NSW will allow Customs and the import and export regulating agencies to process the shipment faster as there is more harmonization and communication between the agencies, and less need for unnecessary inspections or hard-copy documents. These benefits of the components are summarized in Table A4.1 3. No specific economic analysis is planned for component 3, which consist of technical assistance and represent a relatively modest portion of the loan amounts. This component will be, however, geared towards implementing critical reforms in the WB6 which will further economic integration and spur growth. The removal of restrictions in services sectors can bring benefits to the whole economy. Liberalizing services sector can bring economic growth as firms in these sectors become more productive and contribute more to the economy. Services liberalization has wider reaching impact on the economy given the growing importance of services as an input into manufacturing. Studies have shown that the liberalization of services has increased the performance of manufacturing firms in the Czech Republic in 1998-2003, and the positive impact is larger for firms that use services inputs more intensively.27 Positive benefits from increased in foreign direct investment in services sectors on manufacturing firms have also been found in Chile, accounting for almost 5 percent of the observable increase.28 Countries with open financial and telecommunications sector grew 1 percentage point faster than other countries.29 Simulations using Computable General Equilibrium models have also compared the benefits from a goods liberalization and services liberalization and found that services liberalization have larger benefits.30 4. The economic analysis is based on a quantification of the costs and benefits of the project as faced by the public and private sector. The costs and benefits will be both direct and indirect. The indirect effects are through 27 Arnold and others (2011) “Does Services Liberalization Benefit Manufacturing Firms: Evidence from the Czech Republic”. Journal of International Economics, Vol. 85 (1), 136-146 28 Fernendes A. and Paunov C. (2012). “Foreign direct investment in services and manufacturing productivity: evidence for Chile”. Journal of Development Economics, Vol. 97 (2), March 305-321. 29 Mattoo and others (2006). “Measuring Services Trade Liberalization and its Impact on Economic Growth: An Illustration”, Journal of Economic Integration. Vol. 21(1), 64-98. 30 Konan D. and Maskus, K. (2006). “Quantifying the impact of services liberalization in a developing country”. Journal of Development Economics. Vol. 81, pp. 142-162. Page 71 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) how the private sector will benefit from time savings as well as improvements in efficiency of the transport systems. The economic analysis is conducted for the two main components of the project – (1) the NSW with the BCP and CP improvements and (2) the ITS. As each component uses different data and the interventions are specific to each country, the economic viability of each component is assessed separately. Table A4.1: Expected Project Economic Impact Activity Expected impact Component 1: Facilitating movement of goods across the Western Balkans National Single Window Reduction in crossing time (especially in the clearance time) and uncertainty at Implementation land ports, sea ports and other trading points. Reduced costs to traders associated with regulatory requirements. Improvements at Crossing Points Reduction in crossing time and transport costs to freight transporters. Component 2: Enhancing Transport Efficiency and Predictability Installation of Intelligent Transport Reduction in travel time to Crossing Points Systems (i) Component 1: National Single Window and Crossing Point improvements 5. Based on empirical evidence, the simplification of trade documents including streamlining of procedures; and automation of import and export process have been found to have significant impacts on trade costs. An OECD paper points to savings in low income countries of between 2.8 percent and 4.2 percent depending on the level of development of an economy, with an average of 3.9 percent savings in low income countries.31 The study also divided examines the benefits of trade facilitation by geographical regions and by types of trade facilitation measures. The analysis finds that reduction in trade costs from implementing automation in import and export procedures is 2 percent in Eastern Europe and Central Asia (including Albania, North Macedonia and Serbia). The proposed National Single Window systems to be financed by the Project will be accompanied by streamlining of procedures for Customs and other agencies, and the automation and simplification of the document submission, processing and clearance process for traders. In addition, the CP improvements in North Macedonia and Serbia will improve conditions at border crossing points and crossing points and facilitate traffic flows, reducing the time costs of traders. 