Document of

The World Bank

Report No: 19874-ALB

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR9.9 MILLION (US$13.65 MILLION EQUIVALENT)

TO THE

REPUBLIC OF ALBANIA

FOR AN

EMERGENCY ROAD REPAIR PROJECT

NOVEMBER 10, 1999

Infrastructure Sector UnitAlbania, Croatia Country UnitEurope and Central Asia Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective )

Currency Unit = Albanian LEKLEK1= US$ 0.00769

US$ 1 =LEK 130

FISCAL YEARJanuary 1 - December 31

FISCAL YEAR: WORLD BANKJuly 1 - June 30

ABBREVIATIONS AND ACRONYMSCAS - Country Assistance StrategyCQ - Selection Based on Consultants'

QualificationsDC - Direct ContractingGoA - Government of AlbaniaEBRD - European Bank for Reconstruction and

DevelopmentEIB - European Investment BankERR - Economic Rate of ReturnERRP - Emergency Road Repair ProjectEU - European UnionEUR - EuroGPN - General Procurement NoticeGRD - General Roads DirectorateHGV - Heavy Goods VehiclesIBRD - International Bank for Reconstruction and

DevelopmentIDA - International Development AssociationIS - International ShoppingLCS - Least-Cost SelectionMoT - Ministry of TransportNBF - Not-Bank-FinancedNCB - National Competitive BiddingNPV - Net Present ValueNS - National ShoppingPIP - Project Implernentation PlanPIU - Project Implementation UnitSA - Special AccountSOE - Statement of ExpensesSPN - Specific Procurement NoticeTOR - Terms of ReferenceUNDP - United Nations Development Program

Vice President: Johannes F. Linn, ECACountry Manager/Director: Arntraud Hartmann, ECCO2

Sector Director/Manager: Ricardo A. Halperin/Eva Molnar, ECSINTask Team Leaders: Cesar Queiroz/Elena Kastlerova, ECSIN

ALBANIAEMERGENCY ROAD REPAIR PROJECT

CONTENTS

A. Project Development Objective Page

1. Project development objective 22. Key performance indicators 2

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 22. Main sector issues and Government strategy 33. Sector issues to be addressed by the project and strategic choices 4

C. Project Description Summary

1. Project components 42. Key policy and institutional reforms supported by the project 53. Benefits and target population 54. Institutional and implementation arrangements 6

D. Project Rationale

1. Project alternatives considered and reasons for rejection 62. Major related projects financed by the Bank and other development agencies 73. Lessons learned and reflected in proposed project design 84. Indications of borrower commitment and ownership 95. Value added of Bank support in this project 9

E. Summary Project Analyses

1. Economic 92. Financial 103. Technical 104. Institutional 115. Social I16. Environmental assessment 117. Participatory approach 11

F. Sustainability and Risks

1. Sustainability 122. Critical risks 133. Possible controversial aspects 13

G. Main Credit conditions

1. Effectiveness conditions 132. Other 14

H. Readiness for Implementation 14

I. Compliance with Bank P'olicies 14

Annexes

Annex 1: Project Design Summary 15Annex 2: Detailed Project Description 17Annex 3: Estimated Project Costs 18Annex 4: Cost Benefit Analysis Summary 19Annex 5: Financial Summary 20Annex 6: Procurement and Disbursement Arrangements 24Annex 7: Project Processing Schedule 33Annex 8: Documents in Project File 34Annex 9: Statement of Loains and Credits 35Annex 10: Country at a Glance 37Annex 11: Letter of Development Policy on Road Maintenance Strategy 39Annex 12: Assessment of the Capacity of the GRD to Conduct Procurement under the Project 43

MAP(S)IBRD 30535

ALBANIA

Emergency Road Repair Project

Project Appraisal Document

Europe and Central Asia RegionECSIN

Date: November 10, 1999 Team Leader: Cesar QueirozCountry Manager/Director: Arntraud Hartrnann Sector Manager/Director: Ricardo A. HalperinProject ID: P068853 . Sector(s): TH - HighwaysLending Instrument: Emergency Recovery Loan (ERL) Theme(s): TRANSPORT

Poverty Targeted Intervention: N

Project Financing DataD Loan Z Credit O Grant ED Guarantee O Other (Specify)

For LoanslCredits/Others:Amount (US$m) 13.65

Proposed Terms: O To be defined D2 Multicurrency O Single currencyStandard Variable O Fixed a] LIBOR-based

Grace period (years): 10Years to maturity: 40Commitment fee: 0.50% on undisbursed credit balances beginning 60 days after signing less any

waiver

Government 0.81 0.00 0.81IBRDIDA 4.10 9.55 13.65

Total: 4.91 9.55 14.46

Borrower: GOVERNMENT OF ALBANIAGuarantor:Responsible agency:MINISTRY OF PUBLIC WORKS AND TRANSPORTOther Agency(ies):

Estimated disbursements ( Bank FYIUS$M):F~Y 2O -_ T 3:

Annual 2.0 6.3 3.3 2.0Cumulative 2.0 8.3 11.6 13.6

Project implementation period: February 2000 - August 2002Expected effectiveness date: 02/28/2000 Expected closing date: 02/28/2003

OCS PAD F-m O,b. 9, 199

A: Project Development Objective

1. Project development objective: (see Annex 1)

The proposed project is an emergency operation aimed at restoring the serviceability of the mainroute connecting the Adriatic Sea (Port of Durres) to Kosovo, and of the Berat-Corovodenational road. Both of these roads were damaged by heavy refugee convoys, humanitarian aidand NATO vehicles during the Kosovo crisis.

The single objective of the proposed project is to assist the Government of Albania in restoringthe serviceability of these two roads.

2. Key performance indicators: (see Annex 1)

The key performance indicator will be the number of km of roads repaired compared to theproject plan.

B: Strategic Context1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annox 1)Document number: 18161 Date of latest CAS discussion: 07/30/98

Albania is a country of 29,000 square km and a population of 3.4 million inhabitants with percapita income of about US$800. Agriculture generates 56 percent of GDP, and most of thepopulation live in rural areas. Since 1993, the Government has been carrying out a program ofmacroeconomic stabilization and structural reforms with IMF and World Bank support.

The project is not listed in the CAS as a priority operation as it responds to a regional emergencythat occurred after the last CAS discussion. However, the project supports the CAS goal ofpoverty reduction as it benefits the poorest region of the country by improving access to markets.While the poverty impact of this project may not be directly measurable, it will minimize th,,adverse effect on the rural poor living in these areas, whose mobility has been affected by t:le badcondition of the roads. It will also provide employment for them in the areas where the roa ds areto be repaired. Further, it supports the environmental and social objectives of the CAS byrepairing environmental infrastructure damage caused by the heavy traffic relating to the K,isovocrisis, and supports the CAS goal of limiting the deterioration of the existing assets. Morec ver,the CAS goal of sustainable private sector growth is supported by engaging local contracto:s andtechnical service providers in the project implementation process.

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2. Main sector issues and Government strategy:

Albania's road infrastructure is in very poor condition from years of neglect, in spite of three IDAprojects in this sector. The Rural Roads Project, aimed at the improvement of Albania's 12,000km of rural roads, is still under implementation, as is the National Roads Project, intended toconstruct additions to the 3,221 km main road network. The need for this emergency projectbecame apparent after the Kosovo conflict, during which a large number of refugees,humanitarian aid and NATO convoys put an enormous strain on the Durres (main port) - Morin(border with Kosovo) road and the Berat - Corovode road. Nearly 500,000 refugees enteredAlbania through the Morin border crossing, continuing through Kukes to the southern parts ofAlbania (Shkoder, Tirana, Durres, Berat, and Corovode), and to the Berat-Corovode area wheretwo refugee camps were located. Simultaneously, humanitarian aid and NATO heavy vehiclesbrought through Durres port and Tirana airport were transported to the refugee camps, and later,to Kosovo as the refugees returned to their homes, increasing the daily traffic from 500 to asmuch as 15,000 vehicles. The intensive heavy traffic during the refugee crisis has caused theseroads, designed for bearing capacity of 2 tons and built using poor standards and technology inthe early seventies, to deteriorate to a critical condition. There are road sections on these routesthat have lost all or most of the asphalt surfacing, decreasing the average speed to 25-30 kmn/hour,and even lower for the obsolete vehicle fleet during bad weather conditions. The present trafficcomposition remains heavy, including a number of five-axle trailers and semi-trailers. By the timethat the need for improvement of these two roads became apparent, IDA resources made availablefor the Rural Roads (750.0 km of rural roads rehabilitated) and National Roads (33.0 kmconstructed and 13.0 km rehabilitated) projects were already fully committed.

The Bank strategy for addressing this need, discussed and agreed with the Government, involves atwo-tier approach that focuses in the short term (no more than three years) on urgent road repairsfor a limited number of roads damaged as the result of the Kosovo crisis, and continues in parallelwith the preparation of a regular road investment operation that will support sector reforms andprovide for major road rehabilitation affecting the entire network. Specifically, the two tierapproach would include:

Short-term priority investment program- urgent repair works aimed at restoring serviceability of two critical roads; and- technical support for project implementation, works supervision and preparation of a

regular investment operation.

Medium- to long-term investment program- rehabilitation of existing road infrastructure; and- imprdved policy framework and institutional restructuring for better asset management,including gradual privatization of road maintenance services.

The need for a Medium- and Long-term Investment Program, including institutional restructuring,has been discussed and agreed with the Government. An agreement on the basic outline of therestructuring, presented in the Government's policy letter, was received by the Bank onNovember 3, 1999 (attached as Annex 11).

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3. Sector issues to be addressed by the project and strategic choices:

The project is focused on repairing the parts of the road network most damaged by the Kosovocrisis, with emphasis on the emergency need to restore access to markets for the rural poor inthese areas. It will also support the longer range issue of restructuring the road maintenanceorganizations by providing funds for preparation of a follow-on project. These longer terrrm issueswould be addressed through:

- a policy letter from the Government to demonstrate its commitment to the medium-termstrategy and reforms for the sector (attached as Annex 11); and

- implementation, procurement and financial management arrangements aimed at rapid andeffective execution while ensuring due diligence, transparency, and corruptionprevention.

