ztp belgrade reconstruction project serbia · responsible operation leader first writes a tc...

Operation Performance Evaluation Review

ZTP Belgrade

Reconstruction Project

Serbia

(A Technical Cooperation Operation)

July 2009

ab0cd

TECHNICAL COOPERATION OPERATION PERFORMANCE EVALUATION REVIEW (OPER)

PREFACE

This Evaluation Report The subject of this Operations Performance Evaluation Review (OPER) Report is the Technical Cooperation (TC) operation: ZTP Belgrade Reconstruction Project (“the TC”) in the amount of €719,963 and funded through the Bank’s Technical Cooperation Funds Programme (TCFP) from contributions by the Government of France under the France Technical Cooperation – Treasury Fund. The related TC assignments were carried out during May 2003 – March 2006. The Operation Leader (OL) of this TC was Lin O’Grady, Senior Banker, Transport, Banking Group, who also prepared the Donor Progress Report in 2006. The operation team and other relevant Bank staff commented on an early draft of this report. The Basic Data Sheet on page iii of this report and the Donor Progress Report in Appendix 4 are complementary to this OPER are designed to be read together. The evaluation was carried out by Hiromi Sakurai, Principal Evaluation Manager (“the OPER Team”). Information on the operation was obtained from relevant teams and departments of the Bank and its files as well as from external sector and industry sources. Fieldwork was carried out in 20-23 October 2008. Appendix 1 presents a list of contacts. EvD would like to take this opportunity to thank those who contributed to the production of this report. Post-Evaluation Selection and Process Selection of an operation for post-evaluation by EvD uses the following criteria: relevance to the Bank's likely future operations; lessons-learned potential; size of the Bank's investment commitment/exposure; balance among countries of operation; balance among sectors and types of operations; relative priority of investment operation OPERs within EvD's overall work programme priorities and resources. The Bank's post-evaluation process is described in Chapter 8 of the Operations Manual. The responsible Operation Leader first writes a TC Project Completion Report (PCR). The PCR serves a self-evaluation function and establishes the basic facts and lessons from the operation's preparation, implementation, and outcome. EvD’s independent evaluation follows, using the PCR as one of several inputs.

TECHNICAL COOPERATION OPERATION PERFORMANCE EVALUATION REVIEW ZTP BELGRADE RECONSTRUCTION PROJECT

(SERBIA)

i

TABLE OF CONTENTS

Page

PREFACE ABBREVIATIONS AND DEFINED TERMS ii BASIC DATA SHEET iii 1. THE PROJECT 1 2. PROJECT RATIONALE AND RELEVANCE OF THE TC OPERATION 2 3. ACHIEVEMENT OF OBJECTIVES 3 3.1 TC1 – Institutional Study 3 3.1.1 Update and develop its rolling five year business plan 3 3.1.2 Formulate and implement a human resource development plan 4 3.1.3 Prepare a labour re-structuring plan and accompanying re-training 4 3.1.4 Devise and implement measures designed to improve financial management and reporting 5 3.1.5 Determine and implement the most suitable arrangements for re-structuring the company 6 3.1.6 Achievement of the objectives for TC1 6 3.2 TC2-Supply of Management Information Systems (“MIS”) 7 4. OVERALL ASSESSMENT 8 5. TRANSITION IMPACT AND ADDITIONALITY 8 5.1 Overall transition impact of the TC operation 8 5.2 Company impact 9 5.3 Transition impact on the Sector and the country’s economy 9 5.3.1 New Business Standard – the 5 year business plan 10 5.3.2 Sector Framework – labour restructuring plan 10 5.3.3 Demonstration effects of TC2 11 5.3.4 Impact on the economy at large 12 5.4 Transition risks 12 5.5 Additionality 12 6. BANK HANDLING 12 7. KEY OPER ISSUES AND LESSONS LEARNED 13 7.1 Moving the large and rigid organisation forward 13 7.2 Handling a donor grant-financed large procurement of goods 14 7.3 Importance of firming up the Grant component before commitment 16 LIST OF APPENDICES

Appendix 1 List of Contacts Appendix 2 Operations Performance Ratings Appendix 3 Transition Impact Analysis Appendix 4 TC Completion Report


(SERBIA)

ii

ABBREVIATIONS

ADB Asian Development Bank BD Banking Department CFSEE Co-operation Fund for Southeastern Europe CIDA Canadian International Development Agency EAR European Agency for Reconstruction ED Environmental Department EIB European Investment Bank EIRR Economic internal rate of return EvD Evaluation Department FIRR Financial internal rate of return IAS International Accounting Standard IFI International financial institution IFRS International Financial Reporting Standards MDB Multilateral development bank MIS Management information system OCE Office of the Chief Economist (EBRD) OCU Official Co-Financing Unit OGC Office of the General Counsel (EBRD) OL Operation leader OPER Operation performance evaluation review OpsCom Operations Committee OT Operation team PIU Project implementation unit PKP Polskie Koleje Państwowe PPR Procurement Policies and Rules PSO Public service obligations SNCF Société Nationale des Chemins de fer Français TC Technical cooperation TCFP Technical Cooperation Funds Programme TIMS Transition monitoring information system TOR Terms of reference USD United States dollar XMR Expanded monitoring report

DEFINED TERMS

the Bank European Bank for Reconstruction and Development the company ZTP Belgrade the client ZTP Belgrade the OPER team Staff of the Evaluation Department and the independent sector consultant

who jointly carried out the post-evaluation the operation €719,963 and funded through the Bank’s Technical Cooperation Funds

Programme (TCFP)


(SERBIA)

ii

the operation team Staff in the Banking Department and other respective departments within the Bank responsible for the operation appraisal, negotiation and monitoring, including the XMR

the project The loan was guaranteed by the Yugoslavian government and was to finance severance packages for labour reduction, purchase of track maintenance machinery and spare parts, and refurbishment of locomotives.

TECHNICAL COOPERATION OPERATION PERFORMANCE REVIEW ZTP BELGRADE RECONSTRUCTION PROJECT TECHNICAL COOPERATION

(SERBIA)

BASIC DATA SHEET Operation Code 20278 and 23670 Location: Serbia Operation: ZTP Belgrade Reconstruction Project – institutional study and MIS Sector: Transportation Type: Technical Cooperation Facilitators: The government of France under the France Technical Cooperation

Treasury Fund The government of Canada Bank Unit: Transport A. Funding TC TCFP commitment Commitment

number Commitment title Amount (€)

TC 1 FRB-2002-01-01 ZTP Belgrade Reconstruction Project – institutional study

750,000 (committed) 719,963 (signed) 697,697 (disbursed)

TC 2 CANSE-2001-10-03 ZTP Belgrade Reconstruction Project – management information system (MIS)

2,000,000 (committed) 1.94 million (disbursed)

Related TC FRB-2006-12-04 Serbian Railways: Assistance with restructuring

300,000 (committed) (not completed yet)

B. Procurement Procured services/goods Mode Sources by country Consulting services Evaluation of proposals France Procurement of MIS Evaluation of proposals Canada Consulting services (RTC) Evaluation of proposals France C. Visits Type of visit No. of visits Person-daysEvD/OPER 1 4

iii

OPERATION PERFORMANCE EVALUATION REVIEW ZTP BELGRADE RECONSTRUCTION PROJECT TECHNICAL COOPERATION

(SERBIA)

1 THE PROJECT The European Bank for Reconstruction and Development (EBRD) approved and signed a €57 million loan to the Serbian Railways in October 2001 (Yugoslav Railways – ZTP Belgrade Reconstruction Project).1 The loan was guaranteed by the Yugoslavian government and was to finance: • severance packages for labour reduction (€10 million) • the purchase of track maintenance machinery and spare parts (€22 million) • the refurbishment of locomotives (€25 million). The objectives of the loan were to maintain transportation capacity while increasing operating efficiency and labour productivity to effectively meet current and future traffic demands. The loan became effective in July 2002 after a six-month wait due to the delayed counter-guarantee from the Serbian government. The European Investment Bank (EIB) provided a €60 million loan in a parallel manner to finance track renewal on the pan-European Corridor X, the main backbone of the region. The investment programme was supported by two donor-financed assistances: an institutional study and the supply of a management information system (MIS). The former was estimated at €700,000 and the latter at €2 million. The total project cost was estimated at €135 million, including the Serbian Railways’ contribution of €15.30 million. The investment was originally scheduled to be completed by mid-2005. This was the Serbian Railway’s first experience with an EBRD loan and implementation was substantially delayed. Reasons for this include: • the absence of procurement support for hiring a consultant in project design • the Serbian Railway’s slow familiarisation with the EBRD Procurement Policies and Rules

