Romania - Transport Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 11441-RO STAFF APPRAISAL REPORT ROMANIA TRANSPORT PROJECT MARCH 5, 1993 Infrastructure Operations Division Country Department I 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 BOUIVALENTS (as of February 1993) Currency Unit = lei US$1.00 - 500 lei US$2,000 - lei 1 million (as of June 1992) US$1.00 = 198 lei (as of January 1992) US$1.00 - 261 lei WEIGHTS AND MEASURES m = meter (3.281 feet) km kilometer (0.621 mile) PRINCIPAL ABBREVIATIONS AND ACRONYMS USED CC Commercial Company CEE Central and Eastern Europe CMEA Council for Mutual Economic Assistance EBRD European Bank for Reconstruction and Development EEC European Economic Community EIB European Investment Bank GOR Government of Romania HDM Highway Design Model IBRD International Bank for Reconstruction and Development IPTANA Design Institute for Road, Water and Air Transport LIB Limited International Bidding MOEF Ministry of Economy and Finance MOT Ministry of Transport MPW Ministry of Public Works MTPW Ministry of Transport and Public Works NRA National Road Administration OED Operations Evaluation Department PCR Project Completion Report PMU Project Management Unit PPAR Performance Audit Report RA Regie Autonome RAR Romanian Automobile Registrar SNCFR National Railway Company of Romania SOE Statement of Expenditure TACI Technical Assistance and Critical Imports Loan VOC Vehicle Operating Costs ROMANIA -- FISCAL YEAR January 1 - December 31  FOR OFFICL41 USE ONLY TRANSPORT PROJECT STAFP APPRAISAL REPORT Table of Contents Paac No. LOAN AND PROJECT SUMMARY .i I. THE TRANSPORT SECTOR. 1 A. The Transport System .... . . . . . . . . . . . . . . . . . . 1 B. Traffic. 1 C. Investments. 2 D. Institutions. 2 E. Sectoral Issues. 2 F. Sector Strategy. 3 G. Previous Bank Experience in the Sector. 4 H. Role of the Bank and Lending Strategy. 4 II. THE HIGHWAY SUBSECTOR. 5 A. Network and Traffic. 5 B. Road Transport. 6 C. Road Safety. . 7 D. Highway Administration and Organization .8 E. Engineering, Construction and Maintenanc .8 F. Highway Expenditure. and Financing. . 9 III. THE RAILWAY SUBSECTOR .10 A. Organization and Management .10 B. Traffic and Staff Productivity .10 C. Railway Property .10 D. Operations .11 E. The Restructuring Process .12 IV. THE PROJECT .12 A. Project Objectives .12 B. Project Description .13 C. Engineering and Status of Project Preparation .14 D. Cost Estimates .14 E. Project Financing .16 F. Implementation and Monitoring .17 G. Procurement .18 H. Disbursements .21 I. Project Supervision .22 J. Environment Impact .22 K. Accounts and Audit .22 This document is based on the findings of an appraisal mission to Romania in October/November 1992, consisting of Jacques Y-nny (task manager); Svetislav Orlic, Luis Revuelta and Richard Florescu (engineers); and Branco Bjelorglic (consultant). Snezana Mitrovic assisted in preparing the report. Peer reviewers were Philip Blackshaw and Michel Ray (EMTIN). The division chief is Paula Donovan and the department director is Michael Wieh-n. 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.  V. ECONOMIC EVALUATION *.............. .... ....... 23 A. Benefits and Beneficiaries . . . . . . . . . . . . . . . . . . 23 B. Costs and Benefits . . . . . . . . . . . . . . . . . . . . . . 23 C. Overall Evaluation and Risks ..24 VI. AGREEMENTS REACHED AND RECOMMENDATIONS . . . . . . . . . . . . . . . 24 ANNEXS 1. Terms of Reference for Supervision of Civil Works 26 2. Terms of Reference for Project Management Unit . .32 3. Documents in Project File ..34 TABLES 1. Freight Traffic by Mode of Transport . . . . . . . . . . . . . . . . 36 2. Passenger Traffic by Mode of Transport . . . . . . . . . . . . . . . 37 3. Road Traffic . . . . . . . . . . . . . . . . . . . 38 4. Traffic in Constanza Port . . . . . . . . . . . . . 39 S. Transport Sector Investment .......... . 40 6. Number of Road Vehicles. . . . . . . . . . . . . . . . . . . . . . . 41 7. Action Plans for Road User Charges and Axle-Load Control . . . . . . 42 S. Action Plan for Maintenance by Contract. . . . . . . . . . . . . . . 44 9. NRA's Equipment by Type and Age. . . . . . . . . . . . . . . . . . . 45 10. Highway Expenditures . . . . . . . . . . . . . . . . . . . . . . . . 46 11. Romanian Railway Operational Indicators. . . . . . . . . . . . . . . 47 12. List of Roads for tho Project. . . . . . . . . . . . . . . . . 51 13. List of Equipment to be Procured under the Project .. . . . . 52 14. Outline of Training. . . . . . . . . . . . . . . . . . . . . . . . . 53 15. Implementation Schedule. . . . . . . . . . . . . . . . . . . . . . . 55 16. Estimated Schedule of Disbursement . . . . . . . . . . . . . . . . . 58 17. Vehicle Operating Costs ..59 CHARTS 1. Ministry of Transport ....................... . 60 2. National Road Administration Headquarters ............. . 61 3. National Road Administration Regional Organization . ..... . . . 62 4. SNCFR Organization .... . . . . . . ...... . . . . . . . . . 63 M&E IBRD 24275 - Romania - Transport Project  ROMANI TRANSPORT PROJECT STAFF APPRAISAL REPORT LOAN AND PROJECT SUMMARY Borrowers Romania Beneficiarims: National Road Administration, Romanian Automobile Registrar and National Railroad Company of Romania Lon Amount: US$120 million equivalent T-rma Seventeen years, including 5 year grace at the standard variable interest rate Proiect Obiectivem and Descriptions The objectives of the project are to: (a) increase efficiency of the sector and accommodate expected changes in transport demand by improving the condition of the road networki (b) promote the selection of transport investments on the basis of economic criteria; (c) improve fiscal performance and reduce the uneconomic use of transport and energy by implementing a cost-based systm of road user charges; (d) develop the execution of road works by contract; (e) build on transport policy initiatives under the TACI project particularly with regard to investment selection and restructuring of the railways; and (f) support the economic reform program and encourage social stability by financing geographically dispersed efficient employment generation, including in newly privatizing contracting companies to the extent possible. The project includes: (a) rehabilitation of some 1,100 km of national roads; (b) improvsment of border posts; (c) material and equipment for road safety, road maintenance, vehicle inspection and training; (d) technical assistance and training for the road subsector; and (e) urgently needed track maintenance and data processing equipment, spare parts and training for the railways.  ii Benefits and Risks: The project is expected to play an important role in accommodating the aconomic reorientation of transport demand to road transport and start restructuring the railways accordingly. Quantifiable benefits for the road rehabilitation component will be in the form of reduced vehicle operating costs (VOC), i.e. lower fuel consumption, tire wear and general vehicle maintenance costs, time and wage savings. Also, the present value of road expenditure requirements will be reduced by undertaking road strengthening now and avoiding more expensive reconstruction at a later date. Road maintenance expenditures will also decrease on rehabilitated roads. The road safety component will contribute to the reduction in accidents. The benefits will accrue to a large and widespread number of beneficiaries. Lower road transport costs and time savings will benefit vehicle owners as well as users. For the railway components benefits will consist of reduced operating costs and improved traffic safety. Project risks are low. The GOR, NOT and NRA have expressed strong interest in the project, and are likely to proceed even in the event of political changes. The main risk is that the GOR would not have sufficient counterpart funds. However, the local component of US$125 million would be affordable. It would amount annually over the project implementation period to one third of total highway expenditures budgeted for 1992. NRA is budgeting for its contribution as a top priority within its existing budgetary allocation.  iii ESTIMATED PROJECT COSTS Local Foreign Total -----US$ Million------------- Civil Works 104.3 186.5 290.8 Road Safety 4.5 10.5 15.0 Materials and Equipment 5.1 27.7 32.8 Technical Assistance and Training 0.4 1.6 2.0 Railways 6 3 17.7 24.0 Sub Total 120.6 244.0 364.6 Contingencies 13.4 27.0 40.4 Grand Total 134.0 271.0 405.0 FINANCING Government 125.0 - 125.0 Bank 9.0 111.0 120.0 Cofinancing - 160.0 160.0 Total 134.0 271.0 405.0 ESTIMATED IBRD DISBURSEMENTS (S million) IBRD Fiscal Year 9 19 19 19 1998 122 Annual 8 17 42 36 15 2 Cumulative 8 25 67 103 118 120   ROMANIA TRANSPORT PROJECT STAFF APPRAISAL REPORT I. THZ TRANSPORT SECTOR A. The Transoort Svstem 1.01 Romania is one of the largest of the former centrally planned economies in the Central and East European (CDE) Region with a land area of 237,000 sq. km and a population of 23 million, second only to Poland. Per capita income in 1992 was estimated at about $1,225. The country has a wide range of natural resources, including a fertile agricultural base, deposits of coal, lignite, oil, natural gas and other minerals. Long a major food producer, Romania was a large exporter of agricultural products until the early eighties. 1.02 The transport system has relied primarily on the railways, which have a well developed network of 11,000 km, of which 36% is electrified and 26% is double track. There are about 1000 stations for freight and passengers. The road network totals 73,000 km, of which 20% are national roads carrying 60% of the road traffic. Road density, with regard to both population and land area, is the lowest among all CEE countries. The Danube offers a navigable distance of 1075 km in Romania and the Danube-Black Sea Canal (68 km) was opened to traffic in 1984. Ninety percent of foreign trade is handled through the port of Constanza on the Black sea. There are five major river ports on the Danube, the largest of which is Galati, accessible to ocean-going vessels up to 15,000 tons. There are seventeen airports of which 3 are international. B. Traffic 1.03 As in other centrally planned economies, Romania's transport sector has been heavily rail oriented. In 1960, rail accounted for over 80% of freight traffic and over 70% of passenger traffic (Tables 1 and 2). While the rail share has gone down since then, in 1989, rail still accounted for almost 70% of freight and about 40% of passenger traffic. The higher share of rail freight was the result of regulation forcing all transport above 50 km to the railways. This regulation has now been abolished. Rail freight reached 300 million tons and 80 billion ton-km in the late 80s, but has fallen dramatically over the last two years. In 1991, it was down to less than half its 1989 level at 37 billion ton-km. Passenger traffic held off better, being down less than 30%. 