C: Project Description Summary

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

1. Emergency Road Repair Works to Highways 11.53 79.7 10.72 78.5restore 221 km of the national roadnetwork to serviceable condition

2. Goods: Laboratory, Office, and Highways 0.34 2.4 0.34 2.5Environmental Mitigation Equipment,Software and Vehicle

3. Training and Consultants Services:- Project Related Training, including Highways 0.11 0.8 0.11 0.8fimancial and environmentalmanagement, procurement, and relevanttechnical issues in road and bridgedesign, construction, and maintenance- Consultant Services for Supervision Highways 1.03 7.1 1.03 7.5of Road Works- Consultant Services for the Operation Highways 0.16 1.1 0.16 1.2of the PIU- Project Audits Highways 0.03 0.2 0.03 0.2- Preparation of design and bidding Highways 0.12 0.8 0.12 0.9documents for the second-year programof works- Preparation of Durres-Morin Road Highways 0.57 3.9 0.57 4.2Feasibility Study

4.

- Preparation of Feasibility Study and Highways 0.57 3.9 0.57 4.2First-year design and biddingdocuments for a follow-on project(Road Rehabilitation and MaintenanceProject)

Total Project Costs 14.46 100.0 13.65 100.0Total Financing Required 14.46 100.0 13.65 100.0

2. Key policy and institutional reforms supported by the project:

As this project is of an emergency nature, it does not attempt to address long-term economic,sectoral, or institutional issues and does not include any conditionality linked to macro-economicor sectoral policies other than the Policy Letter mentioned below. The project would provideinstitutional support focused primarily on operations of the PIU and the counterpart staff in theroad maintenance department to perform their tasks during the life of the project.

In order to ensure that the reform process of the sector continues through Government actions aswell as preparation and implementation of the future Road Maintenance and RehabilitationProject, the GoA sent to the Bank a Road Maintenance Policy Letter outlining in general terms itsintention to restructure the GRD in a manner consistent with the operation of a market economy.The program itself includes measures to address four important areas: (i) creating an effectiveorganizational structure, (ii) establishing a system that assures an adequate level of financing, (iii)putting in place sound operational procedures, and (iv) adopting good personnel policies.

3. Benefits and target population:

Immediate benefits are the repair of the main road network serving the rural population in thepoorest part of the country. In addition to its impact on the local population, it will improve thetransit transport route from the Adriatic port of Durres through Albania to Kosovo, which is oneof the shortest connections from Kosovo to the Mediterranean sea.

Major benefits expected from the project are as follows:

- restoration of the serviceability of the main link connecting Albania with the northern part of theBalkans and Northern Europe;

- provision of employment in the construction industry;- preparation of a regular investment operation that will include restructuring of the roadmaintenance sector.

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4. Institutional and implementation arrangements:

Bank experience acquired during implementation of one already completed and three ongoingprojects shows that the MoT/GRD absorptive capacity remains rather low. For that reason, anddespite the existence of two PIUs presently working with GRD, the Bank proposed and theGovernment agreed to appoint an independent PlU to implement the Project. The DirectorGeneral of the GRD will appoint a PIU Director with appropriate qualifications. The PIUdirector will hire the PIIJ staff as follows: one engineer to support procurement activities, oneaccountant/budget officer, one bilingual secretary, and one driver. The speed of implementationrequired to bring the expected benefits of the Project requires expertise in coordination,supervision, and quality control of road works contracts. To provide the additional managementcapability needed to organize, supervise and control implementation of the project, the PI willbe assisted by experienced professionals from a full service consulting firm, including supervisingengineers and a procurement expert.

The PIU will be responsible for overall project management, coordination, and planning includingthe preparation of an Action Plan, procurement of design, goods, civil works and consultantsservices, financial management and reporting. The PIU will report to and coordinate with theGRD. Also, the PIU will coordinate, on aspects directly related to the Project, with theinternational donor comtnunity participating in the. road sector in Albania in order to assure thatthere are no overlaps wilth the activities of other clonors.

Disbursements are expected to be completed within 36 months from the date of effectiveness. Tofacilitate timely project implementation, the Borrower will establish, maintain, and operate, underconditions acceptable to the Bank, a project accoumt and a Special Account in US dollars in theNational Bank of Albania, to be managed by the PIU. Establishment of the project account (forcounterpart funds) would be a condition of effectiveness.

D: Project Rationale

1. Project alternatives considered and reasons for rejection:

Alternative: Not carrying out an Emergency Road Repair Project and focusing on thepreparation of the Road M\aintenance and Rehabilitation Project.

Reasons for rejection: The Road Maintenance and Rehabilitation Project will not be read' forimplementation before autumn 2000. The main North-South road axis is in dire condition anid isdeteriorating at a rapid rate. Without any immediate support from the international commUii r.y,the risk to road safety, further deterioration, and eventual impassability of the project roads isextremely high. This would not only be a major inconvenience for the local and internationaIltransport of passengers and goods, it would also be a severe road safety risk. The economni v costsincluding gradual cut off for a portion of the large population, decline in trade, increase in roadand vehicle operating costs, additional cost of an alternative route, and medical treatment c uld besubstantial. As already discussed in section B.3. cf this PAD, the Emergency Road Repair 'rojectis regarded to be of utmost importance to bridge the gap until the Road Maintenance andRehabilitation Project can be implemented.

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2. Major related projects financed by the Bank and/or other development agencies (completed,ongoing and planned).

Latest SUerIsionSedor Issue Project (PSR) Ratings

(Bank41nanod projets only)Implementation Development

Bank-financed Progress (IP) Objective (DO)

Transportation needs US$27.0 million, S STransport/InfrastructureProject; cofmancing: US$6.4million from Kuwait Fund;completed

Rural Road Network needs US$33.6 million, S SRural Roads Project;cofmancing: US$16.24 millionfrom Italy, and US$3.6 millionfrom GoA; ongoing

National Road Network needs US$66.0 million, National S SRoads Project; cofmancing:US$9.0 million from Italy,US$8.0 million from KuwaitFund, US$12.0 million fromEBRD, US$7.0 million fromPHARE, and US$5.0 millionfrom GoA; ongoing

Durres Port needs US$23.0 million, Durres Port S SProject; cofmancing: US$5.0million from OPEC, andUS$1.0 million from GoA;ongoing

Transport and Trade Facilitation needs US$6.5 million -AlbanianComponent of the RegionalTransport and TradeFacilitation Program inSoutheast Europe; cofmancingfrom EU to be determined, andUS$0.4 million from GoA;planned

Other development agencies

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National road network: North-South EIB: EUR22.0 million;Corridor needs Sukth-Durres Project

EU/PHARE: EUR57.8 million;Vora-Sukth,,Rrogodzina*.Lushnja,Tepelena-G,jirokastra-KavajaProjects

National road network: East-West EU/PHARE: EUR20.0 million;Corridor needs Durres-Rrogodzine Project;

EIB: EUR24.0 million;Rrogodzine-Elbasan Project

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

3. Lessons learned and reflected in the project desiign:

Bank-wide experience shows that successful implementation of projects of an emergency naturerequire: (i) a technically and operationally sound rapid assessment of needs with a well-definedpriority strategy and objectives; (ii) simplicity in design and implementation arrangements; (iii)simplicity in the procurement and disbursement procedures for efficient and rapid componentimnplementation; (iv) clear operational procedures to guide project targeting and componentselection; (v) the need for strong supervision and financial controls at the PIU level; and (vi)institutional autonomy and freedom from political interference to allow selection andimplementation of components quickly and transparently. Implementation experience in civilworks in Albania has also shown that there should be major emphasis on construction qualitycontrol. It takes into account the lessons learnt form the previous transport projects, but also aimsat more progressive set of reforms.

This experience is reflected in the design of this Project. The project has a simple design,provision for foreign consultant services to assist in project supervision, including procurer lent,and emphasis placed on the selection of qualified staff for the newly appointed PIU. Use of one ofthe two existing PIUs has also been considered. However, as both PIUs are in charge of pr o jectsstill under implementation and the absorptive capacity of GRD is rather limited (Section GC"), theBank proposed and GoA agreed to create a new PIU that could dedicate all its time to imp:lementthe project. Also, IDA's experience in working with GRD (and its PIUs) during the three pr eviousprojects has been constructive and cooperative and bodes well for the success of this Projei,t.

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4. Indications of borrower commitment and ownership:

The GoA has requested that this emergency project be implemented as quickly as possible in viewof the growing danger of isolation of parts of rural Albania. GoA is also aware that to achievesustainable sector development, reforms to facilitate efficient service delivery need to beintroduced. Consequently, the GoA has agreed with the Bank on the elements of reformmentioned in the Policy Letter to be implemented under a follow-on Road Maintenance andRehabilitation Project (Section C2). Another indication of borrower commitment and ownershipwas the timely preparation by GRD of the project preparation document, including economicanalysis (using HDM 3 model) of the proposed road works, using its own resources.

5. Value added of Bank support in this project:

IDA has had an active and significant portfolio in Albania, with over US$300 million of ongoingor planned investments, and has been the primary donor in supporting the reform efforts of theGovernment. IDA's leadership role in the donor community was further reinforced by itsmanagement of the crisis that followed the collapse of the pyramid schemes in March 1997. Inresponse to the Kosovo conflict, IDA has recently approved a US$45 rnillion StructuralAdjustment Credit and a US$30 million Public Expenditure Support Credit.

In the transport sector (amounting to about one third of the Bank/IDA total portfolio in Albania),the first transport project has been completed, and two roads projects and one port project arecurrently under implementation. Through these projects, IDA is supporting a long-term reform ofthe transport sector, in agreement with the goals stated in the CAS. While implementing theabove projects, the MoT staff continue to receive training in management (i) to make investmentdecisions on the basis of economic criteria, (ii) to further privatize the road construction industry(including engineering and construction), (iii) to reorganize the MoT, and (iv) to adoptmarket-based regulations, taxes, and user charges.

Project preparation has required intensive IDA involvement. Implementation will be monitoredthrough intensive supervision and will require a high degree of flexibility to be able to adapt torapidly changing circumstances. Implementation progress will be formally evaluatedapproximately six months after effectiveness, when project implementation should be welladvanced. The Bank's Resident Mission in Tirana is closely involved with project preparation andwill continue this involvement during implementation. The Resident Mission will be available tospeed all decisions and mitigate any delays.

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

1. Economic (supported by Annex 4):

* Cost benefit NPV=US$17.48 million; ERR = 49 %O Cost effectivenessO Other (specify)The economic analysis was carried out be GRD, utilizing the World Bank HDM-III computerprogram. Net Present Value was calculated on a cost of capital of 12 percent.

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2. Financial (see Annex 5): NPV=US$ million; FRR= %

There are no revenue-earning project entities.

