new document of report no: 20714 bill public disclosure authorized · 2016. 7. 17. · document of...

Document ofThe World Bank

Report No: 20714 BIll

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 8.7 MIlLION

TO

BOSNIA AND HERZEGOVINA

FOR THE

TRADE AND TRANSPORT FACILITATION IN SOUTHEAST EUROPE PROJECT

January 23, 2001

Infrastructure Sector UnitSoutheast Europe Country UnitEurope and Central Asia Regional Office

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CURRENCY EQUIVALENTS

(Exchange Rate Effective May 25, 2000)Currency Unit = Convertible Mark (KM)

KM1 = US$0.46US$1 = KM2.15

SDR 1=US$1.264 (November 30, 2000)

FISCAL YEAR

January 1 - December 31

ABBREVIATIONS AND ACRONYMS

APL Adjustable Program Lending

BCE Bosnian Chamber of Economy

BiH Bosnia and Herzegovina

CAFAO Customs and Fiscal Assistance Office (EU)

ECMT European Conference of Ministers of TransportEU European Union

FBH Federation of Bosnia and HerzegovinaFCA Federation Customs Administration

FMS Financial Management SystemGDP Gross Domestic Product

IT Information Technology

LACI Loan Administration Change Initiative

LAN Local Area Network

MECU Million of ECU

MFTER Ministry of Foreign Trade and External Relations

MOF Ministry of Finance

MOU Memorandum of Understanding

PIT Project Implementation Team

PPF Project Preparation Facility

RS Republika Srpska

RSC Regional Steering Commnittee

RSCA Republika Srpska Customs Administration

SAD Single Administrative Document

SECI Southeast European Cooperative Initiative

SOE Statement of Expenditures

SME Small and Medium Enterprises

TIR Transport Intemational Routier

TOR Terms of Reference

TTFSE Trade and Transport Facilitation in Southeast EuropeUNCTAD United Nations Conference for Trade and Development

UN-ECE United Nations Economic Commission for EuropeWAN Wide Area Network

WCO World Customs Organization

Vice President: Johannes F. Linn, ECAVPCountry Director: Christiaan J. Poortman, ECCO4Sector Director: Ricardo A. Halperin, ECSINSector Manager: Eva Molnar, ECSINProgram Team Leader: Graham Smith, ECSINTask Team Leader: Gerald Ollivier, ECSIN

BOSNIA AND HERZEGOVINATrade and Transport Facilitation in Southeast Europe Project

CONTENTS

A. PROJECT DEVELOPMENT OBJECTIVE ...................................................................... 3

1. PROJECT DEVELOPMENT OBJECTIVE ....................................................................... 32. KEY PERFORMANCE INDICATORS ...................................................................... 3

B. STRATEGIC CONTEXT ...................................................................... 4

1. SECTOR-RELATED COUNTRY ASSISTANCE STRATEGY (CAS) GOAL SUPPORTED BY THE PROJECT ........... 42. MAIN SECTOR ISSUES AND GOVERNMENT STRATEGY ...................................................................... 43. SECTOR ISSUES TO BE ADDRESSED BY THE PROJECT AND STRATEGIC CHOICES ............... ......................... 8

C. PROJECT DESCRIPTION SUMMARY ...................................................................... 9

1. PROJECT COMPONENTS ...................................................................... 92. KEY POLICY AND INSTITnuIONAL REFORMS SUPPORTED BY THE PROJECT .............................................. 10

3. BENEFITS AND TARGET POPULATION ....................................................................... 114. INSTITUrIoNAL AND IMPLEMENTATION ARRANGEMENTS ...................................................................... 12

D. PROJECT RATIONALE ...................................................................... 14

1. PROJECT ALTERNATIVES CONSIDERED AND REASONS FOR REJECTION ...................... ............................. 142. MAJOR RELATED PROJECTS FINANCED BY THE BANK AND/OR OTHER DEVELOPMENT AGENCIES ........... 153. LESSONS LEARNED AND REFLECTED IN THE PROJECT DESIGN . ............................................................... 164. INDICATIONS OF BORROWER COMMITMENT AND OWNERSHIP ................................................................ 165. VALUE ADDED OF BANK SUPPORT IN THIS PROJECT ............................................................ .......... 16

E. SUMMARY PROJECT ANALYSIS ...................................................................... 17

1. ECONOMIC ...................................................................... 172. FINANCIAL AND FISCAL ...................................................................... 173. TECHNICAL ...................................................................... 174. INsTrruTIoNAL ....................................................................... 185. SOCIAL ...................................................................... 196. ENVIRONMENTAL ASSESSMENT ....................................................................... 197. PARTICIPATORY APPROACH ....................................................................... 20

F. SUSTAINABILITY AND RISKS ...................................................................... 21

1. SUSTAINABILIrY ........ .............................................................. 212. CRIICALRsKs ................RI....................................................... 223. PoSsIBLE CONTROVERSIAL ASPECTS ...................................................................... 23

G. MAIN CREDIT CONDITIONS ...................................................................... 23

1. EFFECVENE SS CONDmONS ....................................................................... 232. OTHER ....................................................................... 23

H. READINESS FOR IMPLEMENTATION ....................................................................... 24

I. COMPLIANCE WITH BANK POLICIES ................................. 24

iv

ANNEXES

ANNEX 1 PROJECT DESIGN SUMMARYANNEX 2 DETAILED PROJECT DESCRIPTION AND SCHEDULEANNEX 3 ESTIMATED PROJECT COSTSANNEX 4 COST-BENEFIT ANALYSIS SUMMARYANNEX 5 FINANCIAL SUMMARYANNEX 6 PROCUREMENT AND DISBURSEMENT ARRANGEMENTS

TABLE A PROJECT COSTS BY PROCUREMENT ARRANGEMENTSTABLE AI CONSULTANT SELECTION ARRANGEMENTSTABLE A2 PROCUREMENT PLANTABLE B THRESHOLDS FOR PROCUREMENT METHODS AND PRIOR REVIEWTABLE B 1 CAPACITY OF IMPLEMENTING AGENCYTABLE C ALLOCATION OF CREDIT PROCEEDS

ANNEX 7 PROJECT PROCESSING BUDGET AND SCHEDULEANNEX 8 DOCUMENTS IN PROJECT FILEANNEX 9 STATEMENT OF LOANS AND CREDITSANNEX 10 ENVIRONMENTAL MANAGEMENT PLANANNEX 11 EU SUPPORT ACTIVITIESANNEX 12 COUNTRY AT A GLANCE

MAPS No. IBRD 31072 AND 31073

v


Project Appraisal Document

Europe and Central Asia Regional OfficeSoutheast Europe Country Unit

Date: January 23, 2001 Program Team Leader: Graham SrnithCountry Director: Christiaan J. Poortman Sector Director: Ricardo HalperinProject ID: 7E-PE-70079 Sector: TY - Other TransportationLending Instrument: Specific Investment Credit Theme(s): Public Sector

Poverty Targeted Intervention: [ ] Yes [X] No

Project Financing Data [] Loan [X] Credit [] Guarantee [ ] Other [Specify]

For Loans/Credits/Others:

Amount: SDR 8.7 million (US$11.0 mnillion equivalent)Proposed terms: [X] Multicurrency [ Libor-based Single Currency Loan, specifyGrace period (years): 10 [ Standard Variable [ Fixed [] LlBOR-basedYears to maturity: 35Commitment fee: 0.5 % on undisbursed credit balance, beginning 60 days after signing less any waiverService Charge 0.75%

Fiuiandg plan (US$m).Svur.me LOca Forpign TotalRepublika Srpska 0.8 0.0 0.8Federation of Bosnia and Herzegovina 2.2 0.0 2.2Ministry of Civil Affairs and Communications 0.2 0.0 0.2United States (US) 0.1 0.6 0.7IDA 3.3 7.6 11.0Total 66 82 1A8

Borrower: Bosnia and HerzegovinaResponsible agencies: Customs Administration (Federation of Bosnia and Herzegovina), Customs Administration(Republika Srpska)

Esti*t*d Osbremets (IDA FY : FY 2001 FY 2002 FY 2003Annual 0.5 8.1 2.4Cumulative 0.5 8.6 11.0Project implementation period: 3 yearsExpected effectiveness date: June 30, 2001 Expected closing date: September 30, 2004

Implementing 1. Project Implementation Directorate (Ministry of Civil Affairs and Communications)Agencies: 2. Federation Customs Administration

3. Republika Srpska Customs AdministrationContact persons: 1. Kemal Karkin; 2. Branko Markic and Suad Handanagic; 3. Dubravko Rodic

Address: 1. Musala 9, 71000 SarajevoTel/Fax: 1. + (387) 33 664 831; 2. (387) 33 207 775; 3. +(387) 51 316 246; E-mail: 1. [email protected]

The TTFSE Proiect: Key Design Concepts

How does this project differfrom the typical project?

Regional Character. The six TTFSE projects are regionally linked in a program supportingBosnia and Herzegovina, Albania, Bulgaria, Croatia, fYR Macedonia and Romania in their effortto foster trade. All these countries are beneficiaries of the Stability Pact'. They seek to promotemore efficient and less costly trade flows across the borders of the participating countries andprovide EU-compatible customs standards. This requires the cooperation of the participatingcountries and a mutual sharing of concerns for the reform of their Customs services. To assist suchcooperation and facilitate the sharing of information, a Regional Steering Committee (RSC) hasbeen created. All participating countries are represented on this committee and have signed aMemorandum of Understanding detailing its role and activities. The United States (US) is fundinga secretariat for the RSC.

Reform Combined with the Provision of Infrastructure. The program will support theimplementation of on-going customs reforms and focus on integrated solutions at selected pilotsites located on main European corridors. Customs reform is an essential part of the activitiesBosnia and Herzegovina has undertaken to approximate with the European Union legalframework. The pilots will enable measurement of productivity improvement across borderagencies, and shorter processing time at border crossings and inland terminals. Reforms alreadyundertaken will need to be supported at some border crossings by the upgrading of infrastructure.The project will finance physical improvements at these border crossings, while critical elementsof reform proceed.

Non-Duplicative Structure. The TTFSE program seeks to help the Customs services implementreform in a way least costly to the Governments. Governments will continue on-going customsreforms supported by external contributors such as the European Union (EU) and will use grantfunding from the US and the EU for most technical assistance. In the case of Bosnia andHerzegovina, the EU will continue to provide all technical support for customs reforms.

Participatory Approach. The design and implementation of the TTFSE project is based onparticipatory methodology to ensure that the project belongs to the participating countries and isendorsed and owned by the various stakeholders, including the beneficiaries. Consultations withcustoms officials and users have occurred during the design phase and mechanisms are built intothe project to obtain regular user input in the monitoring and evaluation process.

Building on Previous/Onaoing Initiatives. Several international organizations have recognizedthe need to help countries in the region improve transit across borders and have providedassistance to start addressing these requirements. The EU was the first to assist countries in theregion to address this issue. Its experience highlights the need for comprehensive reforms andcarefully selected upgrading of infrastructure. The Southeast European Cooperative Initiative2 alsopromotes economic and environmental cooperation among the countries in the region, with a focuson efficient transit, and combating corruption and smuggling.

'The Stability Pact for South Eastern Europe, adopted in Cologne on June 10, 1999 at a special meeting of ForeignMinisters, representatives of international organizations, institutions and regional initiatives concerned with SouthEast Europe, commits these parties to the adoption of a comprehensive, coordinated and strategic approach to theregion, replacing crisis management with preventative diplomacy.2 Consisting of Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Greece, Hungary, Moldova, Romania, Slovenia,FYR Macedonia and Turkey, and established in December 1996 to promote regional economic and environmentalcooperation among the countries in the region. The initiative is being supported by UN-ECE, The US government,and the governments of Italy and Austria.

A. Project Development Objective

1. Project Development Objective (see Annex 1)

The proposed project forms part of a regional program for Trade and Transport Facilitation in SoutheastEurope3 that aims to strengthen and modernize the customs administrations and other border controlagencies in Albania, Bosnia and Herzegovina (BiH), Bulgaria, Croatia, the former Yugoslav Republic ofMacedonia and Romania. The Program, the result of a collaborative effort between the Governments, theBank, the EU and the US, has two development objectives:

(i) to reduce non-tariff costs to trade and transport; and(ii) to reduce smuggling and corruption at border crossings.

The program will achieve these objectives by: (i) supporting the reforms of the Federal CustomsAdministration (FCA) and of the Republika Srpska's Customs Administration (RSCA); (ii) strengtheningmechanisms of interaction and cooperation between border control agencies and the trading community;(iii) disseminating information and providing training to the private sector; (iv) financing infrastructureand equipment at selected border crossings; and (v) supporting the implementation, at pilot sites, of anintegrated set of new customs procedures, information technology, human resource managementtechniques, supporting infrastructure, and cooperation mechanisms4 for agencies at border crossings.

In BiH, the CAFAO5 has already been leading technical support to customs refonns since 1996 and willcontinue to lead this support during the life of the project. The preparation of this project has drawn onthe experience of and the data provided by the CAFAO. The reform process necessary to changeinstitutional cultures and ingrained behavior is expected to take a substantial time, about 8 to 10 years.The reform involves simultaneous and sustained actions on: (i) change in administrative and operationalprocedures; (ii) definition of staff profiles for the organization and hiring, training and deployment ; (iii)elaboration and implementation of a staff development plan; (iv) introduction of up-to-date informationtechnology and regional interconnections; and (v) measurement of customs reform impacts at bordercrossings and inland terminals.

2. Key Performance Indicators (see Annex 1)

Progress toward the objectives will be monitored by key performance indicators covering FCA's andRSCA's performance at two pilot inland terrninals and at four selected pilot border crossings, and byoverall efficiency indicators for the FCA and RSCA. The indicators include: (i) transport costs to/fromthe three main trading partners and the transaction costs at these pilot sites; (ii) number of physical ordocumentary examinations and their effectiveness; (iii) processing time; (iv) the value of recorded trade;and (v) reported occurrence of corruption. In addition, a set of regional indicators will be used to measurecost/time reduction in regional transport on three major corridors to evaluate the overall impact of theprogram. A detailed set of indicators has been defined to follow the national and regional progressthroughout the project life (Annex 1).

3 Referred to in this document collectively as "the program" and nationally as the TTFSE "project".Including shared access to information and intelligence systems, and training for interagency awareness.

5 European Union Office for Customs and Fiscal Assistance.

B. Strategic Context

1. Sector-Related Country Assistance Strategy (CAS) Goal Supported by the Project (see Annex 1)CAS document number: 20301-BiH Date of latest CAS discussion: May 18, 2000

This project would support the overarching objective of the World Bank Group for Bosnia andHerzegovina: "increasing economic opportunity and improving the quality of life for the population";and the specific objectives of "strengthening institutions and governance" and 'fostering private sector-led growth and employment". This project would: (i) facilitate trade integration with Southeast Europeand the EU; (ii) develop significant border infrastructure to enable greater regional integration; and (iii)support the reform of the customs administrations.

The combined effect of institutional strengthening led by CAFAO (see Box 1) and infrastructure bordercrossing improvements financed by the project would remove some of the existing excess costs linked totrade and transport. It would improve the environment for the private sector by enabling more reliable,efficient and competitive international transport services. The project would also support the enforcementof several international conventions relating to the environment.

2MainSectorIssuesand 1. LoFvern menS rL tngyE

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a. Main g Setr Issuesand GoermetStatg

Trade is highly significant to the economy of BiH, equivalent to aboout 90 percent of GDP in 1999(Statistics in Annex 4, page 6). BiH continues to have a marked trade imbalance with importsrepresenting 3.5 times exports in 1999 reflecting the high level of international support to BiH forreconstruction efforts. Trade statistics are unreliable and most likely underestimnate the real volume. Themain export partners are Switzerland, Germany, Italy, Yugoslavia, Slovenia and Croatia. The mainimport partners are Italy, Slovenia, Croatia, and Germany. Yugoslavia has become a major export partnerfor the Federation and is the main trade partner for the Republika Srpska. Trade with Croatia dropped in

1999 following the termination of the free trade agreement with the Federation. BiH main exportsinclude base metal and wood or wood products.

In its transition to a market economy and sustainable growth, BiH will be affected by its current trade andtransport links. The waiting time at major BiH border crossings averages between one and four hours andcreates excess cost of over US$4 million to the trade and transport industry. Clearance time at inlandbonded warehouses commonly exceeds 24 hours. Small and Medium Enterprises (SME) face: high coststo trade; unreliability and unpredictability of transport services; poor functioning customs and otherborder inspection organizations; and under-developed logistic and freight services. Any strategy based onthe development of private small and medium enterprises is bound to miss its targets until better tradeconnections with the outside world are established. The macro-economic effects are similar to those ofprotectionist trade policies. Not surprisingly, foreign (private) direct investment in BiH has been laggingbehind other CEE countries over the past five years as a result of trade barriers and other factors such aspolitical risks and difficulties in operating a company in BiH. Foreign direct investment inflows wereonly US$100 million in 1998.

The Government places a high priority on reducing unemployment by stimulating private sectordevelopment through an appropriate legal and regulatory framework. Developing institutional and policyfoundations are parts of the ongoing efforts undertaken by the government with the Bank and otherdonors to ensure the emergence of an enabling environment for the private sector.

The FCA and RSCA play critical roles in serving the Entities (Federation and Republika Srpska) and thetrading community. The FCA collected about DEM 587 million of revenues in 1999 and the RSCA aboutDEM 262 million. The Entities have achieved some success in improving their services and reducingtrade and transport impediments. Private sector observers recognize these efforts but underline thatadditional improvements remain to be accomplished.