6. The economic analysis of Component 1 examines the benefits from higher trade flows due to the reduction in trade costs and the investment costs to implement the NSW and the improvements at Border Crossing Points and Crossing Points. The approach taken for the economic analysis of Component 1 is based on the available data and resources. Micro-level analysis using Customs transaction-level data, is limited by the lack of data from North Macedonia and would require additional time and resources. Instead, a macro-level analysis is conducted using aggregate trade data and parameters provided from the economic literature. The approach combines an estimate of each country’s trade costs, assumptions on estimated costs savings based on international surveys from similar 31 Moise, E. and Sorescu, S. (2013) “The potential impact of trade facilitation on developing countries’ trade” OECD Trade Policy Papers No. 144. Page 72 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) projects, and projections of the trade transactions expected to be processed through the NSW. 7. The economic analysis of Component 1 is based on these key assumptions and parameters as follows: a) The import and export values of each country are taken from WITS for 2016 and are grouped into four product categories based on the extent the products will benefit from the NSW: (a) agricultural, fishery and food products (HS 1-24), which are subjected to the most customs procedures and inspections from plant and veterinary agencies; (b) chemicals and pharmaceutical products (HS 28-38), which are subjected to health and safety inspections; (c) raw materials and inputs such as mineral, wood and metal products, (HS 25-27, 39-49, and 68-83), which are not subjected to many inspections; and (d) consumer and industrial products (HS 50-67 and 84-97), which are subjected to some testing and technical requirements (such as labelling);32 b) The projected growth rate is calculated for each category and is calculated from measured average over 2012-2016; c) Cost savings from simplification and automation would be 2.0 percent of trade costs, which is the estimate obtained for the Western Balkans Six in the OECD study. Since the participating beneficiaries have existing IT systems and infrastructure that form the foundation of the NSW, the estimate can be considered an upper bound of the savings and will be lowered: the custom agencies in Albania and Serbia have existing IT systems so the cost savings is assumed to be 1.8 percent, and North Macedonia has the EXIM system, so the cost savings is assumed to be 1.5 percent; d) The cost savings will be different for each product category as they are subjected to different levels of scrutiny: agricultural, fishery and food products will receive the full cost savings; chemicals and pharmaceutical products will receive 60 percent of the cost savings; consumer and industrial products will receive 30 percent of the cost savings; and raw materials and inputs will receive 10 percent of the cost savings; e) The cost savings are also different for export and import flows. Imports are subjected to the full gamut of customs processes and procedures, so they will receive the full cost savings, while exports are subjected to less inspections, so the cost savings are assumed to be 50 percent; f) The number of trade transactions are taken from Customs transaction data for Albania and Serbia in 2016 and assumed to be the average between these two figures for North Macedonia, where Customs data is not available. Trade transactions through the system are assumed to reach a peak of 80 percent of all transactions. It is assumed that some 20 percent of transactions will not use the NSW, as they may be too small, take place in remote locations or do not require the intervention of multiple agencies; g) The documentation costs related to importing, which will be impacted most by the NSW, are assumed to be US$10 for each transaction for Albania, US$50 for North Macedonia and US$35 for Serbia, based on Doing Business 2018; h) The benefits of the NSW and improvements of the Border Crossing Points and Crossing Points will only begin after year 4 once the IT systems are installed and the improvements are completed, with the benefits starting at 20 percent, increasing by 20 percentage points each year, and reaching 100 percent by year 8; and i) The costs of Component 1 are: 12 million US$ for Albania, 10 million US$ for North Macedonia and 11 million US$ for Serbia. 32 The products are grouped according to their HS (Harmonized System) codes that identifies all products traded. Page 73 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) 8. Using these assumptions and parameters, the economic analysis of Component 1 was carried out for the direct and indirect costs and benefits. The benefits on trade flows and the costs of the investment is measured over a 10-year period at a discount rate of 6 percent. The NPV and the EIRR is estimated and presented in Table A4.2. Sensitivity analysis with 20 percent higher costs and 20 percent lower benefits still yield lower but comparable NPV and EIRR. Table A4.2: Summary of NPV and EIRR for Component 1 Base analysis Sensitivity analysis Country NPV (US$ million) EIRR (%) NPV (US$ million) EIRR (%) Albania 131 61 101 48 North Macedonia 220 84 173 69 Serbia 600 113 475 94 Note: The NPV is calculated for 10 years at a discount rate of 6 percent. (ii) Component 2: Intelligent Transport Systems 9. ITS can ensure that the transport system is safer and more efficient, thereby reducing the travel times of traders between the CPs and their factories and warehouses. The reduction in travel time and costs of trade, thereby increasing trade flows. In addition, ITS can facilitate better tracking of goods across the transport networks and better connecting traders and government agencies. The project will undertake the adoption and implementation of an ITS