Assessment of Financial Management Systems: See Annex 5

A fully operational PIU consisting of a director, civil engineer, accountant/financial specialist,office assistant/secretary, and driver will be established within the GRD. As the PIU has not yetbeen formed, its financial management capacity could not be assessed, and thus the projec-r has,for the time being, a 4-C rating fof LACI purposes. The financial management capacity o:YthePIU will be re-assessed by credit effectiveness, as the establishment and staffing of the PIU iscondition of credit effectiveness. In addition, an international supervision consultant/procurementadvisor will be hired for supervising civil works. Legal, procurement, and technical advisers willbe hired on part time basis, as required. The GRD has the overall responsibility for projectmanagement and maintenance of the national road network. Assessment of financial managementsystems, including accounting systern, project accounting, internal control, financial reporting,budgeting and budgetary controls, staffing and auditing arrangements was carried out duringappraisal. A time-bound Action Plan outlining actions to be taken to remedy the situation, anidfinancial management reporting format and arrangements for engagement of the auditors wereagreed with the borrower during negotiations. T.he action plan and fornats for project financialstatements are attached to the Project Implementation Plan (PIP).

Flow of Funds

The proposed IDA Credit of US$13.65 million will be channeled in large part through the SpecialAccount to be held at the National Bank of Albania. The PIU will be responsible for theadministration of the Special Account, including ;preparation of withdrawal applications andsupporting documentation. Concurrently, a Project Account would be opened at a commercialBank acceptable to IDA and managed by the PIU. According to Treasury regulations, funds ofthe credit account pass through the Albanian Treasury account in the National Bank of All ania(acting as fiscal agent). This procedure is similar to that currently followed for the ongoingprojects. Counterpart contribution will be financed from the State budget.

Fiscal Impact:

Credit proceeds are provided to GRD, a governmLent entity, by the Ministry of Finance wil i :noobligation to repay since GRD does not have any independent sources of revenues from itsoperations. Therefore, there will be no direct fiscal irnpact as a result of the Credit except theincreased resources available for road maintenance during the disburesement period.

3. Technical:

GRD is an experienced r oad organization that has carried out extensive road maintenanceactivities, including three previously approved IDA-supported projects. In addition, localconsulting and construction companies, developed and strengthened during implementatior ofIDA projects, have now sufficient capacity to undlertake the road repair contracts. There s] ould,

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therefore, be no major technical issues other than to ensure that quality control is adequatelyadministered, for which foreign consultants will be engaged.

4. Institutional:

a. Executing agencies:The executing agency will be GRD, which is responsible for the national road network.

b. Project management:A Project Implementation Unit (PIU) will be set up within GRD, consisting of five persons withskills in civil works, contract management, procurement, accounting and financial management.Civil works will be let on the basis of competitively bid contracts following the World BankProcurement Guidelines.

5. Social:

The project will (i) increase the populations' ability to reach other parts of the country, to haveaccess to markets and social services; (ii) improve the transit transport route from the Adriaticport of Durres through Albania to Kosovo, which is the shortest connection from Kosovo to theMediterranean; and (iii) provide for employment in the construction industry.

6. Environmental assessment: Environment Category: B

In accordance with OP/BP/GP 4.01 (Enviromnental Assessment) this project has been assigned to"Category B" and an Environmental Management Plan (EMP) has been prepared. Since theproject is an emergency loan, OP 8.50 (Emergency Recovery Assistance) is also applicable. TheEMP includes, inter alia, results of consultations with affected groups, stakeholders, andappropriate NGOs. No major environmental issues are anticipated. Since the project objective isto improve serviceability for about 221 km of existing roads by patching potholes, replacement ofwar damaged asphalt portions, improving drainage etc. the main issues are in connection with theimpacts associated with the movement of workers, materials, and equipment to and from theconstruction sites (e.g. dust, noise, imnpact on agricultural land etc.). Environmental performanceof asphalt plants and quarrying activities supplying materials to the project will be evaluated aswell as issues of worker safety and health for each of these aspects. In addition to a policy ofdoing no harm, opportunities for environmental improvements will also be sought. All theseaspects have been considered in the EMP. The EMP is being cleared with the NationalEnvironmental Agency of Albania. Subsequently, it will be made available for the public review,and sent to the Bank by November 15, 1999, for clearance.

7. Participatory Approach (key stakeholders, how involved, and what they have influenced or mayinfluence; if participatory approach not used, describe why not applicable):

a. Primary beneficiaries and other affected groups:

Because of the emergency nature of the project and the need to process it as quickly as possible,there was only limited consultation with the rural beneficiary population.

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b. Other key stakeholders:

Road users in general vvill benefit from the project, including farmers and other rural people livingin the vicinity of the roads that will be improved; the population in the Kukes and Corovoderegions will have their access to the country's main centers restored.

F: Sustainability and Risks

1. Sustainability:

The Project itself is designed to meet an immediate need rather than addressing longer termissues. Also at the civil works level, the road repairs are designed for rapid implementation ratherthan long term sustainability of the roads being repaired. However, sustainability will beaddressed by the assurances that will be required from the Government regarding the follow-onproject that is under preparation, which will include major restructuring of the road maintenanceorganizations and introduce improved technology and management techniques that will put futureroad maintenance operations on a more sustainable basis than it was in the past.

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2. Critical Risks (reflecting assumptions in the fourth column of Annex 1):

Risk Risk Ratinh Risk Minimization MeasureFrom Outputs to ObjectiveRoads selected for repair might not be N Road selection was based on the criteriaoptimal for improving market access that improved roads shuld give access to

most peoplePoor choices might be made in the M Selection of consultants and PIUselection of consultants, PIU personnel, personnel (following Bank Procurementand inefficient utilization of laboratory Guidelines), and use of laboratoryequipment equipment, will be given close scrutiny

during supervision

From Components to OutputsQuality of road repairs may be poor M Project design includes qualified foreign

consultants to do the supervisionImproved laboratory equipment may not N Use of foreign consultants will assurebe utilized to control quality of road utilization of the laboratory equipmentrepairs

Follow-on project may not be M A policy Letter from the Governmentaccompanied by necessary policy and supporting sector reforms was receivedorganizational changes by the Bank on November 3, 1999.Wrong selection of persons for training N IDA staff will be involved in selectioncould reduce its value of persons for training

Overall Risk Rating M

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

3. Possible Controversial Aspects:

The Government might delay in selecting PIU director. However, the Government agreed duringnegotiations, to appoint the PIU director by November 30, 1999, well before planned Boardpresentation.

G: Main Loan Conditions

1. Effectiveness Condition

1. The Borrower will open a Project Account with an initial deposit in local currency ofat least US$50,000 equivalent.

2. The Borrower will establish and staff a PIU with qualified personnel acceptable to IDA.

3. The Borrower will establish a financial management system satisfactory to IDA.

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2. Other [classify according to covenant types used in the Legal Agreements.]

Board Conditions:

1. Satisfactory preparation of the Environmental Management Plan (EMP) as perrequirement of OD 4.01 (January 1999).

2. Completion of the first year work program design and bidding documents.

3. Finalization of restructuring of the three transport PIUs (Durres Port, National RoaLds andRural Roads Prcjects).

H. Readiness for Implementation

El 1. a) The engineering design documents for the first year's activities are complete and ready for the startof project implementation.

El 1. b) Not applicable.

O 2. The procurement documents for the first year's activities are complete and ready for the start ofproject implementation.

1 3. The Project Implementation Plan has been appraLised and found to be realistic and of satisfactoryquality.

1 4. The following items are lacking and are discussed under loan conditions (Section G):

The GRD has managed and implemented three other Bank transport projects in Albania. Due toemergency nature of the project, project preparation and implementation will require IDAinvolvement and support. Arrangements to institute basic internal controls and accountingsystems at the PIU will ensure the project satisfies minimum financial management requirements.

1. Compliance with Bank Policies

1 1. This project complies with all applicable Bank policies.El 2. The following exceptions to Bank policies are recommended for approval. The project complies with

all other applicable Bank policies.

r~~~~~~ . 7 _

Cesar Queiroz Ricarao A. Halpef i n -Arntraud Hartana (iTeam Leader Sector Manager/Director Country Manager[Direclor

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Annex 1: Project Design SummaryALBANIA: Emergency Road Repair Project

Sector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission)Poverty reduction through Reduction in travel time along Supervision missions; Access to markets improvesimproving access of rural two improved roads Quarterly progress reports lives of low income Albanianspopulation to markets

Arrest the rapid deterioration Deterioration of 220 km of Supervision missions; Road deterioration has been.of the existing road assets project roads is stopped and Surveys; Quarterly progress stopped and roads remaincaused by the Kosovo crisis average roughness is lowered reports passable for at least two next

from above 10 to 6 m/km years

Private sector development Number and size of contracts Supervision missions; Use of local contractors forthrough use of local contactors awarded to local contractors Quarterly progress reports project implementation resultsand service providers in private sector development

Project Development Outcome I Impact Project reports: (from Objective to Goal)Objective: Indicators:Restore serviceability of two Reduction of the vehicle Quarterly progress reports, Improved access to marketsroads operating costs by 10% supervision missions will improve living standards

(midterm); 20% (end). of the population in the regionserved by the roads

Traffic volume increased by5% (midterm); 10% (end).

Output from each Output Indicators: Project reports: (from Outputs to Objective)component:Roads improved km of roads repaired: 80 Review of the quarterly Repair of roads will lead to

(midterm); 220 (end) progress reports; Supervision improved market accessmissions at appropriateintervals; Audits

GRD's implementation ability Completed road repairs are of Review of the quarterly Provision of technicalstrengthened and follow-on good quality and follow-on progress reports; Supervision services, lab equipment, andproject prepared project preparation is adequate missions at appropriate PIU personnel will result in

intervals; Audits good quality road repairs

Studies and training Studies carried out Review of the quarterly(staff-weeks): lOsw (midterm), progress reports; Supervision20sw (end) missions at appropriate

intervals; Audits

Training delivered Review of the quarterly(staffe-weeks): lOsw progress reports; Supervision(midterm), 20sw (end) missions at appropriate

intervals; Audits

- 15 -

Project Components / Inputs: (budget for each Project reports: (from Components toSub-components: component) Outputs)Road repairs completed US$7.35 million Quarterly reports, supervision Repair of roads will lead to

missions improved serviceability

Supervision of road works IJS$0.75 million Road supervisors reports, Good quality control willeffectively carried out supervision reports assure good road repairs

Laboratory and office IJS$0. 15 million Quarterly reports and Improved laboratoryequipment installed supervision missions equipment will be utilized lo

improve quality control

Project preparation completed UJS$0.50 million Board approval Follow-on project will lead tofor follow-on project long term improvement in

road serviceability

Training completed US$0. 10 million Quarterly reports and Training will lead to improvedsupervision missions road maintenance operatio=s

- 16 -

Annex 2: Project Description

ALBANIA: Emergency Road Repair Project

By Component:

Project Component 1 - US$11.53 millionRoad Repair Works: This component will include the emergency repairs to the following roadsections of the national road network, as indicated on the attached map:

- Berat-Corovode Section (US$1.60 million)- Work on this 48 km section will includepatching of potholes, improving drainage, and replacing portions of the asphalt paving, to be let intwo contracts (Berat to Polican- 22 km, and Polican-Corovada- 26 kmn).