The current situation reflects the following issues: (i) the unique settings of Bosnia and Herzegovina; (ii)evolving procedures and documentation; (iii) the absence of proper customs facilities and informationsystems; (iv) smuggling and corruption opportunities; (v) weak interactions between public and privateparties; and (vi) the need for strengthened regional cooperation.

a. Unique Settings Requiring Particular Care

BiH is unique in its political complexity, its structure of economic governance and the significant donorsupport that has been committed to accelerate its reconstruction. BiH consists of two entities (Federationof Bosnia and Herzegovina and Republika Srpska) with significant autonomy and separate customs areas.State responsibilities include customs policies. Customs duties and excise are collected and expensed atthe level of the entities. Through an agreement on May 26, 2000, the two entities agreed to cooperate ontheir future development and on the implementation and enforcement of customs legislation.

Nonetheless divergence of opinion between the entities often results in coordination difficulties withadjacent countries, in particular in establishing and managing border posts, or for obtaining consistencyin border-crossing procedures. At the same time, it introduces severe administrative constraints regardingthe management of transit (there is no assurance that a shipment entering one of the entities will bedelivered in the other), with resulting smuggling (goods are taken back to the country of origin, althoughVAT was refunded on the initial export), and loss of revenue. Another aspect is the difficulty inobtaining a coordinated approach to Customs control and enforcement. This is illustrated, in particular,by the large-scale smuggling that went on in one of the trade zones established on the border between thetwo entities.

b. Evolving Procedures and Trade Documentation

In preparation for the approximation with EU laws, the FCA and RSCA have aligned their Customs Codewith the EU Customs Code. The use of the Single Administrative Document6 (SAD) was introduced inthe RS customs services in 1996 and in the FBH customs services in January 1999. A reengineering ofprocedures led by CAFAO, is taking place following the change in documentation, with the objective ofprogressively matching the EU blueprints. By the end of 2000 all implementing regulations will be inaccordance with the blueprints.

The new Customs Code allows for selectivity, auditing, different treatment of importers according toperformance and compliance. The FCA and RSCA are also preparing a Customs Service Code that willprovide customs officers with the same powers as police officers, notably when addressing customsoffenses.

Stakeholders have indicated they have concerns' about: (i) the overall complexity of procedures (RS); (ii)the level of corruption (RSCA and FCA); (iii) the variations in interpreting, understanding andimplementing new legislation and procedures (RS); (iv) the lack of political will to facilitate trade incomparison with addressing other political issues (Federation); (v) the cost of bank guarantees andabsence of TIR carnet system (RS); (vi) the need for original documents (faxes are not recognized) in theFederation; (vii) poor facilities that do not allow traffic segregation; and (viii) insufficient inter-entitycooperation. The overall package of processes and procedures used by the RSCA was rated as poorregarding its fairness, consistency, transparency, time required and right of appeal. It was rated as poor inthe FCA regarding its fairness and right of appeal.

c. Inappropriate Customs Facilities and Information Technology

In general, border crossing points are too poorly equipped to swiftly and knowingly clear the passage ofvehicles. Border crossing points were improvised when BiH became independent. The country suddenlyshifted from a domestic economy to an international economy, under which trade facilitation becameessential. An estimated 420 roads connect BiH to neighboring countries. The number and location ofofficial border crossings, currently 32, is being refined and agreed upon with neighboring countries. Aclassification of border crossings, according to the type of traffic allowed to use them, will be finalized aspart of the process. Access to electricity or lighting of these sites is limited, and customs offices are oftenhoused in temporary containers. Communication means and IT at border crossing points is rather basicwith limited access to telephone or fax lines preventing timely and reliable communication.

BiH has been affected by the modal diversion to road traffic following the virtual closure of the railwaysystem. Contrary to Croatia, BiH has only just started upgrading its border crossing posts with theopening in April of the Brod border crossing and in May of the Gradiska border crossing.

The operational information systems of both the RSCA and the FCA provide limited support tooperations or management and are not yet interconnected. The on-going introduction of ASYCUDA++with the assistance of CAFAO should remove this obstacle. The establishment is scheduled forcompletion in the fall of 2001 and will allow full compatibility between the two administrations andtreatment of data in the three official languages. Such a system would also address improved exchange of

6 The SAD is the document accompanying goods in transit, exported and imported. It was introduced in 1987 toextend cooperation between the European Community and EFTA countries (Council Decision 87/267/EEC) inparallel with the Common Transit System. By now, most EU candidate countries have also taken steps to introduce itin trade with the EU. The use of SAD requires a fair level of standardization of customs procedures supported bycomputer processing.I Rated 7.5 and above on a scale of 10 by a focus group.

electronic information with other countries or EDI relations and transfers with other national publicagencies.

d. Smuggling and Corruption Opportunities at Border Crossings

The current border procedures and administration are conducive to arbitrary processing by local officersand provide opportunities for rent seeking behavior, i.e., corruption and smuggling, at border crossings orat bonded warehouses. The practice of double invoicing, the under-valuation of goods, the falsification ofCertificates of Origin, the use of roads without border posts, and discriminatory payments depending onthe ethnic group of origin represent a large loss for the budget of the two entities. The resulting losses areespecially significant since the revenues collected by customs represent a large part of the budget of theentities. The FCA and the RSCA in cooperation with the CAFAO have initiated a program of closecooperation to prevent fraud and increase revenue collection. This program has achieved considerablesuccess over the past two years.

e. Improving Private-Public Interactions

Limited and sometimes late prior consultation with the trade community prevents meaningful andconstructive interactions. The Chamber of Economy and the BiH-PRO8 committee provide mechanismsto reach more consensual decisions and consult the various stakeholders. The FCA and RSCA willprogressively become more accountable for facilitating trade. This includes the set up of mechanisms toaccount for impacts such as unjustified delays in the departure of goods and cargo transfer, or down-timesuffered by vehicles. The FCA and RSCA increasingly provide training to its officers to improve thequality of the interactions with the private sector or offers consultation mechanisms such as drop-boxesfor suggestions at border locations. These efforts receive strong support from the population. Furtherefforts will be required to achieve the quality of EU customs services.

f Strengthening Regional Cooperation

Bosnia and Herzegovina, like all other participants in the Southeast European Cooperative Initiative(SECI), recognizes the importance of coordinated actions to address the above issues and achieve theobjectives of the Stability Pact. It is also recognized that, to some degree, each country can expect to gainmore from actions to be taken by its neighbors than those it should take itself. A regional view has thusemerged according to which participant countries will simultaneously apply coordinated and compatiblemeasures to reduce trade/transport impediments and corruption/smuggling opportunities. The regionalcohesion can be symbolized by the signing of a regional Memorandum of Understanding by the sixcountries, as well as their willingness to benchmark country performance and to work on streamlinedsolutions at paired border crossings9 (Map 31072). The support shown by the EU and the United NationsEconomic Commission for Europe (UN-ECE) as well as such bilateral donors as the US, reflects theimportance attached to the development and stabilization of the region.

The participating countries also see movement toward a form of integration with Europe as a majorstrategic goal. The potential opening of the Federal Republic of Yugoslavia would further justify theTTFSE program by encouraging exchanges between western and eastern countries of Southeast Europe.

Professional body gathering public and private stakeholders seeking to improve international trade through thesirnplification and harmonization of procedures and practices in administration, conmnerce and transport, inaccordance with LUN/CEFACT guidelines.9 For examnple between Bosnia and Herzegovina and Croatia.

g. Border Delays to Rail Transport

The proposed program focuses on delays at road border crossings. Delays at rail border crossings are alsoa cause for concern, particularly regarding long distance freight trains operating across Europe. Similarlyto road border crossing improvements, the most promising solutions involve simplifying procedures,shifting inspections and other formalities away from the border through advanced processing of data,using information technology to speed up, process and make more reliable the transfer of documentsabout the rail wagons and their contents. The program does not directly address rail transport, but railtraffic should benefit from the mechanisms for enhanced cooperation among agencies and amonggovernments.

h. Non-Operational Transit System

Bosnia and Herzegovina, unlike other countries participating in the TTFSE program, is not part of theTIR system, which facilitates transit in international road freight transport. This system managed by theInternational Road Union and a pool of guarantors enables transit traffic carrying a TIR carnet to crossborders with limited control at the transit borders. Control takes place in the departure and arrivalcountries and is recognized in transit countries. The absence of such system strongly penalizes Bosniaand Herzegovina. The introduction of the system will require major institutional efforts in customs, betterregulation regarding access to the trucking industry, and a recognized and functioning road transportassociation capable of locally managing the TIR camet distribution and monitoring.

3. Sector Issues to be Addressed by the Project and Strategic Choices

The Project will address to different degrees the issues described above, apart from g, building onprevious efforts and taking full account of other external support to avoid any overlap. The Customsreform efforts will be supported by CAFAO. The project will combine external resources from IDA andthe US. Given the interest of BiH in the implementation of EU-compatible standards and the need toensure the overall compatibility of the regional program, active relationships with the EU will bemaintained. The project will seek improvements in: (i) border infrastructure and equipment; (ii)-laboratory facilities; and (iii) trade/transport business environment and professional performance. Inparallel EU will implement its assistance program on: (i) procedures of border agencies and legalframework; and (ii) customs information systems.

The program integrates a number of mechanisms to achieve benefits that extend beyond savings achievedat the borders of one country. The regional dimension of the project stems from: (i) the signature of aregional Memorandum of Understanding providing the needed high-level commitment; (ii) a RegionalSteering Committee of high-level officials meeting quarterly focussing on border crossing issues; (iii) aregional website harmonizing information access; (iv) joint pilot border crossings to ensure pragmaticimprovements to take place; and (v) regional training programs for the private sector to build upcommunities of professionals with shared knowledge.

C. Project Description Summary

1. Project Components (see Annex 2 for a detailed description and Annex 3 for a detailed costbreakdown)

The project consists of the following three components:

al. Improvement of Border Crossing and Customs Facilities -Republika Srpska

Includes: (i) construction of buildings and canopies at the Raca border crossing; (ii) construction of aninland truck terminal (Novi Grad); (iii) purchase and installation of weighing scales; (iv) purchase oflaboratory equipment and corresponding training; (v) design and supervision of works; (vi) technicalservices to monitor RSCA's performance at pilot sites; and (vii) training to enhance inter-agencyawareness and cooperation. These activities would complement ongoing reform efforts by the RSCAsupported by the CAFAO.

a2. Improvement of Border Crossing and Customs Facilities -Federation

Includes: (i) construction of part of the new border stations at Izacic and Orasje; (ii) reconstruction andbuilding of inland terminals, including required information technology infrastructure; (iii) design andsupervision services; (iv) technical services to monitor FCA's performance at pilot sites; and (v) trainingto enhance inter-agency awareness and cooperation. These activities would complement ongoing reformefforts by the FCA supported by the CAFAO.

b. Trade Facilitation Development

Includes: (i) provision of conventional and distance learning training to participants in trade, logistics andinternational freight transport in cooperation with the Chamber of Economy (BCE) and otherprofessional associations in the field of road transport; (ii) improvement of cooperation between publicand private parties using a virtual forum'°; (iii) creation of a website and provision of correspondingequipment to support information availability.

c. Program and Project Implementation

Includes the services required to support the regional and national implementation of the project. Theregional support will consist of the secretariat services to the RSC. The national support will comprisethe support of procurement advisors and of an accountant, external auditing services, support in theestablishment of a financial management system, and training to the Project Manager and his ProjectImplementation Team.

'° Creation of an internet website that will enable exchange of views, user surveys and consultation.

Cost Incl. IDAContingencies % of Financing % of IDA

Component Category (US$M) Total (US$M) Financing

A. Improvement of Border Civil Works/ 13.6 92 10.6 97Crossing/Customs Facilities EquipmentB. Trade Facilitation Development Consulting 0.5 3 0.0 0

Services!Training!Equipmnent

C. Project and Program Implementation Consulting 0.8 5 0.4 3Services I

Total 14.8 100.0 11.0 100.0Note: Figures may not add up to total due to rounding

2. Key Policy and Institutional Reforms Supported by the Project

Bosnia and Herzegovina has indicated its interest in an export-oriented development policy. The projectwill supplement on-going policy and institutional reforms seeking the following objectives:

a. Strengthening of the FCA and RSCA

The capacity building component of the customs reform strategy supported by the CAFAO addresses inparticular the following issues:

- approximation with the European Community legislation and implementation regulations, withreference to the acquis communautaire" and implementation and enforcement of related legislation;

* review of the schedule of penalties to strengthen their deterrent effect on offenders;

* adoption of simplified and standardized customs and border inspection procedures (compliancemeasurement and selective inspection based on risk assessment);

* development of analytical expertise to develop and maintain targeting and selectivity tools;

* human resource management to develop customs/border inspection'2 expertise and enhance systemintegrity;

* training for customs personnel to ensure the uniform application of new legislation, to improve thefulfillment of the mission of the RSCA and the FCA and to enhance integrity;

* creation of a partnership among border inspection agencies and the trade/industry community tobetter coordinate working hours, procedures and information exchange;

* progressive introduction of audits and account management processing to facilitate trade dataexchanges; and

* cooperation across entities in the implementation of regulations.

b. Strengthening of the RSCA and FCA Information System

Inprovements in systems in use through CAFAO's support would have the following impacts:

" All treaties, policies and Community legislation in force in the European Union, that must be accepted by allcountries wishing to join.12 Border police; phytosanitary and veterinary services, road agency.

* elimination of multiple data entry;

* creation of databases accessible in real time at main customs locations to support selectivity andtargeting procedures;

* exchange of information with other government agencies for processing and enforcement purposes;

* support of international Electronic Data Interchange standards (UN-EDIFACT) to rapidly integrateinto the international trading community;

* possibility of electronic payment from users to the Government;

* acceptance of electronic documents as official in customs procedures;

* monitoring of customs performance, traffic patterns and capacity use;

* information exchange with other governments in the region; and

* reduction in corruption opportunities by decreasing and monitoring human intervention.

c. Strengthening Regional Cooperation

The project will lead to greater regional cohesion. The implementation of joint pilot projects with Croatiaat selected border posts will strengthen regional cooperation at both local and state level.

3. Benefits and Target Population

a. Benefits

The customs reform coupled with proper facilities and information technology will lead to transparentcustoms procedures, a more reliable business environment, and economic growth as a result of lowerprices for imports and more competitive prices/services for exports. The benefits will spill over togovernment agencies and private companies in other trade partner countries. This would translate into:

* cheaper import goods / inputs for consumers and industries;

* better and more reliable business environment for private sector activities, particularly for the tradeactivities of SMEs;

* a more predictable and reliable economic setting for foreign companies;

* improved facilitation for transit traffic;

* reduction of corruption and smuggling opportunities;

* improved revenue collection by the FCA and RSCA;

* uninterrupted services of information systems and better integrity of data;

* overall enhanced regional integration in Southeast Europe; and

* closer approximation with EU standards and procedures, as part of the European integration process.

b. Target Population

The beneficiaries of the reform would be transport operators, importers, exporters, freight forwarders,other trade industries, foreign investors, and ultimately, consumers and producers inside and outside theregion.

Cross-border trade in the vicinity of the borders will be made easier for local companies. Travelers andtourism would also benefit. A majority of the two million individuals crossing annually the border

crossing at Izacic are comrnuting to work in Croatia. Improved facilities and procedures will shorten theirwaiting time and improve their travelling conditions.

4. Institutional and Implementation Arrangements

a. Implementation Period

The project is to be implemented over a three-year period (2001-2004); it would be completed by March31, 2004 and closed by September 30, 2004. The Regional Program in its entirety would be implementedin about 8 - 10 years.

b. Executing Agency

The State of Bosnia and Herzegovina will be the borrower. The Customs Services of the Federation andof the Republika Srpska would be the beneficiaries. The implementation arrangements will include thefollowing elements: (i) a project manager and a project implementation team; (ii) two projectcoordinators; (iii) a facilitation coordinator; and (iv) a regional steering committee (RSC). With theexception of the RSC, these elements are extensions of existing institutions and use people alreadyinvolved in similar functions. The border agencies will all benefit from the improvement in bordercrossing facilities.

The Project Manager comes from the Ministry of Civil Affairs and Communications, which falls underthe responsibility of the State. The Project Implementation Team (PIT) under his management willcover procurement, credit management and reporting functions in a manner satisfactory to the Bank. ThePIT will coordinate the project management for the various beneficiaries, prepare terms of reference, hireconsultants, and contract for services, training, goods, and civil works as necessary for theimplementation of the project. The FCA and the RSCA have nominated their respective liaison officer tointeract on their behalf with the Project Manager and ensure that appropriate technical expertise isengaged to support the Project Manager notably regarding technical aspects and supervision.

The Project Coordinators are the representatives of the MFTER and the General Directors of FCA andRSCA, who will represent BiH at the Regional Steering Committee. The Coordinators will call and chaircoordination meetings of the various border control agencies and manage their inputs when required.

The BCE will manage the trade facilitation component using its nominated Facilitation Coordinator,who will interact with the Project Manager for the implementation of the facilitation component and thecoordination of the regional website. The BCE has some experience in this field as demonstrated by itslead role in the national facilitation organization BiH-PRO.

Given the scope (six countries) and complexity of the Regional Program and the related policy andinstitutional reforms anticipated, a Regional Steering Committee (RSC), meeting periodically at theregional level, will oversee the overall implementation of the program and the project. The participatingcountries have signed a Memorandum of Understanding (MOU) setting up the RSC and held theinaugural meeting in Skopje in February 2000. The RSC is constituted of high-level officials ofparticipating countries and donor representatives as observers. It will provide guidance for the necessarysector policy and reform decisions. Meetings will rotate among the participating countries, with theProject Manager of the host country providing support services to the Committee. Already three meetingshave taken place and have led to the creation of sub working groups on issues like one stop payment atborder crossings. The minutes of the meetings can be found on the TTFSE website"3.

" http:H/www.seerecon.org/Regionallnitiatives/ttfse.htm

The UN-ECE is providing a secretary to the RSC to support the implementation of the program. Thesecretary 14 will: (i) prepare the agenda, supporting documentation and minutes for the RSC meetings; (ii)consolidate on a semi-annual basis the implementation reports of the countries involved in the program;(iii) consolidate the annual review report of the PITs; (iv) assist in the trade facilitation efforts; and (v)establish a link to the SECI-PRO committees.