1 04 Road traffic grew rapidly in the 70s but stagnated in the 80s as it was suppressed by physical control and regulation (Table 3). The last two years have seen an explosion of private car traffic. Truck traffic has been less buoyant due to the downturn in the economy, but has been affected much less than rail traffic. 1.05 Traffic through Constanza port was around 60 million tons p.a. in the late 80s, but in 1991, only 28 million tons were handled (Table 4). Of the earlier traffic, about 60% was liquid bulk and another 30% dry bulk,  leaving only about 5 million tons of general cargo. Container traffic was small but hau increased rapidly since 1989 as Romania's markets are diversifying. Inland water traffic is insignificant at only 3% of total land traffic. On the Danube-Black Sea Canal, traffic reached 12.5 million tons in 1989, well below the forecasts of 75 million tons made in 1979 before construction. Traffic in 1990 had fallen to some 6 million tons. Maritime traffic carried by the Romanian fleet quadrupled in the 70s from 4 to 16 million tons p.a. and more than doubled again to 36 million tons in 1989. C. Investments 1.06 Investments in the transport sector have been around 10% of total investments, substantially below the level in market economies. Until the late-70s, railways got the bulk of the investments in the sector. Later, the balance shifted toward water transport (maritime, river and canals) with the construction of the new Constanza port, the Danube-Black Sea Canal and the Bucharest-Danube Canal (now abandoned) and a major increase in the maritime fleet. In the 80s, total water transport investments absorbed well over 50% of total transport investments, while rail received about 27%. By comparison, investments in road infrastructure decreased from 9% in the late 70c to less than 5% in the 80s (Table 5). In the 80s construction started on the Bucharest metro and between 1986 and 1990, this absorbed about twice the amounts invested in the entire road infrastructure of Romania. In the last two years, investments in the sector have come to a virtual halt. The 1992 investment budget for the whole sector is US$35 million, only allowing for urgent capital repairs and periodic maintenance and no new investments. D. Institutions 1.07 In 1990 and 1991, major changes took place in the transport institutions. The former Ministry of Transport and Public Works was split into two separate Ministries. The Ministry of Transport (MOT) was reorganized to concentrate on policy making and regulation functions rather then being an operator of transport means (Chart 1). The railways, highways and ports became autonomous units or "Regis Autonomes" (RA), while road transport departments, construction departments and design or research institutes became respectively transport companies, contractors and consultants commercial companies (CC). The shares of these CC are still owned 100% by the state, but with the intention of privatization as and when feasible. E. Sectoral Issues 1.08 One of the main problems of the sector is to evaluate the future volume and vattern of transport demand. The shift to a market economy, is likely to result in less emphasis on transport intensive industries such as steel, cement and petrochemicals and more on higher value added light industry such as textiles and agro-industry. The latter will require lower transport volumes and are more likely to use road transport than rail or water transport. Romania's use of energy was also very intensive. The demand for  coal transport may decline when energy subsidies are phased out, railway coal tariff. are increased and industries conserve fuel to reduce operating costs. On the passenger side, all modes of transport have already increased tariffs substantially and will continue to do so in the future, in order to reduce the need for subsidies. This could moderate travel demand, until income growth resumes. Automobile traffic is likely to grow significantly from a low base. The emphasis of the proposed project on the road subsector is appropriate as the role of road transport for freight and passengers can only increase with the structural reforms of the economy. Demand forecasts for rail and water transport will be done as part of studies now underway. 1.09 As mentioned above, investments in the sector were skewed toward very large projects without regard for economic and financial feasibility. The result is that funds for replacement of life expired equipment and modernization were scarce. Existing infrastructure and equipment are obsolete and service availability is low. This is particularly evident in the road sector which received low priority in the past. We are working with the NOT on a sector strategy that would generalize the use of economic feasibility studies as a basis for improving decision making on investments. 1.10 The sector was no exception to the general distortions resulting from administrative rather than market prices Fuel prices are still controlled, but Government policy is to ensure that they reflect fluctuations in world markets. Under the Structural Adjustment Loan (SAL) agreement has been reached that Government would adjust them periodically for price and exchange rate movements. In late 1992, pump prices were US$0.34/1. for gasoline and US$0.26/1. for diesel. Transport prices are free for freight but still regulated for public passenger transport. NRA has drafted a proposal for introducing a comprehensive system of road user charges and retained consultants under the Technical Assistance and Critical Imports (TACI) Project - Loan 3363-RO to advise on this matter and recommend a system that would ensure that the various users pay their share of the full economic cost of building and maintaining the road network. A timetable for the introduction of a comprehensive system of road user charaes within a year of completion in mid-1993 of the study was reconfirmed at neaotiations (para. 6.01 a and Table 7). F. Sector Strategv 1.11 The following principles and policies are guiding the future action of government in the transport sector: a) Equality of treatment between transport enterprises and state owned transport means; b) Financial autonomy of transport companies; c) Freedom of action of transport enterprises; d) Free modal choice by transport users; and e) Correct allocation of investments based on economic benefits for the country.  - 4 - Regarding investments in the sector, the strategy of the Ministry of Transport is as follows: a) Short term- arrest the technical and operational deterioration of the system; b) Medium term - consolidate and renovate the existing transport capacity through the free competition between modesl and C) Longer term - modernize and develop the infrastructure, equipment and vehicles to match the economic and technical levels of Western Europe. This strategy is sound and is clearly reflected in this project on the investment side as well as by the agreements reached regarding reforms to be introduced in the sector. G. Previous Bank Experience in the Sector 1.12 The Bank financed two projects in the transport sector: the Danube-Black Sea Canal Project (Loan 1794-RO) of US$100 million of January 1980 and the Land Transport Project (Loan 2034-RO) of US$125 million approved in April 1981. In January 1987, OED issued the PPAR for the first project. The main conclusion was that, although completion was 17 months behind schedule, the work was generally good. However traffic did not materialize to the extent expected and therefore, the financial results and economic benefits were lower than estimated. A main issue raised in the report concerns the Bank's role. The Bank loan came five years after construction of the canal had started and mainly supplied finance (about 5% of total cost). It would have been better to participate earlier in the project cycle to have an impact on technical and economic decisions before they were made. 1.13 The second project was completed and the loan closed on schedule in May 1987. The PCR was issued in January 1992. The overall assessment is satisfactory. Disbursements were faster than expected and the project cost well below estimates. Economic returns are lower than expected following the downturn in the economy since 1990 but all components remain justified. Issues of past irregular procurement practices were highlighted by the Government in its commentary on the project. The Government is anxious to cooperate fully with the Bank in designing and implementing new projects. The cooperation throughout the proposed project's preparation has been outstanding, with the Bank's comments on project design, concept and implementation fully taken into account. H. Role of the Bank and Lendino Strateav 1.14 The Bank has begun the process of assisting the reform of the transport sector through technical assistance for studies in the road, ports and urban transport subsectors. The road user charges study, the railway restructuring study and the urban transport study financed under the Technical  Assistance and Critical Imports (TACI) Project (Loan 3363-RO) are underway. A port master plan study for Constansa, financed by the Netherlands started in March 1992 and IC PHARN will finance some technical assistance for pavement management. These studies simply begin our familiarization effort in the sector. Real institutional reform will require continuous, long term, technical assistance, only possible when combined with investment lending. The proposed project is our first loan in the sector since lending resumed and will focus mainly on highway rehabilitation and maintenance. It also includes technical assistance and training in the road and rail subsectors as well as a small railways component for well justified and urgently needed equipment, so basic that it would be needed in any restructuring scenario. Depending upon the timing and nature of railway restructuring after completion of the study, the Bank would be willing to assist such a process. II. THE HIGHWAY SUBSECTOR A. Network and Traffic 2.01 Public roads in Romania are classified in a three-tier system: national roads, district roads and communal roads. The National Road Administration (NRA) is responsible for the national road network. The district and communal roads are directly under the local administrations, however, NRA provides technical assistance on standards and project design. 