Document of The World Bank

Report No: 34925

IMPLEMENTATION COMPLETION REPORT(PPFI-Q2370 IDA-34660)

ON A

CREDIT

IN THE AMOUNT OF US$12.36 MILLION

TO

BOSNIA AND HERZEGOVINA

FOR A

TRADE & TRANSPORT FACILITATION IN SOUTHEAST EUROPE PROJECT

March 22, 2006

Infrastructure DepartmentEurope and Central Asia Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective September 2005)

Currency Unit = Convertible Mark (KM) BAM1 = US$ 0.61

US$ 1 = BAM1.63

FISCAL YEARJanuary 1 - December 31

ABBREVIATIONS AND ACRONYMS

APL Adjustable Program LendingBCE Bosnian Chamber of EconomyBCP Border Crossing PointBiH Bosnia and HerzegovinaCAFAO Customs and Fiscal Assistance Office (EU)CAS Country Assistance StrategyCEE Central and Eastern EuropeEDI Electronic Data InterchangeECMT European Conference of Ministers of TransportEU European UnionFBH Federation of Bosnia and HerzegovinaFCA Federation Customs AdministrationFIATA Federation of International Forwarding Agents FMS Financial Management SystemIBM Integrated Border ManagementITA Indirect Taxation Administration LPT Local Project TeamMOF Ministry of FinanceMOU Memorandum of UnderstandingPIT Project Implementation TeamPPF Project Preparation FacilityQAG Quality Assurance GroupRS Republika SrpskaRSC Regional Steering CommitteeRSCA Republika Srpska Customs AdministrationSECI Southeast European Cooperative InitiativeSEE Southeast EuropeSME Small and Medium EnterprisesTTFSE Trade and Transport Facilitation in Southeast EuropeVAT Value-Added TaxWCO World Customs Organization

Vice President: Shigeo Katsu, ECAVPCountry Director Orsalia Kalantzopoulos, ECCU4Sector Manager Motoo Konishi, ECSIE

Task Team Leader/Task Manager: Paulus Guitink, ECSIE

BOSNIA-HERZEGOVINATrade & Transport Facilitation in South East Europe Project

CONTENTS

Page No.1. Project Data 12. Principal Performance Ratings 13. Assessment of Development Objective and Design, and of Quality at Entry 24. Achievement of Objective and Outputs 55. Major Factors Affecting Implementation and Outcome 166. Sustainability 187. Bank and Borrower Performance 198. Lessons Learned 229. Partner Comments 2410. Additional Information 25Annex 1. Key Performance Indicators/Log Frame Matrix 26Annex 2. Project Costs and Financing 27Annex 3. Economic Costs and Benefits 29Annex 4. Bank Inputs 31Annex 5. Ratings for Achievement of Objectives/Outputs of Components 33Annex 6. Ratings of Bank and Borrower Performance 34Annex 7. List of Supporting Documents 35Annex 8. Borrower's Evaluation Report

Maps IBRD Nos. 31072 and 31073

36

Project ID: P070079 Project Name: Trade & Transport Facilitation in South East Europe Project

Team Leader: Paulus A. Guitink TL Unit: ECSIEICR Type: Core ICR Report Date: March 23, 2006

1. Project DataName: Trade & Transport Facilitation in South East

Europe ProjectL/C/TF Number: PPFI-Q2370; IDA-34660

Country/Department: BOSNIA AND HERZEGOVINA Region: Europe and Central Asia Region

Sector/subsector: Central government administration (100%)Theme: Infrastructure services for private sector development (P); Other accountability/anti-corruption

(P); Regional integration (P)

KEY DATES Original Revised/ActualPCD: 01/20/1999 Effective: 12/27/2001

Appraisal: 06/05/2000 MTR:Approval: 02/22/2001 Closing: 09/30/2004 09/30/2005

Borrower/Implementing Agency: Ministry of Finance/General Directorate of Customs/General Roads DirectorateOther Partners:

STAFF Current At AppraisalVice President: Shigeo Katsu Johannes F. LinnCountry Director: Orsalia Kalantzopoulos Christiaan J. PoortmanSector Manager: Peter D. Thomson Eva MolnarTeam Leader at ICR: Paulus A. Guitink Gerald Paul OllivierICR Primary Author: Paulus Guitink; Sati Achath;

Madhu Nair

2. Principal Performance Ratings

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)

Outcome: S

Sustainability: L

Institutional Development Impact: SU

Bank Performance: S

Borrower Performance: S

QAG (if available) ICRQuality at Entry: S S

Project at Risk at Any Time: No

3. Assessment of Development Objective and Design, and of Quality at Entry

3.1 Original Objective:The objectives of the US$14.8 million project (Credit US$11.0 million) were to: (i) reduce non-tariff costs to trade and transport; and (ii) reduce smuggling and corruption at border crossings. The project formed part of a regional program for Trade and Transport Facilitation in Southeast Europe (TTFSE) that aimed to strengthen and modernize the customs administrations and other border control agencies in Albania, Bosnia and Herzegovina (BiH), Bulgaria, Croatia, the former Yugoslav Republic of Macedonia, and Romania. Serbia and Montenegro, first, and then Moldova joined the program later, bringing the total to eight countries. The Program was the result of a collaborative effort among the Government of BiH, the Bank, the European Union (EU) and the United States of America (USA).

The objectives were straightforward, clearly stated, important to the country’s economic and social development, and realistic in scale and scope. These objectives were expected to be achieved by: (i) supporting the reforms of the Federal Customs Administration (FCA) and of the Republika Srpska's Customs Administration (RSCA); (ii) strengthening mechanisms of interaction and cooperation between border control agencies and the trading community; (iii) disseminating information and providing training to the private sector; (iv) financing infrastructure and equipment at selected border crossings; and (v) supporting the implementation, at pilot sites, of an integrated set of new customs procedures, information technology, human resource management techniques, supporting infrastructure, and cooperation mechanisms for agencies at border crossings.

In BiH, the Customs and Fiscal Assistance Office (CAFAO) had already been leading technical support to customs reforms since 1996 and would continue to lead this support during the life of the project. The preparation of this project had drawn on the experience of and the data provided by the CAFAO. The reform process necessary to change institutional cultures and ingrained behavior was expected to take a substantial time, about eight to ten years. The reform involved simultaneous and sustained actions on: (i) change in administrative and operational procedures; (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 information technology and regional interconnections; and (v) measurement of Customs reform impacts at border crossings and inland terminals.

The project was consistent with the Bank's Country Assistance Strategy (CAS) for BiH, discussed by the Board on May 18, 2000 ( Document No. 20301-BiH). The project supported the overarching objective of the World Bank Group for BiH, namely: "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". The project would: (i) facilitate trade integration with Southeast Europe (SEE) and the EU; (ii) develop significant border infrastructure to enable greater regional integration; and (iii) support the reform of the customs administrations.

The project design reflected lessons learned from earlier projects in BiH and other countries. For example, the Transit Facilitation Project in Macedonia highlighted the need 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 the borrower; and (iv) maintain flexibility to ease implementation. EU-PHARE's experience showed that to lessen transaction costs at border crossings, border crossing investments need to be supplemented by: (i) reliable traffic data; (ii) accurate information on waiting times; (iii) adequate remedial actions on both sides of a border crossing; (iv) attention to multi-agency needs; (v) linkage to national transport policies; (vi) reliable telecommunication infrastructure and equipment; (vii) communication with users; and (viii) coordination and simplification of customs procedures and removal of state controls on international trade.

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The project envisioned the following social and economic benefits. The customs reform coupled with proper facilities and information technology would lead to transparent customs procedures, a more reliable business environment, and economic growth as a result of lower prices for imports and more competitive prices/services for exports. The benefits would spill over to government agencies and private companies in other trade partner countries. This would translate into: (i) cheaper import goods / inputs for consumers and industries; (ii) better and more reliable business environment for private sector activities, particularly for the trade activities of SMEs; (iii) a more predictable and reliable economic setting for foreign companies; (iv) improved facilitation for transit traffic; (v) reduction of corruption and smuggling opportunities; (vi) improved revenue collection by the FCA and RSCA; (vii) uninterrupted services of information systems and better integrity of data; (viii) overall enhanced regional integration in Southeast Europe; and (ix) closer approximation with EU standards and procedures, as part of the European integration process.

The project was not very complex in terms of design or implementation. It was fairly demanding, however, because: (i) the Project Implementation Team (PIT) required significant follow-up on many issues such as procurement and performance monitoring measurements at Border Crossing Points (BCPs); (ii) the political structure of the country was not very conducive for a faster pace of project implementation. (iii) project implementation required a high level commitment of both entities (RS and FBiH) and the Federation Government to accomplish good intra-, inter- and cross-border agency coordination ; (iv) the project required coordination with other complementing projects financed by other donors, including the USA and the EU; and (v) re-orienting Customs and other border agencies to become more service oriented organizations requires a change in culture which cannot be fully achieved during the life of the project. In addition, the existence of two Customs administrations, which had to be merged into one and become the Indirect Taxation Administration (ITA), made the implementation more challenging.

3.2 Revised Objective:The objectives were not revised.

3.3 Original Components:The project consisted of three components, all related to achieving the project’s objectives. These were standard components replicated in all TTFSE projects. The technical, administrative and financial capacity of the PIT improved significantly during the life of the project for effective implementation.

Component I: Improvement of Border Crossing and Customs Facilities (US$13.6 million: 92% of the total project cost)

(a) Republika Srpska

This included: (i) construction of buildings and canopies at the Raca border crossing; (ii) construction of an inland truck terminal (Novi Grad); (iii) purchase and installation of weighing scales; (iv) purchase and installation of laboratory equipment and corresponding training of staff; (v) design and supervision of works; (vi) technical services to monitor RSCA's performance at pilot sites; and (vii) training to enhance inter-agency awareness and cooperation. These activities would complement ongoing reform efforts by the RSCA supported by the CAFAO.

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(b) Federation

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

Component II: Trade Facilitation Development (US$0.5 million: 3% of the total project cost) Included: (i) provision of conventional and distance learning training to participants in trade, logistics and international freight transport in cooperation with the Bosnian Chamber of Economy (BCE) and other professional associations in the field of road transport; (ii) improvement of cooperation between public and private parties using a virtual forum; (iii) creation of a website and provision of corresponding equipment to support information availability.

Component III: Program and Project Implementation (US$0.8 million: 5% of the total project cost)

This component consisted of: (i) services required to support the regional and national implementation of the project. The regional support would consist of the secretariat services to the RSC. The national support would comprise the support of procurement advisors and of an accountant, external auditing services, support in the establishment of a financial management system, and training to the Project Manager and his project implementation team.

3.4 Revised Components:The components were not revised.

3.5 Quality at Entry:Satisfactory. There was no official assessment of the quality at entry by the Quality Assurance Group (QAG). The ICR deems the quality at entry to be satisfactory.

As mentioned in the earlier section, the project objectives were consistent with the CAS and the Government priorities, and met the critical needs of BiH trade and transport sector. Since the PIT had the technical capacity, the quality of project design was generally adequate to meet the project’s objectives. During preparation of the project, major risk factors and lessons learned from other earlier projects in BiH and other countries were considered and incorporated into the project design.

The project was prepared in collaboration and consultation with exporters; importers; producers and consumers; road transport operators; freight forwarders/shippers; traders organizations and BiH-PRO; Ministry of Finance (MOF), the FCA and RSCA; Ministry of Urbanism, Housing, Civil Engineering, and Ecology (RS), Federal Ministry of Physical Planning and Environment; Ministry of Interior and the Border Police, the European Commission, the US Government; International Road Transport Union (IRU); Federation of International Forwarding Agents (FIATA); World Customs Organization (WCO); private companies, and foreign investors. This kind of extensive stakeholder consultations, and the participatory process in project preparation substantially contributed to the quality and readiness at entry.