In order to provide better understanding of border crossing problems, monitoring will take place at fourpilot border crossings located on the main international corridors and two pilot inland terminals.Croatia will similarly be treating as pilot stations the facilities on the other side of the border, as part ofthe program. A set of indicators for project monitoring has been defined and agreed upon (Annex 1). Amore detailed set of indicators for management purpose will be developed at these pilot sites. Theseindicators will be used by each country to examine and allow the evaluation of comparative performance.

This framework will provide an assessment tool for identifying problems and tracking the success of thesolutions applied in each case, providing an evolving case study. The results will be progressivelyupdated each quarter by the PIT in addition to the indicators in Annex I and offered to the RSC forreview and comparison. The lessons learned from these case studies will be extended to other specificborder crossings in the participating countries and to change management in general. Sharing the casestudies, along with other project reports, with the customs services and transport associations in countriesnot associated with the TTFSE will set quality targets in customs reforms beyond the region.

c. Procurement

Civil works, goods and services financed by IDA will be procured in accordance with IDA procurementguidelines. The Project Manager has appointed a procurement specialist satisfactory to IDA. Theprocurement specialist will receive training and will be supported by outside Bank procurement advisorsas required'5 . The project component not financed by the Bank will be procured in accordance withnational regulations or the procurement regulations of the co-financing institution.

The project elements, their estimated cost and procurement methods are summarized in Table A ofAnnex 6. A procurement plan detailing the packaging and estimated schedule of the major procurementactions is presented in Table A2 of Annex 6. Thresholds for procurement methods and prior review, thecapacity of the implementing agency in procurement, technical assistance requirements and the allocationof credit proceeds are found in Annex 6.

d. Accounting, Financial Reporting and Auditing Arrangements

The PIT will be in charge of all accounting, reporting, auditing, disbursement, planning and budgetingaspects of the project. A full time accountant has been appointed, based on suitable terms of reference. Afinancial management system (FMS) including accounting, financial reporting, planning, budgeting,auditing, and proper internal control systems has been established prior to Board presentation. Afinancial management manual documnenting internal control procedures, staff responsibilities in the PIT,payment instructions, planning procedures and other related aspects was developed. The FMS met theminimum Bank financial management requirements (4-B LACI Certification). The Bank has reviewedthe FMS and prepared a report identifying weaknesses and proposing remedial actions to enhance thesystem and enable the development of appropriate project management reports in view of the transitionto PMR-based disbursements. The Bank has defined a time-bound action plan to specify the steps

14 The secretary, to be financed by a US grant, will be sharing his time between his TTFSE responsibilities and themanagement of the SECI-PRO committees" The procurement advisors will be individuals with satisfactory country and World Bank procurement experience,to be funded by the credit proceeds.

necessary for further strengthening of procedures and staff development during implementation. TheFMS is compatible with OP/BP 10.02 and with the Project Financial Management Manual and LoanAdministration Change Initiative (LACI) Handbook, published by the Bank. The development of theFMS will be monitored by the Bank before effectiveness, during the first supervision mission andthroughout project implementation.

The PYT will maintain all documentation related to project expenditures and keep financial records inaccordance with sound accounting practices. The PIT will have its accounts audited every fiscal year byindependent auditors acceptable to the Bank, in accordance with International Standards on Auditingissued by the International Federation of Accountants and Bank guidelines. The reports of such auditswill be submitted to the Bank no later than six months after the end of the Borrower's fiscal year.

e. Reporting

The PIT will prepare quarterly progress reports and submit them to the Bank and the RSC secretary, whowill consolidate the reports on a semi-annual basis and then forward them to the Bank. These reports willinclude: the progress of each project component, key performance indicators, and procurement issues(actions dealt with, actions planned, and an update of the procurement implementation). The report willmeasure performance against the implementation schedule and compliance with credit covenants.

f Supervision and Evaluation Arrangements

Supervision will be managed at the national level by Bank headquarters staff with the active involvementof the Field Office and at the regional level by a program team leader from Bank Headquarters. The Bankwill devote some US$70,000 per year for supervision of project progress through FY2003. This includesthe Bank's contribution to the time of a senior customs specialist, jointly funded by a French trust fund.

Each October or November during the implementation of the project, the Bank together with the PIT andthe other contributors (EU, US) will conduct a review of project execution. The review will assess thestatus of regional and national implementation and cooperation, progress made at the level of pilot sitescompared to targets, development of the information system, implementation of donor programs, andproductivity of the FCA and RSCA. The review will offer refined targets and objectives for the followingyear and a set of recommendations. The schedule of procurement for the coming year will be agreed atthe time of the review, considering the progress to date in the institutional reform.

g. Monitoring

Overall, project monitoring will be based on performnance targets and indicators and the ProjectImplementation Plan. This plan was finalized and agreed upon during technical discussions. Monitoringwill be carried out by the FCA and RSCA, assisted by consultants as necessary.

D. Project Rationale

1. Project Alternatives Considered and Reasons for Rejection

a. Separate Individual Projects Carried Out by Each Country

The possibility of preparing fully independent projects for each participating country was reviewed andrejected since the achievement of overall project objectives will be greatly aided by simultaneousstandardization and harmonization of cross-border institutions, operations, and legal frameworks amongthe countries and with the EU.

b. Regional Investment Project

A regional program of coordinated border crossing facilitation projects carried out more or lesssimultaneously is more advantageous and was selected since it will:

* generate substantial benefit spill-over to customs users, producers, and consumers in thetrade partner countries of BiH, which, if also implementing the program, will in turn bringbenefit to BiH industries and consumers;

* allow the program countries to share informnation and introduce more consistent customs andborder control procedures and operations;

* be flexible enough to respond to country differences, the pace of European integration, andthe impact of the EU enlargement process;

* enable the Bank to coordinate with other contributors that also implement regional programs;and

* minimize project implementation/supervision costs by near-simultaneous implementation.

c. Regional APL

A regional or "horizontal" APL was considered, including Alternative b. above as a first phase, whichwould have enabled sequential entry of countries in the Program and the delegation to the Regional VicePresidency of approval of operations according to a well defined operational blue print. This horizontalAPL, however, was judged to be undesirable because it would involve "stretching" the APL concept. Thedetermination of the future value of performance indicators to include potential borrowers to the programwould have been a delicate and risky task, given the inherent complexity of the program. For thesereasons, Alternative b was preferred.

2. Major Related Projects Financed by the Bank and/or Other Development Agencies (completed,ongoing and planned)

Latest Supervision (Form 590)Sector Issue Project Ratings

______________________ ________________________________ (Bank-financed Projects only)Implementation DevelopmentProgress (IP) Objective (DO)

Bank-financed

Public Sector Management Albania: Tax Administration S SModernization

Trade Facilitation Estonia Transport S STransportation FYR of Macedonia: Transit Facilitation HS HSTransportation Bosnia and Herzegovina: Emergency S S

Transport Reconstruction ProjectSecond Transport Reconstruction Project S S

Other developmentagencies

CAFAO (EU) CAFAO program of customs and fiscalassistance

IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory)

3. Lessons Learned and Reflected in the Project Design

Bosnia and Herzegovina has recently started improving or building its border crossings. The FCA andRSCA want to complete the upgrading of its major crossings while simultaneously implementing itsreform. Experience under other projects emphasize that the border crossing problem, by its nature,requires coordinated and mutually reinforcing actions in many areas.

The Transit Facilitation Project in FYR of Macedonia completed in 1998 (ICR# 19408) highlighted theneed to: (i) tailor the complexity of the project's design to what can be achieved under a single loan; (ii)ensure the capability of implementing agencies; (iii) address issues perceived as real priorities by theborrower; and (iv) maintain flexibility to ease implementation.

EU-PHARE's experience shows that to lessen transaction costs at border crossings, border crossinginvestments need to be supplemented by: (i) reliable traffic data; (ii) accurate information on waitingtimes; (iii) adequate remedial actions on both sides of a border crossing; (iv) attention to multi-agencyneeds; (v) linkage to national transport policies; (vi) reliable telecommunication infrastructure andequipment; (vii) communication with users; and (viii) coordination and simplification of customsprocedures and removal of state controls on international trade.

These lessons are reflected in the design of the present project. It was tailored to respond to stakeholders'concerns following active consultations. The project beneficiaries will cooperate with other agencies onthe implementation of integrated solutions at national level and local level (pilot border crossings). Thepilots will stimulate cooperation across borders and among agencies to optimize procedures,communication links and monitoring of performance. Customs users will receive training to enhancetheir professional skills. They will be encouraged to voice their concerns and priorities through theregional website and the BiH-PRO committee and will receive accurate and timely information onexisting procedures.

4. Indications of Borrower Commitment and Ownership

BiH's commitment to the reforms under the project comes from its interest in legitimate trade expansionand liberalization. FCA's and RSCA work with CAFAO to progressively align themselves to EUstandard acts as a significant stimulus for reforms. Nonetheless divergence of views between Muslim andCroat representatives within the FCA tends to undermine the impact of outside support and makes theimplementation in the Federation more delicate than in the Republika Srpska or in other countriesinvolved in the Program. BiH has confirmed its commitment by signing the Skopje Memorandum ofUnderstanding, participating to the first three Regional Steering Committee meetings and reviewing thepossibilities of launching innovative mechanisms, such as common border crossings with Croatia. Bothcustoms administration have also submitted their draft reform strategy.

5. Value Added of Bank Support in this Project

At the outset, the commitment of the participating governments to the TTFSE objectives was weak. Theywere unwilling to fund border crossing improvements entirely from their own budgets; long-termfinancing was more attractive to them. The EU and other contributors had limited capacity to fundinfrastructure. As to technical assistance, the governments were (and remain) reluctant to borrow forforeign technical assistance because of its high cost relative to local salaries. The best solution thereforewas to combine IDA credit financing for infrastructure with ongoing support from the EU to the reform.The fact that the Bank was willing to finance infrastructure only on condition that Customs reform andinstitutional strengthening was carried out in parallel, has reinforced the attention given to the latter.

Furthermore, the Bank through its broader lending and country assistance strategies is well placed to helppromote cooperation and coordination of policies and public spending.

E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)

1. Economic (supported by Annex 4)

[X] Cost-Benefit Analysis: NPV=US$10.4 million (12% discount rate); ERR= 35%

The project is expected to have a good return/ substantial-risk profile with a potential for high retum. Thenet present value is estimated at US$10.4 million on an investment of US$12.2 million. Two benefitshave been quantified: (i) lower transport costs due to the diminution of waiting times at border crossingsand inland terminals; and (ii) economic benefits of trade expansion resulting from the project.

Waiting at border crossings is the concrete manifestation of inefficiency in trade related services. In theEuropean Union, customs administrations are required to keep 90 percent of vehicles waiting no morethan 20 minutes, or about 40 minutes to cross both sides of a border point. The difference betweenpresent waiting times at BiH borders and a target of 40 minutes to cross both sides of the border has beenused as the basis to test the economic justification of investing in border crossing improvements. Thesavings on transport costs are estimated in excess of US$5.7 million per year after 2005 for commercialvehicles entering BiH. The reduction in costs to trade and the increased reliability of delivery times areexpected to lead, in the medium run, to a significant increase in trade volumes, which would make use ofexisting excess production capacity. Extrapolating from analysis of some specific cases, the tradeexpansion resulting from the project is assumed to generate a benefit equivalent to 20% of transportbenefits. The switching values and sensitivity analysis indicate a robust project. Reducing currentcrossing time by 40 minutes would suffice to achieve an ERR of 12 percent.

2. Financial and Fiscal

The fiscal impact of the project is expected to be positive. The real volume of trade is probably muchhigher than shown by official records, considering the importance of unrecorded flows towards Croatiaand Yugoslavia using non official border crossings and of under-estimated values for customs duties andexcise taxes. The improved performance of border crossings should provide the basis for an expansion ofthe official volume of trade and generate additional customs duties and excise taxes.

The Bank will finance most foreign costs and, in the case of civil works, a part of local costs. TheGovemment will fund all other local costs, as well as all taxes and customs duties.

Given its high priority, the provision of local funds is not expected to create a problem for co-financingthe project. In parallel, the Federation needs to complete land purchase at Orasje and Izacic, and theRepublika Srpska needs to finance the first phase construction at Raca. These expenditures werebudgeted in the respective budgets for 2000. The Ministries of Finance will service the debt throughsubsidiary agreements with the MFTER. The resulting financial obligations of the debt will besustainable.

3. Technical

The proposed works consist of new and reconstructed buildings, additional traffic lanes and parking,control booths and canopies, fencing, utilities and truck terminals. The site and building works in theproject do not require complex design or construction methods, but they will require scrutiny to makesure that they are dimensioned to match expected flows of traffic per hour, including provision of

separate "green" and "red" channels, the separation of trucks from passenger traffic, and vehicle parkingspace consistent with the speeded up processing. Design capacities will allow for peak travel times butwill guard against over-dimensioning. Building will be designed to improve the quality of service tousers, and will be dimensioned in accordance with EU standards. It will be necessary to employ full timesite supervision services of independent consulting firms to ensure the quality of the constructed product.

4. Institutional

a. Executing Agencies: Project Manager and his Project Implementation Team (PIT)

Implementation will be overseen by the Project Manager and his Project Implementation Team (PIT).The Project Coordinators will assist the PIT in obtaining the input of the other agencies involved. TheProject Manager has recruited a procurement specialist and an accountant to carry out the accounting,financial management and reporting functions. The established PIT will receive technical service fromthe Bank's senior customs specialist and some support in relation to procurement. During negotiations,the agreement on the organization, staffing, and resources necessary for the PIT to operate satisfactorilywere confirmed.

The PIT will be responsible for the overall Project financial management system and reporting. Afinancial management system has been established for the Project in accordance with OP/BP 10.02 andthe PIT staff has received the initial training to use it. A Special account will be opened abroad at aforeign commercial bank acceptable to the World Bank. Government contributions will be received inseparate Project accounts. The PIT will have the project accounts audited (including all special accountsand all statements of expenditures) in accordance with International Standards on Auditing (ISA), underthe 'umbrella' agreement for auditing WB projects in BiH (with Price Waterhouse Coopers).

Before World Bank Board presentation, the PIT was subject to a review and certification processconducted by a World Bank Financial Management Specialist (FMS) to ensure that its financialmanagement system (i) satisfy the World Bank financial management requirements as stated in OP/BP10.02 and (ii) can produce, with reasonable assurance, accurate and timely information on the status ofthe project as required by the World Bank for Project Management Reports (PMR) - baseddisbursements under the Loan Administration Change Initiative (LACI).

The result of the above assessment was that the financial management system for this Project meets theminimum Bank's financial management requirements and the Annex 4-B LACI Certification was issued.An agreement was reached with the Government on the remaining steps that are needed to strengthen thefinancial management systems as mentioned in the financial management action plan. A detaileddescription of the financial management assessment for the project is available in a separate document.

The project faces two major risks in the financial management area. One is that the PIT, comprising justfour officials, assumes the authority and responsibility for every aspect of the project thereby exposing itto possible avenues of collusion and corruption. To address this risk, all the payment orders will besigned by a representative of the Beneficiaries and secondly, the Customs officials will certify the worksdone before the payments are made by the PIT. Moreover, within PIT segregation of duties amongst theofficials is achieved to a large extent. The second risk is that the project is exposed to delays in paymentsto suppliers (due to multiple levels of signatures required) and inadequate counterpart funds in thegovernment project account. The experience on existing projects indicates that this risk to a large extentis contained by adequate supervision by the Bank and has not been a major problem so far.

The Trade Facilitation Development component will be managed by the BCE in collaboration withgovernment agencies and the private sector. The BCE has designated a coordinator for this component.

b. Project Management: Regional Steering Committee

The Regional Steering Committee (RSC), meeting at least once every four months, oversees thecoordination and implementation of the Program and the proposed project. The RSC is constituted ofhigh level officials (the project coordinators) of the participating countries empowered to implementnecessary sector policy and reform decisions.

5. Social

The project aims at improving access to knowledge related to trade, transport and logistics through thetraining extended to the business community. The TTFSE website will allow access to all informationrelated to border crossings in the six countries involved in the Program, improving to a large extenttransparency, thereby reducing opportunities for illegal payments. The electronic forum under thewebsite will empower the business community in the region and outside by enabling it to voice itsopinion on the quality of the border services received and propose corresponding recommendations tosmooth trade and transport activities.

The project will have an indirect impact on the poor. The reduction in border crossing delays will reducetrade and transport costs, and in turn, the cost of imported goods, leading to benefits to consumers andlower cost of inputs required for local manufacturing, with corresponding creation of new jobs. Thisimport effect, however, will be partly offset by losses incurred by local producers when new importsreplace local products.

6. Environmental Assessment: Environmental Category [] A [x] B [I C

Since the border crossing improvements involve enhancement of existing facilities or construction ofnew facilities within developed areas, the Environmental Category is B. The scope of work includessome expansion but no major fills are envisioned nor disturbance of forested or wetland areas. Removaland disposal of waste and demolition materials should conform to international standards, and suchconformance will be a contractual obligation.

All designs for station improvements will ensure compatibility with local environmental regulations andenvironmentally sound construction standards and procedures. All mitigation actions identified in thepermitting process conditions will be provided to IDA. The responsibilities of the FCA and RSCAoutlined in the Environmental Management Plan (Annex 10) have been discussed with the client, and theclient has agreed to implement the plan. The execution of these responsibilities will minimize negativeenvironmental impact and strengthen coordination and collaboration with the Ministry of Environmentand Waters. The Environmental Management Plan will be included as an annex to the PIP to be finalizedduring negotiations by the government. The Customs Administrations will advertised the availability ofthe EMP and make it available on request. Training will be provided to sensitize operational personnel inthe RSCA and FCA to environmental issues. In any event, the overall impact of the project should bepositive, since it should lessen waiting times and vehicle emissions from trucks and other vehicles at theborder crossings.