(PPR), which affected the early years of implementation. The availability period for the loan was repeatedly extended until June 2007. The loan was fully disbursed by 2007 while repayment started in 2006. The investment is considered complete and is listed for the 2009 evaluation in the form of an expanded monitoring report assessment (XMRA) and for a joint evaluation with the EIB. In May 2006 the Bank approved its second sovereign-guaranteed loan for €60 million, together with an €80 million EIB loan. It aimed to increase the transportation capacity while supporting ongoing sector reforms. The Bank loan was meant to finance the purchase of new freight wagons, and the EIB loan was to contribute to the track renewal programme on Corridor X. A €1.3 million technical cooperation (TC) for implementation support was financed from the European Agency for Reconstruction (EAR). The government of France again committed €750,000 of TC funds for the assistance in restructuring (referred to as “related TC”). After being signed in July 2006, the loan only took effect in January 2008 because of the delayed ratification of the

1 The Railway Act of 1991 set the Serbian Railways up as a state-owned enterprise, Železničko-transportno preduzeće (ZTP Belgrade). During the government’s public enterprise restructuring, the new Act transformed ZTP Belgrade into a public enterprise, Serbian Railways (Železnice Srbije) in May 2005. The Serbian Railways are still owned by the state, and the general manager is appointed by the government.

of 17 OPER: ZTP Belgrade Reconstruction Project Technical Cooperation (Serbia)

guarantee. The total project cost was estimated at €162 million. The Bank and the Serbian Railways have been trying to ameliorate the slow-start implementation. This evaluation report relates to the TC operation under the first loan. The TC operation comprised the above-mentioned institutional study (TC1) and the supply of hardware and software (TC2). 2. PROJECT RATIONALE AND RELEVANCE OF THE TC OPERATION Challenges The railway system in the Balkans is over 200 years old. The Serbian Railways retained the major part of the former Yugoslav railway system and of a 3,809 km line, 30 per cent of which is electrified. The main corridor, the pan-European Corridor X, accounts for nearly 50 per cent of the network in kilometres. The infrastructure is old, maintenance has been on back-log, and some parts were severely damaged during a NATO air raid. Historically, it was bestowed with the government’s strong financial and institutional support and control. In the 1990s the World Bank provided assistance. Total traffic volume has gradually recovered and has picked up owing mainly to the cross-border transit traffic. However, its inadequate fleet often affects the punctuality of trains. Nevertheless, it carries about 10 million freight-tonnes and one million passengers annually. Response In order to respond to the challenging situations described above, the Bank formulated the loan. TC1 was an integral part of the operation and was designed to be highly instrumental to the loan. Providing finance to a state-owned railway through a multilateral development bank (MDB) conventionally comprises two major elements: reform components and capital investment. The railways in the centrally planned economy, as the primary transportation mode for directed moves of commodities, diligently observed and implemented the government’s five-year investment and development plan. The planning framework and practices from centuries before remained even after the regime’s demise. Given the size of investments required, the railways opted to request MDB assistance for the plan’s priority projects. The MDBs responded with a condition to move the sector reforms ahead. A reform component is therefore a necessary element for doing business with conventional railways. In the mid- to long-term, the reform element will certainly benefit the railways if implemented in tandem with investment in physical assets. A grant-based TC for international consultancy services is a typical incentive instrument for the recipient government and the beneficiary organisation to work toward sector reforms. The Bank and the Serbian Railways equally shared the project rationale for the technical cooperation. Relevance rating The relevance of TC1 was High, while TC2 was less relevant, thus it is rated Modest. Therefore, overall relevance is Substantial. Bank strategy and policy compliance The Bank’s 2001 Yugoslavian Action Plan (BDS/FRY/01-1 [Final]) identified several urgent investments in Serbia that needed a quick start. Supporting the Serbian Railways was a priority agenda for the Bank as restoring infrastructure and enhancing operations on the Serbian section of

OPER: ZTP Belgrade Reconstruction Project Technical Cooperation (Serbia) Page 3 of 17

Corridor X was crucial for the region’s rail transportation.2 The project was fully in line with the Bank’s strategic aim and its operational objectives. 3. ACHIEVEMENT OF OBJECTIVES The overall fulfilment of the objectives of the TC operation is assessed Satisfactory as a result of the combination of Good for TC1 and Marginal for TC2. 3.1 TC1: Institutional Study The TC was financed by the French government under the France Technical Cooperation – Treasury Fund. The implementation of TC1 was originally scheduled from April 2002 to February 2004. However, difficulties in identifying the donor delayed recruitment of the consultants. The donor committed €750,000 in January 2002 and TC Committee (TC) Com approved the TC1 in August 2002. The selection took place in the final quarter of 2002. The consultancy services contract was signed for €719,963 in June 2003 for an immediate fielding of the consultants to Belgrade. The contract envisaged two years of implementation ending in April 2005. The contract was extended several times. The final report was submitted by the consultants in February 2007. Actual completion took place in April 2007 with a two-year delay (and a three-year delay against the appraisal board document). The disbursement of €697,697 achieved 97 per cent of utilisation of funds. The then operation leader (OL) did not prepare the donor completion report but the latest progress report dated April 2006 rated performance of the counterpart (that is, the Serbian Railways) and the consultants as excellent. The overall objective of TC1 was to assist the Serbian Railways in fulfilling certain key conditionalities of the loan aiming at commercialisation and restructuring of the railways. The achievement of the objective was considered to help the Serbian Railways align their operations and management with the European Union (EU) directives. In order to achieve the TC objective, the Bank defined the following objectives of the assignment to the consultants. The consultants were expected to assist the Serbian Railways to: • update and develop its rolling five-year business plan • formulate and implement a human resource development plan • prepare a labour re-structuring plan and accompanying re-training and other mitigating

measures • devise and implement measures designed to improve financial management and reporting

methods • determine and implement the most suitable arrangements for re-structuring the company,

including creation of separate profit centres and handling of the social services. 3.1.1 Update and develop its rolling five-year business plan: Achieved

2 The action plan stated that the “EBRD was ready to assume a lead role in providing finance to infrastructure projects in Yugoslavia”. The Bank considered that “the needs of the transport sector were very significant in light of the combination of the lack of availability of funds for maintenance over the past ten years and the specific war damage to some key infrastructure assets”. The EBRD identified, in the rail sector, the investment in rolling stock rehabilitation as the most urgent “as it would provide the railway with quicker returns through costs savings in fuel, maintenance and reliability improvement”.


The five-year business plan was prepared by the Serbian Railways without assistance from the consultants and submitted to the Bank in 2002 to meet a condition precedent for the loan effectiveness. Overall, there was a lack of major strategic vision as to how to attain the targets and corporate goals to come in line with EU directives. Substantial inputs orientated towards action were considered necessary to “modernise and refine” the business plan. The consultants submitted a draft business plan (2004-08) in June 2004. After a lengthy interaction between the consultants and the Serbian Railways, this was finalised in December 2004. The draft business plan (2005-09) was submitted in October 2005 and, similarly, after the incorporation of considerable amount of comments and a re-submission, was finalised in November 2006, taking a year for refinements. 3.1.2 Formulate and implement a human resource development plan: Achieved The consultants considered that the commercialisation would require cultural change and re-training for governance and decision-making process. The human resource development plan was prepared by defining how the future competencies for commercialisation would be achieved through systematic staff training. The associated action plan with accountability allocations was comprehensively prepared. The draft report was submitted in September 2005 and finalised in November 2006. Overseas training comprised a study tour to Société Nationale des Chemins de fer Français (SNCF) in France (in March 2004 for one week) and Polskie Koleje Państwowe (PKP) in Poland. The main objective was to understand how the SNCF manage a customer-driven railway business within the French institutional framework and what steps would be required to improve SNCF business management according to diminishing government financial support. The latter was conducted in April 2005 for three days to understand the restructuring activity undertaken in the Polish railway sector, which would need accelerated reforms after a decade of restructuring efforts. The OPER team considers that the selection of tours was excellent as the SNCF was one of few large railways not yet privatised against considerable external pressures. The PKP is a typical example showing that restructuring affects the pace and quality of sector reforms. The Serbian Railways appreciated the study tours. The reports of the tours’ outcomes were submitted to the Bank as scheduled. 3.1.3 Prepare a labour restructuring plan and devise re-training and other mitigating

measures: Achieved The proceeds of the loan, quite exceptionally in MDB financing, covered severance payments.3 To ensure the quality of the severing process and results, TC1 included the preparation of the labour restructuring plan as the most critical output. Opening a special account for this purpose was set as a condition precedent to the loan effectiveness, which was duly met. Even before engaging the consulting services, the Serbian Railways fully recognised the need to reduce the number of staff. However, this would require cooperation with the concerned parties such as the labour union, the ministry of labour and the industries that would accommodate a redundant labour force. This was the area for which the Serbian Railways most needed the intelligence from the experienced international consultants.