2.02 In 1992, the road network totalled about 73,000 km of which some 15,000 km were national roads. ROAD NETWORK PAVED L ARTH TOTAL km % Km Km Km National Roads 14,420 98% 263 14,683 of which motorways 113 100% 113 District Roads 17,770 66% 7,947 1,150 26,867 Communal Roads 4,608 15% 19,105 7,453 31,166 TOTAL 36,798 27,315 8,603 72,716 in % 50% 38% 12% 100% 2.03 In the past, roads and road transport were neglected as emphasis was placed on rail transport. As a result, the condition of the network deteriorated, particularly in the 1980.. It is estimated that about one third of the national road network, 5000 km, require some form of strengthening to avoid failure. In 1991 and 1992, what was left in the budget after routine maintenance, allowed NRA to do only 500 km of periodic maintenance. This  - 6 - would give a cycle of 30 years for the 15,000 km network, while the need would typically be for a 7-10 year cycle. The proposed project is focusing on the urgent need to strengthen the national road network, which carries 60% of the total road traffic in the country and all international transit traffic. 2.04 Road traffic grew continuously until 1980. However, traffic on national roads fell in the 19809 when fuel was rationed and stricter restrictions applied to road transport, i.e. trucks and buses could only operate within district boundaries and all transport beyond 50 km had to be done by rail. The average transport distance for road freight was only 12 km in 1989. After the revolution, in 1990, road traffic jumped to 46% above 1989, with all the increase due to private cars. In 1991, following fuel price increases, traffic was still 23% above 1989. This in comparison with rail traffic which has fallen off by 50% for freight and about 30% for paosengers between 1989 and 1991. Future forecasts are difficult to make with confidence until economic growth resumes. Examples from other countries indicate that once growth resumes, road traffic can be expected to grow even faster than GDP from relatively low levels at present. 2.05 Detailed traffic surveys, including Origin-Destination surveys are conducted once every five years on the entire national road network with the last one done in 1990. In the intervening years, continuous traffic counting is performed at over 350 locations on the network. Traffic distribution is assumed constant between the two detailed surveys. To improve the system, the project includes the acquisition of some classification counters which will provide continuous data on traffic composition, rather than once every five year under the present system. Lese than 10% of the network has traffic levels in excess of 6,000 vehicles per day (vpd) and less than 3% have over 10,000 vpd. Traffic levels on National Road Network km in vpd < 1,000 1,796 1,000 to 3,000 6,353 3,000 to 6,000 4,407 6,000 to 10,000 1,136 > 10,000 347 TOTAL 14,039* * excludes length through municipalities. B. Road Transport 2.06 Road transport was completely deregulated in 1990 for freight and passenger services. Transporters are now free to enter and operate any route they wish and determine their own tariffs for freight. The single large road transport company under HOT and the other 423 own account transport companies operated by various ministries for their own sectors have been transformed into smaller units (average of 280 vehicles per company versus 500 in 1989) am  follows: the freight companies are commercial companies with state ownership of capital (share companies), while the 55 passenger companies are Regies Autonomes administered by the 41 districts and the Municipality of Bucharest. In addition to these state owned companies, there are already over 2000 private transport companies, generally in the form of limited liability companies. The average size of private companies and individual transporters is small. The intention is to privatize the state owned companies starting with those dealing with freight. 2.07 There were 1.9 million 4 wheel vehicles registered in 1991 or about 76 vehicles per 1000 population. This is the lowest ratio of vehicles per capita in all CEE countries except Albania. Commercial vehicles --buses, trucks and tractors -- account for 28% of the fleet with cars comprising the remainder. Cars are concentrated in the urban areas, with Bucharest accounting for 20% of the registration, and traffic on major intercity roads has a high proportion of heavy vehicles, often exceeding 30%, which is double the average proportion in other CEE countries as well as in France and the UK. 2.08 The Romanian Automobile Registrar (RAR), a public corporation (Regie Autonome) is responsible for registering all road vehicles, as well as for periodic testing for technical conditions and emission levels. Trucks and buses are tested annually and cars every two years. Except in Bucharest, most testing stations still have only rudimentary equipment. Emission tests are limited to measuring carbon monoxide (CO). The project includes financing for RAR to equip test stations with modern equipment including facilities to test brakes, lights, steering and measure emissions of other pollutants such as NOx and C02. 2.09 The present legal axle load is 10 tons for a single axle on motorways and European roads (4,500 km) and 8 tons on other roads. NRA is studying the consequences of adopting the 11.5 ton limit of the European Community for roads and bridges on European roads as well as increasing the bearing capacity on other national roads and technical assistance is included in the project to assist them with this study. Trucks are only weighed at border posts and not on roads within the country. Overloading was a problem before the revolution, mostly on roads in the vicinity of large construction sites. While the problem is less acute now, it is likely to come back with economic development. The project includes weighbridges to improve data collection for pavement design and as a basis to revise axle load legislation and strengthen enforcement. An action clan for imorovina axle load control was Precared with NRA (Table 7) with a view to collect data and revise present legislation to facilitate enforcement. This clan was reconfirmed at neaotiations (para. 6.01 b). C. Road Safet 2.10 Road traffic accidents have become a serious problem over the last few years. In 1990, there were 9,700 serious accidents, injuring 8,400 persons and causing 3,800 deaths. These numbers are three times higher than in 1985. The incidence of fatalities is much higher than in Western Europe but comparable to rates found in other CEZ countries. The Bank-sponsored Road  Safety Study team in Central and Zaztern Europe will vlsit Romania ln February 1993 and recommend ways to improve the situation. It was aare-d at neaotiations that a olan to imorove road safety would be oresared by th- National Committee on Road Transport on the basiz of the recommendations of the study team (oara. 6.01 c). 2.11 Regarding the technical aspects of road safety which are within its control, NRA is working on eliminating hazardous points on the network. Due to lack of funds and unavailability of modern materials, horizontal markings such as a center line and border lines are completely missing and vertical signs are very deficient even on the national road network. The proposed project includes a program to improve markings and signaling on som 5,000 km of priority roads which are designated Zuropean Roads by NRA. D. Hiahwav Administration and Oroanization 2.12 The NRA is a public service corporation (Regie Autonom-) depending on the budget for virtually all of its resources. Its present organization is shown in Chart 2. In 1992, NRA employed some 15,000 persons. The work force consists of 1,600 technical and administrative staff and 13,400 workers. Only 100 persons are presently employed at headquarters in Bucharest. The NRA is reducing its labor force through the creation of construction CCs and attrition. 2.13 The field organization consists of 7 regional directorates further divided into 41 sections, their borders coinciding with those of administrative districts. Zach section is divided into 4 to 6 districts for routine and winter maintenance. In addition, there are some 140 units for periodic resurfacing and strengthening, each one quipped with one asphalt plant and the corresponding transport and paving equipment (Chart 3). Other equipment is held at the district level. There are small workshops for maintenance and minor repairs in each of the 41 sections and 7 regional workshops for major overhauls. Z. Enaineerina. Construction and Maintenance 2.14 Zngineering for the road system has generally been prepared by institutes of the NOT, the main one being the Dosign Institute for Road, Water and Air Transport (IPTANA). In 1990, these institutes became joint-stock commercial companies. The stock is still owned by the state but they are candidates for privatization. Private engineering consultants have also started work and are competing with the institutes for work by contract. Road design standards are appropriate to traffic flows and physical characteristics. 2.15 Construction was done by specialized groups under the HOT, with some specialization by mode. There were national companies as well as regional ones for the smaller works. In 1990, these large construction groups were divided into smaller commerclal companies in a way similar to that described above for the institutes.  2.16 Maintenance has so far been done entirely by force account. NRA will gradually shift more work to contract and has prepared an action plan with specific targets for shifting selected maintenance activities from force account to contract over the next five years (Table 8). Technical assistance and training to assist NRA in shifting work to contract and developing its capacity for administering the contracts, controlling work quality, etc. is included in the project. The action plan was reconfirmed at necotiations (para. 6.01 dl. 2.17 The shift of maintenance to contract will be gradual over a number of years and some operations will continue to be done by NRA. NRA's equipment available is overaged and in bad condition; 64% is over 10 years old and 37% over 15 years old. (Table 9). Some new road maintenance equipment will be provided under the project. Also, the project will assist NRA to develop better practices for managing its equipment pool including the setting up of a charge back system. An action plan was reconfirmed at neaotiations (para. 6.01 *). F. Hichwav Expenditures and Financina 2.18 Total road expenditures have been fairly constant between 1985 and 1991, fluctuating between USS260 to 300 million per year. The distribution of these between the national roads and the rest of the network has also been stable around 50-50. HIGHWAY EXPENDITURE NATIONAL ROADS DISTRICT COMMUNAL ROADS TOTAL RECURRENT CAPITAL RECURRENT CAPITAL LEI US$ COSTS COSTS TOTAL COSTS COSTS TOTAL mil mil 1985 1,489 744 2.233 1,580 545 2.125 4,358 255 1986 1.518 594 2.112 1,730 491 2,221 4,333 267 1987 1.480 612 2,092 1,680 512 2.192 4.284 293 1988 1,508 528 2,036 1,696 466 2,162 4,198 294 1989 1,557 528 2,085 1,918 534 2,452 4,537 304 1990 1.900 1.100 3.000 2,085 830 2,915 5,915 264 1991 8,288 918 9.206 6,515 2,671 9.186 18,392 307 1992 14.440 1.150 15,590 18.871 2,636 21.507 37,097 185 Most of the capital expenditures have gone to improving and strengthening existing roads rather than new construction. Extensive statistics are kept on the condition of the roads by section, based on selected measurements complemented by professional inspections. This permits reliable priority ranking of needs. Further improvement in the pavement management system will be obtained by computerization of the data base and introduction of equipment to measure roughness as well as other pavement characteristics. Required training and equipment under the project will complement the equipment and technical assistance financed by iC PHARN.  - 10 - 2.19 The needs for routine and periodic maintenance and the impact of the project on NRA's budget for the next few years has been assessed (Table 10). Aareement in principle was reached with MOEF reaardina the 1993 budaet allocation to NRA. For subseauent years adeauate annual consultations with the Bank have been aareed to ensure that sufficient funds and prioritv will continue to be aiven to routine and oeriodic maintenance and to the oroiect and that acceptable criteria will be used to screen investments in and/or issuina credit auarantees for road proiects. These aareements were reconfirmed at neaotiations (para. 6.01 f). III. THE RAILWAY SUBSECTOR A. Organization and Manacement 3.01 In 1990, the Romanian Railways (SNCFR) were reorganized (Chart 4), and now have the legal status of a public service corporation (Regis Autonome in accordance with Law no.15 dated August 7, 1990) which gives them the right to decentralize economic activities and accelerate the transition to a market- oriented economy. SNCFR is divided into eight regions and the area of the port of Constanza. Each region has 3-5 sub-regional units to manage railway operational activities. The president of the board is assisted by three vice- presidents (operational, technical and financial). This board is responsible for determining railway policy, including tariff policy, organization and operations control. B. Traffic and Staff Productivity 3.02 The decline of trade with the former CMEA countries, along with the restructuring of the domestic economy, has contributed to a decrease in freight traffic over the past three years. Net-ton freight declined by about 53% from 1989 to 1991 and continued to decline in 1992 with the continued restructuring of the economy. Railway passenger traffic also declined over this period, from 35.5 to 25.4 billion pass.km., or 30% (for details, see Table 11). However, in spite of a significant decrease in traffic, staff productivity compares favorably with most other railways at 320,000 traffic units per employee. SNCFR recognizes that staff reductions (from the present 197,000) are required. This issue is being examined in the Railway restructuring study which has just begun, financed under the TACI loan. C. Railway Propertv 3.03 The SNCFR network is extensive (11,365 route kmo of which 10,893 standard gauge, 427 km narrow and 45 km broad gauge, and 3,721 km, or 33%, electrified). There are about 1,000 stations and 30 marshalling yards. Track is generally in poor condition and traffic density is very high on the main network (10-30 million gross tons per line-track km on the most heavily used 6,000 km). About 900 km of tracks need to be maintained (capital overhaul) annually (of which about 500 km with new material), including the same amount of ballast cleaning. During the last three years average track renewal was  - 11 - carried out on about 500 km only and the backlog has now reached about 2,000 km. All track maintenance equipment is beyond refurbishment. The principal reasons for the unsatisfactory track maintenance situation are: the insufficient number of track machine.; the low technical level and deterioration of existing machines and their low productivity; and the increasing number of machines becoming inoperable due to a lack of imported spare parts. Many existing track machines (tamping and ballast cleaning) date back to 1964, and 64% are over ten year. old. In 1991, availability was less than 50%. 3.04 SNCFR owns 2,200 diesel locomotives, 1,061 electric locomotives, and about 948 steam locomotives (most of which are out of operation). In 1991 SNCFR had over 140,000 freight wagons with a total capacity of 6.4 million tons, and about 6,500 passenger coaches (Table 11). In the absence of imported spare parts and material, SNCFR has been particularly expert in improvising the maintenance of its assets. In aggregate terms, fleet capacity exceeds expected traffic demand but does not satisfy technical, qualitative and structural requirements. 3.05 All construction, maintenance and repairs are performed in 28 locomotive sheds, 117 maintenance workshops and depots, 123 sections for signalling and telecommunication maintenance, 17 regional data processing centers, and several enterprises for construction and installation works now in the process of becoming self supporting commercial companies and candidates for privatization. 3.06 Although about 4,740 km of the open lines are equipped with an automatic line block-signalling system, about 650 stations still have electro- dynamic interlocking equipment and 22 marshalling yards are mechanized. Most of this equipment is technically obsolete for heavily used routes and needs to be replaced to improve service, reliability and safety. The telecommunications system on main lines is generally obsolete and should also be modernized. 3.07 SNCFR runs its operations and financial control systems on two distinct and incompatible computer networks with heterogeneous hardware from different generations, comprising: (i) a 16-year-old central UNIVAC 1106 system with a low-speed network covering all border stations. This system has been modified due to a lack of spare parts and its availability is under 50% with frequent down time lasting more than an hour; and (ii) a medium-speed X.25 network of Romanian PDP-11 compatible minicomputers linking all regional headquarters and some of the more important railway stations. The computers are 12-14 years old and spare parts have been unavailable for several years. Availability ranges slightly over 60%. D. Olerations 3.08 SNCFR's operational performance in 1991 remained relatively high in spite of a deterioration over the last three years (1989-91) mainly due to a significant drop in traffic:  - 12 - - utilization of electric locomotives (measured by engine-km per engine day) decreased from 385 to 349 km/day for passenger services and from 399 to 322 km/day for freight services; - utilization of diesel locomotives dropped slightly for the same reasons; - availability of traction and rolling stock which gives an indication of maintenance efficiency has significantly decreased since 1989 (electric locomotives decreased from 83% to 68% and diesel locomotives from 67% to 51%). 3.09 The main reasons for the decline in availability are: (i) a shortage of spare parts; (ii) a shortage of modern workshop equipment, and (iii) an inefficient organization and spare part stock control. However, given the surplus capacity, SNCFR needs to avoid unnecessary maintenance through scrapping surplus capacity. The installation of a new management information system (replacing the existing outmoded and inadequate system) will help improve the railway operation as a whole. B. The Restructurina Process 3.10 The Government intends to make its railway system market oriented by: (i) improving railway efficiency by establishing its future role and size based on overall economic efficiency criteria and competition with other transport modes; (ii) reducing or eliminating budgetary drains; and (iii) minimizing the adverse social effects of necessary staff reductions. The Government and SNCFR have begun the reform process by launching a restructuring study (by DR-Consult-Germany) and in parallel by taking urgent cost-reduction measures to improve SNCFR'c financial situation. SNCFR has already taken the following cost-reduction measures: (i) staff reductions of about 1,000 employees per month; (ii) closure of five marshalling yards and about 50 stations; (iii) separation from SNCFR of 21 workshops and other non- basic activities together with appropriate facilities and employees; and (iv) revaluation of assets (to be applied on January 1, 1993) which will increase the railway depreciation funds approximately tenfold. The project addresses urgent needs in track maintenance and data processing required to arrest further deterioration of the system. The proposed items are only partial replacement of existing equipment urgently needed for priority maintenance and traffic safety and would be essential in a restructured railway. IV. THE PROJZCT A. Proiect Obiectives 4.01 The objectives of the project are to: (a) increase efficiency of the sector and accommodate expected changes in transport demand by improving the condition of the road network; (b) promote the selection of transport investments on the basis of economic criteria; (c) improve fiscal performance  - 13 - and reduce the uneconomic use of transport and energy by implementing a cost- based system of road user charges; (d) develop the execution of road works by contract; (e) build on transport policy initiatives under the TACI project particularly with regard to investment selection and restructuring of the railways; and (f) support the economic reform program and encourage social stability by financing geographically dispersed efficient employment generation including in newly privatizing contracting companies to the extent feasible. B. Proiect Descriotion 4.02 The proposed project is based on the NRA's 1993-95 rehabilitation and pavement strengthening program. Implementation of civil works started during these years would spread over a 3-5 year period. The proposed project components would consist of high priority items of this program. Specifically: (a) the road rehabilitation component (77% of project cost) includes the rehabilitation of about 1,100 km of national roads (Table 12). The sections to be rehabilitated have daily traffic ranging from 2,000 to 10,000 vehicles per day and are mostly on major east-west itineraries across Romania. The rehabilitation projects follow existing vertical and horizontal alignments and include strengthening of the existing pavements where existing ones have exceeded their design life and are close to failure, widening of shoulders, improvement of drainage system (side ditches, culverts, bridges), construction of climbing lanes and removal of