- Fushe Kruje- Mamurras-Milot Section (US$1.90 million)- Work on this 30 kmsection will include patching of potholes, strengthening of shoulders, improving drainage, andoverlays for some portions of the road, to be let in two contracts (Fushe Kruje-Mamurras- 16 km,and Mamurras-Milot- 14 kmn).

- Q. Qele-Fushe Arrez Section (US$1.43 million)- Work on this 49 km section willinclude leveling of the wearing course, repairing selected concrete works for overpasses, andwaterproofing of structures, to be let in a single contract.

- Fushe Arez-Kukes Section (US$5.40 million)- Work on this 70 km section will includeleveling with crushed material, the application of two layers of Penetration Macadam, and earthworks, ditches and slopes to improve drainage in very mountainous area, to be let in 4 contracts.

- Kukes-Morine Section (US$1.20 million)- Work on this 24 km section will includeleveling of the wearing course and repairing of landslide damage, to be let in one contract.

Project Component 2 - US$0.34 millionInstitutional Support - Goods:Laboratory equipment needed for improved quality control, office and environmental mitigationequipment, software (including financial management), and vehicle for the PIU.

Project Component 3 - US$ 2.59 millionInstitutional Support - Consultant Services:This component will include (i) technical support to GRD for necessary training in projectmanagement, including financial, environmental, procurement, accounting practices, and relevanttechnical issues in road and bridge design and construction; (ii) foreign consultants to assist in thesupervision of the civil works component; (iii) consultants for the operation of the PIU, andpreparation of project audits; (iv) consultants for preparation of design and bidding documents forthe second year program of works; (v) foreign consultants to assist in preparing a Durres-MorinFeasibility Study; and (vi) consultants for the preparation of Feasibility Study and first-year designand bidding documents for a follow-on project (Road Rehabilitation and Maintenance Project).

- 17 -

Annex 3: Estimated Project Costs

ALBANIA: Emergency Road Repair Project

Works: Civil Works Corntracts for Repair of the Roads 3.05 7 06 10.11Durres-Morin and Berat-Corovode

Goods: Laboratory, Office, and Environmental Mitigation 0.05 0 25 0.30Equipment, Soflware and Vehicle

Project Related Training, including financial and environmental 0.05 0.05 0.10management, procurement, and relevant technical issues in roadand bridge design and construction

Consultant Services for Supervision of Road Works 0.30 0.60 0.90Consultant Services for the Operation of the PIU 0.10 0.04 I 0.14Project Audits 0.00 0.03 0.03Preparation of design and bidding documents for the second year 0.05 0.05 0.10program of worksPreparation of Durres-M:orin Road Feasibility Study 0.10 0.40 0.50Preparation of Feasibility Study and First-year design and 0.10 0.40 0.50bidding documents for a follow-on project (Road Rehabilitationand Maintenance Project)Total Baseline Cost 3.80 8.88 12.68Physicai Contingencies 0.38 0.88 1.26Price Contingencies 0.15 0.37 0.52

Total Project Costs 4.33 10.13 14.46irotal Financing Required 4.33 10.13 14.46

Goods 0006 0.28 0.34Works 3347 8.06 11.53Services 0.80 1.79 2. 59

_0.1't13Total Project Costs 4 33 10.13 14.46

Total Financing Required 4.33 10.13 14.<rAll costs are net of taxes

-1 8-

Annex 4: Cost Benefit Analysis Summary

ALBANIA: Emergency Road Repair Project

Summary of Benefits and Costs:Total Cost of the Road Component (before Contingencies) US$10.11 million

Net Present Value (based on cost of capital of 12 percent) US$17.48 million

Economic Internal Rate of Return (EIRR) 49 percent

Main Assumptions:The economic analysis was carried out by GRD using the World Bank HDM-II computer mode.Below results showed returns as follows for each road section:

ResultsNPV (US$ m) EIRR(%)

Berat-Corovoda 5.13 83Fushe Kruje-Mamurras-Milot 6.37 76Q. Qele-Fushe Arrez 0.71 32Fushe Arrez-Kukes 4.48 30Kukes-Morine 0.79 24

The combined results for all road sections taken together were an overall NPV of US$17.48 andan EIRR of 49 percent.

Sensitivity analysis / Switching values of critical items:No sensitivity analysis as such was carried out, but in view of the very high returns even whenreduced values are used for savings in vehicle operating costs, it is obvious that an increased costof 20 percent and/or reduced benefits of 20 percent would still result in a project with veryfavorable economic returns.

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Annex 6: Financial Summary

ALBANIA: Emergency Road Repair Project

Years Endingl December 31(US$rnillion)

IMPLEMENTATION PERIOD

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Total FinancingRequired - Project

Costs

Investment Costs 4.2 7.3 3.0 0.0 0.0 0.0 0.0

Recurrent Costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total Project Costs 4.2 7.3 3.0 0.0 0.0 0.0 0.0

Total Financing 4.2 7.3 3.0 0.0 0.0 0.0 0.0

Financing

IDA 4.0 6.3 3.3 0.0 0.0 0.0 0.0

Government 0.3 0.4 0.2

Total Project 4.2 7.3 3.0 0.0 0.0 0.0 0.0Financing

Main Assumptions:

IDA will finance US$13.65 million of the proposed Project's estimated total cost of US$14.46million.

Financial Management Assessment

Assessment of Financial Management System

A Project Implementation Unit will be set up as an autonomous entity, working on behaL f ofthe General Directorate of Roads (GRD). l[t will be endowed with full managerial,

-20 -

administrative and financial autonomy in: (a) project and contract management; (b)procurement and contract implementation; and (c) project accounting and administration ofthe Special Account; and overall project coordination. Establishment of a fully operationalPIU is a condition of Credit Effectiveness.

Staffing. Key staff of the PIU will include the PIU director, engineer, accountant/budgetofficer and office assistant/secretary, and driver. In addition, an international supervisionconsultant/procurement advisor will be hired for supervising civil works. Legal, procurement,and technical advisers will be hired on part time basis, as required. Terms of Reference forestablishment of the PIU and job descriptions of the key members of the PIU have beenprepared. The Association will review resumes of the proposed staff. The PIU will be fullyoperational and staffed with qualified and experienced staff by end-December 1999.

The proposed project will finance an off-the shelf project accounting software and computersfor the PIU. An Action Plan has been agreed with GRD which outlines critical steps andactions which need to be addressed for establishment of a satisfactory financial managementsystem, including: (a) procurement and installation of the accounting software; (b) designingchart of accounts and project management reports; (c) preparation of Project financialmanagement and operational manual; (d) training of the PIU staff on applications of the newsoftware; and (e) training on accounting and financial reporting and standards and procedures,and Credit disbursement procedures. The computerized system will ensure betterclassification, compilation, analysis of accounting data, improve controls over data integrity,and ensure timeliness and quality of accounting and financial reporting.

Internal Control Systems. The new PIU will follow the internal control procedures in placefor the two PIUs implementing the two ongoing transport projects. The control mechanismsin place include: (a) operation of budgeting system and regular monitoring of actual financialperformance with budget and targets; (b) control over assets; and (c) internal and externalaudit mechanism. However, no written operational procedures and policies are documented.This weakness in the system will be addressed under the proposed Project. Internal controlmechanisms for the project are expected to include: (a) segregation of financial andprocurement functions; (b) regular monitoring of actual financial performance with budgetsand targets, monitoring of physical and financial progress; (c) timely feedback on operation ofthe financial management system; and auditing arrangements.

Financial Reporting. Quarterly Project Management Reports (PMRs) will be generatedfrom the computerized financial management system, and submitted to IDA and theBorrower. The format of such reports has been agreed with the Borrower and will compriseof financial reports, progress reports, and procurement management reports. The ProjectFinancial Statements would be prepared annually to provide financial management informationincluding all that required under Project Management Reports. Sample PMRs are available inthe Project Files.

Auditing Arrangements. The Ministry of Finance will be responsible for engaging externalprivate auditors before commencement of Project activities to ensure that the audit will be

- 21 -

completed in a timely manner. It was confirned during negotiations that the Ministry ofFinance would keep in place the same audit arrangements as in the three ongoing credits forDurres Port, National Roads and Rural Roads projects. The Ministry will sign a three yearcontract with private independent auditors to audit all IDA projects in Albania, including theEmergency Road Repair Project. The audit will include the auditing of the Project FinancialStatements, Special Account, withdrawals made on basis of Statements of Expenditurm(SOEs) and assessment of adequacy of accoumting and internal control systems, in accordancewith International Standards on Auditing.

Flow of Funds

Existing procedures on budgeting and budgetary controls and on channeling budgetary fundsto the Project will be followed. Every year the GRD prepares annual budget based on thePIUs input on investment and operational needs. The GRD compiles the budget and transmitsit to the Ministry of Finance through the Ministry of Transport. The budget goes throughparliamentary proceedings and when approved, a law is enacted. Counterpart funding forproject expenditures will be generated from the State budget.

The IDA Credit of US$13.65 million equivalent will be disbursed on basis of traditionaldisbursement procedures. To facilitate Credit disbursement process, the Special Account andProject Account will be opened and maintained at the national level (National Bank ofAlbania). The Project Account will be maintained by the PIU.

Readiness for Imniementation

(a) A financial imanagement system for the project will be developed and a ProjectFinancial Management and Operational Manual prepared for the PIU. Equipment forthe PIU including an off-the-shelf accounting software and consultancy services forthe installation will be financed through the Credit. An adequate financialmanagement system will provide accurate and timely information on the status of theproject to both the Association and the Borrower. Training of the PIU staff orL thesoftware application and additional training on accounting, financial reporting anddisbursement procedures will be provided. The installation of the software anmtraining is anticipated to be completecl by April 30 and the first quarterly repor~submitted to the Bank by May 30, 2000.

