Document of
                        The World Bank


                                                           Report No: 59337-YF




                   RESTRUCTURING PAPER

                                  ON A

          PROPOSED PROJECT RESTRUCTURING
                         OF
IRRIGATION & DRAINAGE REHABILITATION PROJECT (SERBIA)

                         CREDIT 4105-YF

                                  AND

                   ADDITIONAL FINANCING
                       LOAN 7467-YF

                             TO THE

                     REPUBLIC OF SERBIA


                         February 10, 2010




      Regional Vice President:          Philippe Le Houérou
             Country Director:          Jane Armitage
     Sector Manager / Director:         Dina Umali-Deininger/Peter Thomson
            Task Team Leader:           Nikola Ille
 SERBIA -- IRRIGATION & DRAINAGE REHABILITATION PROJECT (SERBIA)
                              P087964
                          CREDIT 4105-YF

                                           AND

                                ADDITIONAL FINANCING
                                    LOAN 7467-YF

                                  Restructuring Paper


1.     The Closing Date for the Serbia Irrigation and Drainage Rehabilitation Project,
P087964, Credit 4105-YF and Loan 7467-YF, is proposed to be extended from May 31,
2011 until May 31, 2013.

2.      The most recent supervision of the project found that implementation has
significantly improved. Adoption of the new Water Law in late May 2010 removed the
last obstacle holding up activities on the Institutional Strengthening and Capacity
Building component. Although the current disbursement under the project remains low,
the amounts committed since July 2010 and strong pipeline of sub-projects will ensure
rapid improvement of the existing situation. Currently, the likelihood of achieving the
Project's Development Objective (PDO) is rated Moderately Unsatisfactory. The
proposed project extension and improved implementation, however, indicate that the
PDO is achievable with the extension of the Project Closing Date.

3.       The proposed extension is necessary to enable the Borrower to complete the
execution of the civil engineering works (flood control, drainage rehabilitation, and
irrigation development schemes), which are currently being implemented or are in the
project pipeline. In the past, in particular during calendar years 2008 and 2009, the
project implementation suffered from a number of issues arising from the lengthy internal
permitting procedures for civil work contracts, inadequate coordination between various
Borrower's agencies, and inability to start activities under the Institutional Strengthening
and Capacity Building component because of delays in adoption of the new Water Law
by the Serbian Parliament. From early 2010 onwards, the Borrower has put significant
efforts into resolving the above issues and fully complying with quarterly action plans as
agreed with the Bank. The action plans developed for each of the project components
envisage fully committing the project funds by the end of December 2011 and
implementing all sub-projects by the end of May 2013. The pipeline of sub-projects is
strong and is fully supported by Borrower's agencies.

4.      Financial management of the project is rated Moderately Satisfactory. There are
no outstanding audit reports, and the previous audit reports have been found satisfactory
to the Bank.

5.     This      will      be     the      first    extension       of     the      Project.

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