Romania - Land Transport Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-3094-RO FILE COPY REPORT AND RECOMMENDATION OF THE ,PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE INVESTMENT BANK OF ROMANIA WITH THE GUARANTEE OF THE SOCIALIST REPUBLIC OF ROMANIA FOR A LAND TRANSPORT PROJECT June 16, 1981 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 Currency Unit: Leu (Plural Lei) 1. Conversion Rate for Traded Goods effective January 1, 1981 Lei 15.00 = US$ 1.00 Leu- 1.00 = US$ 0.07 2. Tourist Rate effective February 15, 1981 Lei 11.00 = US$ 1.00 Leu 1.00 = US$ 0.09 Fiscal Year January 1 to December 31 GLOSSARY OF ABBREVIATIONS (Romanian equivalent, used in legal documents, shown in parenthesis) CEM - Country Economic Memorandum CFR (DEPCF) Romanian Railways (Departamentul Cailor Ferate) COMECON - Council for Mutual Economic Assistance DR (DD) - Directorate of Roads (Directia Drumurilor) ER - Economic Return IB - Banca de Investitii (Investment Bank of Romania) ICB - International Competitive Bidding MTTc - Ministry of Transport and Telecommunications RCC (CCCF) - Railway Construction Central (Centrala de Constructii Cai Ferate) RDI (IPCF) - Railway Design Institute (Institutul de Proiectari Cai Ferate) RoDI (IPTANA) - Road Design Institute (Institutul de Proiectari Transporturi Auto Navale si Aeriene) RTC - Road Transport Central RWC - Railways Workshops Central bPC - State Planning Committee  FOR OFFICIAL USE ONLY ROMANIA LAND TRANSPORT PROJECT Loan and Project Summary Borrower: Banca de Investitii (Investment Bank of Romania (IB)) Guarantor; Socialist Republic of Romania Beneficiaries: Railway Department and Directorate of Roads of the Ministry of Transport and Telecommunications (MTTc) Loan Amount: $125 million Terms: Repayable in 15 years, including a three year grace period, through semi-annual installments. Interest at 9.6 percent per annum. Project Description: The proposed project seeks to relieve transport bottlenecks and mounting congestion on some of the most heavily trafficked railway and road sections in Romania and would also open up some areas which are now isolated for much of the year. The project consists of high priority items included in Romania's 1981-85 railway and highway Investment Plans and technical assistance. The railway components include: (i) construction of 77 km of two new lines together with about 7 km of tunnels, 3 km of bridges and 2 km of viaducts; (ii) doubling of three line sections of approximately 125 km; (iii) electrification of 470 route km of main lines; (iv) procurement of special steel for the superstructure of Cernavoda bridge over the Danube; and (v) procurement of about 330 freigbt cars. The higbway components include: (i) paving of three two-lane gravel roads (85 km); (ii) widening of one road (6 km) from two to four lanes; and (iii) construction of a 17 km new road between Fetesti and Cernavoda on the two arms of the Danube to shorten the distance between Bucharest and Constanta. Technical assitstance comprises a traffic optimization study (150 man-months) and related study visits abroad by Romanian officials as well as other such visits in connection with improvements in car control and locomotive utilization and in highway maintenance practices. Provisions have been made for the equivalent of about 30 man-months for such visits. Visits to Romania by foreign experts in connection with the traffic optimization study are also envisaged. RailTroad users from a wide range of sectors and income groups would benefit principally from the project in the form of reduced travel time, greater safety,increased comfort and convenience. Transport cost savings will accrue to the economy as a wbole from reduced operating and maintenance costs and improved utilization of traction and rolling stock. The project faces no special 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.  - 1.1 - risks in the context of Romania's planned economy which helps to ensure that traffic forecasts and construction programs will be realized. Cost Estimates: /1 Local Foreign Total ----------- US$ Million -------- Railway Component New lines 86.4 39.3 125.7 Line doubling 63.6 37.9 101.5 Electrification 46.0 84.6 130.6 Danube Bridge 75.8 50.3 126.1 Freight Cars 6.0 12.2 18.2 Rail Subtotal 277.8 224.3 502.1 Highway Component Road paving 25.3 11.6 36.9 Road widening 1.7 1.2 2.9 New road construction 70.6 17.9 88.5 Highway Subtotal 97.7 30.7 128.4 Technical Assistance 0.7 0.3 1.0 Base Cost 376.2 255.3 631.5 Physical Contingencies 37.0 24.3 61.3 Price Contingencies _23.2 51.1 74.3 TOTAL 436.4 330.7 767.1 Financing: Local Foreign Total ---------- US$ Million -------- Railway Internal Funds 186.7 - 186.7 State Resources 249.0 206.4 455.4 Proposed IBRD Loan 0.7 124.3 125.0 TOTAL 436.4 330.7 767.1 Estimated Disbursements: ------------ US$ Million --------------- IBRD Fiscal Year 1982 1983 1984 1985 1986 1987 Annual 28.2 47.1 34.1 11.6 3.0 1.0 Cumulative 28.2 75.3 109.4 121.0 124.0 125.0 Economic Rate of Return: About 20 percent Appraisal Report: No. 3344a-RO, dated June 15, 1981 EMENA Projects Department 1/ Local costs include taxes; Foreign costs do not.  REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE BANCA DE INVESTITII (INVESTMENT BANK OF ROMANIA (IB)) FOR A LAND TRANSPORT PROJECT 1. I submit the following report and recommendation on a proposed loan to the Banca de Investitii (IB), with the guarantee of the Socialist Republic of Romania, for the equivalent of USb125 million to help finance a Land Transport Project. The loan would have a term of 15 years, including 3 years of grace, with interest at 9.6 percent per annum. PART I. THE ECONOMY 2. The first basic report on Romania (Report No. 1601-RO, "The Industrialization of an Agrarian Economy under Socialist Planning") was circulated to the Executive Directors on April 20, 1978. An updating Country Economic Memorandum (CEM) was circulated to the Executive Directors on August 20, 1980 (Report No. 2757-RO). An economic mission visited Romania in May/June, 1981; its tentative findings are included in this part of the report. Country social and economic data are given in Annex 1. A. Long-term Trends and Development Strategy 3. Over the past three decades, Romania has pursued a development strategy designed to industrialize a primarily agrarian economy. The main teatures of this strategy have been (a) a high rate of investment; (b) development of a broad industrial base, with priority given to heavy industry; (c) development of local natural resources, including the reorganization and modernization of agriculture; (d) balanced regional distribution of production and incomes; and (e) training of a skilled labor force. This strategy has been carried out through a system of comprehensive central planning and management, guided by party and government authorities. 4. As a result, Romania's economic development since 1950 has been impressive, characterized by a rapid economic growth and considerable structural change. According to official statistics, national income has grown in real terms at an annual average rate of about 9 percent. Per capita GNP in 1979 is estimated to have been $1,900, according to the Bank Atlas methodology. Investment has grown at even higher rates than national income, as a result of which the share of gross investment in GNP has risen to about 34 percent in 1980. Industry, which grew at 11 percent per annum over 1970-1980, has been the driving force of economic growth, receiving around 50 percent of investment, most of which has been allocated to the capital goods industry. As a result, industry has become the leading sector, accounting in 1980 for about 62 percent of national income and for 36 percent of the labor force, compared with agriculture's 12 percent share of national income and 30  - 2 - percent of the labor force. With the transfer of labor from agriculture to industry, the population has become increasingly urbanized. Standards of living have increased substantially, partly because of the growth of personal incomes and partly because of provision through the state budget of expanded and improved education, medical services, housing and social expenditures of other kinds. Furthermore, Romania's integration into the world economy has increased, as the level of trade has grown and its composition altered. B. Recent Economic Developments 5. During the last Plan period (1976-80), the expansion of the Romanian economy has slowed down perceptibly. The average annual rate of national income growth of 7.2 percent was below that of the previous plan period (11.3 percent), and growth has been decelerating, falling from 11.2 percent in 1976 to 2.8 percent in 1980. These changes reflect the emergence of a number of internal and external constraints, notably the pace at which improvements in productivity and efficiency can be attained; the ability of the economy to bring new capacity into operation as planned; a growing shortage of foreign exchange; and shortfalls in exports. 