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During project preparation, three project designs were considered:

• Regional Program of Investment Projects: A regional program of coordinated border crossing facilitation projects was expected to: (i) generate substantial benefit spill-over to customs users, producers, and consumers in the trade partner countries of BiH; (ii) allow the program countries to share information and introduce more consistent customs and border control procedures/operations; (iii) be flexible enough to respond to country differences, the pace of European integration, and the impact of the EU enlargement process; (iv) enable the Bank to coordinate with other donors that also implement regional programs; and (v) reduce project implementation/supervision costs by near-simultaneous implementation.

• Separate Individual Projects Carried Out by Each Country: The possibility of preparing independent projects for each participating country was reviewed and rejected since the achievement of overall project objectives would be greatly aided by simultaneous standardization and harmonization of cross-border institutions, operations, and legal frameworks among countries and in line with the EU Acquis.

• Regional Adaptable Program Lending (APL): A regional or "horizontal" APL, would have enabled sequential entry of countries in the Program. This horizontal APL, however, was judged to be unfeasible because: (i) it would involve “stretching” the APL concept; and (ii) the determination of triggers to include potential borrowers based on the future value of performance indicators would have been a delicate and risky task, given the inherent complexity of the program.

For the above reasons, the first alternative was preferred.

4. Achievement of Objective and Outputs

4.1 Outcome/achievement of objective:Satisfactory. The project met its development objectives to: (i) reduce non-tariff costs to trade and transport; and (ii) reduce smuggling and corruption at border crossings. This is evidenced in the following discussion of performance indicators.

After about four years of implementation, the project resulted in positive achievements such as: (i) significant reduction of waiting time at both the borders and inland clearance terminals as a result of streamlined procedures, introduction of selectivity and risk analysis, and better inter-agency cooperation and awareness; this is reflected below in the indicators' results; (ii) improved dialogue with Customs administrations in Southeast Europe (SEE) region, and in particular with neighboring Croatia, leading to joint border facilities and physical integration of customs services; (iii) increased revenue collection as shown by the national performance indicators, and a reduction of smuggling through use of selective examination and border control equipment; (iv) constant monitoring of performance through indicators leading to the building of a regional data base. These indicators enabled the Customs administration to measure its performance over time. Additionally, and equally important, the performance indicator database enabled comparison of Customs (and border) performance among neighboring countries against benchmarks; (v) user surveys published for 2002 and 2003 on the TTFSE regional website; (vi) training of SMEs' staff through the Trade Facilitation component; (vii) development of a regional website on trade and transport facilitation (http://ttfse.org) for the benefit of the trading community, transport operators, and foreign direct investors; (viii) favorable preliminary evaluation of the economic impact of the regional program; and (ix) the preparation of TTFSE Annual Progress Reports. The closing date of the project was extended by twelve months in order to allow the completion of the works at Raca BCP and the installation of the laboratory equipment and training of staff.

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The project has also contributed in reducing smuggling at border crossings through the use of selective examination (based on risk analysis) and border control equipment. The equipment purchased from the project assets, risk assessment training sessions and defining of selectivity criteria have, during the implementation period, increased the rate of Customs frauds detection by 23%. There were significant achievements in detecting Customs fraud such as fake goods classification and tariff rate determination. The improvement rate of 40% was achieved detecting smuggling during the period August 2004 to August 2005 (according to the data provided by Sector for Law Enforcement Monitoring).

Anecdotal evidence has shown that, through supporting electronic data interchange, the project has enhanced processing transparency, thus reducing corruption opportunities at border crossings. Further strengthening of the Customs Information system, as well as enhancing inter-agency information exchange will further reduce corruption opportunities. According to the BEEPS Survey

1

, corruption perceived as a problem doing business by firms in BiH reduced from 60% in 2002, to 48% in 2005. The same Survey also showed that percentage of firms that stated that bribery is frequent for Customs, reduced from 30% in 2002 to 15% in 2005.

The performance at the macro level was affected by the signed free trade agreements, which considerably reduced the revenue from Customs duties. This drop in Customs revenue was partially compensated by the introduction of new taxes collected on excise goods at the borders.

The project was successful at raising the awareness of the benefits of risk management at the pilot sites and has had some very good results. However, due to the existence of two separate Customs entities during the first years of the program and the subsequent integration of RS and the Federation Customs into the Indirect Tax Administration beginning in the Fall of 2004, the full potential of the risk management was not realized.

A. Customs Modernization

Indicators Baseline 2000 2001 2002 2003Act. Targ. Act. Targ. Act. Targ. Act.

Development Objective Achievements1. Federation: Revenue Collected/Customs Staff (US$,000)

276 322 305.5 368 414.2 391 466.3

Total FCA Cost/Revenue Collected (%)

3.17 2.6 3.12 2.1 3.15 2.0 3.05

Salaries/Revenue Collected (%)

2.12 1.5 1.91 1.4 1.55 1.4 1.63

Trade Volume/Number of Staff (US$ Million)

3.0 2.4 3.2 4.0

Annual Number of Declarations/Custom Staff

314 450 287 600 333 700 372

2. Republika Srpska: Revenue Collected/ Customs Staff (US$,000)

156.4 207 152.3 253 169.35 299 250.5

Total RSCA Cost/ Revenue Collected (%)

6.0 5.0 5.79 4.0 4.6 3.0 4.63

Salaries/Revenue Collected (%)

3.6 1.7 2.5 1.6 3.3 1.4 3.27

Trade Volume/Number of Staff (US$ Million)

2.35 1.09 5.50 1.30 6.50 1.61

Annual Number of Declarations/Custom Staff

100 350 239.7 96 182.39 94 222.8

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Bosnia and Herzegovina 2004Revenue Collected /Customs Staff (US$,000) 498Total Customs Cost/Revenue Collected (%) 2.78%Salaries/Revenue Collected (%) 2.26%Trade Volume/Staff (US$ Million) 3.8Declarations/Customs Staff 301.84

Exchange rate on 31.12.2004. - 1$ = 1,437687 KM

• The revenue collected /customs was $498,000 in 2004, compared to $276,000 for the Federation and $156,400 for RS in 2000. • Total Customs cost/revenue collected (%) in 2004 was 2.78, compared to 3.17 for the Federation and 6.0 for RS in 2000. • Salaries/revenue collected (%) in 2004 was 2.26. In 2000, this was 2.12 for the Federation and 3.6 for RS in 2000. • The Trade volume/number of staff ($ million/staff) increased from $3.8 million in 2004 compared to $3.0 million for the Federation and $2.35 million for RS in 2000. • Annual Number of Declarations/Custom Staff was 301.8 in 2004. In 2000, this was 314 for the Federation and 100 for RS.

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Pilot Sites Indicators

IndicatorsBaseline

2000 2001 2002 2003 2004June 2005

Act. Targ. Act. Targ. Act. Targ. Act. Targ. Act. Act.Bosanska Gradiška Pilot% of Trucks Examined 40 20 Sus 10 0 10 0 0Irregularities/Physical Exams(%) 10 10 10 0 10 0 0Average Border Exit Time (Minutes) 15 9,4 15 15 3,1 15 3,1 3,1Average Border Entry Time (Minutes) 80 50,8 50 30 4,6 30 4,6 4,6Number of Trucks - Entry 398 668 550 981 841

Banja Luka PilotImport Clearance Time (Minutes) 80 216,9 60 238,5 20 76 20 105 45,0Physical Examination Rate (%) 20 99,3 15 100 10 43,7 10 58,1 32,0% of Trucks Cleared in less than 15 minutes

10 - 15 - 25 5,75 25 1,50 14,5

Irregularities/Physical Exams (%) 10 7,3 13 0 15 0 15 0 0Number of Trucks - Entry 143 75 212 203 202

Raca Pilot% of Trucks Examined 40 100 20 100 10 15,7 10 16,5 19,5Irregularities/Physical Exams(%) 10 0 10 0 10 0 10 0 0Average Border Exit Time (Minutes) 15 5,5 15 15 6,0 15 6,0 6,0Average Border Entry Time (Minutes) 80 89 50 130,8 30 18,0 30 17,0 17,5Number of Trucks - Entry 422 341 388 388 342

Grude PilotImport Clearance Time (Minutes) 80 77,2 65 63,5 50 48 50 47 47Physical Examination Rate (%) 35 25,9 25 26,4 20 20,3 20 17,25 18,0% of Trucks Cleared in less than 15 minutes

10 20 - 30 16,75 30 11,5 5,5

Irregularities/Physical Exams (%) 13 13,2 14 9,3 15 11,4 15 10,5 12,0Number of Trucks - Entry 147 163 172 126 118

Izacic Pilot% of Trucks Examined 50 100 30 100 20 19,1 20 15,25 15Irregularities/Physical Exams(%) 10 0 10 2,1 10 20 10 7,5 1,8Average Border Exit Time (Minutes) 20 4,1 20 - 20 3,7 20 3,7 3,7Average Border Entry Time (Minutes) 50 96,9 30 80,3 20 41 20 27 28Number of Trucks - Entry 346 192 225 316 230

Orašje PilotAverage Border Entry Time (Minutes) 50 178,3 30 257,2 20 22 20 37 12Physical Examination Rate (%) 50 87,1 30 33,1 20 26,3 20 5,0 19,00Average Border Exit Time (Minutes) 15 9,4 15 - 15 8 15 8 8Irregularities/Physical Exams (%) 14 0 12 0 10 1,86 10 2,5 2,5Number of Trucks - Entry 765 815 613 1025 602

Pilot Site Performance. Compared with the other participating countries, BiH is one of the best performers in Southeast Europe at its pilot sites.

Performance at all pilot sites was at or close to the targets except for Banja Luka ICS and the percentage of irregularities detected at pilot sites in the RS. The transition from two customs organizations into one

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consolidated Customs Department within the Indirect Tax Administration was instrumental in weakening the ownership of the project. The performance of the pilots is presented below:

• The performance at the Banja Luka clearance has improved in terms of the import clearance time, but is still with 45 minutes in average far from the target of 20 minutes. On the other hand, the percentage of trucks released in less than 15 minutes has increased to 14.5% in average from 1.5% in 2004. • The performance at BCP Raca in the truck examination rate 19.5% versus 10%. The rate of irregularities detected has constantly been zero. On the other hand, the entry time of 17.5 minutes in average has exceeded the target of 30 minutes.• ICS Grude clearance terminal remains consistently at or near the targets. The performance measurements confirm that the Grude ICS remains one of the best performers in Southeast Europe. • Border entry time at BCP Izacic was 28 minutes in June 2005, while approaching the target of 20 minutes. • The average entry time at BCP Orasje was 12 minutes in average and has exceeded the target of 20 minutes. The physical examination rate has been better than the target.

Regional Performance Indicators2

Development of transport time and costs on the routes Istanbul-Bucharest, Istanbul-Tirana, Sarajevo-Ljubljana

It should be noted that the transport fees of forwarders included in these costs do not reflect just the situation at border crossings included in the project, but rather the situation of the whole transport market of a TTFSE country and the extent of its stability.