(b) A fully operational PIU will be in place by December 31, 1999.

(c) Private independent auditors will be appointed by the Ministry of Finance to au Ii; allBank projects in Albania.

Risks

Several steps are being taken to ensure that a fully operational PIU is established andsatisfactory financial management system is installed and operational before the start of l he

- 22 -

project. There is risk of delays in the selection process for qualified accountant/budget officerfor the PIU. The appraisal mission assisted in drafting terms of reference for the PIUaccountant. Also, training will be provided to the staff of the new PIU in accounting, financialreporting and disbursement procedures. To mitigate any risks, a short term consultant will berecruited to assist the PIU during the initial stages of the project implementation.

- 23 -

Annex 6: Procurement and Disbursement ArrangementsALBANIA: Emergency Road Repair Project

Procurement

Civil works and goods under IBRD financed components shall be procured in accordance with theGuidelines "Procurement under IBRD Loans and IDA Credits", January 1995, revised in Januaryand August 1996 and September 1997 and January 1999. Consultants' services shall be procuredin accordance with the 'Guidelines "Selection and Employment of Consultants by World BarikBorrowers", January 1997, revised September 1997 and January 1999. The World Bank'sStandard Bidding Documents and Standard Request for Proposal will be used.

Advertisement:

A General Procurement Notice (GPN) was published October 16, 1999 in the issue No. 520of Development Business announcing works, goods and consultants services to be procured andinviting interested eligible suppliers, contractors and consultants to express interest and to requestany complementary information from the GRD. The Specific Procurement Notice for hiri.ig ofthe Supervision Consultants was published at the same issue No. 520 of October 16, 1999.

Procurement methods (Table A)

Goods:

1. International Shopping (IS). Procedures for IS will be used for contracts for goods andequipment estimated to cost less than US$100,000 where the cost of ICB will clearly outw'eighpossible price advantages. International shopping procedures will be based on comparing pricequotations obtained from at least three suppliers from two different countries in accordance withthe Bank's "Guidelines for Procurement Under IBRD Loans and IDA Credits" (January 1995,amended in September 1997 and January 1999).

2. National Shoppinig (NS). Minor sundry items not exceeding US$50,000 per contra.vt maybe purchased on the basis of prudent national shopping by comparing price quotations obtiinedfrom at least three local suppliers, in accordance with Bank Guidelines.

Civil Works.

National Competitive Bidding (NCB). The road repair works are of emergency nature, andrequired to be contracted at the earliest (the detailed description of each contract is specified inAnnex 2). Therefore, NCB procedures will be used for contracts for civil works estimated tocost up to US$2,000,000 each. Due to the relatively small size of the contracts, the advan ages ofICB are clearly outweighed by the administrative or financial burden involved. The totalprocurement under NCB, consisting of about 9 separate contracts, is estimated at US$11,'; 30,000

ECA standard NCB bidding documents dated August 1999 shall be followed. Bids will teadvertised in the national press and/or official gazette, opened publicly, and awarded to the lowestevaluated bidder. Foreign firms will be allowed to participate.

- 24 -

Consulting Services.

Consultant services would be procured to prepare feasibility studies, to provide technicalsupport and supervision of the civil works project support. The PIU will use Bank standardcontracts for all consultant services contracts. The following procurement procedures will beused:

1. Quality Cost Based Selection (QCBS) procedures would be used for contracting firms forsupervision of civil works, feasibility studies, and preparation of a follow-up project. Allconsulting assignments above the value of US$200,000 will be advertised in theDevelopment Business. The estimated total value is US$2,380,000.

3. Individual Consultancies would be used for assignments related to project management aswell as assignments requiring specialized expertise. The PIU technical staff will compriseof private individuals hired from outside of the GoA under consultant guidelines. Thereare no project management firms as such in Albania with experience in carrying out theproject management functions for World Bank-fianced projects. Expenses forPCU/PMU staff training would be disbursed with prior approval of the Bank. Theestimated total value is US$190,000, and each separate contract will cost less thanUS$50,000.

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

Expo ture vat.,ro

1. Works 0.00 11.53 0.00 0.00 11.53(0.00) (10.72) (0.00) (0.00) (10.72)

2. Goods 0.00 0.00 0.34 0.00 0.34(0.00) (0.00) (0.34) (0.00) (0.34)

3. Services 0.00 0.00 2.48 0.00 2.48(0.00) (0.00) (2.48) (0.00) (2.48)

4. Miscellaneous 31 0.00 0.00 0.11 0.00 0.11(0.00) (0.00) (0. I 1) (0.00) (0.11)

Total 0.00 11.53 2.93 0.00 14.46_ (0.00) (10.72) (2.93) (0.00) (13.65)

Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies

I Includes civil works and goods to be procured through international, national shopping, consultingservices, services of contracted staff of the project management office, training, technical assistanceservices, and incremental operating costs related to (i) managing the project, and (ii) re-lending projectfunds to local government units.

3/ Training: Estimated cost, period of training, place of training, etc. will be cleared with the Bank.

- 25 -

Tiable Al: Consultant Selection Arrangements (optional)(US$ million equivalent)

A. Firms 2.38 0.00 0.00 0.00 0.00 0.00 0.00 2.38(2.38) (0.00) (0.0() (0.00) (0.00) (0.00) (0.00) (2.38)

B. Individuals 0.00 0.00 0.00 0.00 0.00 0.19 0.00 0. 19(.9,00) (0.00) (0.0() (0.00) (0.00) (0. 19) (0.00) 0.19)

Total 2.38 0.00 0.00 0.00 0.00 0.19 0.00 2. 57(:2.38) (0.00) (0.00) (0.00) (0.00) (0.19) (0.00) (2.57)

1\ Including contingencies

Note: QCBS - Quality- and Cost-Based 'SelectionQBS = Quality-based SelectionSFB = Selection under a Fixed BucigetLCS = Least-Cost SelectionCQ = Sealection Based on Consultants' QualificationsOther = Selection of individual consultants (per Section V of Consultants Guideli les),Commercial Practices, etc.

N.B.F. = Not Bank-financedFigures in parenthesis are the amounts to be financed by the Bank loan.

- 26 -

Prior review thresholds (Table B)Prior Bank review shall apply to the following:

* bidding documents and contracts for the first three NCB civil works contracts, as well as allcontracts estimated to cost more than US$500,000 each

* bidding documents and contracts for goods estimated to cost US$50,000 equivalent each, andabove

* consultant contracts with firms estimated to cost US$100,000 equivalent each and above,including TORs, shortlists and the request for proposals

* consultant contracts with individuals estimated to cost US$50,000 equivalent each and above,including TORs, shortlists and the request for proposals

Training, Information, and Development on Procurement; Staffing

Estimated Date ofProcurement Launch Workshop: 02/15/00

Estimated Date of Indicate if there is procurement subject to mandatorypublication of General Procurement Notice: 10/16/99 SPN in Development Business: Yes

Domestic Preference for Goods: No Domestic Preference for Works, if applicable: No

Retroactive Financing: No Advance procurement: No

Explain briefly the Procurement Monitoring System: Co-financing: Explain briefly the procurementSupervision missions, as well as the infrastructure staff arrangements under co-financing: NAof the Tirana Resident Mission, will periodicallymonitor vis a vis the Procurement Implementation Plan

Indicate Name of Procurement Staff or Bank's part of Explain briefly the expected role of the Field Office inTask Team responsible for the procurement in the procurement:Project: The infrastructure staff of the Tirana Resident MissionCesar Queiroz, ext. 38053 will periodically monitor vis a vis the Procurement

Implementation Plan

Table B: Thresholds for Procurement Methods and Prior Review'

=';~~~~~~~~~~~~~~~~~~~~~~r

1. Works >=500 NCB 11.53

2. Goods <100 Is 0.14<50 NS 0.20

3. Services >=100 QCBS 2.3850 IND 0.19

4. Miscellaneous5. Miscellaneous

- 27 -

16. Miscellaneous | I2

Total value of contracts subject to prior review: About US$14.44million

Overall Procurement Risk Assessment

High

Frequency of procurement supervision missions proposed: One every 4 months (includes specialprocurement supervision for post-review/audits)

Assessment of the capacity of the General Roads Directorate (GRD) to conduct procurement untier theEmergency Road Repair Project is attached (see Annex 12).

-28 -

Disbursement

Allocation of loan proceeds (Table C)The proposed Project is expected to be disbursed over a period of three years. The disbursementprofile of the Project has been based on experience gained during the previous four Bank-fundedprojects within the transport sector in Albania. The Project has been designed within the capacityof the Ministry of Transport to execute over a two year period and credit funds are expected to befully disbursed within three years of effectiveness.

Table C: Allocation of Loan Proceeds

Civil Works 9.40 93%Goods 0.30 100% of foreign and 100% of local

expenditures (ex-factory cost) and 80%of local expenditures for other items

produced locallyConsultants Services 2.27 100%Unallocated 1.68

Total Project Costs 13.65

Total 13.65

Use of statements of expenditures (SOEs):

All disbursements need to be fully documented except for the expenditures below which may beclaimed on the basis of Statements of Expenditure (SOEs):

Civil works: contracts for less than US$ 500,000 equivalentGoods: contract for less than US$ 50,000 equivalentConsulting services - firms: contracts for less than US$ 100,000 equivalentConsulting services - individuals: contracts for less than US$ 50,000 equivalent

Disbursements and monitoring of allocations of the Credit proceeds and'counterpart funding willbe managed by the PIU. Documentation on disbursements made on basis of SOEs will beretained by the PIU for at least one year after receipt by the Bank of the audit report for the yearin which the last disbursement was made, and made available to IDA supervision mission and theauditors.

Special account:

While adequate financial management system to support PMR-based disbursements is not inplace, disbursement will take place using the traditional disbursement mechanism. To facilitatetimely project implementation, the Government will establish, maintain and operate, under termsand conditions acceptable to the Bank, a Special Account denominated in US Dollars. The

- 29 -

authorized allocation will be for US$1.0 million. Upon effectiveness, the borrower may withdrawUS$500,000 representing 50% of the authorized allocation from the Credit account. When theaggregate total of funds withdrawn from the Credit account together with outstanding SpecialCommitments amount to SDR2.5 million the borrower may withdraw the remaining US$500,000.