6. Industry continued to be the leading sector of the economy. However, the growth of industrial production also slowed down from an average of 12 percent per annum during 1976 and 1977, to 6.5 percent in 1980. As in the past, the growth of capital goods exceeded that of consumer goods and the fastest growing subsector was machine-building. Agricultural production grew at a respectable average rate of 6.1 percent during 1976 to 1980, displaying however, large annual variations due to changing weather conditions. 7. As elsewhere, energy has become a critical sector for the Romanian economy. In the aftermath of the 1973 fuel price increase, an emergency decree was issued, fostering domestic energy production and imposing cuts and stringent restrictions on industrial energy consumption. These steps were followed by further measures in 1977 and 1979, designed to conserve domestic oil and gas resources and expand use of domestic coal and hydropower resources. Total domestic primary energy production was virtually unchanged between 1975 and 1980; increases in production of natural gas, coal and hydroelectric power compensated for a 20% reduction in petroleum production. Primary energy imports (oil, coal and natural gas) increased 2.5 times. This, together with the increased international price of oil, has been the main reason for the deterioration in the foreign trade balance (see paragraph 10 below). 8. During 1976-80 investment fell about 7 percent short of planned levels. The shortfalls occurred chiefly in industry where the planned annual growth rate of investments of over 20 percent could not be met, partly because of the diversion of resources in 1977 to the repair of earthquake damage. Industrial investment, in fact, grew by 10 percent a year--in itself a very respectable achievement. The shortfall in investment does not reflect difficulties in mobilizing sufficient financial resources, but a number of supply-related factors, in particular, capacity constraints of design  institutes, shortfalls in the production of construction materials, capacity constraints in the construction sector, production delays for domestically produced equipment, and more restrictive foreign exchange allocations for imported capital goods. 9. Changes in the level and distribution of employment accompanied the growth and structural change of production. The total labor force increased by only 0.4 percent per year during 1976-80, but large intersectoral shifts in the labor force continued. During the five year period, the agricultural labor force fell from 36 percent to 30 percent of the total. The outflow from agriculture, which is determined chiefly by the needs of non-agriculture sectors rather than the ability of agriculture to compensate for the loss through mechanization, has led to seasonal labor shortages; recourse has been necessary to students and other groups to meet short term labor needs. The Government recognizes that the transfer of labor has to slow down to avoid adverse effects on agriculture output, and is thus giving even greater emphasis to increases in labor productivity. C. External Trade and Foreign Borrowing 10. In foreign trade, developments in the 1976-1980 Plan period have been substantially different from and decidedly less favorable than those planned. The five-year plan envisaged growth rates of 13 percent per annum for imports and 18 percent for exports in real terms aiming at a trade surplus which would allow the country to repay some of its foreign debt. During 1976 to 1980 Plan period, in fact, imports increased at an annual average rate of 17 percent and exports of 15 percent in current prices. This resulted in a sharply growing trade deficit which in 1980 reached $1.6 billion, virtually all of it in the convertible currency area. On the import side, the deteriorating trade balance reflects rapidly rising international prices, especially for petroleum. Export growtb has been unable to keep pace with import requirements, partly because of less favorable price movements in Romania's principal export markets. The insufficient growth of exports is also explained by the vulnerability of Romanian exports to import demand fluctuations and import policies of the receiving countries, and to difficulties in meeting design and quality standards and establishing marketing policies essential to extend the foothold in highly competitive product markets. 11. The large trade gap together with rising interest payment has led to a current account deficit in convertible currencies of $2.4 billion by 1980. The deficit has been financed through increased capital inflows, with total medium and long-term debts rising from $2.8 billion in 1975 to about US$7.4 billion at the end of 1980. Most of the inflows bave been suppliers' credits and eurocurrency borrowings; Romania has borrowed almost $1.7 billion on the eurocurrency market since 1975. The scale of term borrowing available to Romania has not been sufficient, however, to finance the current account deficit fully and the Government had to resort to substantial short-term borrowing between 1977 and 1980. The net inflow of short-term capital was particularly large in 1979, $821 million, and by the end of 1980, outstanding short-term debt had increased to $2.1 billion.  -4- D. Development Prospects 12. A new Five-Year Plan for 1981-85 is presently under preparation, and is expected to be submitted to the National Assembly for final approval in the near future. A draft of the plan has recently been approved by the Council of Ministers and further changes in the broad thrust of the plan are not anticipated. The new plan will give priority to the completion of ongoing projects. This is reflected in the new investment law, published in December 1980, which includes measures designed to speed up project implementation. Production gains will mainly come from these projects as they come on stream, and from a generally higher utilization of existing capacities. Investment is thus planned to grow at lower rates than production. Overall growth targets are, however, expected to be significantly lower than those of the preceding Five-Year Plan. 13. Special emphasis will be given to narrowing the energy gap through rapid development of domestic resources and through further savings in energy consumption. The plan envisages: (i) stabilizing oil production at the level of 12.5 million tons per year and natural gas at approximately the 1980 level; (ii) more than doubling coal production between 1980 and 1985; (iii) installing additional hydroelectric capacity for 2,500 mw. The implementation of the above program would result in an increase in domestic primary energy production of the order of 20% above the 1980 level. It would require successful implementation of the enhanced recovery program in oil production, some success in oil exploration and a massive mobilization of technical and manpower resources for coal production. Energy savings are to be achieved mainly by giving more emphasis to less energy intensive investments together with retrofitting and other measures to save energy in existing plants. In addition high energy consuming industries such as oil refining and cement may have to curtail their output. 14. In the manufacturing sector priorities will shift from basic products such as steel or bulk chemicals for which adequate capacities already exist or will come on stream in the next few years, to more sophisticated goods including electronic equipment, special-purpose machine tools, specialty steels and other high technology products. Light industry including food processing, will continue to expand. A growing share of industrial production is planned to be exported. Local industries are expected to manufacture most of the capital goods required for the investment programs. 