Route Indicators Survey PeriodCycle 1

(2001/02) Cycle 2

(Spring 2003)Cycle 3

(Autumn 2003) I. Istanbul-Bucharest Average Time

(hours)24 - 48 24 - 48

Average Cost (US$)

No data available since Turkey was not one of the three main trading partners

800 - 1,560 800 - 1,460

II. Istanbul-Tirana Average Time (hours)

120 90 85

Average Cost (US$) 1,900 1,500 - 1,900 1,500 - 1,800III. Sarajevo- Ljubljana

Average Time (hours)

16 17 - 24 18 - 24

Average Cost (US$) 30 - 1,000 550 - 1,025 520 - 1,060

In general, there is an increase in the TTFSE region of transportation costs, that can be attributed - but not limited - to: (i) increased range of services and share of services in total costs; (ii) influence of the individual contacts of a forwarder and the chances (coming from bilateral foreign trade) to get load for the return trip or not; (iii) development of road pricing on special routes; (iv) modernization of the truck fleet; (v) a still unstable transport market; (vi) stronger enforcement of transport legislation within the EU-15 countries by transporters from SEE; and (vii) escalation especially in the price of fuel and lubricant but also for tires and spares. More specifically, the rapid increase of truck traffic on the Sarajevo-Ljubljana route (at Bosanska Gradiska border crossing truck volume more than doubled between 2001 and 2004) and the introduction of new road tolls, have contributed to a slight increase of transport time and costs.

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Customs Information System. The rolling out of ASYCUDA ++ was completed at all major locations in 2002. Since the beginning of 2003 it has allowed the use of module of selectivity in selective data processing during the implementation of Customs procedure. This has enabled significant improvement of Customs procedure performance and created necessary pre-conditions for risk assessment.

B. Trade Facilitation (TF) Development

(i) Strengthening of Public-Private Partnership

This component supported the activities of BiH-PRO, gathering main stakeholders from the private sector, BCE, Association of Freight Forwarders, and the public sector, Foreign Trade Center, Ministry of Economy, MOF of FCA, and RSCA. The outputs included:

• An extensive public outreach effort to raise awareness about trade and transport facilitation over the years 2001-2005, in the form of articles and promotional editorials published in magazines such as Newspaper- “Dnevni avaz”, “Oslobodjenje”, “Gazette” ; TV- “FTV”, “Local televisions”; Radio- “Local radios”. As a constantly public outreach are used and issued to the participants total 10 printed books of the training materials (over 4.2000 total copies) with all donors logo.

• Active Regional Opportunities to Cooperate. The PRO committees of Southeast Europe met three to four times a year regionally to discuss about the Trade Facilitation component and other trade facilitation issues. They also met regularly on a bilateral basis to address urgent issues and discuss cooperation with CROATIAPRO and YUPRO (SCGPRO)

• The elaboration and release of a joint information platform for users (www.ttfse.org). The website, designed and maintained regionally provides information on requirements of many border agencies in Southeast Europe. Multiple regional coordination meetings were organized to define and build the platform. Website is constructed and most of necessary data already exist. However, as elsewhere in the region, the information has not been regularly updated. Main problems are: structural changes in the responsible institutions, lack of funds, and changes in legislation.

(ii) Improvement of the Performance of Trade Facilitation Agents

Training. BiH was the first of our SEE countries to have launched two training programs for road transport operators and freight forwarders, accredited internationally by the IRU and FIATA, the respective international associations, under the aegis of the TTFSE Program. The latest development is that a licensing law for providers of road transport services, compliant with the latest European requirements, became effective in 2005 and will use the training program put in place under the project as the basis for the Certificate of Professional Competence for road transport operators.

The Institute for Education (ECOS) of the BiH Foreign Trade Chamber - has continued to conduct training courses on a self sustained basis. The ECOS has received a certificate from FIATA, confirming that the ECOS training complies with the FIATA standards and ECOS is accredited to release FIATA diploma in freight forwarding, as the first FIATA accredited institute in the region. Also, ECOS obtained a certificate confirming that ECOS is accredited to run the international road haulage and passenger transport training and issue certificates of professional competence.

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BiHPRO/BiH Foreign Trade Chamber conducted total 48 seminars with total 1140 participants in 21 cities of BiH under the Trade Facilitation Component. Those training sessions gathered participants from trade/forwarding/transport companies, Customs and the State Border Service. The training was well received (70 to 90% of participants rated the training between 4 and 5 out of 5 for the various sessions) and the course material printed in total 10 books was delivered (free of charge) to the participants, and is of high quality. Training on INCOTERMS and the TIR Carnet system were the most successful.

Global Facilitation Partnership Distance Learning Initiative. The first program for BiH under the Global Facilitation Partnership-Distance Learning Initiative was piloted in 2002 by the road transport association in the Foreign Trade Chamber, in partnership with NEA and the IRU.

4.2 Outputs by components:Component I. Improvement of Border Crossing and Customs Facilities

(a) Republika Srpska

(i) Construction of Buildings and Canopies at the Raca Border Crossing. The construction of phase I, financed by the EU was late, but phase II, financed by the project was completed within planned deadline and opened in September 2005.

(ii) Construction of an Inland Truck Terminal (Bosanski Novi/Novi Grad). Construction of truck terminal in Bosanski Novi/Novi Grad was cancelled because of the delay in receiving necessary permits from Municipal administration. However, it was agreed that construction of this terminal will be implemented with European Commission’s funds. Project documentation for this relocated terminal was provided under the project.

(iii) Purchase and Installation of Weighing Scales. Eight weighting scales were procured and they are located at three border crossings and five truck terminals.

(iv) Purchase of Laboratory Equipment and Corresponding Training. Laboratory equipment has been installed and training of staff is in progress. Customs administration took over obligation to ensure adequate laboratory premises. However, this was not addressed in timely manner, so it was not possible to complete equipment installation and training of staff.

(v) Design and Supervision of Works. Design of the truck terminal at Brod was provided under consultant services. In addition, supervision of construction and technical inspection of works at the border crossing Raca, were also financed under the project.

(vi) Technical Services to Monitor RSCA's Performance at Pilot Sites. This component was implemented under the frame of the regional component of the project, supported by the USA grant. At selected pilot sites (on two border crossings and one inland customs terminal) performance indicator data was collected.

(b) Federation

(i) Construction of Part of the New Border Stations at Izacic and Orasje. Construction of the phase II of the border crossing Orašje was completed successfully within the deadline and this border crossing was opened in February 2004.

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Construction of the border crossing Izacic was completed within deadline. However, since construction of access road to the border crossing was delayed (Federal Customs Administration was in charge for the implementation), border crossing could not be opened in time. In the meantime, agreement was reached with Croatia that Izacic will be joint border crossing (on the basis of reciprocity, border crossing Maljevac in Croatia will be joint border crossing). The Bank supported this and additional works were executed due to the functioning of the joint border crossing. Border crossing Izacic as joint crossing with Croatia was opened on September 12, 2005.

(ii) Reconstruction and Building of Inland Terminals, including Required Information Technology Infrastructure. This component was cancelled because it was implemented within the framework of ASYCUDA project. Funds were re-allocated for completion of border crossing Orašje.

(iii) Design and Supervision Services. Design and revision of the design for the border crossings Kamensko and Gorica were prepared under consultants services (European Commission took over construction of these border crossings). Redesign for border crossings Izacic and Orašje was provided, and after that supplemented to design for additional infrastructure of the joint border crossing Izacic. Supervision of works on construction of border crossings Izacic and Orašje was contracted. The design of the BCP Doljani was dropped from the project, because the location of the new facility had not been determined by the relevant authorities in the Federation.

(iv) Technical Services to Monitor FCA's Performance at Pilot Sites. This component was implementedunder regional component of TTFSE Project, supported by the USA grant. At selected pilot sites (on two border crossings and one inland customs terminal) performance indicator data were collected on a monthly basis over a 72 hour time period.

Training. Southeast European Cooperative Initiative/TTFSE Advisory Team (STAT), USA financed the periodical training of Gradiška Border Crossing Point - Republic of Srpska (between the Republic of Croatia and B&H) and Raca Border Crossing Point (between Serbia and Montenegro and B&H) Customs staff and other border agencies' staff from the pilot sites on the data collection process and inter-agency cooperation in order to calculate the performance indicators of the project.

Seminars on applying the risk profiles in selective and/or targeted verifications at the pilot sites in Banjaluka and Bijeljina, on the basis of collected data from the pilot sites in the inland clearance terminals, were organized in 2003, by the Customs Headquarters Risk Analysis Office.

Workshop. A Risk Management Workshop was held by the STAT team in Bucharest at the Romanian Customs Directorate, in September 2004, where risk management team members from regional offices and the headquarters attended. A manual providing operational guidelines to the Intelligence staff on profiling, selectivity, risk assessment and risk indicators was prepared and delivered. The staff from Customs Fraud Prevention Sector and the staff dealing with Customs value of goods participated in this workshop.

Achievement for this component is satisfactory.

Component II. Trade Facilitation Development:

See Section 4.1 (B).

Achievement of this component is satisfactory.

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Component III: Program and Project Implementation

This component comprised services for the regional and national implementation of the project.

Regional Implementation

The BiH side actively participated in the RSC meetings involving high government officials from the TTFSE member countries. By September 2005 nine RSC meetings have been conducted - in Skopje, Bucharest, Sofia, Tirana, Savtat (Croatia), Belgrade, Chishinau (Moldova), Sarajevo (Bosnia and Hertzegovina) and Milocer (Serbia and Montenegro).

The meeting of the TTFSE Steering Committee Working Group on Exchange of Information among neighboring countries was conducted in April 2004 in Sarajevo. Representatives of TTFSE Countries and observers of USA STAT and the Bank were among the participants.

National Implementation

The project was implemented by the PIT, which consisted of four experts - Project Manager, Procurement Specialist, Accountant and Project Assistant. They worked under the direct leadership of the TTFSE National Coordinator. During the project implementation the PIT members attended training courses on the Bank’s management, procurement and disbursement procedures.

Prior to the loan effectiveness, a financial management system was established for accounting, financial reporting, planning and budgeting and the PIT carried out the respective activities. The PIT prepared all the quarterly Financial Monitoring Reports using the more detailed Project Management Reports (PMRs). The PIT was producing these reports, in general, within the 45 days limit after the end of each quarter. In addition and as required, for performing the necessary audit services of the TTFSE project, an auditing consultant acceptable to the Bank was appointed.

The PIT had adequate internal controls for the project, including regular reconciliation of bank accounts, adequate segregation of duties, proper accounting policies and procedures and reconciliation of disbursement summaries of the Bank with project accounting records.

Achievement for this component is satisfactory.

4.3 Net Present Value/Economic rate of return:The project had an estimated net present value of US$3.2 million, based on the methodology used during the project appraisal. Based on data provided by the Project Implementation Unit, while reduction in border processing time was considerable (over 70 percent on average at pilot sites), the project total costs were significantly higher than their appraised value, reducing the estimated economic rate of return to 19 percent. The total annual savings for users, resulting from reduction in border crossing time at pilot crossings is estimated at US$4.6 million annually as of 2005. It is worth noting that in line with the overall project objective of facilitating trade, BiH experienced solid trade expansion during the project life, which is not considered directly as part of the analysis since it results from many different factors. It is likely that the estimated trade benefit equivalent to 20 percent of transport benefits (US$1 million per annum as of 2005) used in the evaluation is an understatement of the actual impact of improved border crossings and clearance facilities. The impact of laboratory equipment purchased under the project was not included in this evaluation.

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Costs

The project costs have been higher than what was originally anticipated in the Project Appraisal Document for the civil work components. The total project cost was increased to US$16.7 million (excluding taxes) versus a US$12.2 million original cost estimate. Costs were spread over five years instead of three as originally foreseen, reflecting delays in civil works.