Nuniber of PrequaUS BidDescrip- Type subslices/ Estimated Proc. L (BD/RFP) 1. Contract Contract

tion itemrs/sub- Cost Method 1. 1. Invitation Signa1ure Comr pie-packages Invitation Prepara- GPN/SPN/ tion

GPN/SPN/ tion LocalLocal 2. Opening

2. Opening 3. Eval.&3. Eval.& Recom.

____ _____ Recom.ConsultantContract CS 1 40,000 SS NA NA NA 11/05/99 11/20,/99for first (financeyear's under

contract ongoingdesign Credit(Berat - 2732-ALB)

Corovode,and

F.Arrez-Kukes)

Supervisionof road CS 1 1,026,000 QCBS NA RFP: 1. GPN: 02/15/00 12/15,02works 10/16/99 10/16/99

contracts _______

ConsultantContract CS 1 114,000 QCBS NA RFP: 1. GPN: 02/15/00 06/25/00for second 11/30/99 10/16/99

year's 2.01131/00contract 3. 02/10100

design (F.Kruje -Milot,

Q. Qele-F.Arrez, and

Kukes-Morin)Berat - 1. GPN:

Corovode CW 2 1,600,000 NCB NA BD: 10/16/99 02/15/03 05/31/C lroad (postqual) 11/15/99 Local:

section 11/15/99(48 km) 2. 01/31/00

3._________ __________ __________ _______ _____________ 02/28/00 _

- 30 -

1. GPN:F. Arrez - CW 4 5,400,000 NCB NA BD: 10/16/99 02/15/00 05/31/01

Kukes road (postqual) 11/15/99 Local:section 11/15/99(70 km) 2.01/31/00

3.02/28/00

Fushe Kuje 1. GPN:- Milot CW 2 1,900,000 NCB NA BD: 10/16/99 09/30/00 12/31/01road (postqual) 06/15/00 Local:

section 07/10/00(30 km) 2. 08/25/00

3.09/25/00

Q. Quele- 1. GPN:F. Arrez CW 1 1,430,000 NCB NA BD: 10/16/99 09/30/00 12/31/01

road (postqual) 06/15/00 Local:section 07/10/00(49 kin) 2. 08/25/00

3.09/25/00

Kukes- 1. GPN:Morine CW 1 1,200,000 NCB NA BD: 10/16/99 09/30/00 12/31/01road (postqual) 06/15/00 Local:

section 07/10/00(24 km) 2. 08/25/00

3.09/25/00

PIU Office 1. GPN:Equipment G 4 100,000 NS NA Request for 10/16/99

and 3 NA 02/20/00 03/01/00Vehicle Quotations: 2.02/15/00

02/01/00 3.02/16/00

Noise and 1. GPN:Dust G 1 11,000 IS NA Request for 10/16/99

Monitoring 3 NA 02/20/00 03/15/00Equipment Quotations: 2. 02/15/00

02/01/00 3.02/16/00

Financial 1. GPN:Manage- G 1 50,000 IS NA Request for 10/16/99

ment 3 NA 03/15/00 03/30/00Reporting Quotations: 2. 03/15/00Sustem/ 03/01/00 3.Software 03/15/00

Laboratory Request for 1. GPN:and other G 2 180,000 IS NA 3 10/16/99

Equipment Quotations: NA 05/15/00 06/30/0005/01/00 2. 05/15/00

3.05/15/00

-31 -

Preparationof Durres- CS 1 570,000 QCBS NA RFP: 1. GPN: 06/30/00 1)0'30/00

Morin 11/30/99 10/16/99Feasibility

Study _ _Preparation

of the CS 2 670,000 QCBS NA RFP: 1. GPN: 10/01/00 04,'15/01Feasibility 05/15/00 10/16/99Study andfirst year'sdesign andBidding

Documentsfor a

follow-onproject __ _

PIU Drafttechnical CS 5 159,600 Other NA Contr. NA 1]2/115/99 12/.31/02

staff _l_(ivid.) 11/15/99 __ _ _Other Draft

Individuals CS 1 30,400 Other NA Contr. NA 05/15/00 a8/31/00(Individ.) 05/15/00 _ _ _

- 32 -

Annex 7: Project Processing ScheduleALBANIA: Emergency Road Repair Project

Time taken to prepare the project (months) 3 3First Bank mission (identification) 09/01/99 08/30/99Appraisal mission departure 110/25/99 10/25/99Negotiations 11/04/99 11/04/99Planned Date of Effectiveness 02/28/2000 02/28/2000

Prepared by:

Elena Kastlerova

Preparation assistance:

Robert Nooter

Bank staff who worked on the project included:

Name SpecialityCesar Queiroz, Elena Kastlerova Team LeadersArtan Guxho Project Officer, Tirana Resident MissionRobert Nooter ST ConsultantNjeri Muhoho Financial AnalystBernard Baratz Principal Environmental SpecialistAhmed Jehani Sr. CounselJunko Funahashi CounselRohit Mehta Senior Disbursement OfficerJose L. Irigoyen Peer ReviewerMark Zitzka ConsultantHarold McKittrick Consultant

- 33 -

Annex 8: Documents in the Project File*ALBANIA: Emergency Road Repair Project

A. Project Implementation Plan

Prepared during the appraisal missionand agreed during Negotiations.

B. Bank Staff Assessments

Identification/Preparation Mission Back-to Office Report dated September 17, 1999.

C. Other

Draft Project Document with economic analysis prepared by GRD*Including electronic files

- 34 -

Annex 9: Statement of Loans and Credits

ALBANIA: Emergency Road Repair Project

Difference between expectedand actual

Original Arnount in USS Millions disbursements

Project ID FY Borrower Purpose IBRD IDA Cancel. Undisb. Orig Frm Rev'd

Number of Closed Projects: 13AL-PE-43178 1999 GOVERNMENT OF ALBANIA IRRIG. & DRAINAGE II 0.00 24.00 0.00 23.69 0.00 0.00

AL-PE-51309 1999 GOVT. OF ALBANIA COMMUNITYWORKS 0.00 14.00 0.00 13.65 0.50 0.00AL-PE-51310 1999 GOVT. OF ALBANIA MICROCREDIT 0.00 12.00 0.00 11.91 0.00 0.00AL-PE-55160 1999 GOVERNMENT OF ALBANIA SAC 0.00 45.00 0.00 44.43 0.00 0.00AL-PE-40818 1998 GOVERNMENT OF ALBANIA DURRES PORT 0.00 17.00 0.00 15.73 6.34 0.00AL-PE-40975 1998 MINISTRY OF CONSTRUCTION LAND DEVELOPMENT 0.00 10.00 0.00 9.55 0.34 0.00AL-PE-45312 1998 GOVERNMENT OF ALBANIA HEALTH RECOVERY 0.00 17.00 0.00 16.47 4.01 0.00AL-PE-51602 1998 MINISTRY OF FINANCE PRIVATE INDUSTRY REC 0.00 10.25 0.00 8.05 8.21 0.00AL-PE-54384 1998 ALBANIA RECOVERY PROG. TA 000 8.00 0.00 3.12 0.99 0.00AL-PE-34491 1996 REPUBLIC OF ALBANIA POWER TRANSM. & DIST 0.00 29.50 0.00 18.98 16.86 0.00AL-PE-35787 1996 REPUBLIC OF ALBANIA AGROPROCESSING DEVEL 000 6.00 0.00 1.91 2.23 0.00AL-PE-36060 1996 REPUBLIC OF ALBANIA NATIONAL ROADS 0.00 25.00 0.00 17.87 9.37 0.00AL-PE-8271 1996 REPUBLIC OF ALBANIA FORESTRY 0.00 8.00 0.00 5.07 1.65 0.00AL-PE-8253 1995 REPUBLIC OF ALBANIA HEALTH SERVICES REHA 0.00 12.40 0.00 6.49 6.26 0.00AL-PE-8267 1995 REPUBLIC OF ALBANIA RURALROADS 0.00 15.00 0.00 1.56 2.67 0.00AL-PE-8270 1995 REPUBLIC OF ALBANIA IRRIGATION REHABILIT 0.00 10.00 0.00 0.06 -1.66 0.00AL-PE-8273 1995 REPUBLIC OF ALBANIA RURAL DEVELOPMENT 000 6.00 0.00 0.42 0.48 0.00AL-PE-8260 1994 REPUBLIC OF ALBANIA DURRES WATER SUPPLY 0.00 11.60 0.00 3.60 1.92 0.00AL-PE-8266 1994 REPUBLIC OF ALBANIA HOUSING 000 18.00 0.00 0.72 0.14 0.13

Total: 0°00 292.75 0.00 203.28 60.31 0.13

Active ClosedProjects Projects Total

Total Disbursed (IBRD and IDA): 90.17 176.67 266.84of which has been repaid: 0.00 0.00 0.00

Total now held by IBRD and IDA: 302.35 179.37 481.72Amount sold: 0.00 0.00 0.00

of which repaid: 0.00 0.00 0.00Total Undisbursed: 203.28 4.32 207.60

Actual disbursements to date minus intended disbursements to date as projected at appraisal.