15. While industrialization will remain the primary objective of the plan, agriculture will receive greater emphasis than in the past. Mechanization, drainage and higher fertilizer application are seen as the principal means to increase crop yields. With an improved feed base, livestock production is also planned to increase. The additional output from agriculture would be partly exported but would also allow higher consumption levels at home. 16. The strategy of the draft plan, which responds well to Romania's economic challenges, is also reflected in the sectoral composition of the investment program which gives greater emphasis to energy production and less  - 5 - to heavy industry than realized in the last plan period. Total real capital expenditure may not be much higher during 1981-85 than in the previous plan period. Investments in metallurgy are expected to grow little, and the machine building sector will actually invest less than during 1976-80 since substantial additions to capacity were initiated during the previous plan. Moderate increases in investment are contemplated for agriculture, transport and housing. E. Creditworthiness 17. With the large increase in the current account deficit and the associated increases in external borrowing described in paragraphs 10 and 11 above, the debt service payments in convertible currencies (including interest on short-term credits) rose to $1.73 billion in 1980 or the equivalent of 22.7 percent of gross convertible exchange earnings. The debt service ratio was 20.5 percent in 1979 and 17.4 percent in 1978. To contain future deficits and to keep the service burden manageable, the Government has recently adopted a series of measures aimed at increasing exports and restraining imports. The most important one has been the introduction of a new exchange rate mechanism in early 1981 which allows world prices to be reflected more directly to users of imports and producers of exports. This will provide incentives to economize on imported goods, to substitute domestic products for imported ones, and to produce for export markets where better prices could be obtained. Romania has just signed a three year stand-by agreement with the IMF which calls for a reduction of the current account deficit to $1.8 billion in 1981 with further reductions in 1982 and 1983. The Fund is prepared to lend up to *1,356 million!l to Romania; part of these funds would be used to consolidate short-term debts and part to build up the low foreign exchange reserves. Given Romania's strenuous development efforts within the context of well articulated plans, these measures and possible future steps aimed at enhancing exports and economizing the use of imported inputs, are likely to succeed in keeping the country's debt burden within manageable limits, thus preserving its creditworthiness for medium and long-term borrowing. PART II. BANK GROUP OPERATIONS IN ROMANIA 18. The proposed loan would bring total Bank commitments to Romania to $1,987.6 million for 31 loans in agriculture, industry, power and transport. Disbursements under the Bank's initial loans were slow during 1975, but this situation has improved considerably since 1976. Annex II contains a summary statement of Bank loans to Romania and notes on the execution of ongoing projects as of May 31, 1981. 19. Foreign exchange, especially in convertible currencies, continues to be a major constraint. It remains one of the major objectives of Bank lending to help alleviate the country's shortage of foreign exchange by providing 1/ SDRs 367.5 million per year or a total of SDRs 1,102.5 million; valued at $1.23 = lSDR.  - 6 - long-term external capital and by financing projects which will expand foreign exchange earnings or savings. The Bank has also assisted the Government to mobilize cofinancing for appropriate projects. The Bank helped to attract foreign commercial banks to provide $100 million cofinancing in August 1979 for the becond Livestock Project for which a Bank loan of $75 million was made in April 1979. Also, syndicated cofinancing loans of $200 million in total were concluded for the Mostistea and Calmatui Irrigation and Drainage Project for which a Bank loan of $70 million was made in April 1979 and the Third Livestock Project for which a Bank loan of $85 million was made in January 1980. More recently, another $200 million syndicated cofinancing loan from commercial banks was concluded in January 1981 for the Danube-Black Sea Canal project tor which a Bank loan of $100 million was approved in April 1980. Through their contacts and subsequent negotiations with commercial banks, the Romanian authorities now appear convinced of the positive value of cofinancing in the form of financial credits, and have indicated their intention to seek similar arrangements for future Bank assisted projects. Bank lending also aims at supporting the steps being taken by the Government to introduce new industrial technologies, to improve the quality of products and production efficiency, to reduce production costs and to provide for necessary electric power development. Marketing, especially for export goods, is also emphasized. Special attention is given to agriculture where production is still unnecessarily dependent upon weather and where productivity levels are still comparatively low. 20. A number of further loans are under consideration, including loans for irrigation, industry, power, and regional development. The Government has also proposed and the Bank is considering lending for a port project and for the development of additional petroleum resources. 21. In addition to lending, the Bank (through EDI) has assisted Romania by conducting training courses on economic and financial evaluation and methods of analysis in various sectors, including industry and transportation, for 169 Romanian officials in Belgrade in 1973 and in Bucharest annually since 1975 in collaboration with a Romanian academic institution. Additional courses, including one for agricultural project appraisal, are under discussion with the Government. The methodologies taught in these courses are becoming more widely known in Romania and are expected for some projects to begin to supplement the methodology normally used by the Romanian planning authorities. 22. The projects, for which assistance has been committed or is being considered, represent only a small portion of Romania's total need for external financing. However, they will provide a substantial net addition to the inflow of convertible currency, and are helping to set a pattern for obtaining longer-term convertible finance from otber sources. The disbursed debt outstanding to the Bank constituted about 8.5 percent of Romania's total convertible currency debt in 1980; the Bank's share in Romania's debt service payments in 1980 was 5.1 percent.  -7 - PART III. THE TRANSPORT SECTOR Transport System and Organization 23. Despite the existence of extensive mountainous areas, Romania has a fairly well developed and evenly distributed transport network that provides access to all major centers of economic activity. It includes about 11,000 route-km of railways, 73,500 km of roads, one major sea port, four main commercial river ports and a sizeable network of inland waterways and pipelines. The Danube, which is navigable, flows through 1,075 km in Romania, mainly along its southern border. Ninety percent of the foreign trade is handled through the port of Constanta on the Black Sea. Pipelines have been the principal carriers of petroleum and natural gas. 24. Responsibility for all transport modes other than aviation and pipelines rests with the Ministry of Transport and Telecommunications (MTTc). Aviation bas a separate Ministry and pipelines are the responsibility of the Ministry of Mines, Petroleum and Geology. MTTc's organization also includes construction and maintenance enterprises. The role of officers and staff of the Ministry's headquarters is largely limited to planning, coordination, design, administration and budgeting. For construction and actual transport operations, much authority is delegated to regional units and to centrals!/ and the enterprises within them. Traffic 25. Rail and road are the most important modes of inland transport in Romania. For freight, rail is dominant in terms of ton-km, accounting for 67 percent in 1980, though its share is slowly declining, while the share of road services at 25 percent has been rising. In terms of tons, bowever, road services are dominant (85 percent). Road traffic functions mainly as a short-haul mover. Danube river transport and pipelines at present account for about 2 percent and 5 percent of ton-km respectively but the river and canal share is expected to rise sharply to about 15% when the Danube-Black Sea canal, now under construction,is fully operational. As for passenger traffic, the railways' former dominance passed to roads in the late 1960s and the current rail/road split is about 27/73. 26. Neither the truck fleet nor the highway system is adequate to make trucking a flexible long-haul alternative to railroads. The limited emphasis on road development is best understood within a broad view of Romania's transport strategy, with industrial development being a key factor in the development of the transport system. In response to the policy of uniform 1/ The Central is an economic unit subordinate to but separate from a ministry, with responsibilities for planning, supervising and coordinating the operations of enterprises under its jurisdiction. It is also responsible, through subordinate enterprises, for research, design and foreign trade.  - 8 - regional development, large industrial enterprises, which account for more than 80 percent of gross industrial production, are dispersed countrywide. Distribution of industrial and consumer goods is based on distribution centers which have been established in every "judet" (county). While transport from those centers within the judet is by road, this pattern of geographically concentrated development of production and consumption centers has favored railways because of their ability to handle dense freight traffic flows from one distribution center to another, wbich are generally well equipped with sidings and handling facilities for bulk traffic. About tbree quarters of railway traffic moves from siding to siding. The present high technical efficiency and quality of service of the railways is another contributing factor to their greater use. Furthermore, the Droduction of consumer goods and light manufacturing industries, which normally promote the development of road transport, are less developed. As such industries grow in the future, dependence on road transport may be expected to increase. Transport Planning and Policy 27. Planning in the transport sector is an iterative process and follows the basic approach used for all of Romania's centrally planned economy. Transportation projects included in the Plan originate both at the micro level through the enterprises and county authorities (especially for municipal and local roads) and at the macro level through the State Planning Committee (SPC). The demands for transport by the economic enterprises and sectors are reconciled by the SPC with the existing capacities and expansion plans of the transport enterprises. The latter are determined after a review of all expansion plans and the setting up of priorities within the allocated investment budget. Review and coordination of new investment proposals are the responsibility of MTTc, which submits its program to the SPC. 28. In Romania the principal objectives of transport are: efficient provision of transport services with complementary development of the different modes, lowering of the share of transportation costs in the total costs of the economy, and reduction of energy consumption. To these-ends, the authorities are fostering the use of rail and water transport for long and medium distance commodity hauls and of road transport for short hauls, the development of integrated transport facilities (e.g., containers), and the use of common carriers in preference to transport on own account. 29. Energy has become a critical subsector for the Romanian economy. Having started to import oil in 1968, Romania became a net importer of energy by 1977, and in 1979 was expected for the first time to import more crude oil than was domestically produced. In 1979, rail and road transport consumed about 2.6 million tons of oil products, accounting for about 14 percent of the total domestic consumption of refined oil products. Special measures were taken in July 1979 to curb fuel consumption, by raising gasoline prices for private cars to Lei 7.50 ($0.50) a liter (the second increase in 1979), restricting weekend driving, and reducing the number of taxis and official cars. Restrictions were also imposed on the movement of trucks, particularly "own transport", while gasoline rations for state, cooperative and public property cars were halved. Diesel fuel previou.ly priced at about Lei 1.7 ($0.11) per liter for railways and Lei 1.1 ($0.07) per liter for road transport.  enterprises was raised in Janury 1981 to Lei 2.23 ($0.15) per liter for both modes. These increases of 36 percent and 114 percent for rail and road transport respectively are in keeping with a new policy on pricing regulations adopted in December 1981 which aim at gradually adjusting domestic prices of imports nearer to their cost. Even with this upward revision diesel fuel nevertheless remains signiticantly below the international price which by comparison, in April 198J, was about $0.42 per liter. Although the role of public transport is given preference, the constant overcrowding of buses and trains is evidence that passenger transport has not received the resources it deserves. Further, the revenue foregone by the Government due to lower fuel prices to the railways and road transport enterprises is recovered to a substantial extent in the Romanian system through the benefits (profits) of these state-owned enterprises. Transport Coordination 30. Each user of transport service is required to specify transport needs approximately a year in advance. Bulk commodities, which account for 70 percent of traffic, are subject to an optimization process which links producers and consumers so as to minimize transport costs. Producers of other commodities are linked to specified regions. For each commodity there is a coordinator at the Ministry responsible for production/distribution, who determines these linkages, selects the transport mode and informs accordingly the beneficiaries (producers and consumers) who enter into contracts. The selection is mandatory, subject, however, to appeal by the transport beneficiaries. The coordinators select transport modes on the basis of a computer program which has been prepared by MTTc. The program takes into account tariffs (as a proxy for costs), distance, transit time, and reportedly packaging costs, damage, energy consumption and transport capacity constraints. However, it is not clear that the present traffic split is optimal, because the program does not take into account border pricing, the cost of inventories which is not charged to beneficiaries, and route and service-specific costs. The proposed project, therefore, includes a study on traffic optimization, to be completed by the end of 1984, (Loan Agreement, bection 3.04(a)) which would assist the economic development of the transport sector, and is expected to provide a firmer basis for the efficient and economic utilization and coordination of transport facilities. Tariffs and Costs 31. Rail, road and inland water transport tariffs are prepared by MTTc and approved by the State Committee on Prices. Rail freight tariffs had been l'ad valorem", high valued commodities subsidizing others, until 1974 when a cost-based system was introduced. The principal criteria for rail freight rates are wagon type, net loading and length of haul. Basic movement costs per km are calculated for each category on a system-wide average basis, without allowance for difficult terrain or other adverse conditions which are route specific. A further margin is added to allow for a 15 percent planned surplus for the system as a whole. Road tariffs are also cost-based, the main criteria being truck type, net load and length of haul. However, road users unlike rail users do not make a direct contribution to the maintenance of roads which are provided as a public utility.  - 10 - Railway Subsector Organization 32. Under the Romanian system of centralized State control, the railways' headquarters organization is contained within MTTc under collective management. Of six groups within the Ministry, each headed by a Ministerial Associate, four are concerned with railways. The first Ministerial Associate (Deputy Minister) is responsible for Railway Operations in the entire country which is divided into nine Regions. A second deals with traction and rolling stock, fixed installations, revenue control, and data processing. A third looks after finance and prices and oversees the Railway Workshops Central. The fourth is concerned witb the Railway Construction Central and the Railway Design Institute. The latter two Ministerial Associates also share responsibility for the road subsector so that coordination, rather than competition, between the two modes appears inherent in the Ministerial structure and is reinforced by the Council of the Ministry, its higbest decision-making body. Two otber Ministerial Associates are concerned witb maritime and river transport and posts and telecommunications. The Council and its Executive Bureau are chaired by the Minister and include all Ministerial Associates and certain beads of departments and units. The Railway Department, the controlling body for Romanian Railways (CFR), consists of the units responsible to the first two Ministerial Associates. 