Project Benefits

The project expected two types of benefits: (i) lower transport costs due to the diminution of waiting times at border crossings and inland terminals; and (ii) economic benefits of trade expansion resulting from the project.

Trade and Transport Cost Reductions. The savings on transport costs at the BiH border crossings and the inland terminal where performance was measured under the project are estimated at US$4.6 million by 2005 versus US$5.7 million at appraisal. Delays at border crossings and inland terminals have been substantially reduced with an estimated 73 percent processing time reduction on average for the five pilot sites. These benefits were quite close to the projections made in the project appraisal document, but traffic and processing time turned out to be slightly lower in 2001 than expected, while time reduction was in line with overall expectation. The benefit stream also took about 18 months longer to materialize than originally anticipated as a result of delays in institutional and physical progress. The daily cost of trucks did not evolve significantly in the region (see Progress report 2004) and remained in line with the appraisal estimate.

Economic Impact of Increased Trade. The link between trade facilitation, trade expansion, and Customs revenue collection clearly exist but is difficult to quantify, due to the multiplicity of other factors influencing the macro-economic development and trade of the TTFSE countries. Company competitiveness, in particular their ability to deliver reliably their inputs in international supply chain, depends nonetheless on their capacity to assess border transaction cost (direct and time cost) with a fair degree of certainty. Since 1999, BiH, and other countries involved in the TTFSE program enjoyed strong growth of their trade volumes. In BiH, trade increased from US$3.9 billion (1999) to US$8.5 billion (2004), with export increasing to US$2.1 billion, while imports grew to US$6.4 billion. In the meantime, Customs collected revenues increased from US$513 million to US$1.1 billion, despite reductions in tariff rates, illustrating their ability to better capture legitimate trade. These macro performances are not directly attributable to the TTFSE, but rather reflect industrial and economic changes witnessed in BiH, as well as a broad range of technical assistance programs, such as the European Commission supported-CAFAO program.

For the purpose of the economic rate of return calculation a very conservative 20 percent of additional transport benefits linked to increased trade was added, or about US$1 million per annum, as per the approach used during appraisal. The 20 percent coefficient is based on broader research (Venables) available at time of appraisal and considered appropriate by peer reviewers. Recent research in this field (Trading on Time - January 26, 2006 - WB) indicates that, on average, one day of delay reduces trade by at least 1 percent. Considering BiH trade of US$8.5 billion, a reduction of 1 day could translate into U$85 million of additional trade. Considering the significant reduction in border crossing and clearance time, the consequent trade increase and the trade gain economic benefit linked to shorter time and improved market access are likely to have been significant, albeit difficult to quantify. Accordingly, the ICR economic evaluation retained the appraisal assumption instead.

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4.4 Financial rate of return:The fiscal impact of the project is considered positive, as a result of continuous performance monitoring and new infrastructure at selected sites. The Customs administration increased their collections by US$595 million between 2001 and 2004 due to trade growth and a large program of donor support for Customs (primarily CAFAO). The overall efficiency indicators (See Development Indicators) also underline significant progress in the cost effectiveness of Customs (total Customs cost to revenue collected improved to 2.8 percent in 2004 from 3.9 percent in 2001). Since the Customs administration is not a revenue earning entity, no Financial Rate of Return was calculated. Part of the increase in revenue collection can be associated to the enhanced processing by Customs, particularly at pilot sites. The calculation of direct fiscal impact was however not possible since many factors played a role (trade increase, reduction in tariffs, free trade agreements) and attribution of impact would be highly subjective.

4.5 Institutional development impact:Substantial. The project focused on procedural changes at the border, and the role of Customs in processing of legal goods, detection of illegal goods and investigation of offences in order to enhance the efficiency and effectiveness of these processes, facilitating trade and freight transport. It initiated the still growing awareness on the importance of cross-border cooperation among neighboring countries. The project was also instrumental in improving dialogue among Customs administrations within the region. For example, since the first RSC meeting was held in February 2000 in Skopje (Macedonia), eight other RSC meetings have taken place on a regular basis before the project closure, with an average of two per year. They are likely to continue after the completion of TTFSE projects. The project has also contributed to capacity building in the Customs administration. Customs staff have been trained on using modern equipment, with new procedures and new systems which were tested during the life of the project. More and more Customs staff are being trained by trainers who received original training under the project. A main problem in this area was the delay in getting the risk analysis implemented. Apart from difficulties in the very beginning, caused by lack of obvious software support to this module, as well as by problems in defining assessment criteria, there is an ingrained resistance against the use of what is perceived to be intelligence based use of information. Monitoring the performance of Customs administration using key performance indicators has led to substantial institutional development impact. Even though these indicators were initially tested on three pilot sites, they are now replicated in 50-60 more Customs stations, and would be extended very soon to all the Customs stations in BiH. The ASYCUDA customs information system introduced by the project has increased the Customs Department's capacity to monitor collecting of customs duties and to make effective use of its financial resources. The project was instrumental in creating local project teams (LPTs), which were semi-informal structures with representatives of each entity administration working together at border/customs sites (Customs, Veterinary, Health, Police and Phyto-sanitary inspections). It also provided technical assistance and advisory services to trade and international transport participants through BiH-PRO Committee. They also organized numerous professional seminars on improvement of transport and Customs procedures (simplified Customs procedure) for the representatives from various economic groups affiliated with Foreign Trade Chamber of BiH.

The three-year Users Survey comparative results published on the TTFSE regional website, provided a diagnostic of the overall Customs environment from the users' perspective in a transparent manner, thus contributing to a substantial improvement of the dialogue between Customs and its clients, that will be useful to the Indirect Taxation Authority (ITA) during the process of Value-Added Tax (VAT) implementation for establishing good communication with businessmen and traders.

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The joint facility at the BCP Izacic was completed and the offices for the use of Croatian border agencies were constructed and opened in September 2005. On the other hand, the joint facility at the BCP Maljevac in Croatia was constructed with the offices for the use of BiH border agencies and opened in October 2005. The purchase of the furniture for the BPC Izacic was included in the EU financed furniture.

ITA at the state level was established at the beginning of 2004. The headquarter is placed in Banja Luka. Four regional Customs and Tax Centers (in Banjaluka, Tuzla, Sarajevo and Mostar), through their organizational units of Customs offices, are being created to implement the procedures defined by the ITA. The ITA will have four departments with their corresponding directors: Tax, Customs, Business Services, Law Enforcement (from the tax and customs angles) and IT sectors. Once fully established, the ITA would, in full capacity, collect a very large part of budgetary revenue corresponding to all indirect taxes such as Customs duties, excise and, from the beginning of 2006, VAT. All indirect taxes collected would be placed on a special single account, already established, and then distributed among the State Common Institutions based on the Law on Single Account, and among the RS Government, the Federation Government and Brcko as well as for financing the international obligations of Bosnia and Herzegovina, based on a distribution formula agreed upon between the two entities.

5. Major Factors Affecting Implementation and Outcome

5.1 Factors outside the control of government or implementing agency:Positive Factors

(i) The prospect of becoming a member of the EU on the part of all the TTFSE countries was a common incentive, significantly motivating the ownership of, and commitment to, the project.

(ii) The preparation of the TTFSE Program was preceded by the SECI, which was sponsored by the USA and the Stability Pact. The TTFSE was designed to mesh with co-financing from the USA under SECI and seen as the first regional program under the Stability Pact. This gave the projects under the program high credibility and visibility.

(iii) Excellent donor coordination among the Bank, the EU, and the US Government and their speaking as one voice made a positive impact on the project. Collaborative mechanisms were created in both Washington, D.C and the field, and recurrent missions visited Brussels for consultation.

(iv) The regional approach of the TTFSE Program, which was framed in a TTFSE MoU, including the creation of RSC where the performance of individual projects could be compared with the performance of neighboring countries and the sharing of experience and lessons learned created peer pressure among the participating countries, which in turn generated a competitive spirit and motivated them to perform better.

(v) Strengthening the role of the private sector, especially with the emergency of PRO-Committees under SECI, and the increased professionalization of operators through training, certification, and the website under the project provided the beginning of a private sector watchdog function, monitoring government performance and breaking down the resistance to data sharing in the sector.

Negative Factor

Despite the signing of the MoU, regional high political commitment to a regional approach did not materialize, which reduced coherence of activities and results at regional level, thus sub-optimizing the benefits of the individual projects.

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5.2 Factors generally subject to government control:Positive Factors

(i) Building Cooperation Among Representatives of Border Crossing Agencies. Because of: (a) the LPTs created at the border crossing points to promote collaboration; and (b) improved inter-agency communication and cooperation facilitated through signing of a Protocol/Agreement promoted by the Borrower through the National Coordinator, towards the end of project life, the dialogue and cooperation among border crossing agencies had improved considerably.

(ii) Cross-border Cooperation of Customs. The MOF through FCA and RSCA initiated, updated and implemented agreements with neighboring Croatia on joint border control teams to facilitate trade and transport while reducing smuggling and increasing border security, as a part of the Integrated Border Management (IBM).

Negative Factors

(i) Frequent change of leadership in FCA and RSCA had an adverse impact on the ownership of the Customs reform program. For example, because of the frequent change of Minister of Finance, the project went through periods of strong support and periods of weak support, depending on the personal commitment of each Minister of Finance. In addition, the presence of two governments, one for the Federation, and the other for RS added to the complexity of conducting continuous reforms.

(ii) Customs Performance. The revenue collected by the Customs dropped in 2004 and all performance indicators in both the RS and the Federation worsened accordingly. One of the reasons was the implementation of the signed free trade agreements, which considerably reduced the revenue from customs duties. The other major reason was the transition period during which the two entity customs administrations were being merged into one department of the ITA. The restructuring shifted the focus of Customs officers to new challenges linked with a merger of such a magnitude and diverted energies from substantive Customs tasks and responsibilities.

(iii) Counterpart Funding. During most of the project period, there were considerable shortcomings and delays in providing counterpart funds, from the Governments of the entities, particularly on the side of the MOF of the Federation of BiH. This situation seriously affected implementation. For example, lack of counterpart funds caused a delay in the payment for works and their progress at Izacic and Orasje.

(iv) Laboratory Equipment. Even though the Customs laboratory equipment was delivered by the supplier in November 2003, an appropriate premise for the installation and use of the equipment was provided only in September 2005. This situation caused a delay in hiring and training of the staff who would be working in the laboratory.

(v) The lack of coordination and cooperation in border crossing management by different government agencies reduced project efficiency, e.g through maintaining different opening hours and shift schedules.

5.3 Factors generally subject to implementing agency control:See Section 5.2

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5.4 Costs and financing:The total final cost of the project was US$17.0 million compared with the PAD estimate of US$14.8 million. The higher cost was mainly due to currency fluctuations during the implementation period.

The Bank financed US$12.36 million, the Government contributed US$4.64 million equivalent in local costs. The US Government financed a major technical assistance component under the project.

6. Sustainability

6.1 Rationale for sustainability rating:Likely. The sustainability of the project is considered likely for several overarching reasons: (i) considering that BiH is keen to become a member of the EU, the Government would continue to make special efforts to sustain the achievements of the project for a smooth integration with the EU; (ii) due to the high visibility of the regional program and the project, and the wide publicity given on the results achieved, the public is well aware of the recent developments and as a result, it will be difficult for the Government to backtrack; (iii) Customs has already taken steps to move to the replication of performance monitoring at other sites; this has been a decision outside the scope of the project; and (iv) the Bank and the Government are maintaining a dialogue to continue the participation in trade and transport facilitation programs. At a June 2005 High Level Meeting in Zagreb, BiH Government expressed its support for the development of a common regional framework for transport and trade facilitation in SEE.