- 35 -

ALBANIASTATEMENT OF IFC's

Held and Disbursed Portfolio3 1-Jul-1999

In Millions US Dollars

Committed Disb utsedIFC IFC _ -

FY Approval Compafy Loan Equity Quasi Partic Loan Equit._ Quasi Partic1998 AAP 0.00 0.00 28.50 0.00 0.00 0.0c 6.38 D-001999 FEFAD Bank (.00 0.00 1.04 0.00 0.00 0.0( 0.00 1.00

Total Portfolio: 0.00 0.00 29.54 0.00 0.00 1.00 6.38 ).00

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic

Total Pending Commitment: 0.00 0.00 0.00 0.00

- 36 -

Annex 10: Country at a Glance

ALBANIA: Emergency Road Repair Project

Eurooc & 9/17/99

POVERTY and SOCIAL Central Low.Albanta Asia Income Development diamond'

1998Pooula ion. mid-vear (milaions) 3 4 473 908 Life expectancy

GNP oer caofta (Atlas method. USSJ 810 2.190 1,710

a/NP (Atlas method. USS billions) , 7 1 n3s 1.5S7

Averao annual arowth. 1992-95

Poaulation /%) 0.8 01 1.1

Labor force (%3G 1.2 0.6 1.5 GNP Grosper primary

Most recent estimate (latest vear available. 1992-981 capita Pnrmilm-nt

PovertV J% of DoDulation below nationa/ oovertv line)Urban noDulation (% of total oooulationl 38 68 58

Life eXDectancv at birth (vears) 72 69 68

Infant mortalitv ('et 1.000 i/ve births) 26 23 38

Child malnuitrition (f6 of children under 51 Access to safe water

Access to safe water (16 of DoDulation, 76 .- 75

Illiteracv (% of oooulatiorn aoe 15+) .. 4 14

Gross Drimarv enrollment (% of school-aae DoDulation/ 107 t00 103 Albania

Male 106 101 105 _Low-income group

Female 108 99 100

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1977 1987 1997 1998Economic ratiose

GOP fUSS bi/laons) . 2.2 2.3 3.0

Gross domestic investment/GOP .. 28.4 16.0 16.0 Trd

Fynorts of nonds and servicers/GOP 1 5 1nis 9.t Trade

Gross domestic savinos/GDP .. 28.3 -9.1 -6.7

Gross national savinoslGOP .. .. 4.0 99

C.irrent aconuint halanr.e/GlnP 0.9 -12.1 -6 1

Interest osavmentsaGDP .. 0.0 0.9 0.2 Domestic Investment

Total debtlGDP . .. 30.9 26.9 Savings \vte

Totat debt service/exDortt .. . 7.2 2.2

Present value of debt/GDP . .. 21.0

Present value of debt/essorts 72.0Indebtedness

1977J47 1988-98 1997 199S 1999-03

(averace annual era wthl

GOP 1.9 -0. -7.0 8.0 . AloaniaGNP oer caDita .. 6.1 -91 6.1 Low-income group

Exoorts of ooods and services .. 13.8 -29.5 17.0

STRUCTURE of the ECONOMY1977 1957 1997 1998 Growth rates of output and investment (%)

(16 of GDP)Auriculture .. 33.2 56.0 54.4 300

Industrv .. 45.8 23.6 24.5 200

Manufacturino .. .. .. .. 100

Services .. 21.0 20.4 21.0 _

Private consumotion .. 62.0 97.7 96.5 .100 3 94 95 so 97

General aovernment consumotion .. 9.6 11.4 10.2 GDI t GOP

lmoorts of ooods and services .. 15.6 . 35.7 32.2

1977-87 1988-98 1997 1998 Growth rates of exports and Imports (%)(averaae annual arowth)IAariculture 2.4 5.5 1.0 5.0 300

Industrv 2.2 -8.4 -5.9 12.2 200-

ManufacturinaServices 0.6 0.4 -24.4 11.3 1to

Private consumotion 6.1 -9.3 10.t1 o - , _

General aovernment consumotion .3.9 -16.5 -0.6 93 54 vs 96 9 sGross domestic investment -0.6 19.9 -4.1 21.0 -'oo

ImDorts of ooods and services 16.7 .20.2 16.1 Exoports - Imports

Gross national Droduct .. 6.5 -8.1 7.1

Note: 1998 data are preliminary estimates.

The diamonds shnw fonur kev indicators in the countrv (in holdW comnnred with its incomr-romLn averane. If data are misssinn the diamond will

he incomniete.

- 37

Albania

PRICES and GOVERNMENT FINANCEDomes tic prices 1977 1987 1997 1998 Inflation (%)

Domestic prices(% change)Consumer prices . 33.2 219 1 Implicil GDP deflator 30.8 24.8 so

Government finance 40(% of GDP, includes current grants) aCurrent revenue 49.2 16.8 20.3 3 94 95 9S 97 Current budget balance . 237 -8.6 -5 3 -GDP deflator ' CPIOverall surplus/deficit -1.7 -12.6 -10.4

TRADE1977 1987 1997 1998 Export and Import levels (US$ millionsl

(US$ millions)Total exports (fob) 311 167 205 1.aoo

Minerals and fuels 46 57Food, beverage, and tobacco is 22 750Manufactures .. 99 122

Total imports (fob) 316 685 826Food 164 197 2.,Fuel and energy 71 86Capital goods go 120 o __ _

Exoort orice index f1993.100ilmoort orice Index (1993- 100) .. .. . . Exports ImportsTerms of trade (1993-1001

BALANCE of PAYMENTS1f77uS9S7 1997 1l9n Current account balance to GDP ratio (%)(US$ millions)

Exports of goods and services 334 239 289Imports of goods and services 336 816 980Resource balance . -2 -577 -691 ",_

~20'Net income . 0 Si 65 2 Net current transfers 250 440 -30

Current account balance 5 -276 -186 -40

Financing items (net) 7 303 257 -s0Changes In net reserves -12 -27 -71 -so

Memo:Reserves includino cold fUSS millions) 342 401Conversion rate fDEC. loca/USS) 8.0 149.6 151.2

EXTERNAL DEBT and RESOURCE FLOWS1977 1987 1997 1998 __

fUSs miJlions) Composition of total debt, 1998 (US$ m8 loris)Total debt outstanding and disbursed 706 820

IBRD 0 0 G:35IDA 148 220

Total debt service 39 37 B 220IBRD 0 0IDA .. .. 1 1 IDA I I ~~~~~~~~~~~~~~~~~~~~~~~~~~~~F. 271

Composition of net resource flowsOfficial grants 77 89Official creditors 46 79 _ cPrivate creditors -1 0Foreign direct investment 42 45 0:21Portfolio equity .. .2 0 0

E: 209World Bank program

Commitments 34 54 A- IBRD E - Bilate ifDisbursements s1 64 B IDA D -Other multilateral F -Privat,Principal repayments 0 0 C, IMF G - Short ernrNet flows . 19 64Interest payments 1 1Net transfers 18 63

Development Economics 9/- 7/99

-38 -

REPUBLIC OF ALBANIA ANNEX 11MIYISTRY OF FINANCE

ANDMINISTRY OF TRANSPORT

Road Maintenance Strategy

Mr. James WolfensohnPresidentThe World BankWashington D.C.

Dear Mr. Wolfensohn

By all accounts, the general condition of the roads in Albania, both national andrural,. is very poor. The country has received commitments for large amounts ofassistance for road improvements during the past six years, estimated at USS250 million,but only a small portion of this amount has been disbursed to date. Also, the level ofAlbanian Government financing available for general road maintenance, at about US$7-Smillion per year, is totally inadequate to maintain the road network, and the effectivemaintenance resulting from the expenditure of even these funds is minimal.

2. IDA has financed three projects that provide financing for road improvements,two of which are still under implementation. However, none of these adequately addressthe need for improving Albania's capacity to carry out effective road maintenance.

Objective

3. There is a clear and urgent need to take action to improve Albania's ability tomaintain its road network. Large amounts are being spent to rehabilitate portions of theroad network, buT these, along with those roads that are not included in theserehabilitation plans, will soon deteriorate unless an effective and efficient program ofroad maintenance can be established. None of the existing donor-supported projects asnow constituted will do this.

4. The three studies mentioned above, while not constituting a strategy, providesufficient information to form the basis for creating one. Our Strategy to achieve aneffective road maintenance capability is given below.

Road Maintenance Strategy

. The strateorv that we envision is based on the principle of maintaining anappropriate service level for each portion of the road network. At present that meansmore timely and adequate maintenance for virtually all roads in Albania, but over thelonger run it also means not over-maintaining roads beyond what is justified for theirtraffic level and usage. This principle results in the lowest possible cost for maintaining

roads, as timely maintenance reduces the need for costly reconstruction, and avoidingexcessive maintenance has obvious benefits in lowering the frequency and cost of repairs.To carry out this principle correctly requires techniques that provide guidance on how toachieve just the right amount of maintenance for each road section at the right time.

6. The strategy includes measures to address four important areas at once: (i)creating an effective organizational structure, (ii) establishing a system that assures anadequate level of financing, (iii) putting in place sound operational procedures, and (iv)adopting good personnel policies.

7. Organizational Structure: There are two guiding principles to assist Albania inthe choice of organizational structures. First, it has become obvious that private sectoroperations., especially under competitive conditions, are invariably more efficient thanpublic sector operations. Therefore, as many functions as possible should be carried outon contract, arranged on a competitive bidding basis

8 The second principle is that t:he "client" should be separated organizationally fromthe "producer", since this results in clear cut responsibilities and obligations. If the RoadDirectorate is carrying out road maintenance work with its own forces, there is no clientto determrine that the work has been properly executed. Contracting out can achieve thedesired separation of client and producer, in which the producer must producesatisfactory work if he wants to be paid.

9. Financing for Road Maintenance: The road users have both an obligation to payfor the use of the roads (through fuel and/or other taxes related to the use of the roads),and a benefit which they receive in the form of reduced vehicle operating costs when theroads are well maintained. Other important principles are that (i) an adequate level offinancing that permits timely maintenance will result in lower overall costs for theoperation of the road network, and (ii) the amounts of financing for road maintenanceshould be relatively level each year so that the contractors will be able to develop theirstaffs and purchase equipment with the knowledge that they will be able to compete forwork every year.

10. The obvious conclusion is that sufficient road maintenance budget withir. theMinistry of Transport (for maintenance of national road network), and the Minis :rv ofLocal Government (for maintenance of rural and urban road networks) is to be a..locatedon an annual basis. The country's present tax structure is close to optimal, and could bemade so with fairly minor adjustments. What is seriously needed is vastly imprc ved taxcollections, and a mechanism that assures that the collected funds are then turned: over tothe road maintenance authorities. Therefore, an establishment of a Road Fund, 2!s

outlined in the SweRoad report, will be considered in the future.

11. Operations: The strategy will be implemented through the application of properoperational procedures and practices, including the use of economic evaluation t:determine how best to use limited resources and how to avoid over-spending formaintenance. It will also include good procurement practices to assure competitivebidding, adequate quality control, and the application of new technologies throu.. hcontact with what is going on in road maintenance practices in other countries. T'here is

no practical way to become up to date on the best operational practices without the helpof knowledgeable technical advisers that have these skills.

12. Personnel Practices: Implementation of the strategy also depends on havingcompetent staff producing at high levels. The personnel issues are reduced to the extentthat contracting is used, since most personnel are employed by the contractors. However,there will still be a critical core of persons on the public payrolls Mranaging themaintenance system. Selection should be on the basis of qualifications, dismissal shouldbe an option for non-performers, and salaries should be at levels that can attract and holdqualified staff. Trainine is another important element in bringing the staff up to standardin areas that they have not been exposed to before, including transparency in contractmanagement, budgeting, and planning based on economic analysis. Training alreadyreceived should be used as a basis for the future technical assistance and trainingprogram.