3 Major MDBs such as the World Bank do not finance local currency components but only foreign currency components from classic macroeconomic viewpoints. Severance payments are a typical example of local currency components.


The business plan placed a long-term target of 17,000 in 2012 (currently about 20,000) based on the estimated operational and financial efficiency in the future and the forecast traffic which determines staff requirements. The consultants provided the Serbian Railways with: • framework • current status and proposed restructuring measures • financing requirements • recommended actions • staff section criteria. The labour restructuring plan was prepared in September 2005 and re-submitted incorporating the Serbian Railways comments in November 2005. Therefore, this objective is considered Achieved. However, the submission of the plan was too late for the peak of staff reduction that actually took place between 2003 and 2004 as described in later sections. The plan itself is useful but the benefits were not maximised (see Transition impact). 3.1.4 Devise and implement measures designed to improve financial management and

reporting methods: Partly Achieved The hyperinflation period of the late 1990s and an outstanding debt of €482 million to the World Bank renders Serbia’s financial position in relation to the EIB and other foreign creditors rather ambiguous. This task requires considerable expertise in the railway sector coupled with experience in the centrally planned economy’s accounting practices as well as knowledge, skills and qualifications related to International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS), neither of which are readily available in the worldwide market. The financial data verified in IAS standards are crucial for the Bank and other project stakeholders to determine a genuine or at least reasonably clear picture of the Serbian Railways’ financial position before loan appraisal. The loan covenant required the introduction of IAS accounting by the end of 2004. The consultants re-stated the 2002 accounts and submitted them to satisfy the loan covenant for the IAS introduction in April 2004. For IAS 2003, the consultants had some problems with hyperinflation and recommended that the Serbian Railways undertake asset valuation afresh. This was a valid recommendation. Since the accounting value of assets was so distorted, the physical value of assets should be considered, although the latter depends on maintenance norms and material cannibalisation practices. However, this exercise has not been undertaken as it is very costly. The consultants’ report was submitted in September 2006 and finalised with the Serbian Railways’ comments in November 2006. The Serbian Railways appointed an internationally renowned accounting firm in 2004. However, the IAS translations of annual reports took longer than expected, and the submission of IAS-based accounts to the Bank was also delayed. Although some accounting issues seem to persist, the overall quality of the audited accounts has significantly improved in the past couple of years. The profitability analysis was the key element for railway restructuring because it identified what could make the Serbian Railways financially profitable or economically viable. This was conducted in the first half of 2004. The analysis was submitted in June 2004 and amended and re-submitted, after the Serbian Railways’ comments, in September 2004. The findings were very simple: Serbian


Railways would still require a significant amount of government subsidies for cost recovery even at the optimal level of operating efficiency after the rationalisation of the network. 3.1.5 Determine and implement the most suitable arrangements for restructuring the

company, including creation of separate profit centres and handling of the social services: Partly Achieved

In the late 1990s and early 2000s the process of railway restructuring (how to “slice the railways”) had generated lively debate in many countries and within the MDBs such as the World Bank and the Asian Development Bank (ADB). The EU chose a horizontal approach, dividing the operations from infrastructure, that is, separating the rail infrastructure (track and other infrastructure such as tunnels and bridges) from the operations (which preferably should be undertaken by more than one private sector operator). Therefore, the Serbian Railways had to move in that direction. In this challenging task, the consultants first explained the concept of railway restructuring and necessary re-organisation to the Serbian Railways’ management and key staff as well as the concerned ministries. They then recommended enhancing financial management and control as implementation measures to realise the proposed restructuring. Workshops for disseminating restructuring blueprints were conducted for four subjects (institutional models, debt restructuring, labour restructuring strategy, restructuring methodology). The proposed restructuring required changes in financial management and accounting in the government as well as in the Serbian Railways. Such changes included: • separation of accounts with regard to infrastructure and operations • accounting structure and principles • tariff policies and pricing principles • budgetary practices and implementations • cost reduction strategies • business support systems. The paths to follow were shown in a broad manner. The report was submitted in October 2005 and finalised in November 2006 after several interactions between the consultants and the Serbian Railways. While the consultants fulfilled their assigned works, the pending implementation was brought forward as the issue of public service obligations (PSO). The PSO were supported by the consultants for the related TC, which have been assisting the Serbian Railways under the second loan. 3.1.6. Achievement of the objectives for TC1 The objectives of the TC1 were to increase the readiness to fulfil the loan covenants, particularly associated with transition. Major transition covenants under the loan were set as below: • preparation and implementation of labour restructuring plan (see 3.1.3) • annual updates of the business plan (see 3.1.1) • introduction of separate accounts for passenger and freight operations by 2004 • fulfillment of the labour productivity ratio of 250,000 by 2006 (see 3.1.3). The labour restructuring plan was submitted by the Serbian Railways and has reportedly been implemented. The submission of the business plan has been fulfilled with the assistance of the international consultants. The separation of accounts between passenger and freight services was only undertaken in 2005 after the current Railway Act was enacted.


For the moment, it has only been implemented on an accounting (hypothetical) basis as the re-organisation requires further reform milestones as well as elaboration of the implementation plan and a consensus among the ministries and the Serbian Railways. The labour productivity ratio for 2006 was met in 2007. Based on the delivered work and its quality as well as compliance with the loan covenants, the objectives under TC1 have been Achieved. Therefore, the OPER team has rated this as Good. 3.2 TC2: Supply of management information system (MIS) At appraisal, the Board document stated that the Serbian Railways wished to update its information systems with priority given to updating equipment and purchasing the necessary software for the European railways’ communication platform Hermes and a management information system (MIS) in the form of an intranet. It also mentioned “MIS systems will be financed from grant funds provided by CIDA”. It estimated €1 million for installing the Hermes nodes at stations and another €1 million for the implementation of intranet. Main components were presumably the consultancy services to design MIS. The total cost was estimated at €2.8 million, of which the Serbian Railways would contribute €800,000 in counterpart funds. The Board document also stated: “Procurement will be through selecting tendering, in accordance with the Bank’s procurement policies and rules (“PPR”), with the tender short list being restricted to Canadian firms.” At the donor conference in June 2001 in Brussels, the Canadian government volunteered support. In October 2001 the Canadian International Development Agency’s (CIDA) South East Europe Trust Fund Phase I confirmed its commitment for €2 million to the Bank. CIDA also committed another €690,000 for the same components under the Bosnia and Herzegovina Railways Recovery Project. The Bank planned to start tendering process in January 2002 and the supply of equipment in May 2002. In August 2004 the operation team requested that CIDA untie the grant funds for those components. CIDA agreed to loosen the eligibility with respect to the funds provided to Serbian Railways and Bosnia and Herzegovina Railways for MIS procurement for a total of €2.69 million. The tender was titled as “Supply and Installation of IT hardware and software for Railway Rehabilitation Project”. Instead of a selective tendering that was stated on the appraisal Board document, open international competitive tendering was conducted. The tender was launched in October 2004. The winning bidder quoted the lowest price with €1.98 million, while the highest bid quoted €4.1 million. A tender evaluation report was submitted to the Bank in March 2005 and approved accordingly by the operation team. The resulting procurement included some 1,055 workstations and servers, a large number of line printers and laser printers, notebooks, local area network (LAN) cables, Single-Pair High-speed Digital Subscriber Line (SHDSL) modems, Microsoft Office software, groupware, security software, cabinet and racks, associated software training and so on. The Serbian Railways and a Serbian supplier signed the supply and installation contract in June 2005. In order to undertake the payments to the supplier, the TC was registered in the Bank’s TC database with a start date of May 2003 and an end date of October 2005. This was unwarranted as the grant did not go through the TC system. All donor progress reports and completion reports were exempted in the system. TC2 ran from 2001 to 2005 due to the delay in procurement from 2001 to 2004. During this period, the Bank’s