The project supported values that are critical to fulfilling BiH's long-term objective of achieving sustainable growth. Once these reforms are in place, the sustainability of the effort would be assured by transparency in Customs operations, regular cooperation among different border crossing agencies including those of neighboring countries, and the gains captured by all parties involved in legitimate trade. Continuous upgrading of the Customs services, procedures, management, and equipment based on a re-engineered budget would enable in the mentioned period to cope with trade and traffic growth, technological advance and continued compatibility with the EU. The inter-agency and cross-border cooperation approach and culture in facilitating transport and trade promoted through the project complement the European Commission funded program on Integrated Border Management.

The monitoring approach using key indicators developed under the project is likely to be continued beyond the project life, as the management of ITA is also determined to follow-up on performance monitoring as a management information tool and plans to gradually expand it to all border and Customs inland locations in BiH. For the continued collection of data, the Government has proposed that the Customs service itself would take on this function according to an Action Plan that would gradually be applied to all borders and inland terminals. The Action Plan was initiated outside the scope or requirements of the project. However, based on international experience it is expected that there will be a need for continuing the performance indicators monitoring with it being done by international experts.

Use of X-ray equipment, which is beneficial for the detection of smuggling, will also continue. In line with the principles designed by the project, BiH developed an agreement with Croatia to create and carry out joint border control procedures between Maljevac (Republic of Croatia) and Izacic (nearby Biha·, Bosnia and Herzegovina), which were both pilot locations during the project life. One area which would require continued support for sustainability is the TTFSE regional website. The sustainability of the website will require further financial support and commitment by the donor agencies and MOF.

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All organizational units are in place including Risk Assessment, which had encountered some initial problems. There is a high degree of probability that the achievements will be sustained.

6.2 Transition arrangement to regular operations:See Section 6.1

7. Bank and Borrower Performance

Bank7.1 Lending:Satisfactory. The Bank's performance in the identification, preparation, and appraisal of the project was satisfactory, especially in view of the setting of the project within a regional context. The identification process focused on critical gaps and opportunities for interventions in the region’s trade and transport sectors and then sought to match these with the specific needs and interest of the Government of BiH and the evolving private sector.

The project objectives were consistent with the CAS and the Government’s development priorities. The Bank considered the adequacy of the project’s design and technical, economic, institutional aspects, procurement and financial management. Project design also took into account efforts with Customs reforms elsewhere (e.g. crucial importance of software aspects), and was also built on similar projects which were undertaken in parallel in six neighboring countries. In addition, the Bank assessed the project's risks and benefits.

The Bank had a consistently good working relationship with the Borrower during preparation and appraisal. Consultation with and participation of major stakeholders was a key strength of the project. Various public institutions in BiH as well business community were consulted during preparation and were closely involved in project implementation arrangements. Further, close collaboration and cooperation with neighboring countries and the EU was another key feature of the project.

In addition, the Bank also covered in-depth sociological aspects and local issues while designing the project. This included the conduct of separate focus groups with: (i) the staff of Customs and (ii) users to better understand needs and priorities. The team considered options for promoting the development of a new work culture within Customs, including the promotion of anti-corruption. The team benefited from a good skill mix (including trade facilitation, Customs, transport, safeguard, institutional, and change management specialists). This is reflected in the project design and enabled providing for flexibility and responsiveness to local needs. The continuous presence of Customs experts (from both the Bank and the US partners) during project preparation created a climate of mutual confidence and transparency which are normally not easy to achieve in the realm of Customs, and in particular in SEE countries. The extensive stakeholder consultations and participatory approach used by the team were highly productive, initiating a process of ownership that proved invaluable at the implementation stage, and introducing elements for gradual incorporation into the work culture of Customs.

7.2 Supervision:Satisfactory. A Quality of Supervision Assessment was carried out by a QAG panel of reviewers for the project. The panel rated the supervision of the project as satisfactory overall and also for all the four categories: (i) Focus on Development Effectiveness; (ii) Supervision of Fiduciary/Safeguard Aspects; (iii) Adequacy of Supervision Inputs and Processes; and (iv) Candor and Quality of Project Performance Ratings.

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QAG noted that:

“The Bank team was pragmatic and effective in working with the EU and other bilateral donors, and used well the leverage of working across eight countries at the same time. The Bank team has been invited to present the lessons of experience under this project to the European Commission, has good access at senior levels both in the EU and the US State Department, and its work has led to the evolution of a more over-arching regional recognition (MoU) of trade facilitation as a priority.

Bank supervision helped maintain/consolidate stakeholder/client ownership, consistently tried to strengthen coordination and provide a regional focus, and was proactive in addressing problems. Business and industrial groups were brought in to stimulate and monitor the change process, and capacity was also strengthened with some 4,000 private operators trained. Several Bank actions taken in this regard were very appropriate. The project made good use of joint cross-border facilities between countries or states, wherever feasible, to improve efficiency and cross-country (or cross-state) collaboration. The Bank, EU and other donors made good use of an inter-agency consultation and steering committee as well as the WB-EU Commission. A shared Regional web site facilitated exchange of information, standards and trade and transport parameters across the countries and IFIs. Information exchange and sharing of data systems was facilitated through a Regional web site. The three Country Departments of the Bank responsible for the set of eight projects used as far as possible a common project team and coordinated across country programs through a Regional infrastructure group.”

The ICR also considers the Bank's performance during the implementation of the project as satisfactory. The Bank's task team was very proactive in the management of this project. In light of the complex political environment and limited capacity of the Borrower, the task team maintained more frequent contacts with the client compared to other countries. Sufficient budget and staff resources were allocated, and the project was adequately supervised and closely monitored. The Bank’s client relationship was very cordial and productive. Review teams included specialists in transport, trade facilitation, Customs, environment, financial management, and procurement. External consultants were used for specific aspects of project components. Supervision was regularly joined by the US Customs Assistance Team (STAT) at country and regional level; the US experts brought their knowledge and expertise in the Customs institutional reforms assessment, data collection, monitoring of performance indicators, and selectivity. The suggestions and experience of the US experts were useful for risk assessment and goal setting processes.

Project implementation progress was adequately reported, and implementation problems were identified early and addressed proactively. Performance ratings given in the PSRs were realistic, and sufficient attention was paid to the project’s likely development impact through the monitoring indicators. The Bank enforced Credit covenants and remedies were duly exercised. The task team showed flexibility in suggesting or approving needed modifications, and successfully worked with the Government, implementing agencies, cofinanciers and other partners.

The Bank’s Country Office in Sarajevo played a major role in monitoring the progress of the project, especially on procurement matters, because of the availability of local procurement specialist there.

7.3 Overall Bank performance:Satisfactory. Overall, the Bank performance was satisfactory during project preparation, appraisal and implementation.

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Borrower7.4 Preparation:Satisfactory. The Borrower's performance in the preparation of the project was satisfactory. BiH's commitment to the reforms under the project came from its interest in legitimate trade expansion and liberalization. FCA's and RSCA’s work with CAFAO to progressively align themselves to EU standard acted as a significant stimulus for reforms. The Borrower confirmed its commitment by signing the Skopje Memorandum of Understanding, participating to the first three RSC meetings and reviewing the possibilities of launching innovative mechanisms, such as common border crossings with Croatia. Both customs administration had also submitted their draft reform strategy. The government officials and staff of the PIT worked in full cooperation with the Bank's project team.

7.5 Government implementation performance:Moderately Satisfactory. The Government implementation performance was moderately satisfactory. However, in the absence of ‘marginal’ ratings in the ICR Template, the ICR team is constrained to give a Satisfactory rating in Annex 6.

As mentioned in Section 5.2, because of the frequent change of Minister of Finance, the project went through periods of strong support and periods of weak support, depending on the personal commitment of each Minister of Finance.

Counterpart funding availability was a continuous concern of generic nature, affecting not only the TTFSE project, but all other projects as well. The Bank’s project team and Country Management kept pressing repeatedly for the Government to make available the resources needed. Financial performance was correctly signaled by the team as problematic for this reason. It is not very clear whether the Bank could really achieve a lasting solution to this issue although reminders helped to get funds released from time to time. Financial Management (FM) was also an area with issues, and the presence of the FM specialist in the Country Office helped address these. At the same time, however, it needs to be pointed out that, this problem was faced not only by this project, but by all other projects. The issue was resolved smoothly before the closure of the project and the allocated amounts were made available by the Government to take care of the requirements.

While the project focused on the role of Customs as the main agency responsible for the control process of goods entering, leaving and transiting BiH, the Government understood well the importance of coordination with other border agencies. To facilitate this process, a National Coordinator was appointed who also participated in the regular meetings of the RSC. The Government was responsive in establishing necessary regulatory framework when needed and providing counterpart financing in time.

The implementation of civil works at border crossings was a complex task, involving various agencies (Ministry of Transport, Border Police, Customs, Utility Agencies, etc.) and having to face the challenge of keeping the border crossing operational and functioning. The Government facilitated good coordination between various agencies resulting in completion of these facilities as scheduled, including a joint facility with Croatia at Maljevac, one of the first joint facilities in the region.

7.6 Implementing Agency:Satisfactory. The performance of the PIT, which implemented the project, was satisfactory. The PIT consisted of competent staff and it was adequately funded. The PIT was actively involved in the implementation of all components and was pro-active in flagging potential problems to the Bank. Monitoring and reporting to the Bank were satisfactory. The PIT maintained detailed internal controls, and satisfactory accounting and reporting systems, and auditing arrangements.

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Both the Project Manager and the Procurement Specialist attended the Bank’s specialized procurement trainings and constantly improved their knowledge and skills in the Bank procedures. They cooperated well with respective specialists and managers in the relevant agencies and ministries; with direct beneficiaries at the border crossing points.

7.7 Overall Borrower performance:Satisfactory. The overall performance of the Borrower was satisfactory.

8. Lessons Learned

Project and Program-related Lessons

• Replication of Procedures at Pilot Sites. The lessons learned and the success experienced at the more progressive border crossing points provide a model for replication in BiH as well as in other TTFSE countries. The economic returns from such replication could be considerable, multiplying the economic returns to date by several times. BiH should pursue in this direction, replicating changes in procedures to border crossing points that were not included as pilot sites under the project, placing emphasis on replication of joint border crossing facilities, and broadening the scope to include other modes. For example, other countries including Bulgaria and Macedonia have already commenced replication strategy for all of their sites.

• Interagency Cooperation at Border Cross Points. Trade facilitation is always a multi-sectoral and multi-agency activity. For a project of this type where seven to eight agencies are involved, their active participation and cooperation are essential for successful implementation and achievement of project, objectives and also for ensuring sustainability. There is a need for strengthening the intra, inter, and cross-border agency cooperation in follow-up activities, as there remain unresolved problems among the agencies. In particular, the cross-border agency cooperation remains very weak, frequently depending on voluntarism and goodwill of individuals without being institutionalized - e.g. through nomination of one liaison officer per agency per border crossing who meet weekly/monthly.

• Customs control is expected to become more effective and efficient under streamlined procedures, based on selectivity and risk analysis, but this requires a change of culture since the actual perception is that more the vehicles are inspected, the higher the detection rate of irregularities. Experience from elsewhere shows that targeted, in-depth inspections that are based on risk analysis of intelligence data yield much better results, both in terms of detection and efficiency. In parallel, improvement of national and international control procedures must be introduced to reduce delays and backlogs at BCPs. Adoption of the International Convention on the Harmonization of Frontier Control of Goods can result in significant benefits.