The project will also enable customs officials to better enforce the terms of international conventions andagreements relating to the environment. Especially relevant will be the regulations included in suchagreements as (i) the European Agreement Concerning the International Carriage of Dangerous Goods byRoad (ADR) of September 1957 with its Protocol of October 1993; (ii) the Convention on theInternational Trade in Endangered Species (CITES); (iii) the Convention on the International Carriage ofPerishable Foodstuffs and on the Special Equipment to be Used for Such Carriage (ATP), of September1970; and (iv) Basel Convention on the Control of Transboundary Movements of Hazardous Wastes andtheir Disposal, of May 1992.

A liaison officer has been designated in the RSCA and FCA to follow up the implementation of theenvironmental management plan.

7. Participatory Approach

The project's design reflects views expressed by principal stakeholders including such customs users astruckers and freight forwarders. Bank staff has conducted extensive interviews and stakeholder analysisto identify trade impediments and their remedial actions. In addition, activities planned under the TradeFacilitation Development component will foster opportunities for closer, more frequent and transparentcontact and feedback between Customs and the trading community on a continuing basis.

In support of the reform of the work culture for the FCA and RSCA, the project will make available aconsultant to assist focus groups of key stakeholders. This activity will be coordinated with other aidagencies and existing stakeholder groups (BiH-PRO and BCE). The Government will also initiate apublic information program designed to reach stakeholders and the public. User surveys are envisionedas a basis for performance indicators. Principal stakeholders, for example truckers, will be also involvedto monitor border delays. The project will make intense use of BiH-PRO and counts on its feedback tomonitor improvements.

The project has been prepared in collaboration (COL), consultation (CON), information sharing (IS) withthe following:

a. Primary Beneficiaries and Other Affected Groups

* Exporters, importers, producers and consumers (CON)

* Road transport operators and their association (CON)

* Freight forwarders/shippers (CON)

* BiH Chamber of Economy and BiH-PRO (COL)

* Foreign investors (IS)

* Ministries of Finance, the FCA and RSCA (COL)

* Ministry of Interior and border police (COL)

b. Other Key Stakeholders

* Ministry of Urbanism, Housing, Civil Engineering, and Ecology (RS), Federal Ministry of PhysicalPlanning and Environment (CON)

* The European Commission, the US Govemment and other development partners (COL)

* IRU and FIATA"6

* WCO

* Private companies (IS)

A specialist in participatory methodology will assist in the design and implementation of a project launchworkshop in each country. The specialist will also provide a preliminary action plan, which will beadopted as a guide for user participation under the Trade Facilitation Development component (Annex2). The Action Plan will use output provided by the participants that attend the Project LaunchWorkshop.

16 FIATA -Federation of International Forwarding Agents.

As follow-up to the Project Launch Workshop, the Action Plan will include, for example, such activitiesas a series of user focus groups as well as user surveys. The focus groups will provide an open index ofuser satisfaction. Surveys of such key stakeholders as truckers and freight forwarders will provide thebasis for more quantifiable information as part of the verification plan for the performance indicators,assuring a central role of such stakeholders in project monitoring. The Project Manager with theassistance of the BCE will be responsible for implementing the action plan. The results will be reportedas part of the annual reviews.

F. Sustainability and Risks

1. Sustainability

The project will support values that are critical to fulfilling BiH's long-term objective of achievingsustainable growth. Once the reforms are in place, the sustainability of the effort will be assured bytransparency in customs operations, regular cooperation among border crossing agencies including thoseof other countries, and the gains captured by all parties involved in legitimate trade. Continuousupgrading of the customs service, procedures, management, and equipment based on a reengineeredbudget will enable the FCA and RSCA to cope with trade and traffic growth, technological advance, andcontinued compatibility with the EU.

At the level of BiH, the risks of project failure are modest regarding infrastructure improvement but moresignificant regarding the outcome of customs reform led by the CAFAO. The complexity of BiH makesthe reform more delicate than in other TTFSE countries, but CAFAO has substantial resources in place toguide BiH on its way to the reform. At the level of the region, effective cooperation could greatlyenhance the developmental impact but is also subject to some uncertainty.

2. Critical Risks (reflecting assumptions in the fourth column ofAnnex 1)

RiskRisk Rating Risk Minimization Measure

Annex 1, "from Outputs to DevelopmentObjective"High level of smuggling continues despite S The program of customs compliance and enforcementreduction in costs to trade and transport (CAFAO) and random controls of smaller border post

will reduce significantly this risk.

Cooperation among border agencies faces inertia S The high-level coordinator will have the power toand strong resistance. request meetings of the various border agencies.

Cooperation across agencies and across entities hasstarted with the signature of a cooperation agreement.

Political commitment is not adequate to resist H The approach will be consolidated, providing anpressure groups (public or private) and to ensure effective counterbalance to pressure groups; andthe success of the institutional program. clearance procedures will be made more transparent. In

BiH the CAFAO will support the implementation of thereform program.

Coordination by RSC is not effective and not S Donors are an integral part of the Program. Keysupported by donors. decision-makers of each program country and

observers from contributor countries will participate inthe RSC.

Slow implementation of procedural changes M A programn of broad training/information to thepublic/private sector will be established.

Slowdown in imnplementation due to complexity of S Resources to support the PIT have been increased forthe team that purpose.

Regional cooperation issues prevent the H The MOU, the RSC, the regional website, theachievement of regional goals. benchmarking and the willingness to cooperate with the

EU will create a favorable environment for propercooperation.

Annex 1, cell "from Components to Outputs"

The willingness to introduce significant changes at S The performance at pilot sites will trigger the launch ofpilot sites across agencies is low. procurement for physical infrastructure components in

years 2 and 3.

The targeting and selectivity techniques are not S The effective iniplementation of targeting andeffectively implemented at an operational level. selectivity techniques will trigger the launch of

procurement for physical infrastructure components inyears 2 and 3.

High turnover of staff M Proper human resource policy will be introduced.

Overall Risk Rating S This is a substantial risk, good-return project with apotential high return.

Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk)

3. Possible Controversial Aspects

Type ofRisk Risk Risk Rating Risk Minimization Measure

Delays in institutional changes G S Coordination, direct support bythe CAFAO

Rejection by FCA and RSCA of corruption as a G S The work at the RSC level andsignificant issue the cooperation with Croatia will

nmininize this risk.Type of Risk - S (Social), E (Ecological), P (Pollution), G (Governance), M (Management capacity), 0 (Other)Risk Rating -H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk)

G. Main Credit Conditions

1. Effectiveness Conditions

a. The Federation Project Agreement and the Federation Subsidiary Credit Agreement have beenexecuted on behalf of the Borrower and the Federation on terms and conditions satisfactory tothe Association.

b. The Republika Srpska Project Agreement and Republika Srpska Subsidiary Credit Agreementhave been executed on behalf of the Borrower and Republika Srpska on terns and conditionssatisfactory to the Association.

c. The Borrower has engaged auditors satisfactory to the Association.

2. Other (according to covenant types used in the Legal Agreements)

a. By November 15 of each year, the Borrower and the Bank will review progress achieved underthe project including at pilot sites based on agreed performance monitoring indicators, and willconfirm the implementation program (including procurement packaging) and performance targetsfor the following year.

b. By March 31, 2001, the Project Coordinators will establish a mechanism across all borderagencies to provide the Facilitation Coordinator with up-to-date information on waiting timesand opening hours at border crossings, Customs Code, bylaws, and procedures of borderagencies; this information shall be binding and made available to customs users in order tocontest a decision at a border post.

c. The Beneficiaries will actively participate in the Regional Steering Committee and support it.

d. Except as the Bank may otherwise agree, the Federation shall take all necessary measures toachieve the following targets:

(i) the total number of customs declarations which result in a physical inspection by the FCAat its pilot inland terminal does not exceed, on a monthly basis: (i) 35% by September 30,2001; and (ii) 25% by September 30, 2002;

(ii) the number of trucks completing import clearance in less than 15 minutes at its pilot inlandterminal exceeds, on a monthly basis: (i) 10% by September 30, 2001; and (ii) 20% bySeptember 30, 2002; and

(iii) the number of trucks opened at its pilot border-crossings does not exceed, on a monthlybasis: (i) 50% by September 30, 2001; and (ii) 30% by September 30, 2002.

e. Except as the Bank may otherwise agree, Republika Srpska shall take all necessary measures toachieve the following targets:

(i) the total number of customs declarations which result in a physical inspection by theRSCA at its pilot inland terminal does not exceed, on a monthly basis: (i) 20% bySeptember 30, 2001; and (ii) 15% by September 30, 2002;

(ii) the number of trucks completing import clearance in less than 15 minutes at its pilot inlandterminal exceeds, on a monthly basis: (i) 10% by September 30, 2001; and (ii) 15% bySeptember 30, 2002; and

(iii) the number of trucks opened at its pilot border-crossings does not exceed, on a monthlybasis: (i) 40% by September 30, 2001; and (ii) 20% by September 30, 2002.

H. Readiness for Implementation

[ ] The engineering design documents for the first year's activities are complete and ready for the start ofproject implementation.[ ] The procurement documents for the first year's activities are complete and ready for the start ofproject implementation.[X] The Project Implementation Plan has been appraised and found to be realistic and of satisfactoryquality.

I. Compliance with Bank Policies[X] This project complies with all applicable Bank policies.[]The following exceptions to Bank policies are recommended for approval:

Program Team Leader/Task Team Le er: Graham Ollivier, ECSIN

Sector Director: Ricardo A. Halperin, ECSIN

Country Director: Christiaan J. Poortman, ECC04


Project Design Summary

Sector-related CAS Goal. (Goal to Bank Mission)

Support Private Sector Development Total Trade increasing from US$3.7 B in 1999 to US$5.9 B * MFTER Wealth is distributed appropriately toin 2002 alleviate poverty.

Availability of information and training for the professional * BCE Facilitating trade expansion will lead toinvolved in trade and transport activities higher GDP growth.

Strengthen Public Finance Quality of customs services gradually improving (user * Ministries of Tax proceeds will be used transparentlyInstitutions survey) Finance and appropriately.

Eliminate Physical Bottlenecks Improvement of border crossing points * Ministry ofTransport

Project Development Objective: (Objectve to Goal)

1. Reduce non-tariff costs to trade * Transport costs to/from the four main trading partners * Annual sampling Business environment will improveand transport decreasing annually by 2 percent on average from year by Chambers of notably regarding comnpetitive markets,

2001 Commerce and corporate governance and judicial andevolution of regulatory systems.CIF/FOB ratio Reform in the banking/insurance sector

* Overall cost reduction to trade at selected border will reinforce trade activities.crossing: 6 % by 2003 * Study performed at Reduction in tariff levels and non-tariff

project completion costs will enhance trade incentives.

2. Reduce smuggling and corruption * Value of recorded imports increased from US$2.6 B in * FCA and RSCA Non-customs tax collection will also beat border crossings 1999 to US$3.5 B in 2002 annual report made more efficient.

* Occurrence of corruption cases down by 2003 17 * Annual survey of

truckers crossing theborder

'7 See definition of indicators, page 6 of this Annex.

Outputls1 : (Outputs to Objectve)

I .1. Strengthen the institutional and * Import clearance time at pilot terminals down from 2.5 * Logs of Customs The CAFAO program will achieve itsoperational capacity of RSCA and hours in 1999 to 50 minutes on average in 2003 * IRU in cooperation stated objective.FCA and other border agencies (Federation) and from 2 hours to 20 minutes (RS). with the National The transport sector will offer a

* Inland physical examination down from 35% in 1999 to Associations of competitive environment.10% in 2003 (RS) and from 50% to 20% (FBH) Road Transport Cooperation between border agencies

* Average border entry time down from 85 minutes in 1999 Operators will be supported by the Nationalto under 20 minutes by 2003 (FBH) and from 120 to 30 * Ministries of Coordinator.minutes (RS). Finance

* Chamber of Border agencies will be given the

Economy political mandate to innovate at pilotEconomy ~~~sites.

1.2. Support customs users * Internet framework and forums set up in 2001 for * BiH Chamber ofprivate/public sector information exchange. Internet site Economyvisits exceed 300/month in 2001. Current border situationavailable on the internet in 2001.

1.3. Improve main border crossings * All works completed by June 2003 Periodic surveys of Reform programs supported by otherinfrastructure users on the duration donors will be implemented as

and the convenience scheduled.of border crossing(incl. Monitoring ofcongestion)

1.4. Complete an EU-compatible * Information systems interconnected with EDI by 2002 * RSCA and FCA, Mostly financed in parallel under theinformation system to provide high * Time to obtain statistical data on foreign trade down to 7 users CAFAO's program.

level internal and exteal services days in 2003 Appropriate staff available in RSCA and

* Level of interruption below I percent during working hours FCA for information systems.

2.1. Strengthen and increase the * Risk Assessment & Selectivity effective by 2002 * Ministries of Reducing costs to trade and tariffs willefficiency of on-site inspections to * Number of irregularities/number of physical examinations Finance result in significant regularization ofprevent smuggling stabilized at 10%. * RSCA and FCA trade.

Political commitment is adequate toresist pressure groups and ensure thesuccess of the institutional program.

aq>

18 Output 1. 1 and 1.4 will mostly result from ongoing CAFAO's program.-. _

Project Components/Sub- Inputs: (budgetfor each component) in USS million'9 (Components to Outputs)components: (see Annex 2forproject description)

A. Improvement of Border 13.6 Border agencies will actively participateCrossing/Customs Facilities in the irnplementation of pilot sites.

-refurbishment of three stations andone inland terminal Customs policies in all operational areas

-provision of weighing scales will ensure the uniform application of

-customs laboratory equipment new procedures.

-awareness training

-infrastructure for information The modules for targeting and selectivitytechnology will be operational nationwide by

December 2001

B. Trade Facilitation 0.5 Other on-going regional initiatives forDevelopment trade (Association of Balkan

-training Chambers..) will continue operating.

-website

C. Program and Project 0.8Implementation

The costs described below are costs including contingencies and taxes,

Annex 1Page 4 of 7

Bosnia and HerzegovinaRepublika Srpska

Performance Targets

Indicators Dec 1999 Sep 2000 Sep 2001 Sep 2002 Sep 2003

Act Targ|_Ac Targ. Act Act arg Act

1. Pilot Sites Clearance Performance

Pilot Inland Terminal (Banja Luka)

Import Clearance Tirne (min) 120 100 80 60 20

Physical Examination (%) 35 25 20 15 10

Trucks cleared in less than 15 mnin. (°) 0 0 10 15 25

Irregularities/number of examinations (%) 5 7 10 13 15

Pilot Border Crossings (Raca)

Truck Examination (%) 90 70 40 20 10

Irregularities/ Number of Examninations (%)20 10 10 10 10 10

Average Border Exit Time (mrin) 20 20 15 15 15

Average Border Entry Time (miin) 120 100 80 50 30

Surveyed Occurrence of Corruption (/o) | _ _

Pilot Border Crossings (Gradiska)


Irregularities/ Number of Examinations (%) 10 10 10 10 10

Average Border Exit Time (mi) 20 20 15 15 15


Surveyed Occurrence of Corruption (%) I I I I_I_I

2. Development Objective Achievements

Revenue collected/customs staff (1,000 DEM) 314 350 450 550 650

Total RSCA Cost/Revenue collected (%) 6.3 6.0 5.0 4.0 3.0

Salaries/Revenue collected (%) 2.4 2.2 1.7 1.6 1.4

Trade Volume/ Number of staff (DEM million) 2.8

Annual Number of Declarations/ Custom staff 240 250 350 550 650

Transport Cost for the main export commodity 100 100 98 96 94traded with the three main trading partners (DEM-base 100 in 1999)

Value of Recorded Imports (US$ million)

Value of Recorded Exports (US$ million)

2 0Any performance between 8 and 12 percent would be satisfactory.

Annex IPage 5 of 7

Bosnia and HerzegovinaFederation of Bosnia and Herzegovina

Performance Targets

Indicators Dec 1999 Sep 2000 Sep 2001 Sep 2002 Sep 2003

Act Tar g Act Targ. Act Targ. Act Targ Act

Pilot Sites Clearance Performance

Pilot Inland Terminal (Grude)

Import Clearance Time (rnin) 100 90 80 65 50

Physical Examination (%) 50 45 35 25 20

Trucks cleared in less than 15 min. (%) 0 0 10 20 30

Irregularities/number of examinations (%) 10 12 13 14 15

Pilot Border Crossings (Orasje)


Irregularities/ Number of Examinations (%)21 15 15 14 12 10

Average Border Exit Time (min) 15 15 15 15 15


Surveyed Occurrence of Corruption (%)

Pilot Border Crossings (Izacic) ___


Irregularities/ Number of Examninations (%) 10 10 10 10 10

Average Border Exit Time (mrin) 20 20 20 20 20

Average Border Entry Time (min) 70 60 50 30 20

Surveyed Occurrence of Corruption (%) _


Revenue collected/customs staff (1,000 DEM) 587 600 700 800 850

Total FCA Cost/Revenue collected (%) 2.9 2.7 2.6 2.1 2.0

Salaries/Revenue collected (%) 2.1 2.0 1.5 1.4 1.4

Trade Volume/ Number of staff (mnillion DEM) 7.1

Annual Number of Declarations/ Custom staff 300 350 | 450 600 700

Transport Cost for the main export conmnodity 100 100 98 96 94traded with the three main trading partners (DEM-base 100 in 1999) _____

Value of Recorded Imports (US$ million)

Value of Recorded Exports (US$ million) I T_ T

21 Any performnance between 8 and 12 percent would be satisfactory.

Annex 1Page 6 of 7

Performance Indicators - Definitions

Indicators Description Remarks

Pilot Sites Clearance PerformancePilot Inland TerminalImport clearance time Time between entrance of truck into the Information on truck identification and time

terminal and its exit from the terminal of arrival and departure will be recordedafter release of goods. with the use of computer terminals or time

clocks installed at the terminal entry and exit____________________ points

Physical Examination Number of times that goods are examined Information will be derived from theor the cargo compartment is searched computer system that records all declarationscompared to the total number of import, and from the requirement to prepare anexport, and suspense declarations. automated report of the results of each

physical examination.