procedures for handling the donor-financed grant-based supply of goods for the investment project were not clearly defined and largely deferred to standard practices. As a result, some confusion occurred in dealing with the TC2 (see Lessons-learned section below) within the Bank. Notwithstanding the delay and change of expected type of assistance, the Serbian Railways informed the OPER team that this assistance was much appreciated in enhancing internal and external communications between headquarters and major nodes on the Serbian Railway network and outside the network. The absence of the TC Com and TC monitoring processes made the TC rationale and objectives unclear. Given that the stated component has changed in the course of the implementation from “MIS” to “hardware and software”, the objectives of this TC are considered Partly Achieved. It is therefore rated Marginal. 4. OVERALL ASSESSMENT The TC operation is assessed Successful for the first grant-based assistance. TC1 (institutional study) was financed by France and aimed to facilitate compliance with major sector reform milestones that were required under the loan. It was the first international consultancy service for the Serbian Railways. The Bank’s fund mobilisation capacity strongly justified the additionality, which is Verified in All Respects. TC2 (procurement of MIS) was grant-financed by Canada. It involved the procurement of a large number of computer devices to enhance internal and external communications. Under TC1 the implementation was delayed due to a lengthy report finalisation process involving various government agencies. However, the consultants accomplished their tasks and delivered the work, thereby substantially achieving the objectives. TC2 did not follow TC procedures, which made it difficult to assess the ex-ante and ex-post achievement. The change of component added another difficulty for assessing the intended benefits of TC2. Given these facts, the overall achievement of the TC objectives is rated Satisfactory. The Serbian Railways took into account some of the consultants’ recommendations for their reform actions. Therefore, transition impact is Satisfactory. Bank handling for the TC operation is rated overall Good despite some deviation that occurred during TC2 implementation. Overall relevance of the TC operation is assessed as being Substantial. 5. TRANSITION IMPACT AND ADDITIONALITY 5.1 Overall transition impact of the TC operation The transition impact of the TC operation is rated Satisfactory, which is derived from Good transition impact in TC1 and Satisfactory in TC2.4 As the Serbian Railways are a state monopoly, the corporate level impact should largely coincide with the impact on the sector. In this section, however, the company impact refers to the direct impact of the TC operation on the organisation of the Serbian Railways, in particular on the project implementation unit (PIU) and key staff.

4 For the investment, the transition impact monitoring system (TIMS) has rated the transition potential Good with Medium risks, considering that major transition agenda set under the loan have been fulfilled particularly after the enactment of the new Railway Act in 2005. TIMS continuously monitors transition impact under the second loan, which is rated similarly.


The sector impact deals with the positive and negative effects of the TC operation on a broader level. It is the result of the involvement of other stakeholders, such as the concerned ministries, without which the sector reforms would not be advanced. The reports and recommendations prepared by the consultants under TC1 were also circulated to such ministries for review and comments. This resulted in significant delays in the finalisation of the consultants’ reports as shown in the earlier section. On the positive side, the lengthy interaction held between the consultants, PIU and key staff and the concerned ministries during the report finalisation constituted a policy dialogue process. This helped the Bank to persuade the Serbian Railways of reform actions to be taken (see Lessons-learned section below). 5.2 Company impact The impact of the TC operation on the Serbian Railways is considered Satisfactory. This mainly consisted of skills transfer and introduced new business standards. The former was introduced in TC2 and the latter relates to TC1. Skills transfer The supply and installation contract included IT training in two modules: • hands-on training for four persons during the installation, configuration, integration and

optimisation of the supplied equipment • classroom training for up to 10 persons on networking, network security, server administration,

Web and Linux administration. As for the connection to Hermes, the Serbian Railways had already subscribed to the connections prior to the TC2. It had been using Hermes in the operation centre and headquarters in Belgrade. Therefore, only hardware devices and general software were necessary to expand the access to the network nodes in Serbia. Staff had gained relevant skills to manage the access before the TC2, and Hermes support was available as part of maintenance services. New business standards Seminars and workshops mentioned in earlier sections inspired a selection of key staff for the development of the railways. Throughout the years of interaction and discussions with the consultants, the PIU has significantly increased the exposure to new standards for a market-based transportation and commercialisation. 5.3 Transition impact on the sector and the country’s economy The current Railway Act furthered compliance with major reform milestones set at appraisal, such as the separation of accounts between infrastructure and operations. This Act had already been prepared and submitted to parliament before the loan approval in 2001. The approval and enactment was nevertheless delayed until 2005. Therefore, TC1 started in 2003 and had no effect on the transition that such reform agenda had realised. However, the earlier section concluded that both the consultants’ tasks and outputs and the TC operation, had been accomplished and that the associated loan covenants have been fulfilled. It has verified that the consultants’ inputs established a certain causal effect on the Serbian Railways’


actions. In this section, the transition impact is determined according to the Serbian Railways’ acceptance of the consultants’ recommendations as inputs. The impact of the TC operations on the sector concerns three areas:5 • new standards for preparation of the rolling five-year business plan • change of sector frameworks through labour restructuring • demonstration effects of TC2. 5.3.1 New business standard: The five-year business plan The Serbian Railways needed to prepare a five-year business plan. This had to be approved by all concerned authorities as it has implications on the state budget and the capital expenditure in infrastructure. Therefore, traffic and revenue projections constitute a critical part. The Serbian Railways’ traffic projection has improved significantly in accuracy after the consultants’ involvement. Modern forecast techniques and realistic assumptions have established a new standard. Their improved forecasting practices helped the operation team in drawing a realistic traffic projection for the appraisal for the second loan approved in 2006. 5.3.2 Sector framework: Labour restructuring plan The covenanted labour productivity was complied with in 2007. The OPER team has concluded that the consultants’ inputs had marginal impact on the compliance in terms of quantity. The compliance achieved in 2007 was ascribed to two elements: • progressive staff reduction conducted between 2003 and 2004, which was likely attributable to

the loan disbursement for severance packages • significant increase in freight traffic rather than reduced number of personnel. The following paragraphs provide the OPER team’s account.6 The chart below shows how the traffic and staff numbers have moved. The staff reduction peaked in 2003 to 2004 after the disbursements started in July 2002. After the loan proceeds for severance exercises had been used up, the Serbian Railways were obliged to conduct the reduction of another 9,551 personnel, estimated at €23 million and covered by their own funds from 2003 to 2005. However, the reduction from their own funds has slowed down. Chart 1: Actual traffic and staff numbers

5 As an incidental impact of TC2, the market expansion caused by the €2 million large procurement of goods through an open and competitive tender is noted. However, all bidders were local because of the nature of goods which were not suitable for an international competitive tender and usually procured by “off-the-shelf” direct purchase. 6 Sudden pick-up of freight traffic in 2006, although figures are unconfirmed, can be explained by the positive impact of the second loan, which enabled the Serbian Railways to procure freight wagons. A conversely declined passenger volume indicates that the priority track was given to freight traffic.