• Support for the TTFSE Website. Further cooperation and commitment from government agencies, especially in the area of updating data in website are essential to make the regional website sustainable and successful. Having an updated, informative website can contribute significantly to enhance transparency of border crossing procedures and to reduce solicited ‘informal payments’ at border crossings.

• Procedures on Border Stations. It is important to continue the modernization of procedures at all border stations using as much as possible the rules and recommendations of the revised Convention on the simplification and harmonization of Customs procedures (Kyoto Convention). Ultimately, it will be important to create a one-stop office supply chain information system. For example, introduction of electronic data interchange (EDI) based information flows, not only between border agencies but also

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across borders with neighboring countries is an important first step, especially when freight forwarders and shippers use EDI based cargo systems as well.

• Multifunctional Border Inspection Facilities. While constructing border crossing facilities, innovative designs that allow future conversion into logistic centers, warehouses, etc, must be encouraged. In addition, design of new facilities should reflect the available human resource capacity avoiding constructing expensive overcapacity.

• Comprehensive Solutions for Border/Clearance Delays. The long lines of vehicles waiting to be processed at border crossing points are symptomatic of the need for trade facilitation. Too often governments cite physical deficiencies as the primary cause of the delays. Although the infrastructure at border crossing points and internal clearing houses may need to be upgraded in support of trade facilitation, such a physical investment by itself is not sufficient to solve the problems causing delays and hindering trade facilitation. Factors such as constrictive regulations, policies, redundant or duplicative data entry and procedures, and lack of coordination of border processing need to be addressed in a comprehensive manner.

• High Level Support. Building a tradition of inter-agency communication and information sharing as well as building the mechanisms on which such communication can be based, needs a high-level government commitment and ideally a champion. Such a champion needs to be able to direct concerns to the highest levels of management in the ministries responsible for the agencies engaged in border control. This implies knowledge of the national political system and the power to navigate through that system.

• Cumbersome visa procedures and requirements for professional drivers are slowing down especially road freight transport. Development of an international drivers’ permit, similar to the International Seafarer’s ID would speed up processing and could ensure application of common professional standards.

Bank-related Lessons

• The Bank's Focus in the Future Programs. The Bank must include ‘behind the border’ issues in new trade and transport facilitation programs. Most regulatory, administrative, and operational non-tariff barriers at borders require some kind of reform at the institutional level. Good coordination with other Bank projects, focused at improving the business climate in countries, is therefore required. In addition, programs need to address legitimate security concerns and anti-terrorism considerations such as the recent ISPS and IMO codes. Further, the Bank should recognize that, when the project involves several innovative reforms, it is normal to have higher risks and higher rewards.

• Holistic Corridor Approach. In order to optimize the benefits of transport and trade facilitation activities, taking into account the actual and projected trade patterns, a more holistic corridor approach at regional level is warranted. Such an approach must include targeting both the physical and functional ‘bottlenecks’ of transport corridors to optimize their use and capacity, and must complement the EU policy of transport corridor development which is targeting the strengthening of corridor infrastructure as well as the improvement of a series of soft constraints, such as institutional capacity building, improved communication and information sharing, etc.

• Policy Dialogue. It is important to start the policy dialogue at the very beginning of the project, and to involve all important stakeholders, especially the private sector in order to identify trade and transport needs and opportunities.

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• Flexibility in Project Design. In a post-conflict situation, it is important that the design of the project is flexible enough to adapt to the rapidly changing circumstances and priorities, and evolving expectations.

• Regional Approach. To further optimize the benefits of transport and trade facilitation through the abovementioned corridor approach, synchronization of proposed activities at a regional level is required. Trade and transport data show that most trade in the SEE region is not with neighboring countries, but with the EU, Turkey and Central and Eastern European (CEE) countries, for which a uni- or bilateral approach would not do much. Furthermore, a regional approach can create peer pressure among the participating countries, which in turn would generate competitive spirit and motivation amongst them to perform better.

• Regional Programs. Unfortunately the Bank’s organizational structure is not very conducive for the preparation of regional programs. CMU’s have ‘closed’ programs, reflected in Work Program Agreements (WPAs), CAS, Country Partnership Strategy (CPS), etc. which are constraining multi-CMU regional programs that require synchronization of activities to optimize benefits.

Miscellaneous

• The contribution of the US as a parallel financier contributed to the success of the project. The USAID Grant was instrumental in improving public-private partnership, especially in light of the Government's reluctance to borrow for technical assistance to the private sector. Likewise, US Customs financed permanent presence of Customs advisors in BiH (and the whole TTFSE region), providing advice on customs modernization and assisting with data collection, monitoring indicators, and improving the risk-management system in Customs administration.

• It is important to avoid overlaps with EU’s Integrated Border Management. This will require close coordination with EU so as to complement the Bank’s activities and avoid any overlapping.

• As the Bank works more on multi-country operations, there must be a simple organizing principle to help implementation/supervision. Over time, however, the need grows to address other systemic issues and work increasingly with other agencies, as gains cannot be pushed further without doing so; but the first demonstration effects are critical to generating momentum.

• It is important in multi-country operations to use the same project team across countries, and effectively draw on cross country agencies as available (joint cross border trade and customs facilities, the Regional Steering Committee and IT Coordinating Committee), while working across the Bank's own internal boundaries between country departments.

• If complex types of civil works are included in a project, three year implementation period may not be realistic, considering that such civil works involve land acquisition/appropriation, multi-agency cooperation, including with those of neighboring countries, while at the same time, the border-crossing points have to be kept open during the construction period.

Action should be taken in advance on regulatory and administrative procedures in order to avoid delays in the completion of civil works or installation of equipment.

9. Partner Comments

(a) Borrower/implementing agency:See Annex 8.

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(b) Cofinanciers:N/A

(c) Other partners (NGOs/private sector):N/A

10. Additional Information

A. The Bank’s ICR Team Consisted of the Following Members

Paulus Guitink Task Team LeaderSati Achath ConsultantMadhu Nair ConsultantMarie Laygo Program Assistant

B. List of Task Team Leaders of the Project in Chronological Order

Gerald OllivierPaulus Guitink

C. Persons Interviewed for the Preparation of the ICR

Dirk Reinermann Country Manager Ljerka Maric Minister of Finance, BiHSlobodan Ecimovic Deputy Minister of Foreign TradeGerald Ollivier Former TTL and Transport Specialist Nikola Kerleta Procurement SpecialistKemal Karkin Project Manager, PITFaruk Jasarovic Director of Foreign Trade, Chamber of BiHZihad SInanovic Director of Foreign Trade, Chamber of BiHTrivio Marinkovic Advisor, ITAFlemming Larson Advisor, CAFAO

D. Footnotes

1

The EBRD-World Bank Business Environment and Enterprise Performance Survey (BEEPS) is a joint initiative of the European Bank for Reconstruction and Development and the World Bank. The BEEPS has been carried out in three rounds in 1999, 2002, and 2005 and covers virtually all of the countries of Central and Eastern Europe and the former Soviet Union, as well as Turkey. (It has not been possible to implement this survey in Turkmenistan.) The BEEPS covers a broad range of issues about the business environment.

2

Source: PlanConsult Survey Results, May 2004.

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Annex 1. Key Performance Indicators/Log Frame Matrix

Outcome/Impact Indicators

Indicator Projected in SAR/PAD* Actual/Latest EstimateBosnia and HerzegovinaRevenue Collected/Customs Staff (US$000) 498Total Cost/Revenue Collected (%) 2.78%Salaries/Revenue Collected (%) 2.26%Trade Volume/Number of Staff (US$000) 3.8Annual Number of Declarations/Custom Staff 301.84

Output Indicators

Indicator Projected in SAR/PAD* Actual/Latest EstimateBosanska Gradiška Pilot% of Trucks Examined 10 0Irregularities/Physical Exams (%) 10 0Average Border Exit Time (Minutes) 15 3,1Average Border Entry Time (Minutes) 30 4,6Number of Trucks - Entry 841Banja Luka PilotImport Clearance Time (Minutes) 20 45,0Physical Examination Rate (%) 10 32,0% of Trucks Cleared in less than 15 minutes 25 14,5Irregularities/Physical Exams (%) 15 0Number of Trucks - Entry 202Raca Pilot% of Trucks Examined 10 19,5Irregularities/Physical Exams (%) 10 0Average Border Exit Time (Minutes) 15 6,0Average Border Entry Time (Minutes) 30 17,5Number of Trucks - Entry 342Grude PilotImport Clearance Time (Minutes) 50 47Physical Examination Rate (%) 20 18,0% of Trucks Cleared in less than 15 minutes 30 5,5Irregularities/Physical Exams (%) 15 12,0Number of Trucks - Entry 118Izacic Pilot% of Trucks Examined 20 15Irregularities/Physical Exams(%) 10 1,8Average Border Exit Time (Minutes) 20 3,7Average Border Entry Time (Minutes) 20 28Number of Trucks - Entry 230Orašje PilotAverage Border Entry Time (Minutes) 20 12Physical Examination Rate (%) 20 19,00Average Border Exit Time (Minutes) 15 8Irregularities/Physical Exams (%) 10 2,5Number of Trucks - Entry 602

*End of Project

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Annex 2. Project Costs and Financing

Annex 2a

Project Costs by Components (in US$ million equivalent)

Project Component Appraisal Estimate Actual/Latest Estimate Percentage of AppraisalPart A: Improvement of Border Crossing Facilities

11.7 16.45 140%

Part B: Trade Facilitation Development

0.4 - 0%

Part C: Project and Program Implementation

0.7 0.55 71%

Total Baseline Costs 12.8 17.00 132.8%Physical Contingencies 1.2Price Contingencies 0.9Total Project Costs 14.8 17.00 114.8%

Annex 2b

Project Costs by Procurement Arrangements (In US$ million equivalent)*

ExpenditureCategories

Procurement MethodAppraisal Estimate

Procurement MethodActual/Latest Estimate

ICB NCB Other NBF Total ICB NCB Other NBF Total1. Works 11.7

(8.8)2,9 14,80

(10,40)2. Goods 1.0

(1.0)0.1 0.85

(0.85)3. Consultant Services & Equipment

1.1(1.1)

0.6 0.91(0.91)

4. Training5. Operating Costs

0.2(0.1)

0.2 0.44(0.20)

Total 12.7(9.8)

1.2(1.2)

0.9 15.65(11.25)

1.35(1.11)

Note: NBF = Not Bank Financed (includes elements provided under parallel cofinancing procedures, consultants under trust funds, any reserved procurement and any other miscellaneous items). The procurement arrangements for items listed under “Other” and details of the items listed as NBF need to be explained in footnotes to the table.

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Annex 2c

Project Financing by Component (in US$ million equivalent)

Component Appraisal Estimate Actual/Latest Estimate Percentage of Appraisal

Bank Gov't.Co-

financier(USA)

Bank Gov't.Co-

financier(USA)

Bank Gov't.Co-

financier

Part A: Improvement of Border Crossing Facilities

10.6 2.9 0.1 12.05 4.40 113 1.51 -

Part B: Trade Facilitation Development

0.5 - -

Part C: Project and Program Implementation

0.4 0.3 0.1 0.31 0.24 77% 80% -

11,00 3.2 12.36 4.64

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Annex 3. Economic Costs and Benefits

Assumptions and Background Data

1. Project Costs

For donor funded project costs, the original estimates were kept, but spread over the life of the project. Other costs (excluding taxes) were provided by PIU.

2. Key Parameters

Kept as per the original evaluation.