Trucks cleared in less Number of times that a truck completes Information will be developed using thethan 15 minutes import clearance (time between entry into same system that provides the data on import

the terminal and departure after release of clearance times.goods) in less than fifteen rninutescompared to the total number of importclearances.

Irregularities/number Number of irregularities discovered Information will be obtained from theof examinations during physical examinations compared automated reporting of the results of all

to the total number of physical physical examinations.examinations carried out.

Pilot Border Crossings _Truck Examinations Number of trucks actually opened (i.e., Information will be compiled through the use

seals broken) compared to the total of computerized traffic logs and thenumber of trucks processed. requirement to prepare an automated report

of the results of each truck examination.

Irregularities/Number Number of irregularities discovered Information will be extracted from theof Examinations during examinations compared to the total automated reports of truck examinations.

number of trucks examined.

Average Border Exit For trucks exiting the country, it is the Information on truck identification and timesTime time between joining the queue and will be recorded continuously with the use of

crossing the border. Physically examined computer terminals or time clocks installedtrucks are excluded. at appropriate locations.

Average Border For trucks exiting the country, it is the Information on truck identification and timesEntry Time time between joining the queue and will be recorded continuously with the use of

crossing the border. Physically examined computer terminals or time clocks installedtrucks are excluded. at appropriate locations.

Surveyed Occurrence Number of cases when a driver makes or Information to calculate this indicator will beof Corruption is asked to make an unauthorized derived from surveys of truck drivers using

payment compared to the total number of the crossing point. This survey will betrucks/locations surveyed. conducted on a continuous basis through

cooperating transport companies.

Annex IPage 7 of 7


Revenue Total revenues collected in '000 Information to be obtained from recordscollected/customs DEM/Total number of customs maintained by the Customs Service.staff employees

Total RSCA or FCA Total budget of the Department Information to be obtained from recordsCost/Revenue (including salaries, overtime, bonuses, maintained by the Customs Service.Collected and benefits)/Total revenue collected

irrespective of its destination.

Salaries/Revenue Total agency salaries, overtime, bonuses, Information to be obtained from recordscollected and benefits/Total revenue collected maintained by the Customs Service.

irrespective of its destination

Trade Trade Volume in million DEM/number of Information to be obtained from recordsVolume/customs customs employees maintained by the Customs Service.staff

Annual number of Total number of declarations (import, Information to be obtained from recordsDeclarations/ export, suspense regimes, but excluding maintained by the Customs Service.customs staff transit), irrespective of the number of

items/Total staff employed by RSCA orFCA.

Regional Performance Indicators

2003Itinerary 2000 2001 2002 2003 as % of

2000I. Istanbul-Bucharest Avg Time (hours) 80 78 75 71 89

Average Cost (DEM) 2,030 2,000 1,950 1,880 93

II. Istanbul-Tirana Avg Time (hours) 192 189 182 172 90

Average Cost (DEM) 5,600 5,520 5,380 5,200 93

HI. Sarajevo- Avg Time (hours) 40 40 39 38 95Ljubljana Average Cost 1,500 1,480 1,460 1,440 96

Base-year values are estimates by Bank staff for a single 20-ton truck-load, based on a survey of freightforwarders in the Southeast Europe region.

Annex 2Page 1 of3


Project Description and Schedule

Al. Improvement of Border Crossing Facilities - Republika Srpska - US$ 4.2 million(total cost with contingencies/taxes)

Component Investment Detail

Raca Border 1,500,000 Construction of part of the new station at a border crossing in the NortheastStation region. The entire facility will provide for a total of twelve processing lanes,

six each for entry and exit traffic. The lanes will have booths for police andCustoms and will be covered by a canopy. Buildings will be used to provideoffice space for the border agencies. There will be a parking with a capacityof forty trucks.

Novi Grad 700,000 Construction of a new truck terminal near a border crossing in theTruck Terminal Northwest region. This temminal will serve as an extension of the border

station, providing processing capacity not available at the actual border. Itwill include four processing lanes, two each for import and export traffic,and parking capacity for twenty trucks. Buildings will provide necessaryoffice space and inspection capabilities.

Weighing Scales 200,000 Purchase and installation of eight weighing scales at border stations for useby Customs authorities in targeting trucks for detailed inspection.

Customs 730,000 Purchase of equipment for a Customs laboratory and training of personnel toLaboratory use this equipment.Design and 120,000 Includes the supervision of the works at Raca ($50,000) and the design andSupervision supervision at Novi Grad ($70,000).Awareness 50,000 Enhance cooperation among border agencies. Includes:training (NBF) (i) sensitization of customs officers to the importance of environmental

issues;(ii) familiarization of customs offices with veterinary and phyto sanitarycontrols; and(iii) assistance in the implementation of intemational conventions related toenvironment.

Total (US$ 3.3million) withoutcontingencies/taxes

Annex 2Page 2 of 3

A.2. Improvement of Border Crossing Facilities - Federation of Bosnia-Herzegovina -US$ 9.4 million (total cost with contingencies)

Component Investment Detail

Orasje Border 2,325,000 Construction of part of the new station at a border crossing in theStation Northeast region. The facility will provide a total of eleven

processing lanes. On the entry side there will be two lanes for cars,one for buses and three for trucks. On the exit side, there will be twolanes for cars, one for buses and two for trucks. The processing laneswill have booths for police and Customs and will be covered by acanopy. There will be a detailed inspection building and parking forthirty trucks on the entry side. Buildings will provide office space forthe border agencies.

Izacic Border 3,525,000 Construction of part of the new station at a border crossing in theStation Northwest region. The facility will provide a total of eleven

processing lanes. On the entry side there will be two lanes for cars,one for buses and three for trucks. On the exit side, there will be twolanes for cars, one for buses and two for trucks. The processing laneswill have booths for police and Customs and will be covered bycanopies. There will be a detailed inspection building and parking forthirty trucks on the entry side. Buildings will provide office space forborder agencies.

Inland terminals 400,000 Reconstruction and building of inland terminals, including requiredand information technology infrastructure.infrastructurefor informationtechnologyProject Design 300,000 Contracts for the detailed design of new stations at three borderfor Border crossing locations. Each contract ($100,000) will provide for aStations at complete set of drawings for a border station.Doijani, Goricaand KamenskoDesign and 305,000 Contracts for design and supervision of the infrastructure forSupervision information technology (US$30,000) and for the works at Orasje

($135,000) and Izacic ($135,000).Awareness 50,000 Enhance cooperation among border agencies. Includes:training (NBF) (i) sensitization of customs officers to the importance of

environmental issues;(ii) familiarization of customs offices with veterinary and phytosanitary controls; and(iii) assistance in the implementation of international conventionsrelated to environment.

Total (US$ 6.8million) withoutContingencies

Annex 2Page 3 of 3

B. Trade Facilitation Development (US Government Grant)Cost with Contingencies US$ 0.5 million

1. Strengthening of 100,000 Design a regional website and mechanisms to update it. The websitePrivate-Public (NBF) will enable transparency on policies, legal and regulatory frameworkPartnership and cooperation at a local, national and regional level among privateEstablish and and public parties. It will offer a comprehensive information resource

maintain a regional on border crossings and inland terminals (pictures), on procedures ofmaint a regiona border agencies in the region, and support the implementation of thewebsiteato support TI'FSE Program. All training materials developed under the Tradethe program and act Facilitation Development will be made available on the site.

point for tradefacilitation

2. Improvement of 300,000 Develop and implement a series of conventional/distance learningthe performance of (NBF) programs in trade, transport, and logistics focussed on facilitating trade.trade facilitation The programs will consist of: (i) a study guide; (ii) study sessions; (iii)agents reference readings; (iv) frequently asked questions; (v) exams; and (vi)

Expert services and certification by a lead professional association. Seminars will be offeredtrainint for some study sessions. Materials will be available either electronically

training on the website or in the form of paper copies printed out at the Chamberof Commerce and Industry.

Total (US$ m) 0.4without (NBF)contingencies

C. Program and Project Implementation - US$0.8 million

Project Operating costs 150,000 Bank contribution to operating costs.Implementation Team

PID salaries 200,000 PID Staff salaries (government financed)

Auditor 100,000RSC Secretariat, 105,000 RSC secretariat (US)FMS, 125,000 Financial management system, accountant andProcurement advisors procurement support.

Total without Contingencies (US$) 680,000

Annex 3Page 1 of 2


Estimated Project Costs

% % Total(US$ Million) Foreign Base

Local Foreign Total Exchange Costs

A. Improvement of Border Crossing FacilitiesBorder Post Improvements-FBH 3.7 3.7 7.4 50 58Border Post Improvements-RS 1.3 1.3 2.6 51 20Borders Crossings Equipment-RS - 0.9 0.9 100 7Design/Supervision of Works-FBH 0.1 0.5 0.6 85 5Design/Supervision of Works-RS 0.0 0.1 0.1 85 1Awareness Training-RS 0.0 0.0 0.0 90 -

Awareness Training-FBH 0.0 0.0 0.0 90 -

Subtotal Improvement of Border Crossing Facilities 5.0 6.7 11.7 57 92B. Trade Facilitation Development

Expertise, Advice and Equipment 0.0 0.4 0.4 90 3Subtotal Trade Facilitation Development 0.0 0.4 0.4 90 3C. Project and Program Implementation - - - - -

Auditor, Procurement, FMS and RSC Sec. 0.1 0.3 0.3 84 3PIT Operating Costs 0.3 - 0.3 - 3

Subtotal Project and Program Implementation 0.4 0.3 0.7 41 5Total BASELINE COSTS 5.5 7.3 12.8 57 100

Physical Contingencies 0.5 0.7 1.2 56 9Price Contingencies 0.6 0.3 0.9 30 7

Total PROJECT COSTS 6.6 8.2 14.8 56 116

Note: Figures may not add up to total due to rounding

Annex 3Page 2 of 2

Components by Financiers LocalIDA BIH Donors (USA) Total For. (Exct. Duties &

Amount % Amount % Amount % Amount % Exch. Taxes) Taxes

A. Improvement of Border Crossing FacilitiesBorder Post Improvements-FBH 6.5 75 2.2 25 - 8.7 59 4.2 3.1 1.4Border Post Inprovements-RS 2.3 75 0.8 25 - 3.0 20 1.5 1.0 0.5Borders Crossings Equipment-RS 1.0 100 - - 1.0 7 1.0Design/Supervision of Works-FBH 0.7 100 0.0 - - 0.7 5 0.6 0.1Design/Supervision of Works-RS 0.1 100 - - 0.1 1 0.1 0.0Awareness Training-RS - - 0.1 100 0.1 0 0.1 0.0 -Awareness Training-FBH - 0.0 - 0.1 100 0.1 0 0.1 0.0

Subtotal Improvement of Border Crossing Facilitli 10.6 78 2.9 21 0.1 1 13.6 92 7.5 4.2 1L9B. Trade Facilitation Development

Expertise, Advice and Equipment - 0.0 - 0.5 100 0.5 3 0.4 0.0C. Project and Program Implementation - - - -

Auditor, Procurement, FMS and RSC Sec. 0.2 68 0.0 - 0.1 32 0.4 2 0.3 0.1PIT Operating Costs 0.1 34 0.3 66 - 0.4 3 - 0.4

Subtotal Project and Program Implementation 0.4 51 0.3 34 0.1 15 0.8 5 0.3 0.5Total Disbursement 11.0 74 3.2 21 0.7 5 14.8 100 8.2 4.7 1.9

Note: Figures may not add up to total due to rounding

Annex 4Page 1 of 6


Cost Benefit Analysis of Total Project Investment

Table 4.1. Summary Economic Benefit from the Project

COSTS BENEFITSFY Net Benefits

(in US$ million) (in US$ million) (in US$ million)2001 0.5 0.2 -0.32002 9.0 1.0 -8.02003 2.6 4.5 1.92004 4.0 4.02005 3.4 3.42006 2.8 2.82007 2.9 2.92008 3.0 3.02009 3.1 3.12010 3.2 3.22011 3.3 3.32012 3.4 3.42013 3.5 3.52014 3.6 3.62015 3.7 3.72016 3.7 3.72017 3.7 3.7

Total 12.2 52.9 40.7Internal Rate of Return 35%

iDiscount Rate 1 12% 1

NPV @ 12% 9.5 19.9 104

The Principles of the Economic Evaluation

The border crossings proposed for improvements under this project were selected on the basis of: (i) traffic;(ii) geographical location (on intemational routes); (iii) waiting time at present; and (iv) need for upgrading.These border crossings were designed to ensure efficient and transparent border operations, while fitting themore stringent norms of the European Union regarding office space occupancy. The analysis was built inclose coordination with local parties (RSCA, FCA, Ministries of Finance) reviewing alternative remedialmeasures.

The economic cost-benefit analysis compares the economic costs and benefits of the project over theimplementation period and over its assumed 15-year period of expected life. Detailed calculations on costsand benefits are shown in Table 4.1. All costs and benefits are expressed in constant 2000 prices. Allinvestment costs are net of import duties and of either taxes or subsidies.

Annx-4Tale 4.2E&ou.um Cost-Befit Aavlysis Boua ea Hmrnguwa

(MMiom of US$ in 2000 pices)

2001 202 12003 2n4 200 26 2007 200 209 2010 2011 201.2 2013 1 14 2016

Coet_Investment Costs

KSth tho Poject

Impwvement of 8oxrer Crossing Facilities 04 8 8 2.5Trade Faclitation Deve]opm.nt 0 1 0.2 0 1

Total O1hthAe Prase:t 05 9.0 2.6

Tote lJaemeuetml Coat, 8! 9.0 2.6 0.0 0.01 0.0 0.0' *.0 0.0 0.0 0.0 0.0 0.0 0.* *.0

Ecoomi.k Benefit,1. Traaport Cost Redution (with project)

PilotCrossings 01 06 22 32 33 34 3.5 36 37 38 39 40 41 43 44Other Csssuis/Posts 0.0 01 1.2 1.7 1.7 1.8 1.9 1.9 2.0 2.0 2.1 2.1 2.2 2.3 23

Pilot Inland Teninrwl 00 0.2 0.5 0.7 0.7 0.7 0.7 0 8 0 8 0.8 0 8 09 09 09 09

Total 02 09 38 55 57 59 6 1 62 64 66 68 70 72 74 772. Impact of RedAuced Tsozert Cost, on Trade

Trade Benefits from Tnspost Cost Redaction 0.04 0.2 0 8 1.1 1.1 1.2 12 12 1.3 1.3 1 4 1.4 1 A 15 15

3. Transport Coxt Reduction (witkout project) -2.7 -3.4 -4.2 -4-4 -45 -46 -48 -4.9 -5 1 -5.2 *5.4 -55

Totl Beuefits 1fm Project 0.2 1.0 4.5 4 0 3.4 2.8 2 9 3.0 3.1 3.2 3.3 3 4 3.5 3.6 3.7

Net Benefits frema Ptoject -0.3 -8.0 1.9 4.0 3.4 2.8 291 3.0 311 3.21 33 34 3 5 3.6 3.7

°IVsP.

Annex 4Page 3 of 6

Costs

The project cost considered for the economic evaluation amounts to US$12.2 million excluding taxes andincluding physical and price contingencies. It includes the following components: (i) Improvement of bordercrossing and customs facilities; and (ii) trade facilitation development measures. It does not take intoaccount the cost of the program and project implementation.

Benefits - With Project Scenario

Two benefits have been quantified: (i) lower transport costs due to the diminution of waiting times at bordercrossings and inland terminals; and (ii) economic benefits of trade expansion resulting from the project.Some time savings will accrue as well to passenger traffic at the crossings. This element was not included inthe analysis but will be monitored over the project life at pilot sites.

Trade and Transport Costs Reduction. The savings on transport costs at BiH border crossings and theinland terminal under the project would progressively reach about US$5.5 million at the end of 2004. Delaysat border crossings and inland terminals are symptomatic of a number of issues associated with deficienciesin trade related services: procedural complexity, cumbersome documentation requirements, systematicchecks, slow customs clearance steps, scarce and unreliable information technology andtelecommunications, absence of standard service times and inadequate infrastructure.

Assumptions. The progressive reduction of border crossing time22 to forty minutes for incoming traffic hasbeen used as the basis in the economic evaluation of the project. The border crossings where physicalimprovements would take place would progressively meet this objective by 2002. The average waiting timefor trucks in the "do nothing" alternative is the mid-estimate as reported by customs users and officials. Theaverage value of time for trucks was obtained through interviews (US$340/day). Traffic will be impacted byfive broad parameters that are difficult to forecast accurately: (i) the recovery of the Croatian, Yugoslav andBosnian economies; (ii) the reallocation of traffic as bridges and official border crossings reopen; (iii) thereduction of traffic crossing through the large number of non official border crossings as a result of betterscrutiny at border; (iv) the progressive reduction in donor financed assistance; (v) the resurgence of trade inthe neighboring of the border. Overall traffic growth was assumed at 3 percent under the category "trade andtransport cost reduction", compared to a base traffic corresponding to periods when the correspondingbridges were operational.