Actual Traffic and Staff number

33,74132,178

30,37127,338

23,94122,271 20,857 20,6373,225 3,159 3,288 3,492

4,117 4,333

5,069 5,284

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2000 2001 2002 2003 2004 2005 2006 2007

Num

ber of

em

ploy

ee

0

1,000

2,000

3,000

4,000

5,000

6,000

Com

bine

d Uni

t-Km

(mill

io

Actual Number of Employees Actual Traffic Note: Number of employees on left axis; Combined traffic unit in tonne-passenger-km) on right axis 5.3.3 Demonstration effects of TC2 TC2 had a positive impact on information flows in the Serbian Railways. This is evidenced by the Serbian Railways’ web site which was developed in 2006 after the Canadian grant had been provided.7 The web site currently disseminates the latest news about Serbian Railways for both internal and external audiences. Moreover, the connections among the network nodes have enabled the web site to provide the train schedule by origin and destination stations. Also, it serves as a platform for the future electronic reservation system, although the current demand for passenger traffic might not justify the development of an internet-based electronic reservation system. Overall, the benefits derive from technological advancement, not necessarily furthering transition. Whether the positive momentum generated by improved communications will be translated into transition impact, such as better decision-making, solely depends on the Serbian Railways’ institutional capacity. Despite improvements, the procurement of hard- and software (totalling €2 million), which was unexpectedly untied during implementation, could be viewed negatively by current and potential future donors and the citizens of the donor countries.8 CIDA together with the EBRD set up the Co-operation Fund for Southeastern Europe (CFSEE) Phase II for US$ 12 million and Phase II for US$ 6 million. TC2 was financed from Phase II (from 2003 to 2009). While a large part was allocated to TC2 out of the Phase II Fund, untying was rather unusual. The Serbian Railways had been developing the procurement plan from the onset of the project. In retrospect, the Bank must have had many opportunities between 2001 and 2004 to become aware that goods could not possibly be procured from Canada. Moreover, the Bank could have fully ensured an economic use of the grant funds. Out of some 1,000 workstations, 200 (worth some €150,000) were to be allocated to “remote stations”, which are outside the corridors rather than along the branch lines. What economic benefits would be gained from IT equipment at a remote station that only a few trains a day call at? According to the reform milestones, the Serbian Railways will be rationalising the loss-making branch lines in a few years. It would have been more economical to expand the IT

7 www.serbianrailways.com 8 Since 1990 CIDA’s activities in the Balkans and Serbia have focused on three sectors: rule of law, health and education. CIDA have disbursed €540 million for 800 projects in the region. Between 1999 and 2001, over €200 million were made available largely for humanitarian assistance after the Kosovo crisis. In Serbia grants were provided for health programmes, education programmes, judicial reform and gender equality.


network connections after the branch line closures. The Bank’s proactive endeavours could have improved the value of the grant assistance. 5.3.4 Impact on the economy at large There might be indirect and long-term transition impact gained from the TC operation through internet access to passenger train schedule. Easier journey planning could yield reduced economic costs which would otherwise have incurred from inefficient moves of people by train as well as by competing transport modes, such as bus and passenger cars along the same corridor. No discernible direct impact, however, is verified on the economy as a whole. 5.4 Transition risks Risks associated with transition potential for TC1 is relatively small as most of the intended transition impact has been realised and verified. TC1 has successfully passed the important transition agenda, the PSO, on to the ongoing related TC. The latter TC was scheduled to be completed at the end of 2008. At the time of evaluation exercises, signs of delay had already emerged, and the Serbian Railways was becoming anxious. The PSO is a core part of commercialisation in legal, institutional and operational terms in the context of sector reforms. The Serbian Railways have very high expectations for a successful outcome of the related TC. The Bank might need to elaborate on and stand up to the policy dialogue that it intended to deliver through the TC operation and the transition covenants associated with the investment. TC2 runs an obsolescence risk regarding the goods procured, particularly at remote stations. IT equipment supply in a large organisation is usually planned in a phased roll-out, which could avoid the large one-time expenditure and could mitigate the obsolescence of the entire equipment. Given the large sum of the grant, Serbian Railways managed to expand the equipment throughout its rail network, possibly beyond actual needs. Serbian Railways is expected to use and maintain the procured equipment in the most responsible way. 5.5 Additionality The Bank’s additionality at appraisal was Verified in All Respects. This rating is mainly due to the operation’s capacity for fund mobilisation and its technical and design capabilities to formulate the terms of reference and to select qualified international consultants, particularly for TC1. 6. BANK HANDLING The TC operation’s Bank handling is assessed in terms of the following: • TC design and formulation, approval process, recruitment of the consultants • TC implementations and monitoring including the quality and submission of donor progress and

completion reports • outputs of the TC operation and feedback and assessment of the Bank and Bank staff by the

donor(s), the consultants and the beneficiaries if available. The OPER team has assessed Bank handing overall as Good. The TC team, including Consultancy Services Unit staff and procurement specialists handled the TC operation adequately and exerted efforts to maximise the benefits of the TC operation within various limitations. During the long implementation period, the OL changed several times. However, the operation’s continuity and the


accountability have been sufficiently maintained, and the responsiveness to the evaluation exercises was found fair. Incidentally, the OPER team was unable to attach the TC2 donor completion report because the assistance did not take the form of a TC, as mentioned earlier. 7. KEY ISSUES AND LESSONS LEARNED 7.1. Moving the large and rigid organisation forward Compared with road, seaport or civil aviation sectors, the railway sector, together with inland waterways, is known as the most rigid and old-fashioned sector, particularly in the former communism/socialism countries. The implementation of the first institutional TC was delayed for several reasons.9 Some important deliverables, such as the labour restructuring plan, were not finalised in time. Therefore, the TC was unable to maximise the benefits generated by the consultants’ inputs, which the Serbian Railways could have built on. One of the major reasons for the delay was the lengthy revision process of the draft reports. The lengthy process was attributable to: • multi-party approval structure as the consultants’ report had to be circulated to the concerned

ministries • translating and understanding voluminous materials and documents regarding the Serbian

Railways, which is a significant burden on the consultants • fully understanding and incorporating the Serbian Railways’ comments on the reports • Serbian Railways’ misunderstanding that the recommendations in the consultants’ reports were

legally binding and that they had to be followed once accepted. It seems that it took about one year for the Serbian Railways to realise that the recommendations were made for their consideration. The Serbian Railways were generally appreciative of the consultants’ inputs and interactions during the TC period. Out of the discussions between the OPER team and the Serbian Railways, it appeared that the Serbian Railways was seeking a dialogue-type consulting service for tailor-made reform actions. Also, the consultants’ participatory approach to all concerned agencies and ministries was encouraged as it yielded more efficient and effective results for the sector reforms agenda.10 Usually, international consultants tend to present a “standard format” reform agenda and recommendations based on the MDBs’ standard requirements for the railway sector. As they must achieve a number of deliverable submissions during the long assignment, incorporating the comments and tailoring the recommendations could create another burden. However, the railways often have their own ways of making changes and are endowed with special legislations. Also, the 9 The World Bank provided loans to the Yugoslavian Railways from the 1960s to the early 1990s. The focus was mainly on the immediate needs in railway infrastructure rehabilitation. 10 The Serbian Railways observations were: (i) the Serbian Railways and the concerned ministries provided a large amount of comments and feedback on the reports, however, their comments were not fully incorporated in the final versions; and (ii) sharing the reports and information with the concerned ministries was vital to understand every reform action that the Serbian Railways should take. Therefore, close coordination was necessary among such government agencies.


concerned ministries need to work from the same information as the railways, which would take longer time than the consultants expect. As a consequence, given the time constrains under the consultancy services period, the close dialogue and communications between the beneficiary railways and the consultants could be limited. The key to effective TC implementation with the Serbian Railways is to enhance the communications by: • early submission of the reports, which could allow more time for refinement and finalisation • full translation and description of “high quality” to avoid misunderstanding of the concepts or

technical term and terminology • a central contact person in the consultant team for the coordination with government agencies

and ministries, involving the concerned ministries in every major discussion as they are important stakeholders in railway projects and need to share the information.

Using a tripartite meeting for major assignment milestones on a more frequent basis could be another solution. Tripartite meetings are commonly used as a dialogue tool by the MDBs during implementation of the technical assistance when large investments must result in certain achievement in transition. A tripartite meeting, which involves the beneficiary (usually the railway enterprise), the recipient (the ministry of finance) and other concerned agencies (such as, in this case the Serbia’s Privatisation Agency and Ministry of Capital) and the consultants, would be very fruitful at every milestone of the TC implementation. It would help exchange views on the implementation status of the TC and facilitate adjustment of the tasks and schedule as necessary. Lesson learned: Importance of timeliness for the consultants’ inputs to the covenanted actions In this project the implementation of the technical cooperation for institutional reforms was delayed due partly to lengthy report preparation, review and feedback, and revision and finalisation. If the time-framed action on regional delivery would have been covenanted under the investment, the timely submission of reports and expedited revisions would have been allowed. The consultants’ inputs would have increased the chances for the borrower to take the recommendations into account and action them. Sector reform TCS could serve as a policy dialogue tool In this case the lengthy report finalisation facilitated the exchange of views, mutual understanding and the counterpart’s commitment to the direction of the sector in the future. This TC for the first-time borrower suggested that interactions between international consultants, state-owned borrower enterprise and government agencies in the report preparation process could enhance the understanding of the Bank’s aim and policy dialogue. 7.2. Handling a donor grant-financed large procurement of goods Goods or works for capital expenditure are sometimes financed on a grant basis from donors via the Bank through the trust fund. After the donor has committed to contributing to the project, the money is treated as a non-TC grant. However, in 2001 after CIDA committed the grant from its CFSEE, some confusion arose as to what procedure to follow. It was expected that the Canada South East Europe Fund should follow the same procedures as the TC funds. The input to the Bank’s TC database was made in 2005 without factual data. No TC-based project monitoring or reporting was undertaken. Therefore, the donor reports were not produced. This confusion in operation occurred partly because the rules about such grant-financed investment components were not clear, especially before 2005, and largely deferred to standard practices.


