Page 1 PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB2790 Project Name Road Sector Program Support Project Region EUROPE AND CENTRAL ASIA Sector Roads and highways (90%); Central government administration (10%) Project ID P100929 Borrower(s) REPUBLIC OF MOLDOVA Implementing Agency State Road Administration 12-a, Bucuria Str. Moldova MD 2004 Tel: (373) 22 740570 Fax: (373) 22 751856 panurco@asd.md Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared January 19, 2007 Estimated Date of Appraisal Authorization January 29, 2007 Estimated Date of Board Approval April 26, 2007 A. Key development issues and rationale for Bank involvement 1. The Republic of Moldova is a landlocked country situated between Romania and the Ukraine, with the exception of a short frontage (500 to 800m) on the river Danube in the extreme South of the country. Moldova is a gateway between the former Soviet Union countries and the West, both trade-wise, language-wise and culturally. With the recent accession of Romania to the European Union in early 2007, Moldova is becoming increasingly important as a border state between the European Union (EU) and the countries further to the East. The Pan European Corridor IX (Moscow-Kiev-Bucharest) crosses Moldova from East to West, going through the capital city of Chisinau. The challenge of Moldova, similar to that of all low income CIS 1 countries, is to secure better access to EU markets and thus to encourage foreign direct investment inflows into the country. At the same time, it must also seek to maintain access to its traditional markets in the CIS countries. 2. Towards this end, the World Bank and Moldova have been collaborating successfully over the past several years in the area of Trade and Transport Facilitation. In 2001 Moldova entered the World Trade Organization (WTO) and joined the Stability Pact for South-Eastern Europe. With its highly trade-dependent economy, membership in the WTO is a significant achievement, which will he lp to attract foreign investments more easily. Moldova’s economy and exports will for some time remain based mostly on agriculture and agro-industry, both of 1 CIS – Commonwealth of Independent States (former Soviet Union member states). Page 2 which are highly dependent on a well-functioning road transport industry and a solid road infrastructure. As a new direct neighbor of the EU since January 2007, Moldova could benefit from new trade opportunities, and its transport sector could gain importance in the region. 3. However, presently it appears that Moldova might not be able to seize its opportunities, because of its deteriorating transport infrastructure, and its crumbling road network, in particular. 4. Moldova’s road network totals about 16,800 km, of which 3,666 km are classified as National Roads and the remainder as Local Roads. Considering the size of the country and its population, the road network size is mostly adequate, with little or no need for expansion. If Moldova’s road network had been sufficiently maintained and were in good condition, its asset value would be close to US$12 billion 2 . However, about 58 percent of National Roads and 75 percent of Local Roads are classified as poor. This is the direct result of severe and prolonged neglect of the road network during the past 15 years, during which very little resources have been spent for road maintenance and rehabilitation. About 400 km of formerly paved roads have lost their pavement and have reverted to unpaved gravel or earth roads. The present asset value of the Moldovan road network is only about US$8.4 billion, instead of the US$12 billion it would be if the network had been well maintained. The loss of road network asset value which resulted from insufficient maintenance and rehabilitation is a shocking US$3.6 billion, equivalent to 1.4 times the entire GDP of Moldova in 2004. 5. Nevertheless, there is no doubt that the road network is still Moldova’s single most important physical infrastructure asset, and certainly much larger in value than all power plants, railway lines and the electricity grid combined. An urgent and important effort is needed to save what is left and to gradually improve the road network, without which sustained economic and social development will not be possible. The Economic Growth and Poverty Reduction Strategy Paper (EGPRSP) objectives for 2004-2006 include the reform of road infrastructure through the implementation of a program to stop the degradation of the road network. It also includes the creation of a sustainable and transparent system of funding, modernizing the technical assessment of roads, and negotiation with international donors, with a view towards obtaining financing resources for road rehabilitation. 