Trade Related Benefits/Transport Savings

20%

Time Value (US$/day) 340Traffic growth 3%

3. Traffic and Waiting Time

Data was provided by PIU in two stages. First stage: the PIU indicated levels of traffic that were surprisingly high, which most likely came from the fact that measurement collection spread over three days and the Daily Truck Traffic was rather the “Collection Period Truck Traffic”. After requesting clarification, the PIU provided the total annual traffic for 2005, which is consistent with the initial traffic forecast divided by three. Hence the final traffic figures were divided by three in the ICR economic evaluation.

During 2002, at some locations, border crossing time increased. This was not related to the project (construction started later), and as such the increase in waiting time was not considered in the calculation of waiting time reduction. The basis for waiting time reduction was not the highest time, but rather the initial time value for 2001 provided by the PIU. This is a more conservative approach.

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First Phase

Border Component

Pilot Crossings 2001 2002 2003 2004 2005Bosanska Gradiška Pilot- Daily Truck Traffic (incoming) 423 839 394 675 873- Average Waiting Time (hour) Suspended - - - -Banja Luka Pilot- Daily Truck Traffic (incoming) 119 87 104 135 187- Average Waiting Time (hour 4.0 4.17 2.8 1.11 1.0- Import Clearance Time (Sept) 3.61 3.97 1.26 1.75 0.75Raca Pilot- Daily Truck Traffic (incoming) 391 306 241 287 338- Average Waiting Time (hour) 2.0 3.0 0.70 0.38 0.29- Average Border Entry Time (Sept)

1.48 2.16 0.3 0.28 0.29

Grude Pilot- Daily Truck Traffic (incoming) 158 142 159 119 102- Average Waiting Time (hour) 1.66 1.30 0.91 0.76 0.78- Import Clearance Time (Sept) 1.28 1.05 0.8 0.78 0.78Izacic Pilot- Daily Truck Traffic (incoming) 283 227 221 265 207- Average Waiting Time (hour) 1.19 1.25 0.72 0.47 0.65- Average Border Entry Time (Sept)

1.61 1.33 0.68 0.45 0.46

Orašje Pilot- Daily Truck Traffic (incoming) 709 798 536 631 629- Average Waiting Time (hour) 2.65 4.36 1.18 0.41 0.34- Average Border Entry Time (Sept)

2.96 4.28 0.36 0.61 0.20

-“Daily Truck Traffic” calculated on the basis of number of truck entries in one day of every month (average was taken from “Performance Indicator data”).-“Average Waiting Time” calculated on the basis of measuring that time in one day of every month (average taken from “Performance Indicator data”).

Second Phase

Data on Entry of Freight Vehicles at the Border Crossings in Bosnia and Herzegovina

Import/EntryPeriod

From To

No. Border Crossing 01.01 - 30.06.2005 01.07 - 31.12.2005Total*2005

1 Gorica 17.525 21.556 39.0812 Izacic 11.166 17.682 28.848

3 Orašje 45.302 27.774 73.076

4 Raca 14.266 15.364 29.630

5 Bosanska Gradiška 28.121 37.367 65.488Total 236.123

*Data in the table were provided according to internal records which were delivered to Project Implementation Team by the border crossing managers.Data includes freight vehicles entering at the BC with cargo or without one, and import of goods and transit procedures.Macro figures are based on the TTFSE Regional Indicator Workbook 12/2004.

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Annex 4. Bank Inputs

(a) Missions:Stage of Project Cycle Performance Rating No. of Persons and Specialty

(e.g. 2 Economists, 1 FMS, etc.)Month/Year Count Specialty

ImplementationProgress

DevelopmentObjective

Identification/Preparation03/2000 N.A. N.A.

Appraisal/Negotiation05/2000 N.A. N.A.

Supervision

09/21/2000 3 TTL (1); SENIOR CUSTOMS SPEC. (1); PROCUREMENT ANALYST (1)

S S

04/26/2002 4 TTL (1); SENIOR CUSTOMS SPEC. (1); PAS (1); PROCUREMENT ANALYST (1)

S S

02/06/2003 4 TTL (1); SENIOR CUSTOMS SPEC. (1); CONSULTANT (1); PROJECT OFFICER (1)

S S

06/20/2003 3 TTL (1); CONSULTANT (1); PROJECT OFFICER (1)

S S

12/03/2003 3 TTL (1); CONSULTANT (1); PROCUREMENT ANALIST (1)

S S

06/04/2004 2 PROGRAM TEAM LEADER (1); PROCUREMENT ANALYST (1)

S S

09/09/2004 2 PROGRAM TEAM LEADER (1); CONSULTANT (1)

S S

12/06/2004 2 CONSULTANT (1); PROCUREMENT SPEC. (1); PROCUREMENT ANALYST (1)

06/20/2005 2 PROCUREMENT ANALYST (1); CONSULTANT (1)

S S

ICR09/2005 1 CONSULTANT (1)

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(b) Staff:

Stage of Project Cycle Actual/Latest EstimateNo. Staff weeks US$ ('000)

Identification/Preparation N.A. 61.4Appraisal/Negotiation N.A. 101.3Supervision N.A. 539.0ICR N.A. 12.5Total N.A. 713.3

Also includes Bank-financed and trust fund consultants.

SAP no longer provides information on staff weeks.

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Annex 5. Ratings for Achievement of Objectives/Outputs of Components(H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable)

RatingMacro policies H SU M N NASector Policies H SU M N NAPhysical H SU M N NAFinancial H SU M N NAInstitutional Development H SU M N NAEnvironmental H SU M N NA

SocialPoverty Reduction H SU M N NAGender H SU M N NAOther (Please specify) H SU M N NA

Private sector development H SU M N NAPublic sector management H SU M N NAOther (Please specify) H SU M N NA

Ratings for Achievement of Objectives relate to the objectives specified in the SAR.

Ratings for Achievement of Outputs of Components relate to the outputs specified in the PAD.

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Annex 6. Ratings of Bank and Borrower Performance

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

6.1 Bank performance Rating

Lending HS S U HUSupervision HS S U HUOverall HS S U HU

6.2 Borrower performance Rating

Preparation HS S U HUGovernment implementation performance HS S U HUImplementation agency performance HS S U HUOverall HS S U HU

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Annex 7. List of Supporting Documents

1. Aide Memoires, Back-to-Office Reports, and Project Status Reports.

2. Project Progress Reports.

3. Consultant Study Reports financed under the Project.

4. Borrower's Evaluation Report dated January 19, 2006.

5. Project Appraisal Document for Bosnia and Herzegovina Trade and Transport Facilitation in Southeast Europe Project, dated January 23, 2001 (Report No. 20714-BIH).

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Additional Annex 8. Borrower's Evaluation Report

Prepared by the: Project Implementation Team (PIT)TTFSE Bosnia and Herzegovina

Assessment of Development Objective and Design and of Quality at Entry

1. PLANNED OBJECTIVES

1.1 Original Objective

The Project, as a part of a regional program for Trade and Transport Facilitation in Southeast Europe, has two development objectives:

a) to reduce non-tariff costs to trade and transport; andb) to reduce smuggling and corruption at border crossings.

These objectives were planned to be achieved by: (i) supporting the reforms of the Federal Customs Administration (FCA) and of the Republika Srpska’s Customs Administration (RSCA) which integrated during the project implementation into centralized Indirect Taxation Administration (ITA); (ii) strengthening mechanisms of interaction and cooperation between border control agencies and the trading community; (iii) disseminating information and providing training to the private sector; (iv) financing infrastructure and equipment at selected border crossings; and (v) supporting the implementation, at pilot sites, of an integrated set of new customs procedures, information technology, human resource management techniques, supporting infrastructure, and cooperation mechanisms for agencies at border crossings.

1.2 Revised Objectives

During the Project implementation the Objectives were not revised. The change has been made in name and organization of Beneficiaries. Federal Customs Administration (FCA) and Republika Srpska’s Customs Administration (RSCA) incorporated into Indirect Taxation Administration (ITA) at state level.

1.3 Original Components

The Project consisted of three main components:A. Improvement of Border Crossing and Customs FacilitiesB. Trade Facilitation DevelopmentC. Program and Project Implementation

The project implementation included following elements: (i) a project manager and a project implementation team; (ii) two project coordinators; (iii) a facilitation coordinator; and (iv) regional steering committee (RSC) which (except RSC) are extensions of existing institutions and use people already involved in similar institutions.

The project director came from the state Ministry of Communications and Transport, as well as the procurement officer. An external consultant was engaged as accountant. Project coordinators were at the beginning of the implementation the General Directors of FCA and RSCA, afterwards officials of the ITA.

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1.4 Revised Components

The Components were revised at the beginning of the implementation. There were concluded to change:

a) Under Component A it was cancelled: construction of a new Truck Terminals and Inland Terminals and infrastructure for information technology for both subcomponents (it was only designed by this project and construction was undertook by EC), as well as awareness training.

b) Under Component B at Border Crossing Izacic were financed broaden civil works on facilities for border services of Republic of Croatia (joint border crossing).

2. ACHIEVEMENT OF OBJECTIVES

2.1 Outcome/Achievement of Objectives

In general, it can be deducted that Project met its main original development objectives. Reducing of non-tariff costs to trade and transport by improving facilities on Border Crossings comprised by Project as well as by faster and safer vehicles, goods and passengers circulation, inspection and processing over the border line was achieved. Customs taxes collection is more efficient, there are no unofficial border crossings in these areas, which proves that the fiscal impact of project is positive. It shows reducing of smuggling and corruption at border crossings. Newly equipped, trained and organized customs officers ensure identical application of new legislation, create partnership among border inspection agencies and business environment to better coordination of procedures and information exchange.

The project is leading to greater regional cohesion. The implementation of joint pilot projects with Croatia at selected border posts are strengthening regional cooperation at both local and state level.

As by Components, the effects of project implementation was as follows:

Component A- Improvement of Border Crossing Facilities RS- Improvement of Border Crossing Facilities FBIH- Equipment for Border Crossings- Design/Supervision of Civil Works RS- Design/Supervision of Civil Works FBIH- Awareness training

Component B- Trade Facilitation Development - expertise, advice, equipment

Component C- Auditors, Procurement, FMS and RSC- PID operating costs- Refund of PPA

2.2 Institutional Development Impact

This project has contributed to capacity building in the Customs Administration. Customs staff have been trained on using modern equipment, with new procedures and new systems which were tested during the life

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of the project. More and more Customs staff are being trained by those who received original training under the project. A main problem in this area was the delay in getting the risk analysis done.

The equipment purchased from the project assets, risk assessment training sessions and defining of selectivity criteria have, during the mentioned period, increased the rate of Customs frauds detection for 23%. There have been achieving good results in detecting wrong defined goods quantity and fake tariffing Customs frauds. There were created conditions for detailed goods inspection that has a significant impact on fake goods classification and tariff rate determination. This has also an impact on the percentage of detected hidden goods and opiates. The improvement rate of 40% was achieved in this field in the period August 2004 to August 2005 (according to the data provided by Sector for Law Enforcement Monitoring).

During 2004, two entity’s customs authorities were substituted by the Indirect Taxation Administration (ITA) at the state level. Once fully established, the ITA would collect a very large part of budgetary revenue corresponding to all indirect taxes such as Customs duties, excise and, from the beginning of 2006, VAT.