The €2 million assistance under the investment was untied in 2005. At that time untying the CIDA grant required: • the Canadian parliament’s approval and the ministry of finance’s consent • an amendment letter to the contribution agreement between the Bank and CIDA indicating the

specific project/TC name. In 2006 CIDA untied all the grants with the Bank and ceased all non-TC grant components. This has resulted in no more non-TC investment component being undertaken. CIDA has therefore only provided funding for TC-based consultancy services since then. In an investment project the grant-financed non-TC investment component can vary from small to large in terms of size. It is an important element of the Bank’s investment. Hence, accountability and transparency should be fully established because donors trust the EBRD as the grant-finance facilitator and fund administrator. However, in the past, particularly before 2005, this component was not handled very efficiently. It was less streamlined than TC-based components in terms of conditionality check (particularly for disbursements), periodic monitoring and requirements such as for reporting and maintenance and so on. If TC2 had been reviewed at the TC Com in 2005, the change from MIS to computer hard- and software as well as compliance issues with the donor contribution agreement could have been identified. Also, the conditions for reporting and equipment maintenance could have been set out. The OPER team is nevertheless of the view that a repeat of the TC2 case is highly unlikely as various improvements have been made in the Bank. For instance, the TC Com now reviews only TC projects financed by donors, while the Operations Committee (OpsCom) reviews non-TC grants as part of the investment package. Monitoring requirements from the donor, if any, are properly taken care of by the Official Co-Financing Unit OCU (outside the TC database). In April 2007 the Bank introduced a new procedure for such grant-financed investment components, which exempted non-TC grants from the TC process (while all grant-financed consultancy services are subject to the TC procedures). The new procedure clearly specifies the processes and respective responsibility of the Bank staff for handling such a component. Such a component is therefore no longer covered under the TC system. It still observes the Bank’s procurement rules and practices and remains in the scope of post-evaluation as part of the investment evaluation. In order to fully achieve the donor’s aims, it is crucial for the donor to increase awareness and knowledge of how the donor-financed investment component is managed and handled by the Bank. Lesson learned: Full familiarisation with internal and external requirements for non-TC grant-financed investment component The non-TC grant-financed investment component required adherence not only to the Bank’s rules and practices but also to the conditions set forth by the donor and the fund. Given the importance of the grant-financed investment component, the banking team needs to be updated and fully familiar with the latest procedures in order to prevent any irregularity and to ensure transparency, accountability and integrity in handling. In this TC the delay of procurement extended the implementation period to four years, during which the Bank’s procedural requirements changed. It inadvertently resulted in some irregularities in the non-TC operation. 7.3 Importance of strengthening the grant component before commitment


A non-TC grant-financed investment component should withstand the test that the Bank poses: (i) subsidiary; (ii) leverage; (iii) sustainability; (iv) consistency; (v) focus; and (vi) economy. The test will help the Bank-financed project to avoid a large “gift package” from the donor finance. Especially, a “subsidiary” nature, that is, the linkage with the project, which makes the component integral to the investment, must be well established to justify the grant assistance. At appraisal time, the MIS was expected to improve the Serbian Railways’ decision-making and operations, thereby making the grant component relevant to the Bank’s investment. However, as mentioned in an earlier lesson, an unexpected outcome of the bilateral funds occurred. Regarding the scope of procurement, the gap between the recipient and the Bank/the donor became an issue in 2004. It resulted in the change of procured goods, which significantly reduced the subsidiary attribute of the component, therefore weakening the justification for the assistance. The fact that the significantly delayed procurement did not affect the Serbian Railways’ operational performance clearly indicates a weak subsidiary attribute of this grant component. The gap could have been identified much earlier, even before the commitment of the donor fund. Serbian Railways was meant to develop intranet systems to connect headquarters and operation centres with railway network nodes. It was expected to enhance the communications and data exchanges, including an updated train schedule between the Serbian Railways and external users such as major stations on the corridors, other railways in the region and border control. Therefore, procurement focused on hard- and software. Such goods are available locally. The Bank was meant to procure a MIS, which is an IT system that generates reports and facilitates organisational decision-making. The Bank divided this into two sub-components, Hermes access and intranet, budgeting €1 million for each. The former was expected to generate passenger and freight cost savings on Corridor X and the latter was expected to benefit overall management, marketing, education and interactions with companies outside the country. However, access to Hermes and intranet itself do not constitute a MIS. Many Canadian management consulting companies specialised in the railway sector could have designed and established a MIS for the Serbian Railways. Apparently, CIDA understood procurement in terms of a MIS development, thus anticipating a value-added product that Canada could easily supply. However, importing a large number of hardware and software made in Canada could be problematic as it is costly to ship. Hence, procuring from a country in which labour cost is lower would be a reasonable action for the Serbian Railways to take. Tied bilateral assistance requires a match between the needs and the willingness of supply. Ideally, it should be matched without any manoeuvring or misunderstanding. A close examination of the recipient’s needs and a readiness to fulfil the bilateral grant conditions at an early stage of the project formulation are therefore necessary. Lesson learned: Maintaining the subsidiary attribute of the grant-financed investment component Change of goods to be procured could diminish the subsidiary attribute of the grant-financed investment component. It could therefore weaken the justification and relevance of such investment component to the project. In this TC a significant delay of the grant-financed investment component did not affect the performance of the borrower and the project in either positive or negative ways. This already indicates a weak linkage and subsidiary nature of such a component to the project. Clarifying the client’s needs TC


Firming up the grant component during appraisal, preferably prior to the donor conference, could help the donor and the client realise more effective assistance and avoid changes during the implementation of the project. In this TC operation the bilateral assistance required a tied procurement. This made it difficult for the client to source the goods and services from the donor country. The Bank had to subsequently request the donor to untie large funds during the implementation. Donor funds are very important for any project. In order to secure assistance, the EBRD therefore needs to make sure that the fund requirements will be satisfied.

APPENDIX 1

List of Contacts

Name Organization Position Ms. Jelena Ilić Ministry of Finance Junior Advisor, Treasury Ms. Ljerka Ibrović Public Enterprise Roads of Serbia,

Department for Public Relations Head of Department

Mr. Jovan Jović Public Enterprise Roads of Serbia, Sector for Investments

Head of Department for Tendering and Contractual Issues

Mr. Zoran Illić EGIS BCEOM International Project Director, Transport

Department Eastern Europe and Central Asia

Mr. Ivan Polivka KORI Conseil & Développement Associé Prof. Dragomir Mandić University of Belgrade, Faculty of

Transport and Traffic Engineering Division for Management in railway, rolling stock and traction

Mr. Branko Bajatović Consultant Mr. Zeljko Valentić Public Enterprise Serbian Railways Director, International Affairs

Department Mr. Vladimir Radić Public Enterprise Serbian Railways Director, Investment Department Ms. Željka Pantelić Public Enterprise Serbian Railways Deputy Director, Planning and

Restructuring Department Mr. Zoran Sretenović Public Enterprise Serbian Railways Deputy Director, Sector for

Plannign and Restructuring Ms. Ljiljana Gordić Public Enterprise Serbian Railways Deputy Director, Department for

International Affairs Mr. Zadik Danon Public Enterprise Serbian Railways Assistant Director, International

Affairs Department Ms. Anita Dimoski Public Enterprise Serbian Railways Advisor to Director General Ms. Ljubica Blăzević Public Enterprise Serbian Railways Ms. Ljiljana Radojčić Public Enterprise Serbian Railways Mr. Jean-Baptiste Fauvel Ambassade de France en Serbie, Mission

Economique de Belgrade Attaché Commercial

1

APPENDIX 2

OPERATION PERFORMANCE RATINGS ZTP BELGRADE RECONSTRUCTION PROJECT

TECHNICAL COOPERATION (SERBIA)

Performance Indicator

Rating OVERALL TRANSITION IMPACT (Analysis in Appendix 3): (Excellent, Good, Satisfactory, Marginal, Unsatisfactory, Negative) Transition impact of the TC Operation is a combination of TC 1 and TC 2. TC 1 has certain positive effects on the ongoing sector reforms, while TC 2, due to an ambiguous scope, ended up with less effective outcome. The Bank has drawn some lessons from the first experience with the Serbian Railways, which would be useful for continuous exercises to advance the ongoing sector reforms.