6. In recognition of the above, the Government has decided to sharply increase spending on road maintenance and rehabilitation, using both domestic and external funding. The year 2006 saw the beginning of increased expenditures which rose from the previous annual average of about US$7 million to about US$14 million. The budget for 2007 shows Lei 184 million (US$14 million) for road maintenance alone, and Lei 196 million (US$15 million) for road rehabilitation, and additional amounts may become available. According to the agreements with the donor community within the Poverty Reduction Strategy Credit (PRSC) framework, Moldova would spend at least US$50 million in 2007, US$75 million in 2008 and US$90 million in 2009. However, these spending targets can only materialize with support from the international donor community, and the use of foreign contractors for works execution, given the low capacity of the domestic road construction industry. 2 An assessment of Moldova’s Road Network Asset Value was done as part of the WB 2006 Public Expenditure Review. Page 3 7. The Government (with support from the World Bank) is presently preparing a comprehensive Transport Sector Program 2008-2017 with special focus on the road sector. It will include a Strategy for Road Infrastructure Recovery and a prioritized 10-year Road Sector Investment and Expenditure Plan which will be the sole basis for all future road investments. The Strategy will address the underlying causes and issues of the road infrastructure crisis and propose legal, institutional and physical measures to overcome this situation. The preparatory work for the Road Sector Program should essentially be ready before the end of March 2007, and after a process of public consultations the Government could then finalize, adopt and disseminate the Road Sector Program later during 2007. Once adopted, it will constitute the framework for all actions, investments and expenditures in the Road Sector starting from 2008 onwards, including those to be financed by external donors. In the meantime, investments in the road sector for the year 2007 are based on the Government’s interim short-term program. 8. The most urgent reforms in the road sector are (i) the creation of a reliable and stable financing mechanism for road maintenance, (ii) the reform of the way road maintenance is executed, and (iii) the introduction of an axle load control system to curb the circulation of overloaded trucks on Moldova’s roads. Rationale for World Bank Involvement 9. In early 2006 the Bank and the Government reached an agreement in principle that the World Bank will support the Government’s Road Sector Program through IDA funds. This is reflected in the CAS update of October 2006. Concrete discussions about a project started in June 2006, when it was agreed that the Bank would also help the Government to prepare a Transport Sector Program with special focus on the Road Sector. The preparation is now ongoing, with support from a consulting firm financed from a Spanish consultant trust fund. 10. Subsequently, both EBRD and EIB indicated their willingness to participate in the funding of a project. It is fair to say that the participation of EBRD and EIB became possible mostly because of the World Bank’s involvement, for two reasons: · Moldova’s program with the IMF includes a clause under which all new external loan packages must have a grant element of at least 35%. Such a grant element is brought by IDA’s participation in the combined IDA/EBRD/EIB package 3 . Neither EBRD nor EIB could provide stand-alone loans. · The World Bank’s leadership (i) in helping the Government to prepare a Road Sector Program; (ii) in preparing an overall project package for the road sector, to be financed by the three donors, which is coherent with the Road Sector Program; and (iii) the Bank’s technical expertise and readiness to support the various reforms in the road sector which are needed in the coming years. 11. The proposed Road Sector Program Support Project would be the first World Bank supported operation in Moldova’s transport sector. It would be the second externally financed project in Moldova’s Road Sector since the country’s independence, after an earlier EBRD- 3 Additional grant financing of about US$ 9 million is still needed in the loan package in order to reach the required minimum of 35% overall grant element. Discussions with the EU are underway to obtain such additional grant funds, or to obtain an IMF waiver. Page 4 financed road rehabilitation project which was however cancelled prematurely in 1998, because of irregularities resulting from high-level political interference with contract management. 12. The Bank’s involvement and support to Moldova’s Road Sector, and in particular the creation through the project of a reliable and unified system for handling large road sector investments, will be instrumental for securing very significant additional external financing which is likely to come after 2007 (i) from the EU under its New Neighborhood Program, and (ii) from the US Government through the Millennium Challenge Account. B. Proposed program development objective(s) 13. The development objective of the proposed project would be to reduce road transport costs for road users in Moldova, by improving the condition and quality of its road network and the way it is managed. This project objective would be achieved by: a. Road Network Recovery Component: Rehabilitation of about 200 km of main roads and thereby reducing road user costs