black spots; (b) the border croosinac comoonent (2% of project cost) includes upgrading six main crossing border posts e.g. Ukraine, Hungary, Bulgaria, to ensure adequate flow of international road traffic; (c) the road safety comoonent (4% of project cost) includes the signaling (international vertical traffic signs) and horizontal marking (central axis and the two border lines, and auxiliary pedestrian and vehicle marking) of 5,000 km of roads to improve information and safety levels on the network. These 5,000 km represent the total length of the designated "European Roads" in Romania, and signalling and marking will be done in accordance with European standards. Each road link would be improved to international standards of safety; (d) the materials and eouioment comoonent (9% of project cost) includes purchase of imported materials such as bitumen to cover NRA's expected deficit for the 1993-95 strengthening program of secondary national roads. It also includes equipment for routine maintenance, traffic monitoring, vehicle inspection and training, such as multi purpose maintenance vehicles, small asphalt milling machines and manual compactor., snow removal equipment, bridge inspection vehicles, weigh bridges, traffic counting and laboratory equipment (Table 13);  - 14 - (e) the technical assistance and trainino com2onent (1 of project cost) includes some 60 man-months of technical assistance in axle load control, equipment management and maintenance work by contract. Over 100 managerial and technical staff will be trained in various countries on the following major topics: economic and environmental analyses, design standards and computer assisted design, pavement management, contract and equipment management, supervision of works and quality control and budgeting, cost accounting and control (Table 14). (f) the railway comoonent (7% of project cost) includes some urgently needed track maintenance and data procesuing equipment and spare parts, required under any scenario of railway restructuring, and related training in various countries of about 50 manmonths on the following topics: management strategy and railway restructuring, marketing and accounting, computerization, engineering, operations and financial analysis (Table 14). C. Enoineerina and Status of Progect Preoaration 4.03 Detailed engineering and feasibility studies for all project road sections were completed or are being completed by NRA/IPTANA, with costs updated to December 1992. The road sections were selected on the basis of an analysis of the pavement condition of 13,000 km of national roads and with a view to rehabilitate major national and international itineraries. Designs for the improvement of the six border posts are still being prepared. They will be reviewed prior to execution. The designs for the road safety program, i.e.,signalling and marking of 5,000 km of European roads of the Romanian network, are complete. The prequalification of contractors has been completed and the bidding document for civil works have been agreed with NRA. Those for goods and equipment are in an advanced stage of preparation by NRA, RAR and SNCFR. Terms of reference for supervision of civil works have been agreed with NRA (Annex 1). D. Cost Estimates 4.04 The estimated cost of the project, including contingencies, amounts to US$405.0 million equivalent with a foreign exchange component of US$271.0 million or about 67% of the total cost. The costs of the different components are given below.  - 15 - PROJECT COST ESTIMATES (December 1992 Prices) US$1 - Lei 500 Million Lef Million USS Local Foreign Total Local Foreign Total X FE A. CIVIL WORKS 1. Road RehabiLitation 49,000 86,000 135,000 98.00 172.00 270.00 64X 2. Border Posts 1,350 3,100 4,450 2.70 6.20 8.90 70X 3. Supervision 1,800 4,150 5,950 3.60 8.30 11.90 70X B. ROAD SAFETY SignaLization and Marking 2,250 5,250 7,500 4.50 10.50 15.00 70X C. MATERIALS AND EQUIPMENT 1. Bitumen nd additives 450 4,250 4,700 0.90 8.50 9.40 90X 2. Road Maintenance Equipment 1,200 7,800 9,000 2.40 15.60 18.00 87X 3. Vehicle Testing Equipment 900 1,800 2,700 1.80 3.60 5.40 67X D. TECHNICAL ASSISTANCE AND TRAINING 200 800 1,000 0.40 1.60 2.00 80X E. RAILWAYS 1. Track Maintenance Equipment 1,500 5,000 6,500 3.00 10.00 13.00 77X 2. Data Processing Equipment 1,600 3,750 5,350 3.20 7.50 10.70 70X 3. Technical Assistance & Training 50 100 150 0.10 0.20 0.30 67X TOTAL BASELINE COST 60,300 122,000 182,300 120.60 244.00 364.60 67K Physical Contingencies 3,015 6,100 9,115 6.03 12.20 18.23 67X Price Contingencies 3,685 7,400 11,085 7.37 14.80 22.17 67X 3333333 ESUENBE . ...3.. 3333333 3..3333 TOTAL PROJECT COST 67,000 135,500 202,500 134.00 271.00 405.00 67X  - 16 - 4.05 Construction cost estimates are based on quantities from final engineering designs and on NRA/IPTANA estimates of December 1992 unit rates in US$ checked against recent contract prices in similar projects under implementation in other countries. A detailed analysis of costs has been made to determine the foreign exchange component, local costs, duties and taxes. Taxes amount to 60% of the local cost component. 4.06 Costs of technical assistance (TA) to NRA (60 manmonths including TA for road maintenance by contractor) are based on an average cost of US$15,000 per manmonth (m/m) while cost for the supervision of the civil works has been estimated at less than 4% of the total construction cost. Costs of materials and equipment are based on the latest acquisitions by NRA and SNCFR, including some purchases under the TACI project. These costs are in line with those in similar ongoing operations in neighbor countries. Cost for training abroad of NRA staff (180 m/m) is estimated at US$5,500 per m/m, taking into account that the trainee travel costs would be relatively low being mostly within Europe. 4.07 A physical contingency of 5% has been included for all components to cover possible increases in quantities. This amount is appropriate given the precise engineering designs already available for all civil works except those of the six international border posts. Price contingencies have been applied to base costs following the Bank guidelines as follows: Year 1993 1994 199 129 1222 1998 Local % 43 15 10 5 5 5 Foreign% 3.8 1.9 2.7 3.4 3.6 3.6 E. Proiect Financina 4.08 The Borrower will be Romania with onlending to NRA, RAR and SNCFR for their components. The proposed Bank loan of US$120.0 million equivalent would finance about 30% of the total project cost. This includes about US$9 million of local cost financing for the road rehabilitation component and its supervision. This is justified since, without it, we would finance only 14% of the civil works and therefore be unable to participate meaningfully in the process of contracting out road works for the first time in Romania. Another 40% of project cost, US$160.0 million equivalent, will be financed by the European Bank for Reconstruction and Development (EBRD), and the European Investment Bank (EIB) which have agreed to providing loans of US$80.0 million each. The remaining US$125.0 million equivalent would be financed by the Government. During neootiations the Government confirmed that it would meet all local cost includino cost overruns, and any shortfall in foreign exchanoeL 4.09 In accordance with the above, a financing plan, including the parallel US$160 million cofinanciers' participation in the construction/supervision of civil works, and in the purchase of equipment, is as follows:  - 17 - FINANCING PLAN (USS million includina continoenciesi (December 1992 Prices ) Cost Financina Project Component Loai Foreian iTtl1 cyt1A of2L A. Civil Works Rehabilitation 109.0 191.0 300.0 104.4 52.0 143.6 Border posts 2.7 6.8 9.5 2.7 4.3 2.5 Supervision 4.0 __.2 132 _ 3.2 J.Lf Subtotal 115.7 207.0 322.7 107.1 59.5 156.1 B. Road Safety 5.0 11.7 16.7 5.0 11.7 C. Materials and Equipment Bitumen 0.9 9.5 10.4 0.9 9.5 Equipment 5.0 21.0 26.0 5.0 18.0 3.0 0. TA and Training 0.4 1.8 2.2 - 1.3 0.9 E. Railways 7.0 20.0 27.0 7.0 20.0 TOTAL UiL2 2ZLQ A405 12L 0 L.R 1=L0 F. Imolementation and Monitorina 4.10 The proposed US$120.0 million equivalent loan would be made to Romania. The project would be implemented by NRA, RAR and the railway component by SNCFR. A Project Management Unit (PMU) will be maintained by NRA. Its members will include a Chairman and seven representatives in managerial positions of: (i) NRA's Department of Constructionj (ii) NRA's Department of Maintenancel (iii) NRA's Department of Equipment and Materials; (iv) NRA's Procurement Division; (v) NRA's Economic Department; (vi) SNCFR; and (vii) RAR. The PMU will have a secretary provided by NRA with throe permanent staff. For its part of the project, SNCFR has established a project management team (PMT) including a chairman and three high officials, one for each sub-component of the project. The chairman would be the member of the PMU. The PMU would review and follow up on procurement procedures and bidding documents, monitor and coordinate every aspect of project implementation and assemble, in quarterly reports, all project implementation information. The PMU will also be responsible for liaising with and coordinating all the cofinanciers, project tasks and keeping direct contact with their supervision missions. Terms of Reference for the PMU were agreed and are in Annex 2. Durina necotiations. the Government reconfirmed that the PMU will remain in ooeration and fully staffed throuahout the oroiect execution loara. 6.01 a). 4.11 NRA would be the executing agency directly responsible for the execution of the road rehabilitation, improvement of the six international borders, and signalling and marking works by private contractors. Consultants  - 18 - would be employed to assist NRA in supervision of civil works. The terms of reference are in Annex 1. Acquisition of NRA's materials and equipment, selection of TA to NRA and the NRA/IPTANA staff training program would be under NRA's direct responsibility, following approval by the Bank of proposed specialized experts and training programs. Procurement of vehicle testing equipment will be done by RAR. The railway component would be directly executed by SNCFR under the PMU's monitoring. 4.12 The restart of the Bank's transport activity in Romania following several years of inactivity, and under totally new circumstances, results in a lack of reliable implementation profiles for the road rehabilitation works which is the component determining the period of implementation of the project. These works are planned to start during the first and second year of project implementation and once started would take about two years to complete. With loan effectiveness expected in the third quarter of 1993, project implementation would start in late 1993. Acquisition and delivery of NRA's and SNCFR's equipment would be completed in the first three years of project implementation. TA and training would extend for three years. The project's implementation schedule is shown in Table 15. The proposed loan would close on December 31, 1998, six months after the projected project completion date of June 30, 1998. Proposed monitoring indicators for the preparation of PMU's quarterly reports have been agreed with NRA and SNCFR. During negotiations. agreement was confirmed on the Droiect implementation schedule. monitoring criteria, and reporting arranaements loara. 