Satisfactory

ENVIRONMENTAL PERFORMANCE OF THE PROJECT AND SPONSOR: Not Applicable

EXTENT OF ENVIRONMENTAL CHANGE: Not Applicable

ADDITIONALITY: (Ratings: Verified in all respects, Verified at large, Verified only in part, Not verified) The Bank was additional by formulating a large institutional study for the Railways, which contributed to the compliance with the major transition covenants. The Bank was also additional to mobilise €2 million grant funds to enhance the internal/external network connections.

Verified in all respects

PROJECT FINANCIAL PERFORMANCE: (Ratings: Excellent, Good, Satisfactory, Marginal, Unsatisfactory, Highly Unsatisfactory)

Not Applicable

COMPANY FINANCIAL PERFORMANCE: (Ratings: Excellent, Good, Satisfactory, Marginal, Unsatisfactory, Highly Unsatisfactory)

Not Applicable

FULFILMENT OF PROJECT OBJECTIVES: (Ratings: Excellent, Good, Satisfactory, Marginal, Unsatisfactory, Highly Unsatisfactory) The major tasks of the consultants’ assignment were accomplished for TC 1. The outcome proves to be positive and the targeted Loan covenants have been satisfied. TC 2 did not have progress/completion reports. The objectives were not fully made clear and some diversions occurred during the implementation. Good achievement in TC 1 and part-achieved TC 2 turned an overall satisfactory outcome.

Satisfactory

BANK HANDLING: (Ratings: Excellent, Good, Satisfactory, Marginal, Unsatisfactory, Highly Unsatisfactory) Bank handling is considered fair. The Team has dealt with the TC Operation adequately overall. The long implementation period usually poses challenge, however, the Operation Team has managed two large TC administrations as effectively and diligently as possible, which compensated for the delay of start and completion of the TCs and some design failure of the TC 2 that resulted in some issues with the donor.

Good

BANK’s INVESTMENT PERFORMANCE: (Ratings: Excellent, Good, Satisfactory, Marginal, Unsatisfactory, Highly Unsatisfactory)

Not Applicable

OVERALL PERFORMANCE: (Ratings: Highly Successful, Successful, Partly Successful, Unsuccessful) The large assistance of €2.8 million as a leverage tool delivered a good kick-off for the Bank’s first intervention after the long-implementation and provided the Bank with some important lessons, which the Bank might need to capitalise the subsequent investments.

Successful

APPENDIX 3

TRANSITION IMPACT ANALYSIS ZTP BELGRADE RECONSTRUCTION PROJECT TECHNICAL COOPERATION

(SERBIA) TI

checklist categor

ies

STEPS OF RATING TRANSITION IMPACT

EX POST

Short-term verified impact

Longer- Term transition impact potential

Risk to potential

TI

STEP I: CHANGE BY THE PROJECT AT CORPORATE LEVEL

Rating1 Rating2 Rating3

3 Private ownership Not Applicable

5 Skill transfers: TC 2: IT training was given to a marginal number of staff. However, the large number of workstation made available to throughout the network increased the number of computer literate staff.

Satisfactory Satisfactory Low

6

Demonstration effects: Large-scale IFI support demonstrated within the Railways that are moving toward the EU directives-guided transportation entity.

Satisfactory Satisfactory Low

7

New standards for business conduct: TC 1: Seminars and workshops for re-structuring and re-organisation helped key staff to understand the direction they should pursue.

Good Good Medium

STEP II: TRANSITION IMPACT AT THE LEVEL OF THE INDUSTRY AND THE ECONOMY AS A WHOLE

Rating Rating Rating

1 Competition Not Applicable

2

Market expansion: TC 2 discarded a limited tendering and opted for an open tender for international bidders (although knowing that only locals were likely to bid). Large procurement gave an impetus to the local IT suppliers.

Marginal Marginal Medium

3 Private ownership Not Applicable

4

Frameworks for markets: The Consultants’ Labour Restructuring Plan had marginal effects on the labour reduction to 2005, while the significant progress in staff reduction was made between 2003 and 2004, which could be ascribed to the disbursement of the Loan.

Marginal Satisfactory Medium

5 Skills transfers Not Applicable

6 Demonstration effects: Enhanced corporate website which avails train schedule has significant demonstration effect. On the other side, extravagant grant assistance, not exactly in line with the donor’s strategy, might have a negative impact on the donor community.

Marginal

Marginal Medium

7

New standards for business conduct: In preparation of the 5-year Business Plan, the accuracy of traffic forecast has greatly improved as the Consultants introduced the modern forecasting techniques, which helped the appraisal for the second loan.

Good

Good Medium

SUMMARY OF VERIFIED, POTENTIAL AND RISK RATINGS Satisfactory Satisfactory Medium

OVERALL TRANSITION IMPACT RATING:4 THIS RATING IS THE COMBINED RESULTS OF TC 1 AND 2.

Satisfactory

1 This range is: Excellent/Good/Satisfactory/Marginal/Unsatisfactory/Negative. 2 This range is: Excellent/Good/Satisfactory/Marginal/Unsatisfactory/Negative. 3 This range is: Low/Medium/High/Excessive. 4 This range is: Excellent/Good/Satisfactory/Marginal/Unsatisfactory/Negative.

Consultant Assignment Reporting

Donor Progress Report Current as of: 18 September, 2008Operation Leader: Ghinescu, Serban Report status: Approved Exemption Reason: Completed on: 14 March, 2006 Approved on: 31 March, 2006 Report for session dated: 15 February, 2006 Sent to donor on: 6 April, 2006

1. Commitment Details

1.1 Commitment No. FRB-2002-01-01

1.2 Project Title ZTP Belgrade Reconstruction Project - Institutional Study

1.3 Country SERBIA 1.4 Sector Rail Transportation 1.5 Total Commitment Amount EUR 750,000 1.6 Total Amount Disbursed EUR 697,697 1.7 Date of Internal Approval 1 August, 2001 1.8 Date of Funding Approval 15 January, 2002

1.9 Related Investment(s) (EBRD Amount and DTM No.)

1. ZTP Belgrade Reconstruction Project, Active, EUR 56,988,419 (DTM No. 18659)

2. ZTP Belgrade Reconstruction Project, Active, EUR 11,581 (DTM No. 18659)

1.10 Related TC(s) (Amount) 1. No related TCs found

1.11 Consultant 1.12 Contract Start Date 5 May, 2003 1.13 Original Contract End Date 30 April, 2005 1.14 Current Contract End Date 31 March, 2006

2. Documentation

2.1 Supporting Documentation No document available

2.1 Supporting Documentation

3. Objectives and Tasks

- please refer to your TC Com Submission 1 August, 2001 3.1 Main rationale for the proposed TC project.

The objective is to assist ZTP Belgrade (the railways of Serbia) in meeting some of the key conditionalities of the loan related to commercialisation and re-structuring.

3.2 Why is the TC needed, and why use TC funds?

3.3 Main components/tasks the consultant was asked to undertake (refer to original ToR for details)

The consultant is assisting with business planning, the development of a human resources plan, including a labour restructuring plan and IAS accounting.

3.4 Comment on the relevance of the objectives, how well they have been covered, the progress of the assignment to date and any problems encountered.

This objective of the assignment is to assist the client in re-structuring its operations in accordance with European Union directives.

3.5 Were there any changes to objectives, tasks, timing of implementation or budget after TC Com approval?

No 3.6 Describe and explain any changes.

Some reallocations of funds and change of experts but with no significant impact on the project.