in the short term. b. Institutional Strengthening Component: Improving the capacity of the State Road Administration to manage effectively the road network under its responsibility, and to carry out road maintenance, rehabilitation, and investment programs in an efficient and transparent manner. This should lead to a reduction of road user costs in the longer term. C. Preliminary project description 14. The project will have two components. The first component will focus on physical road rehabilitation. The second component will support the implementation of various institutional and other measures which will be included in the Action Plan of the Transport Sector Strategy. Component 1: Road Network Recovery (US$44 million equivalent, of which US$13 million to be financed from IDA credit) 15. Component 1 will consist of physical road works and of consulting and other services directly related to those works, such as feasibility studies (technical and economic), detailed engineering design, preparation of bidding documents and supervision of works. This component will absorb about 90 percent of project resources. The type of works to be carried out through the project can be characterized as localized repair, periodic maintenance and light rehabilitation. It has been agreed that the road sections to be rehabilitated under the project will be (i) along the main North-South road corridor, between Criva in the north, Balti, S ngerei, Orhei, Chisinau, Hinçesti and Comrat in the South, and (ii) on the European corridor / European roads linking Chisinau with the border to Romania to the west (specific sections to be confirmed during appraisal). These two road corridors are Moldova’s most important ones in terms of traffic levels and economic importance. Works will mostly consist of the application of a leveling course and a wearing course of asphalt concrete, after localized repairs have been carried out on the road. Other works to be included are the reestablishment of adequate drainage and horizontal and vertical signage. Specific road safety features are to be included where appropriate and cost-effective, such as supply and installation of guardrails and traffic calming measures in villages along the road. The total amount to be spent per km of 2-lane road is expected to be between one and two million Lei (about Page 5 US$75,000 to US$150,000 per km) for works only, excluding design and supervision costs. The project could possibly include some short road sections with existing concrete pavements where rehabilitation costs per km could however be significantly higher. For that reason, and also because some road sections have four lanes, the total length of roads to be covered under the project is expected to be around 200 km. Component 2: Institutional Support (US$4.7 million equivalent, of which US$3 million to be financed from IDA credit) 16. This component aims at strengthening the Government’s capacity to manage and maintain the network of National roads. It will provide various types of support to the Government towards the implementation of institutional, legal and other measures included in the Transport Sector Strategy Action Plan. The most important activities will be (i) the creation of a reliable financing mechanism for road maintenance; (ii) the strengthening of SRA’s capacity to efficiently manage and maintain the roads under its responsibility and to manage investment programs for road rehabilitation; and (iii) the implementation of a system designed to curb the circulation of overloaded trucks. The component will most likely consist of advisory services to be provided by specialized local and foreign consultants (technical, institutional and legal), training and the purchase of some equipment. D. Safeguard policies that might apply Safeguard Policies Triggered by the Project Yes No Environmental Assessment ( OP / BP 4.01) [x] [ ] Natural Habitats ( OP / BP 4.04) [ ] [x] Pest Management ( OP 4.09 ) [ ] [x] Physical Cultural Resources ( OP/BP 4.11 ) [ ] [x] Involuntary Resettlement ( OP / BP 4.12) [ ] [x] Indigenous Peoples ( OP / BP 4.10) [ ] [x] Forests ( OP / BP 4.36) [ ] [x] Safety of Dams ( OP / BP 4.37) [ ] [x] Projects in Disputed Areas ( OP / BP 7.60) [ ] [x] Projects on International Waterways ( OP / BP 7.50) [ ] [x] a. What is the safeguard screening category of the project? (S1, S2, S3, SF) 17. The safeguard screening category for this project is SF. Based on the analyses completed and the scope of the projected road improvements, the project will not trigger any of the social safeguards policies. There are no "indigenous" people in the area. No cultural assets will be negatively affected. No involuntary resettlement or land acquisition will occur. Page 6 E. Tentative financing Source: ($m.) BORROWER/RECIPIENT 0 INTERNATIONAL DEVELOPMENT ASSOCIATION 16.00 EBRD 16.35 EIB 16.35 Total 48.70 F. Contact point Contact: Andreas Schliessler Title: Senior Transport. Economist Tel: (202) 473-8523 Email: Aschliessler@worldbank.org wb73745 P:\MOLDOVA\INFRA\RD_Sector_Support\2LENA\Project Information Document - Appraisal Stage v2.doc 01/19/2007 1:58:00 PM