6.01 h). G. Procurement 4.13 Procurement arrangements of Bank financed project elements are summarized below. Procurement would be made in accordance with the Bank's procurement guidelines for all Bank-financed items. The civil works and equipment components, cofinanced in parallel by the Bank, EBRD and EIB, would be procured through International Competitive Bidding (ICB) procedures with tendering for their respective contracts open to contractors of the Bank's, EBRD's, and EIB's eligible countries.  - 19 - Procurement Arrancements (USS Million) Total Proiect Element BOthers Cst A. Civil Works 1. Rehabilitation 300.0 300.0 (52.0) (52.0) 2. Border Posts 9.5 - 9.5 (4.3) (4.3) 3. Supervision 13.2 ' 13.2 (3.2) (3.2) B. Road Safety 16.7 - 16.7 (11.7) (11.7) C. Materials & Equipment 1. Bitumen 10.0 0.4 LI 10.4 (9.2) (0.3) (9.5) 2. Road Equipment 18.0 2.0 0 20.0 (12.6) (1.4) (14.0) 3. Vehicle Testing 5.0 1.0 M 6.0 Equipment (3.4) (0.6) (4.0) D. TA and Training - 2.2b w 2.2 (1.3) (1.3) E. Railways 26.7 0.3 " 27.0 (19.8) (0.21 (20.0) TOTAL 385.9 19.1 405.0 (113.0) (7.0) (120.0) Note: L/ Cost include estimated contingencies; figures in brackets are the respective amounts financed under the Bank loan. k/ In accordance with Bank's Consultant Guidelines. c/ International shopping ($3.4 million). d/ Training  - 20 - 4.14 Civil works contracts for roads rehabilitation (about 1,100 km; US$300 million), the improvement of the six international border crossings (US$9.5 million), and road signalling and marking (5,000 km; US$16.7 million) would be let through ICB among prequalified contractors. Road rehabilitation contracts (Table 12) range from US$5 to $38 million with an average size of US$20 million. Prequalification has been completed and its results approved by the Bank. Recently formed Romanian commercial companies specializing in road construction have formed joint ventures with well experienced and capitalized foreign firms and have been prequalified. They are expected to be competitive with their new financial status, former construction experience, good knowledge of the country, and low salary costs. The implementation schedule is in Table 15. Bidding for civil works is expected to start in March 1993 with contract awards in June/July 1993. 4.15 The materials (bitumen and additivesl US$10.4 million) and equipment (US$26.0 million) for NRA and RAR would be procured under ICB with post-qualification of bidders. Goods manufactured in Romania will be granted a preference of 15% or related duties whichever is less provided that the value added in Romania is more than 20%. However, contracts for materials and equipment not exceeding US$300,000 each, would be procured by International Shopping (IS) based on the comparison of price quotations from three different eligible countries. The total aggregate value of IS would not exceed US$400,000 for bitumen, US$2.0 million for NRA's equipment and USS1.0 million for RAR's equipment. Equipment for SNCFR (US$26.7 million) track maintenance with spare parts and for data processing would be procured under ICB. The general parts of the bidding documents for goods approved and used for the procurement of electronic data processing equipment under the TACI project will be used for this project also. 4.16 Consultants services for supervision of civil works estimated at some 4% of construction costs (US$13 million), and for technical assistance, and training, would be carried out by qualified and experienced consultants appointed in accordance with the Bank Guidelines for the Use of Consultants except for contracts estimated to cost less than US$100,000 equivalent. For supervision it is envisaged that foreign consultants would mainly provide managerial capabilities and local consultants will carry out the actual work. Local consultants have demonstrated their competence during project preparation. Training programs are described in Table 14. 4.17 All contracts exceeding US$300,000 (over 99% of total project cost) would be subject to prior review and approval by the Bank. Other contracts will be reviewed by supervision missions. For civil work contracts, supervising consultants will be assisting NRA in evaluating tenders and preparing final civil works contracts. Procurement information will be included in the quarterly project progress reports agreed with the borrower. Durina neaotiations, agreement were reconfirmed with the Government on all orocurement arrancements (para. 6.01 il.  - 21 - H. Disbursements 4.18 The proposed Bank loan would be disbursed against the project components as follows: Amount I of Expenditures Category Description USS mil Ea, Financed 1. Civil Works 66.0 70%. 2. Materials & Equipment 26.0 100% of foreign or 100% of local (ex-factory net of taxes and duties) and 80% of local expenditures for other items procured locally. 3. Consultant Services and Training 4.2 100%. 4. Railway Equipment 18.9 100% of foreign or 100% of local (ex-factory net of taxes and duties). 5. Unallocated 4 9 Total 120.0 4.19 Withdrawal applications for contracts above US$300,000 would be fully documented and for contracts valued at US$300,000 or less would be made on the basis of statements of expenditure (SOB). Durina neootiations acreement was reached that documentation to suooort exoenditures financed under SOEs would be maintained by the Borrower and made available for review by Bank suoervision missions, in addition to beina audited annually by auditors acceotable to the Bank (oara. 6.01 ii. 4.20 A schedule of disbursements is given in Table 16. Since NRA's disbursement performance (up to mid-1980s when Bank discontinued operations in Romania) has been satisfactory and above average, actual disbursements may be faster than estimated. The Loan Agreement provides for retroactive financing for supervising consultants contracts entered into by NRA after March 1, 1993, in an amount not to exceed US$250,000. To facilitate disbursements, the Bank's share of the project would be financed through a Special Account. The authorized allocation for the Special Account would be US$7.0 million, equivalent to about four months of project foreign expenditures (financed by the loan) during the five-year project implementation period. Funds for goods (equipment and materials) would be withdrawn by the Borrower from the Special Account after approval of the ICB or IS procedures and related contract awards by the Bank. Replenishment for technical assistance, and for consultants for  - 22 - construction supervision, would be made on the basis of appropriate documentation. Replenishment of the Special Account would follow Bank procedures. The Special Account would be audited annually by independent auditors acceptable to the Bank. The audit report would be submitted to the Bank for review and approval within six months of the end of each fiscal year. Durina negotiations. aoreement was reached on the establishment. oDeration. and auditina of the Svecial Account (para. 6.01 ki. I. Proiect Supervision 4.21 Three two-week Bank supervision misuions per year during the first two to three years of project implementation would be needed to supervise all project activities. The missions would be staffed by a civil engineer and one economist, responsible for all engineering and economic aspects of the project; they should be longer in 1994 and 1995 when review and clearance of road sections to be contracted, and discussions on the technical assistance items would be most frequent. Sufficient time should also be allowed to review contract documents and specifications for the varied equipment to be procured under the project. A railway expert would be required for about four weeks annually to advise on the purchase of railway equipment and supervise the restructuring study. After 1995, with all project. items under execution, the participation of the economist can be shorter. One mission in 1998 would carry out the final wrap-up project supervision and would prepare the Project Completion Report (PCR). In sum, the proposed project would require about 18 staff weeks in FY94 and FY95 and 14 staff weeks in FY96 to FY98. J. Environment ImDact 4.22 The project has been classified as "BR for purposes of O.D. 4.01 on Environmental Assessment, meaning that only limited environmental review is required. The civil works are primarily confined to improvements on existing roads. These improvements would protect the areas adjacent to every road from erosion through the construction of side drains, cross drainage structures and retaining walls, would provide a comfortable and clean asphalt riding surface, and would eliminate accident black points. Conditions along the roads would be better through reduction of dust, noise, water ponding and erosion, and elimination of safety hazards. No population resettlement would be necessary since the works would be inside the existing right of way. The project would not affect any archaeological or historical site. Contractors under the clauses of the bidding documents are responsible for maintaining worksites pollution free, returning sites to their original condition, and equip asphalt plants and crushers with dust collectors. They are also responsible for notification of any problem related to unknown historical sites. The terms of reference of the consultants which will supervise the works expressly refer to ensuring that environment protection provisions as set out in the contractual documents are respected. K. Accounts and Audit 4.23 Separate accounts would be used to record all project funds (Government local funds and Bank loan foreign funds) expenditures. These  - 23 - accounts, including the SOEs as well as the Special Account would be audited each year by auditor(s) acceptable to the Bank. The accounts and the auditor's report thereon would be received in the Bank within six months of the end of the fiscal year. V. ECONOMIC EVALUATION A. Benefits and Beneficiaries 5.01 The project is expected to play an important role in accommodating the economic reorientation of transport demand to road transport and start restructuring the railways accordingly. Quantifiable benefits will be in the form of reduced vehicle operating costs (VOC), i.e. lower fuel consumption, tire wear and general vehicle maintenance costs, time and wage savings. Also, the present value of road expenditures will be reduced by undertaking road strengthening now and avoiding more expensive reconstruction at a later date. Road maintenance expenditures will also decrease on rehabilitated and strengthened roads. The road safety component will contribute to the reduction in accidents. The benefits will accrue to a large and widespread number of beneficiaries. Lower road transport costs and time savings will benefit vehicle owners as well as users. B. Costs and Benefits 5.02 NRA/IPTANA has prepared feasibility studies for all road sections to be rehabilitated under the project. They have also analyzed 13,000 km of national roads to establish priorities for the rehabilitation program. All costs and benefits were evaluated in constant December 1992 prices. Financial costs and prices have been converted to economic prices. Traffic growth rates have been assumed at 4% p.a. for freight vehicles and 2% p.a. for cars and buses. VOC have been estimated using the Bank's HDM model; the unit VOCs are summarized in Table 17. Road roughness coefficients have been estimated based on engineer's evaluation of the road surface. Time savings were valued at the predominant wage rates for drivers, no time savings value was inputed for passengers. The economic rates of return (ERR) calculated over an assumed 15 year service life, range from 23 to 66% for roads to be rehabilitated under the project (Table 12). 