3. MAJOR FACTORS AFFECTING IMPLEMENTATION AND OUTCOME

3.1 Factors Outside the Control of Government or Implementing Agency

Positive Factors

a) Building Cooperation Among Representatives of Border Crossing AgenciesBecause of: (i) the local Project Teams created at the border crossing points to promote collaboration; and (ii) improved inter-agency communication and cooperation facilitated through signing of a Protocol promoted by the Borrower through the National Coordinator, towards the end of project life, the dialogue and cooperation among border crossing agencies had improved considerably. This process is still underway: the design and development of the Integrated Border Management Project supported by the EC with the funds provided from CARDS program are currently being carried out.

b) Cross Border Cooperation of CustomsThe MOF through FCA and RSCA initiated, updated and implemented agreements with neighboring Croatia on joint border control teams to facilitate trade and transport while reducing smuggling and increasing border security, as a part of the Integrated Border Management Project.

c) Joint Locations of Border CrossingsThis presents additional successful outcome of project which demonstrate rationalization of usage of infrastructure facilities for Border Crossing Izacic in Bosnia and Herzegovina and Maljevac in Croatia.

Negative Factors

a) Laboratory Equipment

Although the supplier delivered the customs laboratory equipment in November 2003, an appropriate premise for the installation and use of the equipment was not provided almost until the closing date of the project (September 2005). This situation caused the delay in hiring and training of the staff who would be working in the laboratory. This process is however finished at the end of the September. A part of professional training had been done by that deadline, too.

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4. SUSTAINABILITY

The project, by all means, supported values that are critical to fulfilling BIH’s long term objective of achieving sustainable growth. Once these reforms are in place, the sustainability of the effort would be assured by transparency of Customs operations, regular cooperation among different border crossing agencies including one’s in neighboring countries, and the gains captured by all parties involved in legitimate trade. Continious upgrade of the Customs services, procedures, management and equipment based on reengineered budget would enable to cope with trade and traffic growth , technological advance and continued compatibility with the EU. The inter-agency and cross-border cooperation approach and culture promoted through the project are further supported by the European Commission funded program on Integrated Border Management (IBM).

The monitoring approach using key indicators developed under the TTFSE Project is likely to be continued beyond the project life, as the management of ITA is also determined to follow-up on performance monitoring and to gradually expand it to all border and Custom inland locations in BIH. For the continued collection of data, the Government has proposed that the Customs service itself would take on it’s function according to an Action Plan that would gradually be applied to all borders and inland terminals. The Action Plan was initiated outside the scope of requirements of the project. There is need for continuing the performance indicators monitoring with it being done by international experts.

In line with principles designed by the TTFSE, BIH developed an agreement with Croatia to create and carry out joint border control procedures between Maljevac (Republic of Croatia) and Izacic (BIH), which were both pilot locations during the project life. Significantly, these activities arises from the initiatives of the staff of Customs administrations and other border control agencies, and not from World Bank. All organizational units are in place including Risk Assesment, which had, encountered some initial problems. There is a high degree of probability that the achievements will be sustained.

Achieved level of transparency of customs operations, regular cooperation with border crossing agencies in neighborhood countries, gains accomplished in legitimate trade, efficient tax collection on border crossings comprehended by this Project improved business environment in such way that a country’s long-term objective of sustainable growth is made possible. Process of infrastructure improvement, upgrading of quality of customs services, procedures, equipment assured that BiH is now mainly capable to cope with trade and traffic growth, technological advance, and continued compatibility with the EU. This process started and supported by the TTFSE Project can not be reversed, and it is going to be continued by TTFSE Project second which is related to facilitation of other modes of transport.

5. LESSONS LEARNED

The border crossing investment need to be supplemented by: reliable traffic data; accurate information on waiting times; adequate remedial actions on both sides of a border crossing; linkage to national transport policies; reliable telecommunication infrastructure and equipment; coordination and simplification of customs procedures.

There were acquired positive experiences in improvement of border crossing control procedures using selective approach method. That way, delays in traffic on border crossings and truck terminals are reduced, and revealing and preventing of customs fraud and violation is increased.

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Extension of introducing the selected verifications in Customs control will be one of the major factors in improving clearance delays and increasing the effectiveness of the customs control. The better results achieved at the pilot sites by using the selective procedure has approved its efficiency.

6. BORROWER’S AND BANK’S PERFORMANCE

6.1 The World BankThe Bank through its broader lending and country assistance strategies is well placed to help promote cooperation and coordination of policies and public spending. Supervision was regularly joined by the US Customs Assistance Team at country and regional level. The World Bank experts brought their knowledge and expertise in all aspects of customs activities such are institutional reforms assessment, data collection, monitoring of performance indicators, and selectivity. The suggestions and experience of the Bank experts were useful for risk assessment and goal setting processes.

6.2 The BorrowerBiH testified that it’s commitment to the reforms under the project comes from its interest in legitimate trade expansion and liberalization. Customs administration want to complete the upgrading of major border crossings while simultaneously implementing it’s reform which required coordinated and mutually reinforcing actions in many areas. The Bank financed most foreign costs and, in the case of civil works, a part of local costs. The Government needed to fund all other local costs, as well as all taxes and custom duties. The provision of these local funds created problems during implementing of project. But the efforts to overgrow the problem were made and benefits for the borrower are apparent already.

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- 41 -

DurresDurres

GradiskaGradiska

GunjaGunja

JankomirJankomir

MaceljMacelj

MaljevacMaljevacSamacSamac

SlavonskiSlavonskiBrodBrod

ZupanjaZupanja

DeveDeveBairBair

KafasanKafasan

KumanovoKumanovo

TabanovceTabanovce

BacauBacau

ConstantaConstanta

GiurgiuGiurgiu

SiretSiret

QafeQafeMorinaMorina

QafeQafeThaneThane

TiranaTirana

DoljaniDoljani

GoricaGorica

GrudeGrude

IzacicIzacic

KamenskoKamensko

OrasjeOrasjeBanjaBanjaLukaLuka

BosanskaBosanskaGradiskaGradiska

NoviNoviGradGrad

RacaRaca

BourgasBourgasPlovdivPlovdiv

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KapitanKapitanAndreevoAndreevo

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VidinVidin

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Elbasan

Shkodër

DurrësTirana

Sarandë

Ersekë

Sarajevo

Zagreb

Ljubljana

Bratislava

Budapest

Belgrade

Dubrovnik

Podgorica

Mostar

Konjic

TravnikJajce

BihacBanjaLuka Doboj

Tuzla

Novi Sad

Split

Rijeka

Pula

Karlovac

Trieste

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Lienz

Salzburg

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Severin

Cluj-Napoca

Baia Mare

Satu Mare

Rome

Lecce

Bari

Taranto

Foggia

Naples

Pescara

Terni

Skopje

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Bitola

TrikalaLarisa

Thessaloniki

Balikesir

Bursa

Golcük

KadiköyIstanbul Sakarya

Edirne

Graz

Maribor

Iasi

Tetovo

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OhridStruga

CotseDelchev

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G R E E C E

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U K R A I N E

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BOSNIA AND

HERZEGOVINA

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Giurgiu

Siret

QafeMorina

QafeThane

Tirana

Doljani

Gorica

Grude

Izacic

Kamensko

OrasjeBanjaLuka

BosanskaGradiska

NoviGrad

Raca

BourgasPlovdiv

Gyueshevo

KapitanAndreevo

Kulata

Rousse

Vidin

W

W W W

W

W

W

W

W

C

W

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

0 50 100 150 200

KILOMETERS

SOUTHEAST EUROPE REGION

TRADE AND TRANSPORTFACILITATION IN SOUTHEAST

EUROPE PROJECT(BOSNIA AND HERZEGOVINA)

PROJECT*:

INFRASTRUCTURE PROJECT

DESIGN PROJECT

PILOT BORDER STATIONS

PILOT INLAND TERMINALS

COMBINED PILOT AND INFRASTRUCTURE

PAN EUROPEAN TRANSPORT CORRIDORS

MAJOR ROADS

MAJOR RAILROADS

MAIN CITIES

NATIONAL CAPITALS

INTERNATIONAL BOUNDARIES

*Subject to change as other projects are finalized.

D

C

IBRD 31072

SEPTEMBER 2000

W

II

V

V IVX

IX

IVIV

VII

IX

VIII

IV

X

X

X

V

VIII

X

XIV

IV

$4520

$810

$1230

$1390

$1290

$1200

UKRAINE

HUNGARY

AUSTRIA

GERMANY

ITALY

TURKEY

SLOVENIA

SLOVAK REP.

FED. REP. OFYUGOSLAVIA

(SERB./MONT.)

CZECH REP.

FYRMACEDONIA

CROATIA

BOSNIA ANDHERZEGOVINA

ALBANIA

ROMANIA

BULGARIA

20°15°

15° 20°

25° 30°

45°

45°

40°

40°

MOLDOVA

GREECE

SAN MARINO

BlackSea

AegeanSea

AdriaticSea

Imports:$30192/24$3800

Exports:$11

192/24$3800

Imports:$36624/2$650

Exports:$14124/2$500

Imports:$18236/3$800

Exports:$36

40/3$700

Imports:$13660/4$1700

Exports:$30

60/4$1500

Imports:$161648/2$1400

Exports:$76748/2

$1400

Imports:$90048/4$1900

Exports:$14448/4

$1900

Imports:$35324/4$700

Exports:$19224/4$700

Imports:$24224/5$650

Exports:$24024/5$650

Imports:$25596/12$1800

Exports:$282

96/12$1800 Imports:

$39696/36$2300

Exports:$551

96/36$1700

Imports:$723144/36$1900

Exports:$449

144/36$1350

Imports:$29748/5$850

Exports:$37748/5$900

Exports:$33932/5$800

Imports:$1038240/36$1600

Imports:$1062

FromRussian Federation

FromRussian Federation

Exports:$32380/12$1015

Imports:$2058130/32$2100

Exports:$1827

130/32$2180

Imports:$2063150/32$2000

Exports:$1628

150/32$2075

From FranceTo France

Imports:$815190/32$3500

Exports:$491

190/32$3600

Imports:$32

192/24$2800

To USA Exports:$319

Imports:$150072/2$1900

Exports:$80272/2

$1900

Exports:$65424/2$850

Imports:$61248/2

$1300

Imports:$72210/2$650

Exports:$43210/2$650

Exports:$9712/2$500

Exports:$175

Imports:$11372/12$2000

Imports:$149

To USA

Imports:$352144/24$2800

Exports:$130

144/24$2100

Imports:$234144/24$1300

Exports:$26

96/24$1100

GDP PER CAPITA, 1998 (US$)$4000

$2000

$1000$500

MAIN MACRO-TRADE INDICATORS:

ALBANIA

BOSNIA &HERZEGOVINA

BULGARIA

CROATIA

FYR MACEDONIA

ROMANIA

2.9

4.1

12.3

20.5

3.5

38.2

0.2

0.8

4.6

4.4

1.3

8.3

.8

2.5

5.0

8.8

1.9

11.8

810

1200

1230

4520

1290

1390

Real GDP in US$ billion

Exports (FOB) in US$ billion

Import (CIF) in US$ billion

GDP per Capita in US$

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

INTERNATIONAL BOUNDARIES

IMPORT AND EXPORT PATTERNS (1998):

SOUTHEAST EUROPE REGION

TRADE AND TRANSPORTFACILITATION IN SOUTHEAST

EUROPE PROJECT(BOSNIA AND HERZEGOVINA)

MAIN TRADE PATTERNS

EXPORTS (US$, Millions)

Transport Time(between capital cities)/Waiting Time @ BorderCrossing Points (Hours)*

Transport Time(between capital cities)/Waiting Time @ Border

Crossing Points (Hours)*

IMPORTS (US$, Millions)

TransportCosts(US$)

Thickness of line reflects Export amount

Thickness ofline reflectsImport amount

IBRD 31073

SEPTEMBER 2000

Imports:$300192/24$3800

Exports:$211

192/24$3800

*Average time and costs estimatedbased on surveys and estimates.

0 100 200 300

KILOMETERS