for the maritime sector in Albania, the deployment of ITS on A1 motorway that is part of Corridor X in North Macedonia and the implementation of the ITS architecture in Serbia. An EU report summarizing evaluation results for ITS projects implemented in Europe between 1994 and 1998 finds that a dynamic signal control can reduce travel times by 17 percent, increasing to 20 percent when the dynamic signal control strategies are integrated with information and guidance.33 An US study indicates that one DMS (Dynamic Message Signs) is likely to reduce 100*(1-EXP (-0.181)) = 16.6% of crashes per year, when other factors in the model are controlled.34 10. The economic analysis will focus on the following investments for ITS: a) Deployment of ITS on roads: in Serbia, from Presevo (Serbia) to Belgrade (US$16 million) and from Bogoroditsa (Greece) to Tabanovce (North Macedonia) in North Macedonia (US$18 million) on Corridor X. Cost and benefits are computed separately; b) Implementation of VTS/VTMS system in Albania (US$ 7 million); and c) Improvement of specific Railway Level Crossings (RLC) on the network and RAMS in Serbia (US$16 million). 11. There are no established methodologies to evaluate the economic benefits and costs of the implementing the ITS. ITS deployment can be evaluated using various Cost-Benefit methods, such as "sketch-planning", "before-and- after" studies, multi-criteria analysis (MCA) or simulation. However, all these require a data collection and treatment effort that cannot be undertaken before the start of the project activities. Available data is also not detailed enough at this point to justify the use of such advanced techniques. As such, the economic analysis will 33 CODE, 2000, “Network and Traffic Management: Final Area Report” for the “Telematics Applications for transport within the Fourth Framework Programme”. Available on: http://collections.internetmemory.org/haeu/20161215121151/http://cordis.europa.eu/pub/telematics/docs/tap_transport/netrama.pdf, accessed Feb 15, 2018. 34 Oh J. et al. (2015), Michigan Department of Transportation, “Costs and Benefits of MDOT Intelligent Transportation System Deployments”. Page 74 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) use a similar approach taken in the economic analysis of the previous two components: the economic benefits will be evaluated on how the ITS can reduce accidents and delays in travel and the costs associated with this investment. 12. The economic analysis will make these assumptions for costs, benefits and calculations: a) Average freight transport time on corridor Durres Skopje is 6 hours (after Port clearance) b) Operations and maintenance (O&M) costs of ITS equipment are estimated annually at 6 percent of installation costs. c) Computed ITS Benefits are limited to Travel Delay and Crash Reduction Savings. d) Secondary incident reduction, fuel consumption and emission cost Savings are not considered. e) The benefits of the ITS improvements will begin after 1 year once the systems are installed and the life cycle of the ITS equipment is 10 years (installation in 2020, benefits from 2021 to 2031). f) The average number of trucks on corridor Durres Skopje is 1050 per day (AADT), and for Skopje Belgrade is 980 (AADT), with an annual growth equal to projected GDP growth35. g) Average freight transport time on corridor Skopje Belgrade is 7 hours. h) In North Macedonia, we consider ITS to reduce travel times by 17 percent based on the EU report and crashes by 16.6 percent based on the US study. These values are subject to sensitivity analysis. i) Benefits on time saving corridor X are equally shared between North Macedonia and Serbia. j) In Serbia, we consider values 50 percent lower based on the ITS systems that are already deployed. We assume ITS will reduce travel times by 8.5% and crashes by 8.3 percent. These values are also subject to sensitivity analysis. k) Interoperability effects will not be considered. Computed RLC Benefits are limited to Human Lives, Road Vehicle, Rail fixed structures and rolling stock and Delay Savings. Emergency services and Insurance Administration Savings are not considered. l) Computed VTMIS Benefits are limited to Safety and Environment. Efficiency savings and Reducing supervision cost Savings are projected as a percentage of Environment Savings. m) We estimated the occurrence of maritime traffic incidents affecting freight vessels at 1% of total port flow and an annual average volume of spilled oil of 17,000 liters. 13. Using the above information and assumptions, the benefits of the ITS on trade flows and the costs of the investment can be measured over 10 years at a discount rate of 6 percent.36 The NPV and the EIRR is estimated and presented in the table below, including a sensitivity analysis for the road related ITS equipment. Table A4.3: Summary of NPV and EIRR for Component 2 Base analysis Travel time reduction 20% lower Crash reduction 20% lower Country NPV EIRR NPV EIRR (%) NPV EIRR (US$ million) (%) (US$ million) (US$ million) (%) Albania 5 16 na na na na North Macedonia 20 23 13 16 18 21 Serbia 59 49 52 43 57 47 Note: The NPV is calculated for 10 years at a discount rate of 6 percent. 35 Based on data from SEETO, EU and National Customs, counts from 2015, updated via linear regression for 2018. 36 OPSPQ, 2016, "Discounting Costs and Benefits in Economic Analysis of World Bank Projects". Page 75 of 78 The World Bank Western Balkans Trade and Transport Facilitation (P162043) Page 76 of 78