4. Assessment of Inputs

4.1 Level of the local client's commitment during design and implementation.

Excellent 4.2 Justify your rating of the client's commitment. Comment on client's

involvement during ToR design, consultant selection and implementation. The client has been closely involved in the drafting of the terms of reference and the consultant selection procedure. Their commitment to and ownership of this assignment is good.

4.3 Overall rating of the consultant's performance to date. Excellent

4.4 Justify this overall rating.

4.3 Overall rating of the consultant's performance to date. The contract has been revised and the activity started later than initially envisaged. The consultant is closely working with the client. There were few delays on deliverables but the overall programme is on track. The assignment is now close to completion.

5. Assessment of Outputs

5.1 Comment on:

• The planned and actual relation between the assignment and related Bank investment.

• What is the investment's progress to date? • To what extent has the assignment supported preparation or

implementation of the investment?

The assignment assists the client in meeting the conditionalities of the EBRD loan, all of which are linked to re-structuring. The loan was signed in October 2001. Implementation is proceeding well. The assignment supports the implementation of the investment by assisting with the re-structuring of ZTP.

5.2 How is donor visibility being ensured for this assignment? For example, inclusion of donor in press events, meetings between donor and client, efforts to

maximise donor recognition within beneficiary group. The transport team and EBRD resident office has made the client fully aware of the source of funding for this assignment. The clients involvement in drafting the terms of reference and consultant selection has resulted in donor visibility with the client. The French embassy in Belgrade is also aware of the assignment.

5.3 What is/will be the impact of the Bank investment? Comment on how technical co-operation will contribute to this impact.

The Bank investment will focus on the purchase and rehabilitation of equipment, labour severance and re-structuring ZTP. TC funding assists in the restructuring of ZTP.

5.4 How do you categorise the achievements of the assignment to date? Highly Successful

5.5 Justify this overall rating. The consultant started to work in June 2004 and the assignment is now close to completion. There were some delays but currently the cooperation between the consultant and the client is good. The key deliverables to be used as input for key restructuring decisions were already delivered. The Government of Serbia is keen to advance the reform of the railway sector.

Consultant Assignment Reporting

Donor Progress Report Current as of: 18 September, 2008Operation Leader: O'Grady, Lin Report status: Approved Exemption Reason: Completed on: 17 March, 2008 Approved on: 15 July, 2008 Report for session dated: 18 March, 2008

1. Commitment Details

1.1 Commitment No. FRB-2006-12-04 1.2 Project Title Serbian Railways: Assistance with Re-structuring 1.3 Country SERBIA 1.4 Sector Rail Transportation 1.5 Total Commitment Amount EUR 300,000 1.6 Total Amount Disbursed EUR 0 1.7 Date of Internal Approval 11 August, 2005 1.8 Date of Funding Approval 27 December, 2006

1.9 Related Investment(s) (EBRD Amount and DTM No.)

1. ZTP Belgrade Reconstruction Project, Active, EUR 56,988,419 (DTM No. 18659)

2. ZTP Belgrade Reconstruction Project, Active, EUR 11,581 (DTM No. 18659)

3. Serbian Railways : Rollingstock, Active, EUR 60,000,000 (DTM No. 35414)

1.10 Related TC(s) (Amount)

1. ZTP Belgrade Reconstruction Project: Institutional Study, ID: 20278, (EUR 750,000)

1.11 Consultant 1.12 Contract Start Date 17 December, 2007 1.13 Original Contract End Date 31 December, 2008 1.14 Current Contract End Date 31 December, 2008

2. Documentation

2.1 Supporting Documentation

No document available

3. Objectives and Tasks

- please refer to your TC Com Submission 11 August, 2005 3.1 Main rationale for the proposed TC project.

In 2001 EBRd signed the ZTP Belgrade Reconstruction Project co-financed with the European Investment Bank aiming at improvement of ZTP's operating efficiency and labour productivity through the loan covenants, capital investment and TC support. To date, a significant progress has been achieved, although further restructuring is required. As part of the ongoing reform, the Serbian Government approved a new Railway Law in 2005 and initiated a major restructuring in ZTP to separate its infrastructure and operations functions. By 2007, ZTP is set to become a holding company with four separate business units. Thus the Government of Serbia, through its recently established Unit for Public Enterprise Restructuring and the management of ZTP, have approached the Bank to assist with the task through additional financing and TC support. The proposed TC will support the EBRD investment and the reforms launched by the Government of S&M. The client has very limited experience in implementing such extensive restructuring programme. In addition the EBRD, remains the only institution among IFIs with a reform mandate actively involved with ZTP. Thus, it is expected that the TC will cover different tasks within the restructuring programe and provide the best world practise and necessary expertise.

3.2 Why is the TC needed, and why use TC funds?


The overall objective of this assignment is to assist Serbian Railways in implementation of the major restructuring programme. The expected output from this assignment will be the production of labour re-structuring, line closure, model contracts and etc. Also, the consultant will provide the guidance to the ZTP's restructuring unit which will be a principle co-ordinator of all restructuring processes within the Company and act as a liaison with different governmental institutions including the Unit for Public Enterprise Restructuring. The assistance will concentrate on the following components: -Labour Re-structuring The consultant will be required to assist in further implementation of the labour programme. -Non-core activities As part of the recently completed 2005-2009 business plan, an Action Plan has been prepared for further divestitute of non-core activities. The consultant will be required to assist in the implementation of this Action Plan. -Public Service Obligation The new Railway Law allows for the introduction of the Public Service Contract for the


lines or services qualified as of public interest. The Consultant is required to define the steps to implement the PSO for the lines requiring it and develop the appropriate mechanisms for service specification, monitoring and funding. -Network Rationalization the Consultant help to identify the lines which should be closed and prepare the implementation timetable. -Network Statement and Model Contract Assist in preparation of the network statement, including general rules, deadlines, procedures and etc. Help to develop model contracts . -Track Access Charges -Business Units Consultant to assist identify the assets controlled by the company, establish agreements between the infrastructure and operations units. -Network Rationalisation

3.4 Comment on the relevance of the objectives, how well they have been covered, the progress of the assignment to date and any problems encountered.

The objectives are still relevant. The consultant is in his inception phase, having mobilised in January 2008.

3.5 Were there any changes to objectives, tasks, timing of implementation or budget after TC Com approval?

No 3.6 Describe and explain any changes.

N/A

4. Assessment of Inputs

4.1 Level of the local client's commitment during design and implementation.

Good 4.2 Justify your rating of the client's commitment. Comment on client's

involvement during ToR design, consultant selection and implementation. The Client has been actively involved during TOR design in order that the TC addresses their exact needs. The contract was signed in December 2007. The consultant has just completed the inception phase of their work.

4.3 Overall rating of the consultant's performance to date. Good

4.4 Justify this overall rating. The inception report showed clearly that the consultant knows how to meet his objectives.

5. Assessment of Outputs

5.1 Comment on:

• The planned and actual relation between the assignment and related Bank investment.

• What is the investment's progress to date? • To what extent has the assignment supported preparation or

implementation of the investment?

The proposed investment project will consist of sovereign guaranteed loan EURO 60 million to ZTP Belgrade. The project will be co-financed by the EIB for infrastructure. TC for project implementation related to procurement of goods and civil works will be funded by the EAR. The TC project will support the on-going co-operation with the Company, as the proposed investment project is the second project with the ZTP. The consultancy will be provided to the client in major institutional and operational restructuring aiming at increasing the operational efficiency and commercialization of the Serbian Railways.

5.2 How is donor visibility being ensured for this assignment? For example, inclusion of donor in press events, meetings between donor and client, efforts to

maximise donor recognition within beneficiary group. The French ambassador in Belgrade was invited to the loan signing. The press release for the investment project clearly reflected the use of grant funds from France for this TC.

5.3 What is/will be the impact of the Bank investment? Comment on how technical co-operation will contribute to this impact.

The Bank investment will allow Serbian railways to meet demand for transit freight on the railway network. The TC provided further assistance with the restructuring of Serbian railways, with the main feature being the definition of the PSO (Public Service Obligation) methodology.

5.4 How do you categorise the acheivements of the assignment to date? Partly Successful

5.5 Justify this overall rating. The consultant has just completed the inception phase. European Bank for Reconstruction and Development Build Date: 02/07/2008 Release: v09.03.00.b05 Supported by the IT Helpdesk (ext. 6655)

ztp belgrade reconstruction project serbia · responsible operation leader first writes a tc...

Documents