33. The managements of each of the nine Regions are responsible to the first Ministerial Associate. A typical region is governed by a Workers' General Assembly meeting annually and a representative Workers' Council meeting quarterly to review performance against plan. The Council also establishes five-year development plans within the State framework. The Regions depend upon the headquarters to provide certain essential services. For example, feasibility studies and detailed engineering for railway works are carried out by the Railway Design Institute. The Railway Construction Central (RCC), one of the biggest construction units in Romania, executes works for railways, primary roads, airports and Danube ports and produces construction components such as pre-stressed concrete sleepers. The Railways Workshops Central (RWC) has six workshops carrying out periodic maintenance and major overhaul of traction and rolling stock beyond the capacity of regional workshops. It also includes separate groups for the manufacture of parts for repair and modernization of rolling stock and for assembly. Operations 34. The Romanian railways' average traffic density of 15 million gross tons per route-km, is one of the highest in the world. Its operational efficiency has been steadily improving and is generally high, comparing tavorably with other European railways. However, problems which need to be closely monitored are the deterioration in the turn-around time of bogie cars and in the utilization of diesel locomotives. While the former is due to delays at terminals because of traffic growtb and pressure on customers' storage facilities, the latter is largely due to increasing use of electric traction superseding diesel on the more important routes carrying long  - 11 - distance through traffic and also the possibility that traffic planning on the secondary lines may not be optimal. The authorities are aware of these problems and are studying the possibilities of constructing adequate storage facilities and are testing the application of a recently developed computerized car control program in one of the railway regions. To ensure that over-investment in new cars does not take place, an understanding was reached with the Government that it would keep the Bank informed about the measures taken to improve the turn-around time of wagons and factors affecting it and that it would review procurement of new cars in the light of such improvements. Similarly, improvements in locomotive utilization may be possible through the adoption of a computerized system of locomotive scheduling as used in some European railways. Provision for tecbnical assistance for this is included in the project. 35. Availability of electric locomotives is acceptable at about 85 percent (1979) in light of their domestic manufacture wbich was begun relatively recently but should improve to about 90 percent by 1985 when initial teething troubles should have been overcome. Confirmation was obtained during negotiations that procurement of electric locomotives would be reviewed in the light of availability improvements. Due to the very high density of traffic, track occupation for maintenance purposes has been inadequate resulting in arrears of maintenance and severe speed restrictions. For remedying the situation the Borrower has agreed that about 600 km of high priority track shall be overhauled mostly with 60/65 kg rail and that heavy-duty track maintenance machines will be introduced on the railways during the period 1981-85 (Loan Agreement, Section 4.01 (b) and (f) and Guarantee Agreement, Section 2.03.). Railway Investment Plans 36. The Railway investment plans are prepared as part of the National Plan. All investments are subject to careful technical and economic scrutiny. However, economic analysis is made at domestic prices only, and no attempts are made at border pricing. The payback period is heavily relied upon in the economic and financial analysis. While transport investments approved so far appear broadly satisfactory, a broadening of the investment analysis methodology is an objective of the proposed project. 37. The total investment planned for the Railway subsector for the next Plan period (1981-85) is Lei 36.6 billion ($2.4 billion). Over half the total investment expenditures are for traction and rolling stock (one quarter for replacements and three-quarters for additional capacity). The proportion of expenditures allocated for the remaining items such as line doubling, electrification and new line construction appears reasonable and responsive to the needs of the Romanian economy. Of the total planned expenditures, about 54 percent will be financed from the Railways own funds, about 42 percent from the btate Budget and the balance of 4 percent is expected to come from the proposed loan. Capital overhaul of track is charged to operations and is not part of the railway investment plan. About 3,000 km are to be overhauled with new rail during 1981-85 including the high priority sectons referred to in paragraph 35.  - 12 - The Highways Subsector Organization and Planning 38. The Directorate of Roads (DR), under MTTc, is responsible for the construction and maintenance of the national road network, which comprises some 14,700 km, or about one-fifth of the country's total network. The remainder, including district and village roads, is administered by the judet authorities who receive guidance as needed from the Directorate. 39. For national roads, a five-year plan is formulated on the basis of improvements identified by the enterprises, industries, and ministries who use bighway facilities extensively, and is coordinated at the Republic level. Detailed annual plans are prepared one year in advance and their implement- ation is monitored by both the DR in the physical sense, and by the Investment Bank, the proposed Borrower, which oversees expenditures. The planning of provincial and local roads is coordinated at the Republic level and, as needed, technical advice is obtained from both the DR and the Road Design Institute (RoDI), a department of IPTANA, an institute, which is also respon- sible for air and sea transport designs within MTTc. Provincial and local authorities bear the responsibility for construction and maintenance of local roads and for meeting the planned targets. The DR and the RoDI are also responsible for preparing feasibility studies and the final engineering designs. For national roads, investment projects are executed by MTTc's Railway Construction Central. Road works are competently supervised by the DR assisted by the RoDI. The Highway Network and Maintenance 40. Romania has about 73,500 km of roads of which only about 50 percent are paved. The bulk of the network (about 58,700 km) are district and communal roads which are administered by the provincial authorities. Of these, only about one-third were paved as of the end of 1980. Of the national road network comprising some 14,700 km, about 14,000 km are paved. Demands of vehicle usage have increased considerably and bave resulted in inadequate capacity on certain key links in the network. In some cases, lack of all-weather access to areas not served by other transport modes has been a deterrent to progress and development. In others, poor surface conditions, plus narrow, winding alignments and in many cases excessively steep gradients, bave imposed barsh cost penalties on vehicle usage. Only one road, that between Bucharest and Pitesti (100 km) is built to modern expressway standards with limited access (dual carriageways separated by central median). 41. The maintenance allocation for national roads is about 60 percent of the total expenditures for such roads and is about $5,000 per km, wbich appears high compared with other European countries with similar conditions. Although, to a limited extent, such a high cost reflects the maintenance needs of some of the 'unmodernized' roads where the old light pavements are subjected now to heavy traffic loads and are distressed, the expenditures also include some asphalt overlay work which should rightly be a charge to the capital budget. Maintenance practices are in general labor intensive and  - 13 - suffer because labor is in short supply. Many of the routine tasks could be performed more efficiently and better by machine and it is an objective of the technical assistance element of the project that the study visits for key DR personnel should include their exposure to latest maintenance practices elsewbere. Road Transport 42. The Road Transport Central (RTC) under MTTc is responsible for the operation and maintenance of the public road transportation fleets for the carriage of both passengers and freight. All transport users have access to RTC vehicles. RTC's vehicles are normally used in intercity services and an important objective is to minimize empty hauls. With the help of a network of agencies which coordinate the requests for transport users and the collection of goods, dead mileage is kept to a minimum. Road transport is developing rapidly and the vehicle fleet has approximately doubled at an average rate of nearly 12 percent per annum from about 538,000 vehicles in 1972 to 1,016,000 in 1978. Further increases in this rate