In order to realize the economic benefit from the waiting time reduction, both the physical investments andthe customs reform are jointly required because the customs reform alone can not completely reduce thewaiting time. For example, the implementation of new procedures requires additional lanes to allow fortraffic segregation, appropriate space covered by canopies for secondary inspection23, proper communicationcapacity with limited interruption (LAN, WAN, phone, fax). The project will specifically address theseborder posts where infrastructure or equipment bottlenecks exist. The infrastructure for informationtechnology will significantly impact operations at inland terminals and border crossings by: (i) improvingsound decision making; (ii) ensuring selectivity and targeting; (iii) giving access to intelligence information.This impact will be monitored over the life of the project but was not quantified as part of the evaluation.

Economic Impact of Increased Trade. The impact on trade under the project comes from: (i) reduction inwaiting time at border crossing points; and (ii) increased reliability in the delivery of goods. In a competitivemarket, these two elements will be reflected in the price of traded goods, and stimulate trade. The increasedreliability of international delivery times will facilitate the integration of local companies into internationalproduction chains.

22 entering the border area in one country to exiting the border area in the next country.23 Selectivity means not only that not all trucks are inspected, but that those inspected are subject to a far more detailedinspection than today.

Annex 4Page 4 of 6

In the medium run (from 2003) these two elements should enable a significant increase in trade volumes.Such trade gains are obtained by combining trade creation and trade-substitution effects24. Imports would bethe most affected initially, since the border inefficiencies bear mostly on imports. However the regionalnature of the project would simultaneously impact exports. Increased import volumes would benefit localconsumers (inclusive of local companies relying on foreign inputs for their production) by increasing theirconsumer surplus and would create a loss for some local manufacturers, whose products become replaced bynew imports. Increased export volume would benefit local producers by opening new market opportunitiesand would reduce local consumer surplus by reducing the quantity available on the local market at the initialprice.

The broad economic impact of cheaper international transport is complex to analyze even in countries withvalid statistical data and requires general equilibrium models taking into account the monetary/foreignexchange impacts of new trade patterns. Given the current level and quality of data available on the sixTTFSE countries, such a detailed evaluation would not be realistic. The outcome of various studies25 on thisphenomenon shows these additional benefits ranging between 20 and 30 percent over the transport savingsgenerated. For the purpose of this evaluation, 20% was considered as the most appropriate. Exhibit 4.1provides an at-a-glance summary of trade for BiH.

Benefits - Without Project Scenario

If the project were not taking place, reform efforts would continue to be implemented with the support of theCAFAO. The differential between the with or without project scenarios in terms of costs includes only theproject costs as described above. The extemal support would enable the Customs services to partly achievethe objectives of this project on a delayed schedule. The benefits associated with "the without project"scenario were subtracted from the benefits in the "with project scenario" to obtain the project benefits. Itwas estimated that, without the project, 40 percent of annual with project benefits would be achieved in2003, 50 percent in 2004 and 60 percent in 2005 and onwards. The absence of needed infrastructure withoutBank's financing would impose a limit to the efficiency that could be achieved, explaining that only 60percent of the savings could be reached without the project.

Sensitivity Analysis on EIRR

Table 4.3 presents the various assumptions tested and their influence on the economic intemal rateof return of the project. The internal rate-of-return for the project is robust as shown by the lowswitching values. In all cases tested, the projected rate-of-return remains well above the opportunitycost of capital.

24 The trade creation effect is the increased demand in the importing country for a commodity from an exporting country,resulting from the price decrease associated with the elimination or reduction of distortions. Trade substitution accounts forthe tendency of importers to substitute goods from one source to another in response to a change in the import price ofsupplies from one source.25 Notably " The welfare implications of transport improvements in the presence of market failure", Anthony Venables,London School of Econoomics and Michael Gasiorek, School of European Studies.

Annex 4Page 5 of 6

Table 4.3. Sensitivity Analysis

Ilnvestment cost ()and Traffic Volume I 61% 20%

Table 4.4. Switching Values (for IRR | 12 percent

Daily Truck Value (US$/day) 165Trade related benefits coeff. _<_

Traffic volume/existing traffic 48%Minimum Time Savings

(in minutes) 40

Annex 4Page 6 of 6

Bosnia and Herzegovina Goods Trade Outlook (1999)

TRADE INDICATORS1995 1996 1997 1998 1999 Trade trend, USS million

3000-

Exports (FOB) in USS million 152 336 575 817 973 2000 -Imports (FOB) in USS million 1,082 1,882 2,333 2,573 2,388Balance on Goods -930 -1,546 -1,758 -1,756 -1,415 1000 _Growth Exports (in %) 67% 121% 71% 42% 1 90 ____________0_____

Growth Imports (in %) 21% 74% 24% 10% -7% . ,Total Trade of Goods 1,234 2,218 2,908 3,390 3,361 -100DGrowth Trade volume 25% 80% 31% 17% -1%Real GDP in USS billion 1.9 2.7 3.4 4.1 4.4 -2000Exportsas%ofGDP 8% 12% 17% 20% 22% 1995 1996 1997 1996 1999Imports as % of GDP 57% 70% 690/o 63% 54% lExportGoods FOB limport.GoodsFOBTrade balance as % of GDP 490/o 57% 52% 43% 32% BTrade as % of GDP 65% 82% 86% 83% 76% _I -0-alance on Goods

BIH: TRADE DIRECTION: Main PartnersExports, fob (USS million) ImPorts, cif (USS million)

to 1997 1998 1999 from 1997 1998 1999Italy 13 155 150 Croatia 309 384 555

Croatia 110 143 113 Slovenia 230 249 421

Slovenia 21 41 54 Yugoslavia 127 342 215

Federation: TRADE STRUCTURE (main categories)Exports Imports

US$ million 19f 19,9 Federation: Export Partners 1999Industrial Products 143 523 Others Italy

24% _ 21%Raw Materials 127

Machinery and transpon 660 SSloveni v Coa

9% ~~~21%Switzerland

12% Germany13%

Foreign trade is highly significant to BiH. Export and imports combined are valued at 75 percent of BiH's GDP. Officialtrade numbers are only indicative of broad trends due to underreporting during official data collection. Export expandedstrongly in 1999 (+19 percent in US$ terms) and continued its growth in the first half of 2000. This was combined with areduction in imports, resulting from the reduction in the donor-financed reconstruction effort. Most imports are consumergoods, while most exports are industrial goods such as base metal (aluminium) or timber.

Trading partners have changed, as a consequence of trade agreements. The EU, with notably Italy and Germany, remain themain partner of BiH. Exports to Croatia and FRY dropped considerably in 1999, following the cancellation of theirpreferential trade agreements and the crisis in FRY. Imports from Yugoslavia, which used to represent 75 percent of RSimports, dropped to a mere 20 percent in 1999, but recovered partially in early 2000. A contract with a local aluminiummanufacturer tumed Switzerland into the main export partner in the first half of 2000.

Sources : World Bank, IMF, Agency for Statistics of BIB, EIU.

Annex 5


Financial Summary

Project Components by Year -- Totals Including Contingencies(US$ Million) Totals Including Contingencies

FY2001 FY2002 FY2003 Total

A. Improvement of Border Crossing FacilitiesBorder Post Improvements-FBH - 5.9 2.7 8.7Border Post Improvements-RS - 3.0 - 3.0Borders Crossings Equipment-RS 0.4 0.6 - 1.0Design/Supervision of Works-FBH - 0.6 0.1 0.7Design/Supervision of Works-RS - 0.1 0.1 0.1Awareness Training-RS 0.0 0.0 - 0.1Awareness Training-FBH 0.0 0.0 - 0.1

Subtotal Improvement of Border Crossing Facilities 0. 10.2 2.9 13.6B. Trade Facilitation Development

Expertise, Advice and Equipment 0.1 0.2 0.1 0.5Subtotal Trade Facilitation Development 0.1 0.2 0.1 0.5C. Project and Program Implementation

Auditor, Procurement, FMS and RSC Sec. 0.1 0.1 0.1 0.4PIT Operating Costs 0.1 0.1 0.1 0.4

Subtotal Project and Program Implementation 0.2 0.3 0.8Total PROJECT COSTS o.9 10.7 3.3 14.8

FY2001 FY2002 FY2003 TotalProject Financing

Federation of Bosnia and Herzegovina 0.02 1.5 0.7 2.2Republika Srpska 0.01 0.8 0.01 0.8State of Bosnia and Herzegovina 0.1 0.1 0.1 0.2uS 0.2 0.3 0.2 0.7IDA 0.5 8.1 2.4 11.0

Total Project Financing 0.9 10.7 3.3 14.8Note: Figures may not add up to total due to rounding

Annex 6Page 1 of 11


Procurement and Disbursement Arrangements

Procurement

The following procurement arrangements will apply to all contracts financed wholly or partially by IDA.

General. Goods and works wholly or partially financed by IDA would be procured in accordance with theGuidelines for Procurement under IBRD Loans and IDA Credits published in January 1995 and revised inJanuary and August 1996, September 1997 and January 1999. Consultant's services wholly or partlyfinanced by IDA would be procured in accordance with the Guidelines for Selection and Employment ofConsultants by World Bank Borrowers published in January 1997 and revised in January 1999. A GeneralProcurement Notice has been published in the United Nations Development Business (UNDB) to advertiseall assignments expected to be financed by IDA under the project. Standard documents published by theWorld Bank/IDA will be used by the PIT for the preparation of bidding documents and request forconsultant's proposals.

Implementing Agency and its Capacity. The implementing agency is the Project hmplementationDirectorate (PID) of the Ministry of Civil Affairs and Communications. Its staff was in charge of state levelcomponents for the previous transport project. The PID capacity assessment was carried out in April 2000.A procurement officer, acceptable to the Bank, has since been nominated. The capacity assessmenthighlights the limited procurement experience in projects financed by the international community.Significant training and external consultant support has been included to ensure that the procurementcapacity would be satisfactory.

Procurement of Works. All IDA civil works contracts will be financed under Intemational CompetitiveBidding procedures (ICB).

Procurement of Goods. Contracts for the supply of goods will be procured under ICB.

Prior and Post Review by the IDA for Goods and Works Contracts. All IDA financed goods and workscontracts under ICB will be subject to prior review procedures in accordance with the Bank's Guidelines.

Procurement of Consulting Services. Recruitment of consulting firms for the design and supervision ofworks in the Federation will be carried out under the Quality and Cost Based Selection method (QCBS) inaccordance with the Bank's Guidelines. Exception to using the QCBS method will apply to small contractsfor supervision and design in the Republika Srpska (below US$80,000 each) and financial audits (belowUS$120,000) by using the Least Cost Selection method for an aggregate amount not to exceed US$270,000.Individual consultants (Section V) will be hired to provide procurement support to the PIT when needed andfor the exchange program to improve the infornation system.

Prior and post Review by the IDA for Consultants' Contracts. All consultant contracts expected to costabove the equivalent of $100,000 per contract with firms and $25,000 per contract with individuals will besubject to prior review by the IDA. Other contracts competitively awarded and not subject to prior reviewwill be subject to post review. All contracts not awarded through competition and all terms of reference(TOR) will be subject to prior review.

Annex 6Page 2 of 11

Procurement Implementation Schedule and Advance Procurement Actions. The RSCA, the FCA andIDA have reviewed during appraisal the procurement plan (Table A2) and finalized it at during the projecttechnical discussions. This timetable will be used as a basis for monitoring of procurement processing. Inparticular, the following advance procurement actions have been identified and are hereby proposed to thePID as critical milestones so that main contracts can be signed soon after Credit effectiveness: (i) submitdraft Specific Procurement Notice for the construction works, provision of goods by March 15, 2001; (ii)submit Terms of Reference, short list, LOI, draft model contract for consulting services by March 15, 2001.All notices to be published in the UN Development Business should be submitted to IDA at least 20 daysprior to publication.

A Project Preparation Facility of US$200,000 has been made available to the MFTER for the Federation tocomplete the preparation of its detailed design, finance the Federation share (70%) of the establishment ofthe Financial Management System and support the preparation of procurement documents. These items arepart of the project and are described as such in the Table A2 of this Annex. Retroactive financing would beprovided for an amount of up to SDR80,000 to the Republika Srpska to cover its share of the establishmentof the financial management system, procurement support and PIT operating costs.

Disbursement

Disbursement. Disbursements against the categories described in the table 6.C would be made upon receiptby IDA of fully documented applications, except for contracts valued at less US$100,000 for consultingfirms, US$25,000 for individual consultants, and for operating costs, which would be made against certifiedstatements of expenditures (SOE). Supporting documentation for SOEs would be retained by the Borrowerand rnade available to IDA during supervision. The minimum size of application for direct withdrawals andissuance of conmmitments from the IDA Credit account would be 20 percent of the amount of the AuthorizedAllocation to the Special Account. Retroactive financing for an amount of up to SDR80,000 could be usedby the Republika Srpska for categories 8 and 9. It would cover the establishment of the financialmanagement system, support for preparation of procurement documents and incremental operating cost.

Special Account. To facilitate project implementation, the Borrower would establish a Special Account inone of the major foreign commercial banks abroad on terms and conditions satisfactory to IDA to cover theshare of expenditures by IDA. The Authorized Allocation for this special account would be US$0.9 million,representing about four months of average expenditures made through the Special Account. During the earlystage of the project, the initial allocation to the Special Account would be limited to US$450,000. However,when the disbursements under the Credit have reached the level of SDRI.41 million, the initial allocationmay be increased up to the Authorized Allocation of US$0.9 million by submitting the relevant Applicationfor withdrawal. Applications for replenishment of the Special Account would be submitted monthly or whenone-third of the amount has been withdrawn, whichever occurs earlier. Documentation requirements forreplenishment would follow standard Bank procedures as described in Disbursement Handbook, Chapter 6.Monthly bank statements of the Special Account, which have been reconciled by the Borrower, wouldaccompany all replenishment requests.

Project Accounting and Financial Management. The PIT will be fully in charge of all financialmanagement aspects of the Project. A financial management system (FMS) including accounting, reporting,planning, budgeting, auditing and proper internal control systems has been established prior to Boardpresentation. By the time of the certification process, the FMS met the minimum Bank financialmanagement requirements (and the 4-B LACI Certification was issued). IDA has reviewed the FMS andprepared a report identifying weaknesses and proposing remedial actions to enhance the system and enablethe development of appropriate project management reports in view of the transition to PMR-baseddisbursements. IDA has defined a time-bound action plan to specify the steps necessary for furtherstrengthening of procedures and staff development during implementation. The FMS is compatible with

Annex 6Page 3 of 11

OP/BP 10.02, with the Project Financial Management Manual and with the Loan Administrative ChangeInitiative (LACI) Handbook, published by the Bank. The development of the FMS will be monitored by IDAbefore effectiveness, during the first supervision mission and throughout project implementation.

The PIT includes a director, an accountant, a procurement specialist and an assistant. The PIT will maintainall documentation related to project expenditures and keep financial records in accordance with soundaccounting practices. The PIT will be responsible for keeping the accounting records of the project,operating both the Special Account and the Project Account (BiH Government contribution), handling allprocurement aspects, monitoring and evaluating, planning and budgeting, reporting both to IDA and to theBiH Government and carrying out disbursement and auditing. The certification of acceptance for goods,-works and services provided will be a joint process with the relevant Customs project manager.

The PIT staff will be responsible for: preparing the bidding documents; receive the offers and evaluate themin accordance with IDA regulations; submit the evaluations to IDA for no objection; sign contracts in anacceptable format; supervise the works performed by contractors; certify, together with the respectiveproject coordinator in the Customs Administration, the acceptance of the works, goods and servicesprovided. The payment orders will be prepared by the PIT only after the fulfillment of the above steps. Noproject funds (including credit amounts) may be passed over to beneficiaries or other parties. The PIT is theonly entity authorized to make payments to suppliers.

The accountant (reporting to the director) will handle all financial accounting documents, ensure thataccounting records are kept up to date within the financial management software system installed, liaise withthe MFTER and the MoFs. She will also establish permanent contacts with the beneficiaries, to ensure thatall project transactions are recorded in the consolidated project financial statements for both IDArequirements and BiH statutory reporting purposes.

Flow of Funds. Replenishments to the Special Account will be formally requested to IDA by the MFTER,based on a document prepared by the PIT. A 'correspondent' special account is to be opened in a local bank,acceptable to WB. Very limited amounts (in accordance with the WB regulations issued for BiH) may betransferred to this 'correspondent' special account for local eligible payments.

The PIT will use an additional, separate project account for the local contribution, only for funds allocatedby the BiH Government, as the local financing component of the project and may have two sub-accounts(one for Federation of Bosnia and Herzegovina, one for Republika Srpska).

Internal Controls. The PIT have to adhere to sound internal control procedures and practices, to ensure thatProject funds are used with economy and efficiency and only for the purposes intended. The PIT will reportto the Project Manager and will inform in a timely manner all ministries and bodies involved (MFTER,MoFs, CAs) about the project implementation.

All PIT staff must become familiar with IDA regulations (legal, disbursement, procurement, financialmanagement, etc) applicable to their relevant area. A draft 'Financial management manual' has beendeveloped by the financial management consultant appointed, documenting various types of financialtransactions, approval and authorization steps, the flow of documents between the PIT, beneficiaries andMFTER, PIT staff responsibilities and measures to ensure a complete segregation of duties, internal controlprocedures, etc.

In addition to the above-mentioned manual, the PIT will be provided and will have to apply all financialmanagement and accounting regulations issued by the local Bank office. The PIr staff has been requestedto document the internal norms that will be used throughout the life of the Project. These norms willdocument in detail the day-to-day internal procedures for each type of activity (such as correspondence

Annex 6Page 4 of 11

handling, contracting and payment procedures, operation of all Project bank accounts, petty cash procedures,authorization mechanism, reporting, filling, etc.).

During the recent past, serious concerns have been raised conceming fraud, waste and abuse of donor fundsin BiH. There is a general agreement that a well functioning legal framework and institutions of law areabsent. Enforcement of law is weak. Perceived corruption as reported in the press is principally in the areaof procurement. The risk that IDA funds will not be used as intended for financing the defined investmentprogram is judged as acceptable by introducing several measures principal amongst them is "ring-fencing"the project through the establishment of PIT, segregation of duties within PIT, requiring Customs officials tocertify the works done before payments are made by PIT, and an independent audit of project funds by aninternational firm.