5.03 The proposed list of equipment to be procured was agreed based on an evaluation of the total equipment required for NRA's maintenance operations taking into account those activities that would be shifted to contract work according to the agreed action plan. These requirements have been compared with the present fleet, its condition and the need to scrap overaged and inefficient equipment. All the proposed equipment is for routine maintenance. 5.04 It is more difficult to estimate the economic return of road safety components, but it is proven that horizontal marking such as center and side lines reduce accidents significantly. 5.05 Railway track maintenance equipment and ballast cleaning machines produced mostly in Romania are old and of obsolete technology. Their  - 24 - availability is lss that 50% and the result is a rapidly deteriorating track even on main lines. There are speed restrictions on a large part of the network. The acquisition of 8 ballast cleaning machines and spare parts for existing machines would improve the technical level of over 2,000 trak-km per year while increasing technical speed from 64 to 84 km/h with annual savings estimated up to US$5 million. The IRR for these machines is estimated at 29%. The replacement of deteriorated data processing and communications equipment will prevent a costly breakdown of the system. It would also reduce billing errors, reduce expenditures on foreign cars used and better control 6,000 private freight cars and payments for their rent and maintenance. The IRR for this equipment is estimated at 22%. C. Overall Evaluation and Risks 5.06 Project risks are low. The GOR, NOT and NRA have expressed strong interest in the project, and are likely to proceed even in the event of political changes. The main risk is that the GOR would not have sufficient counterpart funds. However, the local component of US$125 million would be affordable. It would amount annually over the project implementation period to one third of total highway expenditures budgeted for 1992. NRA has also agreed that local funds would have to come from its regular budget allocation without additionality because of the project. This was confirmed also by MOEF. VI AGREEMENTS REACHED AND RECOMMENDATIONS 6.01 During negotiations, agreements were reconfirmed on the following: a) implementation of a system of road user charges within one year of completion in mid-1993 of the road user charges study financed under the TACI Project (Loan 3363-RO) (para. 1.10); b) an action plan to collect data and revise present legislation on axle load control (para. 2.09); c) the preparation of a plan to improve road safety (para. 2.10); d) an action plan for shifting selected maintenance activities from force accounts to contract with quantified targets over the next five years (para. 2.16); *) an action plan for better management practices including a charge back system, for NRA's equipment pool (para. 2.17); f) joint review in advance of each year's total highway expenditures and criteria for investing in and/or issuing credit guarantees for road projects (para. 2.19);  - 25 - g) continuation throughout project implementation of the Project Management Unit (para. 4.10); h) the reporting procedures for the project (para. 4.12); i) the procurement procedures, including bidding documents for civil works and equipment and selection of consultants for supervision, Technical Assistance and Training (para. 4.17); j) the documentation supporting expenditures financed under SOBs and its annual auditing (para. 4.19); k) the procedures for the Special Account (para. 4.20); 6.02 Based upon the above assurances and agreement, the project is suitable for a Bank loan of US$120 million equivalent to the Republic of Romania for a 17 year term including a 5-year grace period.  - 26 - Annex 1 ROMIANIA Page 1 of 6 TRIANSPORT PROJECT ROAI) REHABTLITATION PROGRAM SUPERVISION OF WORKS Terms of Reference A. BACKGROUND 1. The Government of Romania has requested loans from three International Financial Institutions (IFI), namely, the World Bank, the European Bank for Reconstruction and Development, and the European Investment Bank, for financing a program of road rehabilitation of selected priority sections of the National Road Network. The National Road Administration (NRA) of the Ministry of Transport (MOT) would be responsible for supervision of the works to be carried out by prequalified civil works contractors through International Competitive Bidding (ICB). B. BRIEF DESCRIPTION OF THE PROJECT 2. The works to be carried out ("the Works") include road improvements such as pavement reconstruction, pavement overlays, widening, shoulder strengthening, side drains, and, in some instances, retaining walls, in the sections specified in the Attachment to these Terms of Reference. The rehabilitated pavement consists of asphalt mixture, binder and asphalt concrete. The work also includes gravel sub- base, stabilised gravel base and surface treatment where shoulder have to be widened. The length, estimated cost, starting year, and period of construction are detailed in Attachment 1 together with the names of the international financing institution for each contract. The implementation period of the program would be forty two (42) months with individual contractual periods varying between twelve (12) and thirty six (36) months. The maintenance guarantee period for every contract would be twelve (12) months. 3. The GOR has decided to use part of the proceeds of the loans to engage qualified consultants ("the Supervision Consultants") with satisfactory international experience in supervising works similar in size and nature to the Works to provide services to the NRA on pre-construction activities, construction supervision and maintenance monitoring of the Works. The detailed engineering report of the projects together with the bidding documents were prepared by the Design Institute for Roads Water and Air Transport (IPTANA). The Works will be done under the supervision of the Supervision Consultant acting as 'Engineer's Representative" as per bidding documents definition with NRA acting as 'Engineer" as per bidding documents definition, for approval of certain actions.  - 27 - Annex 1 Page 2 of 6 C. OBJlECTIVES 4. The objectives of the services are: (a) to assist NRA for pre-construction activities including tendering phase, evaluation of tenders and preparation of final civil works contracts; (b) to supervise the Works, approve the materials, equipment and workmanship; (c) to ensure proper accounting and recording of the progress of the Works; and (d) to provide on-the-job training to selected NRA staff in contract management and supervision. 5. The Supervision Consultant will exercise every reasonable and possible effort to protect the interests of NRA and to avoid the occurrence of disorders and vice of construction during the works. To this end, the Supervision Consultant shall ensure the supervision and control of on-going works by its engineers and technicians in a timely manner, The Supervision Consultant, however, will not be responsible for the incapacity of the contractor to properly implement the works. 6. Responsibility. If the Supervision Consultant is a joint-venture or an association of a qualified international consultant and a local consultant, leadership of the joint-venture shall be the responsibility of the qualified international consultant and it shall provide the key supervision personnel (at least a resident project manager and a quality control expert); the balance of the staff may be contributed by the other firm. 7. Training of Local Personnel. For purposes of training local personnel and for such personnel to acquire experience, the central and regional units of NRA may second staff up to the level of chief-engineer in their current position to work with the Supervision Consultant. The level and number of the NRA staff accepted on secondment will be determined by the Supervision Consultant on the basis of the size of the sub-projects. The Supervision Consultant will select the seconded staff from a list of qualified nominees offered by the central or regional units of the NRA. The Supervision Consultant will bear the salaries of the seconded staff; however, the seconded staff will enjoy the same conditions as the Supervision Consultant's other local staff. The Supervision Consultant will decide what responsibilities and function to assign to the seconded staff, and will have the right to ask to have replaced any seconded staff. D. SCOPE OF WORK  - 28 - Annex 1 Page 3 of 6 8. It is proposed that the study will be carried out in two sequential phases. The first phase would relate to objective (a) above while the second phase would include supervision activities from the signature of the first civil works contract. 9. Duties and Responsibilities of the Supervision Consultant. The Supervision Consultant will administer the Works contract(s) ensure that contractual clauses, whether related to quality or quantities of work, are respected. The Supervision Consultant will make the necessary measurements and control the quality of works, The Supervision Consultant will make all engineering decisions required for the good implementation of the contract. However, the Supervision Consultant will seek prior approval of the NRA to: (a) issue any variadon order with financial implications, except in an emergency situation, as reasonably determined by the Supervision Consultant; (b) issue variadons in work quantities; (c) sancdon additional items, sums or costs; (d) approve the subletting of any part of the works; and (e) approve any extension of the Time for Compledon. 