are expected as the domestic production of motor vehicles expands, particularly with the coming into production at end 1981 of a new Citroen plant wbich will add 150,000 units per year. As a result, traffic forecasts may well be exceeded, especially the 4.7 percent yearly growth estimated for passenger traffic, aggravating the congestion which already exists on key links. Highway Investments and Financing 43. Roads and road transport accounted for nearly 25 to 35 percent of total investments in the transport sector during the seventies and are expected to maintain this share over the next plan period (1981-85). Road investments (excluding road transport) are planned for about 7,900 million Lei ($527 million), about 6 percent above 1976-80 expenditures in real terms. The expenses on national roads are financed largely from the State Budget and the expenses for district and local roads are met from the local budgets. The sources of income of these budgets are part of the benefits (profits) of enterprises and a variety of national and local taxes. Previous Bank Activities in the Sector 44. The proposed project will be the second in the transport sector and first for rail/road development. The Bank approved a loan (Ln. 1794-RO) of $100 million equivalent in January 1980 to assist in the construction of a 64 km canal from Cernavoda on the Danube to South Constanta-Agigea on the Black bea, which would provide energy efficient and cost effective transportation, adding a new dimension to inland waterways. The project is well in hand and the progress of work has generally been satisfactory. The Borrower 45. The Borrower for the proposed loan would be Banca de Investitii (Investment Bank of Romania (IB)), which is the Government's specialized agency, for financing projects in all sectors of the economy except in  - 14 - agriculture (including water resources) and food processing. It has a large technical and economic staff at its Headquarters, and brancb offices throughout the country. The IB's involvement in investment projects commences in the preparation phase; it appraises all major projects technically and financially according to Romanian procedures and, in the case of the proposed project, has facilitated the economic analysis by the appropriate agencies of ali components according to Bank methodology. MTTc staff wbo bad attended EDI's transport courses (para. 21) also played an important role in this exercise. 46. The IB makes recommendations to the Council of State on major projects and their financing. All investment funds for an approved project are channeled through the IB which authorizes payments for work performed in accordance with the approved plan. It is the IB's responsibility to ensure that a project is executed according to the financial and technical data included in the final approval and its inspectors supervise projects to ensure progress according to the approved schedule. The IB will supervise the execution of the proposed project with the participation of MTTc. The proceeds of the loan will be passed on to the Railway Department and the Road Directorate for the railway and highway components of the proposed project. Responsibility for the technical assistance element will be vested in MTTc. As the Goverment's channel for investment financing in all sectors except agriculture, the IB's primary source of funds is the State Budget; the Guarantee Agreement therefore includes assurances that all necessary funds would be provided by the Guarantor for the implementation and operation of the proposed project. PART IV. THE PROJECT 47. The project was first discussed by the Bank and the Government in January 1979. Preparation missions visited Romania in March and September 1979, followed by pre-appraisal in March 1980. The project was appraised in September/October 1980. Negotiations were held in Washington in May 1981. The Romanian delegation was headed by Mr. Gheorghe Popescu, President of IB and included representatives from IB and MTTc. A staff appraisal report entitled "Romania, A Land Transport Project" (No. 3344a-RO,dated June 15, 1981) is being distributed separately to the Executive Directors. The main features of the proposed project are summarized in the Loan and Project bummary and in Annex III. A map showing the railway and highway components of the project is attached. Project Objectives 48. The principal objectives of the Project are: (a) to avoid transport cost increases by providing timely relief of existing traffic congestion through road and rail investments and increase in the capacity of transport links which are approaching saturation; (b) to provide all-weather access to a development area, which heretofore has been served by only a fair weather track, and to provide transport for a new mine; (c) to improve economic  - 15 - evaluation of projects; (d) to improve monitoring of the use of the road network; (e) to assist in improving resource allocation in the transport sector through a study on traffic optimization; and (f) to assist in familiarizing the railway and highway organizations with recent developments and trends in operating, monitoring and maintenance techniques utilizing the latest technology. Project Description 49. The proposed project consists of high priority items included in Komania's 1981-85 railway and highway Investment Plans. The railway components include: (i) construction of two new lines totaling 77 km together with about 7 km of tunnels, about 3 km of bridges and about 2 km of viaducts; (ii) doubling of three line sections of approximately 125 km; (iii) electrification of 470 route-km of main lines; (iv) procurement of special steel for the superstructure of the Cernavoda bridge over the Danube; and (v) procurement of about 330 freight cars being the initial requirement for additional traffic utilizing the new and improved facilities in items (i)-(iv). The highway components include: (a) paving of tbree two-lane gravel roads (85 km); (b) widening of one road (6 km) from two to four lanes in an important industrial and agricultural area; and (c) construction of a 17 km new road between Fetesti and Cernavoda on the two arms of the Danube to shorten the distance between Bucharest and Constanta. Provisions have also been made for technical assistance (paras. 52 and 53). 50. One of the new railway lines to be constructed would link a coal producing area at Berbesti to the railway network at Babeni. Since this line will serve a new coal mine which will feed an electrical power station being converted to coal, agreement was reached at negotiations that complementary mining and power investments will be made on time (Loan Agreement, Section 4.01(c) and Guarantee Agreement, bection 2.03). 51. Construction of the railway bridges at Borcea, near Fetesti and Cernavoda would shorten by about 60 km the main highway connection in Romania's busiest corridor between Bucharest and Constanta on the Black Sea. Cantilevers have been added to the two bridges to provide four-lane road crossings. The project would include the construction of the intervening 17 km road between Fetesti and Cernavoda. The Cernavoda-Constanta highway is being improved at present, and to ensure that full benefit is obtained from the new construction agreement was reached at negotiations that necessary improvements will be made on the Bucharest-Fetesti road contemporaneously with the construction of the Fetesti-Cernavoda road (Loan Agreement, Section 4.01(d) and Guarantee Agreement, Section 2.03). Technical Assistance 52. The major technical assistance component under the proposed project is the traffic optimization study. The study will review the existing procedures for optimizing transport linkages and the modal split, in order to further sharpen and refine them, taking into account multiple objectives including energy conservation, inventory control and the relation between  - 16 - tariffs and service-specific costs. Terms of reference for the study have been discussed with the authorities and are acceptable. 