Auditing. The PIT will have its accounts audited every fiscal year by independent auditors acceptable to theBank, in accordance with International Standards on Auditing issued by the International Federation ofAccountants and Bank guidelines. The reports of such audits will be submitted to the Bank no later than sixmonths after the end of the Borrower's fiscal year.

Annex 6Page 5 of 11

Table A: Project Costs by Procurement Arrangements(in US$ million equivalent)

International NationalCompetitive

Bidding Other N.B.F. Total

A. Civil Works 11.7 - - 11.7(8.8) - (8.8)

B. Equipment & Goods 1.0 - 0.1 1.1(1.0) (1.0)

C. Consultant Services & Engineering - 1.1 0.6 1.6(1 .1) - (1 .1)

D. Training

E. Operating costs - 0.2 0.2 0.4(0.1) - (0.1)

Total 12.7 1.2 0.9 14.8(9.8) (1.2) - (I 1.0)

Note: Figures in parenthesis are the respective amounts financed by IDA

Note: N.B.F. = Not Bank-financed (includes elements procured under parallel cofinancingprocedures, consultancies under trust funds, any reserved procurement, and anyother miscellaneous items).

Consultant Services and Engineering, Training -other: See Table 6 Al and A2

Item C includes US$200,000 of consultant's services for the Project Preparation Facility for the Federationof Bosnia and Herzegovina and US$100,000 equivalent of retroactive financing for the Republika Srpska.

Anmex 6Page 6 of 11

Table Al: Consultant Selection Arrangements(in US$ million equivalent)

Consultant Services Selection Method Total CostExpenditure (including

Category contingencies)CQCBS QBS SFB LCS CQ Other N.B.F.

A. Firms 0.5 0.2 0.226 0.6 1.5(0°5) (0.2) (0.2) (0.9)

B. Individuals 0.2 27 0.2_______ _______ _______ ~~~(0.2) (0.2)

0.5 0.2 0.4 0.6 1.7Total (0.5) (0.2) (0.4) 1.1)

Due to rounding the figures may not add up.

Note: QCBS = Quality- and Cost-Based SelectionQBS = Quality-based SelectionSFB = Selection under a Fixed BudgetLCS = Least-Cost SelectionCQ = Selection Based on Consultants' QualificationsOther = Selection of individual consultants (per Section V of Consultants

Guidelines), Commercial Practices, etc.N.B.F. = Not Bank-financed.

26Covers some design work for the Federation using the PPF, on a sole source basis, as stipulated in the PPF agreement.Covers the procurement support and other support/training to the PIT over the life of the project.

Table A2: Procurement Plan

inland 1!| t erminal (Nvi

Border crossing CW 2 Total: 3.0 ICB No Draft bidding docs to IDA 1. Invitation July 1, 2001 November 1,2001 June 1,2003

improvements RS Lot 1 :2.1 April 15,2001 2. Opening Septembery , 2001 construction of Lot 2: 0.9 3. Eval. & Recorn. October 15, 2001administrativebuildings/canopies inRaca; construction of|

inland terminal (Novi)

Border crossing CW 2 Total : 8.2 ICB No Draft bidding docs to IDA 1. Invitation May 35,2001 September 15, January , 2003improvements Lot 1:3.0 April 15,2001 2. Opening July 15, 2001 2001

Federation Lot 2: 5.2 3. Eval. & Recom. August 15,2001

construction ofadministrative

buildings/canopies/

lanes in Orasje and

Izacic

Inland terSnals Cw 1 0.2 ICB Draft bidding docs to IDA by l. Invitation: May 30,2001 September 15, June 30, 2003

Information Aprily15,2001 2. Opening July 30, 2001 2001

3. Evaluation and Recommendation

Systems ~~~~~~~~~~~~~~~~~~~~~~~~~~Aygs 31, 2001

Infrastrujcture,I

Weighing Scales G 1 0.2 ICB Draft bidding docs to IDA by I. Invitation: February 22001 Jnoe 3, 2001 Janu 10, 2002January 31, 2001 2. Opening April 30, 2001

3. Evaluation and Recommendation_ ~~~~~~~~~~~~~~~~~~~~~~~MaY 31, 2001

LaIboratory G 1 0.8 ICB Draft bidding docs to IDA by I . Invitation: June 30, 2001 November I, 2001 January 1 5, 2003 |

Equipment ~~~~~~~~~~~~ ~ ~ ~~~~~April130, 2001 2. Opening September 1, 2001 Equipment ~~~~~~~~~~~~3. Evaluation and Recomniendation|

October 1,2001

Design of IT CS 3 0.17 Sole Source RFP by October 23, 2000 NA December 15, February 15, 2001

Infrastructure, 2000

Redesign ofOrasje and IzacicBorder Crossings28

(PPF)Design and CS 2 0.15 LCS No RFP by May 15, 2001 I. Invite Proposal from shortlisted firms September 30, June 1, 2003Supervision-RS June 15, 2001 20010

2. Opening August 1,2001

3. Evaluation and RecommendationAust 3, 2001

28These items are financed under an approved Project Preparation Facility. The contract for design of the IT infrastructure is small (US$30,000) and urgent; the contracts 0for the redesign are below US$ 100,000 each and was awarded to the two design companies in charge of the initial work, as described in the PPF agreement.

RFPby July 15, 2001 1. Invite Proposal from shortlisted firms November 15, June 1,2003September 1, 2001 2001

2. Opening October 15, 20013. Evaluation and Recommendation

October 30, 2001

Supervision Cs 1 0.13 QCBS EXI Jan. 31, RFP by March 15, 2001 1. Invite Proposal from shortlisted firms August 31,2001 January 15, 200329Federation 2001 March 31,2001

2. Opening May 15,20013. Evaluation and Recommendation

June 15,2001

New Design" - CS 1 0.3 QCBS EXJ RFP by March 15,2001 1. Invite Proposal from shortlisted firms August 15,2001 June 30,2002

Federation Jan.31, April 30,20012001 2. Opening June 15, 2001

New design 3. Evaluation and RecommendationDoljani CA 1 0.1 QCBS Marchl1, RFPbyApril15,2001 July 15,2001

CA I 0.1 QCBS Match 15, RFP by April 15, 2001 1.Invite Proposal from shortlisted firms October 1, 2001 January 1, 20022001 June 1,2001

2. Opening August 15,20013. Evaluation and Recommendation

September 1, 2001

PIT Operating NA NA 0.2CostsPIT support 3 ' CS 10 0.2 IC N/A

FMS32 (PPF) G 1 0.03 IS

Auditor Cs 1 0.1 LCS NA January 30,2001 September 30,2004

Total 14.0

29 This contract covers the supervision of works at Izacic and Orasje.30 These design contracts correspond to works, which will not be implemented under the project.3' These contracts will be awarded during the project implementation as needs for support or training arise. Part of these contracts may be funded by the PPF or by retroactivefinancing as required.32 Financed by the PPF for the FCA and by retroactive financing for the RSCA.

12

-0'

Annex 6Page 9 of 11

Table B: Thresholds for Procurement Methods and Prior Review

Contracts Subject toPrior Review J

Estimated TotalExpenditure Contract Value Procurement Value Subject to

Category (Threshold) Method Prior ReviewUs$

1. Works >=200,000 ICB All /US$11.7 million

2. Goods >=100,000 ICB All / US$1.0 million

3. Services >=100,000 QCBS All / US$500,000

<100,000 LCS All / US$200,000SS33 All / US$170,000

<25,000 Individual Consultant TOR

Total value of contracts subject to prior review: US$13.6 million

Overall Procurement Risk Assessment:High xAverageLow _

Frequency of procurement supervision missions proposed: As procurement staff are based in BiH,there could be ongoing support given on procurement matters whenever needed by project staff.Formally, there would be one supervision mission every four-six month(s) (including special procurementsupervision for post-review/audits).

" Financed from Project Preparation Facility, as per the PPF agreement.

Amnex 6Page 10 of 11

Table Bi:Capacity of the Implementing Agency in Procurement and Technical Assistance

Requirements

Brief Statement

The Government of BiH has limited experience in implementing Bank--financed projects under standard rules. It has aweak performance for procurement of Works, Goods, and Services.No CPAR exists for BIH Are the bidding documents for the procurement

actions for thefirst year ready by negotiations:No

Training Information and Development on ProcurementEstimated Date of Date ofpublication of Indicate if there is Domestic Domestic Preference forProject Launch General Procurement procurement subject to Preference Works, if applicable:Workshop: Notice: mandatory SPN in for Goods: No

Development Business:November 15, June 16, 2000 Yes N.A.2000 __ _ _ __ _ _I__ _ I__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Retroactive Financing: Yes for the Republika Srpska Advance Procurement:Setting up the financial management system, support for preparation of Noprocurement documents and incremental operating cost (total belowSDR80,000)Explain briefly the Procurement Monitoring System:The PID under the Ministry of Civil Affairs and Communications will oversee all procurement activities under theproject and will ensure procurement is done in accordance with World Bank procedures with support of externalconsultants as needs arise. TOR for all consultant services will be subrmitted for no-objections to the Bank. The PID willreport on procurement matters in its Quarterly Progress Reports ( See C: 4 e).|Cofinancing: Explain briefly the Procurement arrangements under co-financing:jTherewill be no joint-financing. For parallel financing, donor procurement procedures will be used.| Section 4: Procurement Staffing

|Indicate name of Procurement Staff or Bank 's staffpart of Task Team responsiblefor the procurement in the Project:

Name: Lucas Janssens Extension: 2443000Country Office will provide back-up on procurement issues to project team and will be assisted in that regard byprocurement advisors.

Annex 6Page 11 of 11

Table C: Allocation of Credit Proceeds

IDA Credit DisbursementSDR Amount Amount %

A. Part A of the Project (Federation)1. Works 4,620,000 75%2. Consultant's Services 470,000 100%3. Incremental Operating Costs 80,000 90% through January 31, 2002;

75% thereafter4. Refunding of Project PreparationAdvance 160,0005. Unallocated 520,000

Subtotal 5,850,000

B. Part B of the Project (Republika Srpska)6. Works 1,650,000 75%7. Goods 780,000 100% foreign expenditures,

100% local expenditures and85% of local expenditures forother items procured locally

8. Consultant's Services 160,000 100%9. Incremental Operating Costs 30,000 90% through January 31, 2002;

75% thereafter

10. Unallocated 230,000Subtotal 2,850,000

Total 8,700,000

Amex 7


Project Processing Budget and Schedule

A. Project Budget (US$000) Planned Actual(At final PCD stage)

B. Project Schedule Planned Actual(At final PCD stage)

Time taken to prepare the project (months) 16 monthsFirst Bank mission (identification) 02/15/1999 02/15/1999Negotiations 06/06/1999 10/23/2000Planned Date of Effectiveness 11/15/2000

Prepared by: Ministries of Finance, RSCA, FCA and Bank Team

Bank staff who worked on the project included:

Name SpecialtyGraham Smith Program Team LeaderGerald Ollivier Task Team Leader - Transport SpecialistElaine Patterson Deputy Resident Mission RepresentativeMichel Zarnowiecki Senior Customs SpecialistLucas Janssens Procurement Accredited SpecialistNikola Kerleta Procurement AnalystBogdan Constantinescu Financial Management SpecialistJoseph Paul Formoso Sr. Disbursement OfficerKenneth Gwilliam Peer ReviewerJames Walsh IMF Peer ReviewerPedro Taborga Sr. EconomistSamra Basic Project Assistant

Consultants who worked on the project included:

Name SpecialtyPhilip Moeller Participation/Environmental SpecialistIvan Taborsky Customs Specialist

Preparation Assistance: Marie Laygo, Dammika Somasundaram

Annex 8


Documents in the Project File

A. Project Implementation Plan

B. Bank Staff-Mission AssessmentsManagement Information SystemTrade Facilitation ComponentCustoms Institutional ReformTechnical paper regarding the selection of border crossingsStakeholder surveysFinancial Management System AssessmentProcurement Capacity Assessment.

C. Other

Draft Strategy and action plan for the modernization of the RS Customs AdministrationDraft Strategy and action plan for the modernization of the Federal CustomsAdministration

"The welfare implications of transport improvements in the presence of market failure"by Anthony Venables and Michael Gariorek.Minutes and Recommendations of Quality Evaluation Review (QER).CAFAO reports on Customs reform activities.

Annex 9Page 1 of 2

STATUS OF BANK GROUP OPERATIONS IN BOSNIA AND HERZEGOVINA

A. STATEMENT OF BANK LOANS 34(As of June 30, 2000)

.US$ MillionLoan Fiscal (Less Cancellations)No. Year Borrower Proiect LoanUndisbursed

Loans/Credits/Grants

IBRD 354038-BOS 1996 Bosnia and Herzegovina Consolidation Loan A 28.6 0.04039-BOS 1996 Bosnia and Herzegovina Consolidation Loan B 284.9 0.04040-BOS 1996 Bosnia and Herzegovina Consolidation Loan C 307.1 0.0

Total 620.6 0.0

Of Which: Repaid 24.9Total Now Held by the Bank: 595.7

TFBH3 (Under Disbursement)TF-024030 1996 Bosnia and Herzegovina Emergency Recovery Credit 45.0 0.0TF-024031 1996 Bosnia and Herzegovina Emergency Farm Reconstruction 20.0 0.0TF-024032 1996 Bosnia and Herzegovina Emergency Water Supply 20.0 0.0TF-024033 1996 Bosnia and Herzegovina Emergency Transport 35.0 0.7TF-024034 1996 Bosnia and Herzegovina Emergency District Heating 20.0 0.0TF-024035 1996 Bosnia and Herzegovina Emergency War Victims Rehabilitation 5.0 0.0TF-024040 1996 Bosnia and Herzegovina Emergency Education Reconstruction 5.0 0.0

Total 150.0 0.7IDA2897-BOS 1996 Bosnia and Herzegovina Emergency Education Reconstruction 5.0 0.02896-BOS 1996 Bosnia and Herzegovina Emergency War Victims Rehabilitation 5.0 0.42902-BOS 1997 Bosnia and Herzegovina Emergency Housing Repair 15.0 0.02903-BOS 1997 Bosnia and Herzegovina Emergency Power Reconstruction 35.6 0.22904-BOS 1997 Bosnia and Herzegovina Emergency Public Works and Employment 10.0 0.42905-BOS 1997 Bosnia and Herzegovina Emergency Landmines Clearance 7.5 0.02906-BOS 1997 Bosnia and Herzegovina Emergency Demobilization and Reintegration 7.5 0.32914-BOS 1997 Bosnia and Herzegovina Transition Assistance Credit 90.0 0.0NOOI-BOS 1997 Bosnia and Herzegovina Emergency Industry Re-Start Guarantee 10.0 0.0N002-BOS 1997 Bosnia and Herzegovina Emergency Microenterprise/Local lnitiatives 7.0 0.4N003-BOS 1997 Bosnia and Herzegovina Essential Hospital Services 15.0 2.2N032-BOS 1998 Bosnia and Herzegovina Transport Reconstruction II 39.0 3.9N035-BOS 1998 Bosnia and Herzegovina Education Reconstruction II 11.0 0.53028-BOS 1998 Bosnia and Herzegovina Reconstruction Assistance Project 17.0 2.63029-BOS 1998 Bosnia and Herzegovina Emergency Natural Gas 10.0 0.03070-BOS 1998 Bosnia and Herzegovina Emergency Pilot Credit (RS) 5.0 0.33071-BOS 1998 Bosnia and Herzegovina Power II 25.0 17.0N040-BOS 1998 Bosnia and Herzegovina Forestry 7.0 6.23090-BOS 1998 Bosnia and Herzegovina Public Finance I (Structural Adjustment) 63.0 0.03191-BOS 1999 Bosnia and Herzegovina Local Development 15.0 14.33202-BOS 1999 Bosnia and Herzegovina Basic Health 10.0 9.43262-BOS 1999 Bosnia and Herzegovina Enterprise and Bank Privatization Project 50.0 24.53257-BOS 1999 Bosnia and Herzegovina Enterprise Export Facility Project 12.0 10.13269-BOS 1999 Bosnia and Herzegovina Pilot Cultural Heritage Project (LIL) 4.0 3.93258-BOS 1999 Bosnia and Herzegovina Second Public Finance (Structural Adjustment) 72.0 43.533510-BOS-2000 Bosnia and Herzegovina Education Development Project III 10.6 14.633850-BOS-2000 Bosnia and Herzegovina Mostar Water and Sanitation 12.0 13.234000-BOS-2000 Bosnia and Herzegovina Emergency Labor Redeployment 15.0 15.0

Total 585.2 182.88Grand Total 697.6

34 The status of these projects is described in a separate report on all Bank/IDA financed projects in execution, which is updated twiceyearly and circulated to the Executive Directors on April 30 and October 31.

35 Consolidation Loans A, B, and C were approved on June 13, 1996 and became effective on June 14, 1996.36 Trust Fund for Bosnia and Herzegovina.