10. The Supervision Consultant will carry out the following tasks: (a) attend the pre-bid conference, if any , at the date and venue specified in the request for proposal; (b) reply by circular letters to all bidders to written requests for addidonal information; (c) assist NRA in the evaluation of tenders and prepare the tender evaluation report; (d) check drawings, calculations and documents supporting alternatives proposals; (e) assist NRA in preparing the final version of contract documents (f) issue the order to commence the works; (g) administer the civil work-s contracts, approve the materials and quality of the Works in accordance with the contractual specification; (h) approve the Contractor's work program and the source of materials; (i) issue monthly progress reports;  -29- Annex1 Page 4 of 6 (j) approve the Contractor's working drawings including variations thereof, approve the setting-out of the Works and, give instructions to the Contractor in this regard; (k) ascertain and determine by measurement the value of the Works in accordance with the Contract; (1) issue interim certificates for monthly payments, and certify completion of parts or the totality of the Works; (m) order tests of materials and of completed works, and order the removal of improper or substandard works; (n) seek prior approval of railway authorities before ordering any work in the vicinity of railways crossings; (o) ensure that environment protection provisions as set out in the contractual documents are respected; (p) ensure that traffic operational safety is met before commencing the Works and issue any workplan or drawing in that respect; (q) facilitate any communication between the Contractor and other services (water supply, telephone, electricity, gas) sharing the use of the road; (r) prepare the maintenance program; (s) inspect the Works during the maintenance period, and issue the maintenance certificate in consultation with NRA; (t) verify and get corrected the 'as built' drawings supplied by the Contractor; (u) provide on-the-job training to all seconded NRA personnel; and (v) advise NRA on all matters related to the execution of the contracts including processing of the Contractor's claims. 11. Duties and Responsibilities of the Resident Engineer and his Staff. The Resident Engineer and his staff are under the overall control of the Supervision Consultant (the Engineer's Representative), and shall carry out such duties and exercise authority as may be delegated to him by the Engineer. The Engineer may from time to time delegate to the Resident Engineer any of his duties. 12. The main responsibilities-of the Resident Engineer shall be as follows:  -30- Annex I Page 5 of 6 (a) to inspect performance of works in compliance with the specifications, order, supervise or perform tests on materials, and approve or disapprove the contractor's plant and equipment; (b) to order if required the uncovering of completed work and/or the removal and substitution of proper materials and/or work; (c) to check the progress of the Works systematically and to order the commencement of certain work which is part of the contract; (d) to examine and attend the measurement of any work that is about to be covered or put out of view before permanent work is placed thereon and/or examine and attend the measurement of the completed work in the prescribed form; (e) to check the Contractor's accounts, invoices, and other statements with respect to arithmetical errors and compliance with the contract and if required to make corrections thereof; (f) to supervise the Contractor in all matters concerning safety and care of the Works; (g) to direct the Contractor to carry out all such work or to do all such things as may be necessary in the opinion of the Resident Engineer to avoid or reduce the risk in case of any emergency affecting the safety of life, of the Works or of adjoining property and to advise the Employer thereof as soon thereafter as is reasonably practicable; (h) to keep and maintain a day by day project diary which shall record all events pertaining to the administration of the contract, requests from and orders given to the Contractor, and any other information which may at a latter date be of assistance in resolving queries which may arise concerning execution of the Works; (i) to carry out maintenance inspection visits, at least three during the one-year Defects Liability Period; and 0j) to verify and get corrected the 'as built" drawings supplied by the Contractor. C. REPORTS AND DOCUMENTS 13. The Supervision Consultant shall furnish to the NRA the following reports and documents both in the Romanian language and in the English language: (aj Tenders Evaluation Report (10 copies) within 30 days following the bids opening date;  -31 - Annex 1 Page 6 of 6 (b) Monthly Progress Reports (10 copies) provided on a monthly basis at the end of each month. During the Defects Liability Period, these reports shall be submitted at four month intervals; (c) Completion Report (20 copies) at the time of the final completion of the works (Final Completion Certificate); (d) 'As-built" drawings (one original and five copies) of the project within one month following the issue of the Final Completion Certificate; and (e) Maintenance Inspection Reports (10 copies) after each maintenance inspection. D. SERVICES TO BE PROVIDED TO TffE SUPERVISTON CONSULTANT 14. The Contractor shall provide the Supervision Consultant furnished office, laboratory, data processing and communication facilities and transportation free of charge as per Tender documents 15. The Supervision Consultant and its expatriate staff shall be exempt from, or reimbursed of payment of Income Tax in Romania. The NRA shall assist the Supervision Consultant in obtaining any entry/exit visas, etc. However, the cost of the same shall be bome by the Supervision Consultant. 16. Any available information, reports, documents, etc., related to the execution of the Works shall be made available by the NRA to the Supervision Consultant. 17.All documentation related to the Works is, and will remain NRA's property after completion of works. The Supervision Consultant cannot use or dispose of this documentation without previous NRA's written consent.  - 32 - Annex 2 Page 1 of 2 ROMANIA TRANSPORT PROJECT PROJECT MANAGEMENT UNIT Terms of Reference The Project Management Unit (PMU) will be responsible for the management, administration and coordination of the project. Its members will include a Chairman and seven representatives in a managerial position of: (i) the National Road Administration (NRA) department of Construction; (ii) too NRA department of Maintenance; (iii) the NRA department of Equipment and Materials; (iv) the NRA Procurement Division; (v) the NRA economic department; (vi) SNCFR; and (vii) RAR. The PMU will have a secretary provided by NRA, with three permanent staff: an engineer, an accountant, and an administrative officer. All permanent staff of the PMU will be provided under the current budget of the NRA. The Chairman and members of the PMU can delegate its functions temporarily in other person(s) of their departments when duly justified reasons exist. 1. The main functions and responsibilities of the PMU will be: a. monitor and coordinate the activities of the project until its completion, including the one-year guarantee maintenance period for civil works; b. liaise with the Bank in all matters concerning project implementation and supervision; c. provide advice and assistance to project beneficiary departments on procurement matters, and clear procurement documents in order to ensure that they meet Bank procurement guidelines; d. finalize arrangements for the technical assistance advisors; *. submit to the Bank disbursement applications on behalf of the beneficiary agencies or departments; f. monitor and supervise the project accounts; g. prepare (and submit to the Bank) quarterly progress reports describing (in accordance with the progress implementation indicators previously established and agreed between the Government and the Bank) project implementation and compliance with time schedule, and identifying issues arising during the project implementation and solutions proposed, as outlined in the legal documents; h. submit to the Bank annual project audit reports, prepared by independent auditors, as described in the legal documents; and  - 33 - Annex 2 Page 2 of 2 i. contribute to the preparation of a project completion report (PCR) based on the submission of the progress reports, correspondence with the Bank, and actual tasks completed compared with those established and scheduled at appraisal. 2. Various departments would nominate persons responsible for their own part of the project (sub-project). These persons, who can be the respective members of the PMU, would act as coordinators of department project activities with the PHU. 3. The functions and responsibilities of these sub-project implementation coordinators would be to: a. ensure the timely and proper implementation of their sub-projects; b. liaise with the PMU and seek procurement advice and/or other advice from the PHU to perform (a) above; c. prepare all detailed and technical specifications and documents for the procurement of works and goods, and submit them to the procurement specialist in the PMU for clearance; d. prepare terms of reference and draft contracts for all consultants and submit them to the PMU for approval and further processing; *. submit to the PNU related contribution to the quarterly project progress reports, as applicable; and f. at the completion of their respective project component, submit to the PMU previously specified information for the project completion report.  - 34 - Annex 3 Page 1 of 2 ROMANIA TRANSPORT PROJECT Selected Documents in the Prolect File 1. Road ComRonents Proposed Rehabilitation Works on 450 km of National Roads including Bucharest Ring Road - IPTANA, March 1992. Moravita Border Post on Road E70 Timisoara - Belgrade. Existing Situation and Development Proposal - IPTANA, March 1992. Program to Reinforce the National Road Network of Romania - A technico- economic study - IPTANA, June 1992. Rehabilitation of DN 1, Volume 4 Impact Analysis and Expropriations - IPTANA, June 1992. Traffic - Capacity - Profitability Volume la DN 1 Volume la DN 2 Volume le DN 2A Volume le DN 38 DN 39 Volume le DN 1 Regulations for the periodical inspection of road vehicles and trailers including: Decrees n