53. The Borrower proposes to have the study undertaken by Romanian consultants. This is acceptable since Romanian institutes, such as the Technological Research and Design Institute for Transport, have competent staff to undertake this study, and their employment would contribute to the development of Romania's consulting industry. It is therefore proposed to award the study, which is expected to require about 150 man-months of expert services, to Romanian consultants, and to finance their services in full from the proposed loan at a cost of about $825,000 ($5,500 per man-month). Inclusion of the study in the proposed project and the employment of consultants by October 1, 1981, under terms and conditions acceptable to the Bank, was agreed at negotiations (Loan Agreement, Section 3.04(b)). It may, however, be desirable to use foreign consultants for specialized methodological tasks connected with the study, or have Romanian consultants visit foreign organizations which are engaged in similar work. Use of foreign consultants, or visits abroad by Romanians, would be useful also in connection with improvements in car control and locomotive utilization and in highway maintenance practices. The foreign exchange costs of these visits and consulting services are estimated at $175,000 (30 man-months at $5,800 per man-month). The foregoing was discussed and confirmed with the Borrwer at negotiations. Project Implementation 54. The MTTc will be responsible for implementing the project. Execution of the works included in the railway components will be entrusted under firm contracts for each sub-project to the Railway Construction Central (RCC) within MTTc. The supervision and acceptance of the work will be by the railway regional staff supported by senior engineers from the Railway Design Institute (RDI) as necessary. Both the RCC and RDI are well staffed by competent people and, judging from the timely completion of similar railway facilities in the past, are well-qualified to execute the project work. The Directorate of Roads would be responsible for executing the road works under the proposed project and with the assistance of the Road Design Institute, would supervise the construction. The project roads will also be constructed by the RCC on the basis of prices, unit rates, and quantities of work determined and agreed prior to contract award. Project Cost and Financing 55. The total cost of the proposed project is estimated at $767.1 million with a foreign exchange component of about $330.7 million. These estimates are based on substantially completed final designs and mid-1981 prices. Physical contingencies have been estimated at 10 percent of the base cost. Price contingencies on foreign exchange costs are based on annual increases of 9 percent, 8.5 percent and 7.5 percent, respectively for 1981, 1982, 1983 and later years. Due to very low inflation under the Romanian system of administered prices, price contingencies on local costs have been calculated at two percent per annum.  - 17 - 56. The proposed Bank loan of $125 million represents about 16 percent of the total project cost and would finance about 38 percent of the estimated foreign exchange cost and about $0.7 million of local costs for technical assistance. The loan to the Investment Bank would have a term of 15 years, including three years of grace with interest at 9.6 percent per annum and would be guaranteed by the Government. The Investment Bank would carry the foreign exchange risk on the Bank loan. The balance of the foreign exchange cost of $206.4 million would be financed by the Government from State resources. All local currency funds, except $0.7 million, would be provided from domestic sources, $186.7 million equivalent by the Railways through internal cash generation and $249 million equivalent by the Government from the btate resources. Although cofinancing is not crucial for this project, the Romanians may decide at some time in the future, depending upon financial market conditions to seek external cofinancing loans. However, the Government has assured the availability of the full amount of the funds needed for the project. Financial Evaluation for Railways 57. The Romanian railways' operating results are generally satisfactory. The target for the railways is to produce for all activities combined a benefit (profit) of about 15 percent. This has been exceeded for the past four years, 1977 to 1980, and the return on average net fixed assets in use during the 1976-80 plan period has been about 5 percent. These results are due to satisfactory tariffs, high density of traffic, efficient use of capital assets, and the high productivity per employee. Both working and operating ratios have been satisfactory. The depreciation charges, together with benefits, generate adequate internal resources which enable the Railways to finance about half its investments, the other half being met through State allocations. The need to revalue fixed assets is recognized in principle but because of the low rate of inflation in Romania, such revaluations have taken place only at the end of 1963 and 1976, and the change in net fixed asset values resulting from the latter was negligible. 58. Price increases, particularly for fuel, introduced in January 1981, (para. 29) were met by a freight rate increase of 5.7% and the railways' operating results for the 1981-85 period are expected to continue the satisfactory position of the past years with improvements projected in both the operating and working ratios. The overall rate of return on net fixed assets is expected to remain at about 5 percent. The net cash generated by depreciation and the anticipated operating surpluses should finance more than 50 percent of investments. Audit 59. Agreement was reached at negotiations that the financial statements of the Investment Bank and the Railway Department and the accounts reflecting the expenditures made for the project roads will be audited each year by the Ministry of Finance and furnisbed to the Bank within six months of the end of each fiscal year (Loan Agreement, Section 6.01(f) and (g)).  - 18 - Procurement 60. Procurement will be by International Competitive Bidding (ICB) in accordance with the Bank's guidelines, on the basis of a list of equipment and materials which has been agreed to between the Bank and the Borrower. A few items such as remote control equipment for railway electrification and some minor items of highway machinery will be procured through prudent shopping amongst international suppliers; the total value of such items would not exceed $1.5 million with a limit of $200,000 for individual contracts. For the railway component of $94 million the goods to be procured would consist of rails, steel for concrete sleepers, points and crossings, track fittings, copper contact wire and substation equipment for electrification, cables for signalling and telecommunication required for new lines and for doubling and electrification of track, special steel for the Danube Bridge at Cernavoda, telecommunication equipment (including radiotelephone systems) and a limited number of freight cars. For the highway component of $30 million, the goods to be procured under ICB would comprise road construction and maintenance equipment, bitumen and reinforcing steel. However, the Bank would not directly disburse funds against these equipment and materials. Disbursements equivalent to 75 percent of the foreign exchange costs of the road components, would instead be made against civil works construction. These works would be carried out by RCC which is experienced and familiar with local conditions, methods and regulations. Romanian manufacturers would be allowed a preference of 15 percent, or the applicable customs duty, whichever is lower. Almost every type of equipment required for the project is manufactured in Romania and it is expected that Romanian bidders will be successful for all ICB items with the exception of bitumen (about $5 million). Disbursements 61. For railway equipment and materials the loan would be disbursed against the full cost of foreign contracts and against the full ex-factory cost of contracts won by Romanian organizations. Disbursements for the highway components would be at the rate of 25 percent against Statement of Expenditures for civil works to be submitted at regular intervals by the Government. However, it will be a condition of disbursement that no withdrawals shall be made from the relevant Civil Works Category under the loan until the Bank has received satisfactory evidence from the Government that ICB procurements have been made for highway construction equipment and materials in an aggregate amount sufficient to cover anticipated withdrawals. During negotiations, the Borrower's agreement to the foregoing clisbursement arrangements was obtained (Loan Agreement, Schedule 1, para. 4(b)). Disbursement for technical assistance would be at 100 percent of both domestic and foreign costs. Benefits and Risks 62. The proposed project aims at relieving transport bottlenecks and mounting congestion on some of the most heavily trafficked railway and road sections in Romania. These lines and road sections connect several large cities and industrial areas and are of critical importance to the country.  - 19 - bome of the project roads would also provide direct all-weather paved roads connections between several growing commercial centers, and would open up areas which are now isolated for much of the year. The principal direct beneficiaries of the proposed project would be the rail/road users which come trom a wine range of sectors and income groups. The project will benefit long distance as well as local traffic. The favorable impact of the project will also be felt by the rail/road passengers from the higher quality of service and travel comfort. 63. Benefits due to the proposed project will result mainly from reduced maintenance and operating costs, and improved utilization of traction and rolling stock. For road sections where traffic congestion is heavy, or where substantial distance saving is involved, the economic analysis takes into account savings in passenger travel time. Savings in transport costs, excluding passenger time savings, account for about 80 percent of the total benefits on these heavily congested roads. Benefits due to increased comfort, convenience and safety have not been quantified. 64. Based on the most probable estimates of construction, operating, maintenance, and time costs, and traffic growth, the proposed investments produce economic returns (ERs) ranging from 13-70 percent. All project rail/road sections would yield first-year benefits of 10 percent or more on the proposed investment. The weighted average ERs of all civil works components, which account for about 99 percent of total project costs are 20 percent tor the project as a whole and 24 and 15 percent, respectively for its railways and highways components. These economic returns understate the full economic benefits of the project by excluding reductions in accidents, greater passenger comfort and the convenience of travelling on improved railway and highway facilities. Sensitivity analysis reveals that even under the unfavorable assumptions of 15 percent higher construction costs combined with a 15 percent reduction in users' benefits, the ERs are within the range of 10-55 percent for all project sections with an overall weighted economic return of 15 percent, which is still acceptable. Benefits could not be quantified for other project elements, namely tecbnical assistance and training which are necessary for the project as a whole and whose benefits will permeate the entire investment plan. 65. The clear economic justifiction for the project and the planned nature of the Romanian economy which helps to ensure that traffic forecasts and construction programs will be realized would indicate that no special risks are expected in the execution and implementation of the proposed project. PART V. LEGAL INSTRUMENTS AND AUTHORITY 66. The draft Loan Agreement between the Bank and Banca de Investitii, the draft Guarantee Agreement between the Socialist Republic of Romania and the Bank, and the report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement are being distributed to the Executive Directors separately.  - 20 - 67. Features of the project of special interest are listed in Section III of Annex III. A condition of disbursement for the higbway civil works is the procurement through ICB of construction equipment and materials in an aggregate amount equivalent to cover anticipated withdrawals (Loan Agreement, bchedule 1, para. 4 (b)). 68. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI. RECOMMENDATIONS 69. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments June 16, 1981 Washington, D.C.  21_ AEN 1 TABLE 3A 1 I 5 pes ROMANIA - SOCIAL INDICATORS DATA SHEET RaKANIA RCENRtSCI GROUPS (VEICHTFD AYEWctS LAND AREA (THOUSAND SQ. KM.) M HST RECENT ESTIMATE)' TOTAL 237.5 H0ST RECENT CCNTRALLY PLANNED INDUSTRIALIZED ACRICULTUtAL 149.6 1960 k 1970 k ESTIMATE ECONCPIES COUNIES GNP PER CAPITA (US$) .. .. 1900.0 .. 9499.2 ENERGY CONSUHITION PER CAPITA (KILWCRAMS OF COAL EQUIVALENT) 1342.0 3013.0 4042. 0 211.2 7021. 1 POPULATION AND VITAL STATISTICS POPULATION. MID-YEAR (MILLIONS) 18.4 20.4 21.9 URAAN POPULATION (PERCENT OF TOTAL) 34.1 40.8 46. 5 35.5 76.0 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 26.0 STATIONARY POPULATION (MILLIONS) 30.0 YEAR STATIONARY POPULATION IS REACHED 2090 POPULATION DENSITY PER SQ. DI. 77.0 85.0 92.0 83.6 142.8 PER SQ. IOf. AGRICULTURAL LAND 126.0 135.0 146.0 223.0 523.3 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 28.2 25.9 25.9 30.8 23.5 15-64 TS. 65.1 65.5 64.1 62.1 65.1 65 rRS. AND ABOVE 6.7 8.6 10.0 7.1 11.4 POPULATION GRaiTH RATE (PERCENT) TOTAL 1.2 1.0 0. 9 1.4 0. 7 URBAN 3.8 . 2. 8 2.5 2. 9 1.3 CRUDE BIRTH RATE (PER THOUSAND) 20.0 20.0 19.0 18.2 13.8 CRUDE DEATH RATE (PER THOUSAND) 9.0 10.0 9.0 7.1 9.1 GROSS REPRODUCTION RATE 1.2 1.3 1. 2 1. 3 0. 9 FAKILY PLANNING ACCEPTORS. ANNUAL (TROUSANDS) USERS (PERCENT OF MARRIED WOMEN) .. .. WOOD AND NUTRITION INDEX OF FOOD PRODUCTION nER CAPITA (1969-71-100) 89.0 89.0 152.0 186.5 110.8 PER CAPITA SUPPLY OF CALORIES (PERCENT Or REQUIREMENTS) 108.0 115.0 130.0 113.7 131.6 PROTEINS (GRAMS PER DAY) 86.0 90.0 103.0 75.1 98.0 OF WHICH ANIMAL AND PULSE 30.0 34.0 43.0 28. 62.1 CHILD (AGES 1-4) MORTALITY RATE 3.0 2.4 1.0 1.1 0.8 IUALT! LIFE EXPECTANCY AT BIRTR (TEARS) 66.0 68.0 70.0 7.1 73.5 INFANT MORTALITY LATE (PER THOUSAND) 75.7 49.4 31.0 22.4 13.2 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOtAL .. .. URBAN .. .. RRAL .. ..U ACCESS TO EICRETA DtSPOSAL (PERCED OF POPULATION) TOTAL .. .. URBAN .. .. . .. RRAL .. .. . POPULATION PER PHYSICIAN 780.0/c 840.0/d 734.0 2070 62t8 POPULATION PER NURSING PERSON 620.07c .. 638.0 240.1 21P.9 POPULATION PER HOSPITAL RED TOTAL 130.0/c 120.0 109.0 96.7 121.2 URBAN 50. 0c 50.0 60.0 RURAL 620.0/c 770.0 730.0 AEUISSIONS PER BOSPITAL BED .. 23.0 .. 17.0 BOUSING AVERAGE SIZE OF HOUSEHOLD TOrAL * 3. 2/O URBAN .. 2. /e . RURAL .. 3. 4 . AVERACE NUMBER OP PERSONS PER ROOM tOTAL .. 1. 4L . URBAN .. 1. 3/ . RURAL .. 1. 41e ACCESS TO ELECTRICITY (PERCENT OF IDELIINGS) TOTAL .. 49.01 . URBAN * 66.02 RURAL .. 27.0 .  - 22 ANNEX 1 Page 2 of 5 pages TABLE 3A ROKANIA - SOCIAL INDICATORS DATA SNEET RQlANIA REFERENCE GROUPS (UEIGHTED AVER4CES - MOST RECENT ESTIMATE) MOST RECENT CENTRALLY PLANNED INDUSTRIALIZED 1960 h 1970 /b ESTIMATE h ECONOMIES COUNTRIES EDUCAT ION ADJUSTED ENROLLMENT RATIOS PR DiARY: TOTAL 98.0 113. 0 102. 0 118.7 100.1 MALE 101. 0 112.0 102.0 117.5 102.2 FEMALE 95. 0 114. 0 101. 0 120.0 102.3 SECONDARY: TOTAL 24.0 45.0 77.0 100.2 87. 1 MALE 27.0 51.0 81. 0 101.9 84.4 FEMALE 22.0 38.0 73.0 97.8 84.3 VOCATIONAL DSL. (t OF SECODARlY) 54.0 58.0 70.0 47.4 19.0 PUPIL-TEACHER RATIO PRINARY 25.0 21.0 21.0 16.2 21. 3 SECONDARY 16.0 18.0 19.0 13.0 16.4 ADULT LITERACY RATE (PERCENT) . .. 98.0 . 98. 9 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION . 2.2 .. .3j RADIO RECEIVERS PER THOUSAND POPULATION 120.0 152.0 146.0 403.5 932.9 TV RECEIVERS PER THOUSAND POPULATION 3.0 73.0 139.0 200.5 15L. 1 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 147.0 . 169. 0 129.0 354.3 327.4 CINEFA ANNUAL ATTENDANCE PER CAPITA 9.0 9.6 B.7 14.4 1.3 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 105C0.5 11:6.:? 120!.e* FEMALE (PERCENT) [1L.9 tl.5 tt.o 40.7 36.1 AGRICULTURE (PERCENT) 65.3 [9.1 2.5 50.2 7. 6 INDUSTRY (PERCENT) 15.1 23.1 33.-5 30.8 38. a PARTICIPATION IRATE (PERCENT) TOTAL 57.1 56.0 55.9 47.3 44.6 MALE 64.5 63.3 62. 8 57.1 58. 1 FEMALE 50.1 49.0 49.1 37.0 31.7 ECONOMIC DEPENDENCY RATIO 0. 7 0. 7 0. 7 0. 7 0.8 INCOME DISTRIBUTION PERCENT OP PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS .. .. HICGEST 20 PERCENT OF HOUSEHOLDS .. .. IDWEST 20 PERCENT OF HOUSEHOLDS .. .. LOWEST 40 PERCENT OF HOUSEHOLDS .. .. POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. RURAL .. .. ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 394.0 RURAL .. .. 394.0 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) UPBAN .. .. RURAL .. .. Not available Not applicable. NOTES k The group averages for each Indicator are populatlon-weighted arithmetic means. Coverage of countries amorg the ifldicatore depends on availability of data and iS not uniform. L Unless otherwise noted. data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1974 and 1978. /c 1962; 2d WHO estimates; /e 1966. Most recent estimate of GNP per capita is for 1979, all other data are as of April, 1980. Jenuwry 28, 1981  23 ~~~~~ANNE 1 Page 3 of 5 pages DSPtPTl0BfI OF SOCIAL INDICATORS Wates Although tha data .rc dres frn ars gasrlyldged ite mZt .thortoatv.r and reIa.bl.. It httud .10 6. n-td that they Ray set ha tfct theta., u-flt eo h resat.gio. niaeted. n hrcst.cren eo itrts ewe co ie.. af gsa sdttatr stat., aeon the taotry Td reidale grtoupa.: .i tl d,:h,-h- - tAM ARA (hancedeq.i P001t tn pr tnstt.n- PltuaitaMatot4... nmof a_ptaitc.gIosf Tott hl Toa ufaeae opitg adae n nadotn. tth.us-tll ed . 5 totIdCel dhota utorlt ed fortirs patre.mrtad ktothcn grd..a orto le f.11-s 1977 dat.T a Ia. -01 lo-~1o i~Jo un .r.tca .n... ..deaaan ua. by ut eao oe t veclfl taah _benn nnling pnhni-paly auctodlo UltOT MM'StSPTtOtS PEt CA_ITA A- dtulcaoptta onrlleat ol cr r o