Annex 9Page 2 of 2

Bosnls and HeregovinaSTATEMENT OF IFCS

Held and Disbursed PortfolioAs of December, 2000

(Amounts in US Dollar MillionsIFC Data Warehouse

IFC Held IFC DisbursedFY Approval Company Loan Equity Quasi Partic Loan Equity Quasi2001 Bosnalijek 2355430 0 0 0 2355430 0 01997/99 Bosnia Micro 0 848332 0 0 0 848332 01985 Energoinvest 7566149 0 0 0 7566149 0 01997 Enterprise Fund 0 1733191 0 0 0 731896 01997 Sarajevska 2457957 0 0 0 2457957 0 01998 SEF Akova 1808848 0 0 0 1808848 0 01999 SEF Bosnalijek 0 0 1941751 0 0 0 19417511999 SEF Kopex 1683086 0 0 0 1683086 0 01998 SEF Lignosper 1975453 0 0 0 1713646 0 01999 SEF Ujanovici 2142057 0 0 0 2142057 0 01977 TKA Cazin 3170245 0 0 0 3170245 0 01998 Wood Agency-AL 4251037 0 0 0 0 0 01999 Wood Inga 1499450 0 0 0 299890 0 01999 Wood Konjuh 2142057 0 0 0 1904051 0 01999 Wood Kozara 1499440 0 0 0 1261434 0 01999 Wood Podgradci 1071029 0 0 0 880624 0 01999 Wood Vrbas 1499450 0 0 0 299890 0 0

Total Portfolio 35121687 2581623 1941751 0 27543306 1580228 1941751

Annex 10Page 1 of 4


Environmental Management Plan (EMP)

Overview

1. The review of project components during the Environmental and Social ConsultationMeeting of January 25, 1999 indicated that the project is unlikely to have significant adverseenvironmental impacts. The project was accordingly confirmed as Category B. To prevent,minimize or mitigate site specific negative impacts, however, this Environmental ManagementPlan (EMP) and a set of mitigation measures have been prepared. This EMP is an attachment ofthe Project Implementation Plan. The Customs Administrations will inform the public of theavailability of the EMP as part of the permitting process. The Administrations will also provideto the Bank any specific mitigation actions identified in the permitting process, through theProject Implementation Team (PIT).

Minimization of Negative Impact

2. The major concerns about possible negative site specific impacts associated with bordercrossings relate to: (i) emissions from vehicles waiting for customs clearances; (ii) drainage ofdisinfectants and spills of oils and fuel; (iii) waste disposal and loose garbage; and (iv) sitedisruptions caused by upgrades or relocations of utilities or such infrastructure as buildings,parking/waiting areas, and access roads.

3. The objective of the Trade and Transport Facilitation in Southeast Europe (TTFSE) Projectto reduce constraints on traffic flows at border crossings, including the simplification ofpaperwork and reduction of processing times, will correspondingly reduce standing time andvehicle emissions from trucks and other vehicles. Processed and road side waste and garbage willalso be reduced and better managed. The small scale of physical investment, largely limited tothe improvement of in-place facilities, offers only limited potential threat. Specific actionsincluded in the EMP (See Exhibit 1) to further minimize potentially negative impact and promoteinstitutional development include:

* Liaison with Environmental Authorities

* Training and Sensitization

* Site Certification

* Consultations on the Harmonization of Standards

* Provisions in Construction Contracts

Liaison with Environmental Authorities

4. Contacts between the FCA, the RSCA and the Ministry of Urbanism, Housing, CivilEngineering, and Ecology (RS), and the Federal Ministry of Physical Planning and Environmentneed to be regularized. This will be affected through the establishment of an environmentalofficer in the FCA and RSCA, who with the assistance of the PIT will be responsible for liaison,monitoring and reporting on environmental aspects. As the project progresses the environmentalofficers should take increased responsibility for these functions. Eventually the PIT would serve

Annex 10Page 2 of 4

primarily as a back-up and provide input for the environmental reporting process. Environmentalissues will be included in the public information program to be provided by the RSCA and FCA.

Training and Sensitization

5. The environmental officers in conjunction with the Environmental Ministries will assist thetraining consultant in the design and provision of training and sensitization for the staff of thecustoms service relating to the importance of environmental issues and protection. Standardprocedures and guidelines based on the national environmental regulations will be developed. Incoordination with the appropriate outside ministries and agencies such specialized training asveterinary inspection will be designed.

Site Certification

6. In order to promote acceptable practice and minimization of environmental impact at allstations, the environmental officers jointly with a representative of the Environmental Ministrieswill inspect border crossings. On the basis of satisfactory compliance with regulations andprocedures a letter of certification of compliance will be issued. Particular attention will be givento assure correction procedures relating to (i) the storage and use of disinfecting materials andchemicals at the sanitary and disinfecting border stations and (ii) waste materials includinghazardous materials and garbage. Discussions were held with the representatives of the NEArelative to these responsibilities, to confirm their ability to provide the services referenced in theEMP.

Consultations on the Harmonization of Standards

7. The project supports the harmonization of standards with those of the EU. Particularattention will be given to those relating to hazardous materials. The environmental officer willconsult with the Environmental Ministries to ensure progressive application of appropriatestandards. Progress in this area will be regularly reported to the PIT and included in reports toIDA.

8. The project will enable customs officials to better enforce the terms of internationalconventions and agreements relating to the environment. Especially relevant would be theregulations included in such agreements as (i) the European Agreement Concerning theInternational Carriage of Dangerous Goods by Road (ADR) of September 1957 with its Protocolof October 1993; (ii) the Convention on the Intemational trade in Endangered Species (CITES);(iii) the Convention on the International Carriage of Perishable Foodstuffs and on the SpecialEquipment to be Used for Such Carriage (ATP) of September 1970; and (iv) Basel Conventionon the Control of Transboundary Movements of Hazardous Wastes and their Disposal of May1992.

Provisions in Construction Contracts

9. As required by the national environmental regulations, environmental assessments will beprepared to examine the potential negative environmental impact and mitigation measures for anynew major construction projects. Acceptance and payment by the PIT would be dependent uponthe presentation of such details and presentation of associated environmental clearances. Allcontracts would contain clauses requiring proper waste disposal and the minimization of noiseand dust during construction.

Annex 10Page 3 of 4

10. Contract specifications should require station construction methods and procedures tocomply with national laws and regulations specifying environmental limitations with respect tonavigable streams.

Annex 10Page 4 of 4

Exhibit 1

Liaison with The RSCA and FCA have designated an environmental officer who inEnvironmental collaboration with the PIT will be responsible for: (i) liaison withAuthorities environmental officials of the Environmental Ministries; (ii) the review

and monitoring of the EMP; (iii) the provision of periodic status reportsto the PIT; (iv) consultations with such interested parties as NGOs; and(iv) the provision of support for supervision missions. The governmentwill assure that the environmental officer has access to informationrelevant to the project and environmental compliance.

Training and The RSCA and FCA in conjunction with environmental officials of theSensitization Environmental Ministries will provide training and sensitization of staff

at each border crossing. Standard procedures will be specified. Specialtraining will be offered for veterinary inspection.

Certification of The Environmental Ministries jointly with the environmental officers ofAcceptable Practice at the RSCA and FCA will inspect border crossing for certification of theBorder Crossings acceptability of practices and minimization of environmental impact at

all stations. Particular attention will be given to (i) the storage and useof disinfecting materials and chemicals at the disinfecting borderstations and (ii) waste materials including hazardous materials andgarbage.

Harmonization of One of the goals of the project is to assist harmonization with EU andStandards intemational standards. The environmental officers will consult with the

Environmental Ministries periodically on progress and provide progressreports to the PIT. The environmental officer will ensure compliancewith evolving regulatory requirements and conventions.

Construction (i) Designs for new construction or remodeling will include plans forthe minimization of negative impacts.(ii) Mitigation measures identified during the permitting process will beprovided to IDA.(iii) Contract Documents will contain clauses requiring minimization ofnoise, dust, and waste disposal during construction.(iv) All works will comply with local environmental regulations.(v) All works will be done following environmentally soundconstruction standards and procedures

Annex 11Page 1 of 3


CAFAO Past and On-going Activities in the Country

Main Past Activities Results Achieved(i) To build confidence Creation of a unified customs administration in the Federation

between the three Opening of several northern border crossingsethnic groups and in the Facilitation of inter-entity cooperation and freedom of movementnewly establishedcustoms services(ii) To increase Revenue increased from DM315 million (96) to DM500 million (97)significantly the Improved accounting for revenues collected and improved collectionrevenue collected (fighting evasion and fraud)(iii) To improve Preparation of the Permanent law on Customs Policies and of thecustoms legislation Customs Tariff Law and Schedule.(iv) To define needs Study to analyze the need for computerization to converge to EUand provide equipment standards and assistance to implement recommendationsfor computerization(v) To train staff Basic training (computer-enforcement-valuation-procedures-SAD) for

a few hundred staff. Study tour for heads of Customs Administration.(vi) To define Report on the organization and infrastructure of the CS in RS and inorganizational and the Federation. Implementation of the recommendations.infrastructure needs Review of the report in September 1998.

On-going Activities Description of Proposed Activities relevant to the Project(199-2001) _1. Internal Audit and Assist in the establishment of internal audit units in the Customs andManagement Assurance Tax Administrations, inclusive of drafting audit and assurance(Project A) programs and in the transfer of skills through CAFAO staff working

alongside local customs and tax auditors.2. Operational Planning Assist the Customs and Tax Administrations in both Entities toand Information develop Operational Planning and Business Information Systems toSystems (Project A) encourage better performance and increase outputs, improve budgetary

and financial planning and improve communications.3. Customs Training (i) Continue the CAFAO program's training project in BiH, with a(Project B) focus on customs and tax enforcement, as well as training in new

customs and tax procedures, as well as training in new customs andtax procedures taking into account the new customs and tax laws.Training will also be provided to meet the needs of other CAFAOprojects and may include some training abroad.(ii) Assist in the development of self-sustaining customs and taxtraining structures in each Entity.

4. Computerization Provide assistance in implementation of a country- wide computerized(ASYCUDA++) - system based on ASYCUDA++, including project management,Customs (Project C) training and changes to work procedures.

Annex 1 1Page 2 of 3

5. Customs Legislation Provide assistance on drafting of implementation regulations for the(Project D) permanent BiH Customs Law and implementation of the law and

implementation regulation.6. Implementation of Assistance in implementation of new customs procedures as providedCustoms Procedures for under the newly passed BiH Law on Customs Policy, including(Project D) changes to customs procedures and working methods as identified by

the CAFAO program.7. Enforcement (i) Review current legislation on customs and tax enforcement,Legislation (Project D) including powers, penalties, offences and debt management.

(ii) Draft appropriate legislation.8. Organization and (i) Undertake follow-up review of organization and Infrastructure ofInfrastructure of the Entity Customs Services.Customs (Project D) (ii) Support the implementation of report recommendations through

provision of advice and assistance to both customs administrations.(iii) Draft appropriate legislation.(iv) Provide technical assistance on the renovation of the identifiedFederation customs and tax headquarters building.(v) Assist in the development of appropriate headquarters and regionalstructures, including improved human resource management.

9. International Assist and advise the relevant BiH authorities to develop cooperationCo-operation and and supporting agreements between the Entity Customs and TaxAccession to Inter- Administrations.national Conventions(Project D)10. Single Assist and co-ordinate the introduction of the SAD and changes toAdministrative associated customs procedures.Document (SAD)(Project D)11. Inter-Entity Assist in the development and implementation of mutual assistanceCustoms and Tax agreements between the Entity Customs and Tax Administrations.Co-operation(Project D, E & F)12. Customs (i) Assist the Entity Customs Administrations to improve customsCompliance and revenue compliance generally and, specifically the establishment of anEnforcement effective customs enforcement capacity. Assistance includes the(Project E) provision of supporting equipment, as well as extensive support and

advice concerning anti-smuggling, investigation and intelligence work.Skills transfer is facilitated by CAFAO officers working alongsidelocal customs officers.(ii) Technical assistance and advice on the introduction of effectivecustoms seals.

13. Airport Cargo and (i) Review current customs operations at international airports.Passenger Control (ii) Assist in implementation of review recommendations concerning(Project E) work methods.14. Establishment of Continue to advise and assist international organizations, including theBiH Border Police OHR, the United Nations International Police Task Force and SFOR(Project E) on customs issues associated with the introduction of a State level

border police in BiH.

Annex 11Page 3 of 3

15. Border Monitoring Continue to monitor customs activities at the border and provide(Project E) relevant information to support the CAFAO program.16. Co-operation Assist in the establishment of close co-operation between all revenueBetween Revenue authorities, including the possible integration of all three servicesCollection Authorities (customs, tax and financial police).(Project E & F)17. Financial Police Review the role and responsibility of the Financial Police in each(Project F) Entity.18. Management Provide management advice and assistance to all levels within theAdvice (Projects Customs and Tax Administrations.A, B, C, D, E&F)19. Elimination of Assist the Federation Customs and Tax Administrations to completelyParallel Institutions eliminate parallel lines of communication and management based on(Projects A, B, C, D, ethnic divisions (as currently being pursued by the internationalE & F) community and as required under the conclusions of the Federation

Forum). Assistance includes the continuation of confidence-buildingmeasures within the Federation, as well as between the ethnic groupsin BiH.

Annex 12Page 1 of 2

Bosnia and Herzegovina at a glance 9/13/00

Bosnia Europe & Lower-POVERTY and SOCIAL and Central mWdle.

Herzegovina Asia income Development diamond*1999Population, mid-year (.nniftlns) .. 475 2,094 Life expectancyGNP per capita (Aftas rnethods IS$ .- 2,150 1,200GNP (Atlas method, US$b.lns) 4.5 1,022 Z,13 TAverage annual growth, 199399

Population %) 0.1 1A1Labor forre C%) 0.6 12 GNP Gross

per I primaryMost recent estimate (latest year available, 199349) capita enrollment

Poverty t% of populaton blow national poveily irne)Urban population (% of total population) 43 67 43

Life expectancy at birth (yeas) 73 69 69Infant mortality (per 1,000 live births) 13 22 33Child malnutrition (% of children under 5) 8 15 Access to safe waterAccess to improved water source (% of populato.n) .. 86Iliteracy (% of opulation age 15+) 3 16Gross primary enrollment (°h of school-age popation) 100 114 -Bosnia and Hersgovina

tate 101 114 Lower-middle-income groupFemale - 99 116

KEY ECONOMtC RATIOS and LONG-TERM TRENDS

1979 1989 1998 1999Economic ratios*

GOP (USS billions ..- 4.1 4.6Gross domestic investmenYGOP .. . 3.0 33 TradeExports of goods and sevices/GDP ,, 33.7 340TGross dormestic savings/GOP .. .. 1.1 9AGross national savingslGDP .. 10.9 16.7

Cunent account balance/GDP . -27.1 166 DomesticInterest payrnerts/GDP .. .. 1.4 1.4 i InvestmentTotal debt/GDP .. .. 74.0 67.5 aTotal debt servicelexports .. .. 9.6 7,9Present value of debt/GDP .. . 2S.7 Present value of debtexports 75.3

Indebtedness197949 1989 199 1999 199943

(average annual growth)GOP 12,8 10.0 it.o Bosnia and He,zegovinaGNP per capita 12.8 10.O 11.1 Lower-middle-income groupExports of goods and services 33,7 11.0 12.0

STRUCTURE of the ECONOMY1979 1989 1998 1999 Growth of investnent and GDP (X1

(% of GOP)Agriculture 15.8 15.BIndustry 27.8 27.8 50s

Manufacturing 25Services . .. 56.4 56.4 o- l l

Private consumption . .. 9.. 2s 9 97 98 gGeneral govemment consumption .GDt 0 GOPImports of goods and services 70.6 57.9

197949 1989-99 1998 1999 Growth of exports and imports (%)(average annual growthvl)Agriculture .. .. 180 TIndustry 120

Manufacturing ..Services ..

Private consumption .. -General govemment consumption .. .. .. .. 95 95 97 98Gross domestic investment .. .. 3.7 -3.5 -soImports of goods and services .. 7.8 -9.8 - Exports E ImportsGross national product .. 17.3 1t.1

Note: 1999 data are preliminary estimates.

The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond willbe incomplete.

Annex 12Page 2 of 2

Bosnia and Herzegovina

PRICES and GOVERNMENT FINANCE1979 1989 1998 1999 Inflation (%)

Domestic prices 20(% change)Consumer prices (in KM, the Federation) 5.0 0.0 10Implicit GDP deflator o .. A I 0

Government finance .10 4 97 D3 99(% of GDP, incdudes current grants) -20-Current revenue 32.6 29.4 230Current budget balance -0.6 -3.7 - GDP deflator O-CPIOverall surplus/deficit -7.2 -3.0

TRADE

(US$ millions) 1979 1989 1998 1999 Export and import levels (USS mill.)Total exports (fob) 817 970 3,000

na.n.a. 2.000 ManufaGtures

Total imports (cifl 2,573 2,399Food 1.000Fuel and energy *.Capital goods o- * . * 0

Export price index (1 995=100) 97

Import price index (1995=100) * Exports * ImportsTerms of trade (1995=100) ..

BALANCE of PAYMENTS1979 1989 1998 1999 Current account balance to GDP (%),

(US$ millions) incl current olficial transfersExports of goods and services 1,367 1,560Imports of goods and services 2,864 2,661 0 -Resource balance -1,498 -1,101 93

Net income -111 -79 U .Netcurrenttransfers 510 417

Current account balance -1,098 -763 1 1 IFinancing items (net) 1,014 1,347Changes in net reserves 85 -583

Memo: -30 -Reserves including gold (US$ millions) 175 380Conversion rate (DEC, locaUUS$) .. .. 1.8 1.8

EXTERNAL DEBT and RESOURCE FLOWS1979 1989 1998 1999

(US$ millions) Composition of 1998 debt (USS mill.)Total debt outstanding and disbursed

IBRD . .. 596 596G27IDA 437 373 A: 596

Total debt service ..

IBRD 35 34 F:400IDA . .. 2 3

Composition of net resource flows 8:437Official grants 469 735 6 437Official creditors 181 255Private creditors -75 -74 7Foreign direct investment 0 60 c 7Portfolio equity 0 0 E: 1,124 0:70

World Bank programCommitments 100 163 A - IBRD E -BilateralDisbursements 135 68 B-IDA D -Otherrmultilateral F - PrivatePrincipal repayments 0 0 C - IMF G - Short-termnNet flows 135 68Interest payments 38 36Net transfers 97 32

Development Economics 9/13/00

MAP SECTION

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