Actions to Implement the Program

I3. Critical steps in the implementation of this strategy include:

(a) Roads should be the responsibility of the appropriate Government Body.On this basis, roads providing access between major centers will be underGeneral Roads Directorate (GRD; about 3,221 kmn), roads serving two ormore Districts will be under the District Councils (or their successorRegions; about 4,200), and roads serving only municipalities/Districts willbe under the municipality/District served (about 1,000 kin).

(b) Rural road maintenance organizations will be established after theRegions replace the District Councils to avoid the need to reorganize thenew maintenance units shortly after their establishment.

(c) In the future, all road and bridge maintenance work would be carried outby contract, both for routine and periodic maintenance and for both GRDand the Regional maintenance activities. With this in mind, the existingfield organizations should all be privatized. GRD (operating under theMinistry of Transport) and the Regional road organizations (under theMinistry of Local Government) will be responsible for planning andbudgeting, contracting for design, civil works and maintenance, andensuring quality control of the contracted works. The works will becarried out by private contractors under contracts secured from GRD andthe Regional road organizations on a competitive bid basis. Procurementof equipment would be the responsibility of the contractors.

(d) Train GRD personnel in economic analysis, modern budgeting andaccounting practices, new road technologies, contract management,quality control, and road safety; salaries should be set at rates able tocompete for qualified staff with the private sector; donor support shouldbe sought for establishing GRD on the new basis, with appropriatetraining, office equipment, and contacts with road maintenance practices

in other countries. The Regional road administrations would be created onthe same basis at such time as the new Regional governmentalorg,anizations are established.

(e) Provide training for the private road construction industry in competitivebidding practices, cost accounting, modem road construction techniques,and good management practices.

14. We are convinced that support for the above set of measures will allow us totackle the country's road deterioration problem. We appreciate your support.

Sincerely ours

.4,n A inarid sW4, XM i n it,~~~~~~~~~~~~~~~~~~~~~~~4 Mi j)rTivnni oeme 9Minister of T. rt V

Tirana November 1, 1999.

ANNEX 12

ASSESSMENT OF THE CAPACITYOF THE

(MINISTRY OF PUBLIC WORKS AND TRANSPORT - GRD DEPARTMENT)

TO CONDUCT PROCUREMENT UNDER THEEMERGENCY ROAD REPAIR PROJECT

October 7, 1999ECSSD

Europe and Central Asia Region

-i1-

ALBANIAPROPOSED EMERGENCY ROAD REPAIR PROJECT

ASSESSMENT OF THE CAPACITY OF THEMINISTRY OF PUBLIC WORKS AND TRANSPORT - GRD AND

MAINTENANCE DEPARTMENTSWHO WILL BE RESPONSIBLE FOR THE PROJECT

1. General Information and Summary

1. 1. Date of Report: October 4, 1999

1.2. Basis of Report. This report has been prepared in line with the requirements setforth in the OCSPR memorandum dated August 11, 1998, and concerns the assessmert ofthe capacity of the Ministry of Public Works and Transport - GRD and MaintenanceDepartments (GRD) who will be responsible for project. The above comments werebased on the procurement capacity assessment discussions with the Project Operation:Officer, RM Tirana and the General Director of GRD, the Director of the Maintenance:Department, the Lawyer responsible for the review of procurement documents, and theInternational Procurement Advisor for the Naltional Road Project. Attachment 1summarizes the findings and actions necessary to improve the procurement system in t.hecountry.

1.3. Scope of the Review. This review covers the assessment of the GRD's capacityto conduct the different phases of the procurement cycle under the proposed project forconsulting services and necessary civil works.. It addresses the legal aspect; procurementcycle management; organization and functions; support and control systems; recordkeeping; staffing; general procurement environment; and general risk assessment.

1.4. Project Description. The Emergency Road Repair Project consists of thefollowing components: (1) Civil Works - This component will include the emergencyrepairs to the following road sections of the national road network as follows::- Berat-Corovode Section (US$0.96 million)- Work on this 48 km section will inclucdepatching of potholes, improving drainage, ancl replacing portions of the asphalt paving t)be let in two contracts (Berat to Polican- 22 kin, and Polican-Corovada- 26 km).- Fushe Kruje- Mamurras-Milot Section (US$1.01 million)- Work on this 30 kmsection will include patching of potholes, strengthening of shoulders, improving draina ge,and overlays for some portions of the road, to be let in two contracts (Fushe Kiruje-Mamurras- 16 km, and Mamurras-Milot- 1.4 km).- Q. Qele-Fushe Arrez Section (US$0.59 million)- Work on this 49 km section willinclude leveling of the wearing course, repairing selected concrete works for overpasse 3,and waterproofing of structures, to be let in a single contract.- Fushe Arez-Kukes Section (US$3.95 million)- Work on this 70 km section willinclude leveling with crushed material, the application of two layers of PenetrationMacadam, and earth works, ditches and slopes to improve drainage in very mountainot sarea, to be let in 2 contracts.

-11-

- Kukes-Morine Section (US$0.53 million)- Work on this 24 km section will includeleveling of the wearing course and repairing of landslide damage, to be let in onecontract.(2) Institutional Support to the GRD: This component will include technical support toGRD for necessary training in project management, including procurement andaccounting practices (US$0. 10 million), for foreign consultants to assist in thesupervision of the civil works component (US$0.75 million), for laboratory equipmentneeded for improved quality control, and office equipment and vehicles for the PIU(US$0.15 million), for consultants for the operation of the PIU (US$0.30 million), andfor foreign consultants to assist in preparing a follow-on highway project (US$0.50million).The project includes works, goods and services (US$10 million) to be procured inaccordance with the Bank procurement guidelines.

2. Procurement Implementation

2.1. Existing Procurement Capacity. Within the Ministry of Public Works andTransport exists two separate PIU's, one for the National Roads Project and one for theRural Roads Project, each of which have employed and heavily relied on internationalconsultants to coordinate procurement activities required for both projects. GRD also hasa procurement department consisting of two procurement officers and a part time lawyerwho procures goods, works and services in accordance with the Albanian Law. Inaddition, all procurement documents for local, WB, PHARE, and otLer donor fundedactivities are reviewed by the Legal Department who is well versed in WB andinternational procurement procedures.

To implement the Emergency Road Repair Project, an independent PIU will beestablished. The PIU will be responsible for overall project management,- coordinationand planning, including the preparation of the action plan, procurement of design, goods,civil works and supervision, financial management and reporting. However, the PIU hasyet to be staffed. GRD has tentatively selected a PIU Director who is awaiting WBclearance, is familiar with WB procurement procedures, but has little or no practicalexperience. The remaining staff, including a financial specialist/accountant, an engineer,a bilingual secretary and a driver have yet to be considered. As with the National Roadsand Rural Roads Projects, the PIU, when established, will be strengthened withexperienced full time professionals from a full service international consulting firm. ThePIU will report to and coordinate with GRD. Included in the team of full timeprofessionals will be an international procurement specialist who will assist the PIU in allaspects of the procurement process. Additional support will be provided by the PASlocated in the World Bank's Office in Tirana. In addition, included in the TOR for thefull time professionals will be a financial specialist who is will assist the PIU in theprocurement and installation of a financial management system and ProcurementMonitoring System which is LACI compliant.

2.2 GRD and the PIUs of the National Road and Rural Road Projects have maintainedup-to-date project and procurement records. WB Standard bidding documents for goods,works and services or documents acceptable to the WB will be used for all procurement.

-111-

3. Recommendation for Prior Review Thresholds

3.1 With the assistance of the procuremenit specialist included ManagementConsulting contract, the PIU, when establish,ed, will have the capacity to conductprocurement under the proposed Emergency Road Repair Project. At the national level,the country has a transparent public procurement system with an independent publicprocurement agency. Under the second IDF grant for the procurement institutionaldevelopment, the Bank assisted the Government in preparing standard biddingdocuments, and in providing initial procurement training to about 500 public officialsthroughout the country. Nevertheless, the national environment in which the PIU wil.operate is not conducive to fair and transparent procurement processes. But because thePIU will employ a full time full service consualting firm to assist with all procurement andfinancial activities and to supervise the quality of the civil works, it is recommended thatdespite the environmental constraints, the prior review thresholds indicated above beapplied.

Goods:All ICB Contracts: US $ 1 00,000 or moreIS Contracts: less than US $ 100,000 - First 3NS Contracts: less than US $ 50!000 - First 3

Works:- All NCE, contracts: less than US $ 2,000,000 per contract

First 3 under US$ 500,000 and All over US $ 500,000Minor Works: less than US $ 100,000 - First 3

-Consulting ServicesQCBS - All ContractsIndividual Consultancies - less than US $ 50,000 - All TOR - First 3

At project mid-term review, a review of the procurement thresholds should also beconducted with a view to determining whether an adjustment in these thresholds wouk.be necessary.

3.2 It is further recommended that during the project launch workshop adequate timbe devoted to procurement under the project not only to discuss the procurementarrangements under the new project but also to make them aware of the changes in theBank's procurement and consultant guidelines.

3.3. Updating of the Albania CPAR. The Albania CPAR dated March 10, 1997, isscheduled to be updated in January 2000. This will enable the Bank to learn about theactual working of the procurement system during the last three years and to makerecommendations to the Government to improve the system.

Attachments

I . Summary of Fiiiding and Actions

Attachment 1Page I of 7

ALBANIATHE EMERGENCY ROAD REPAIR PROJECTPROCUREMENT CAPACITY ASSSESSMENT

SUMMARY OF FINDINGS AND ACTIONSAssessment Risk Assessment

Item AssessedNull Poor Fair Satis- Major Weakness Actions Proposed

Factory Low Ave. High Proposed CompletionDate

(a) Legal Aspects(i) Laws & X X

Regulations(ii) NCB Procedures X X(iii) Internal Codes and X Manuals do not exist in X

Manuals all departments ofGRD

(b) Proc. Cycle Mgmt. PIU not yet established X Project includesTA to monitorproject cycle.

(i) General handling X

(ii) Proc. Planning X GRD plans X GOA should 6/00procurements for each prepare andfiscal year. implement a

training program

(iii) Preparation of X PIU not established X To be completed byDocuments Procurement Officer Intl consulting firm

not appointed(iv) Mgmt. Of Process X Same as above X Same as above 06/00

(v) Bid Evaluation X X

(vi) Contract Award X X(vii) Preparation and X X

signing of contracts(viii) Contract X General lack of X Intl TA will 06/00

Management __ experience Provide training I

Attachment IPage 2 of 7

Assessment Risk AssessmentItem Assessed

Null Poor Fair Satis- Major Weakness Actions ProposedFactory Low Ave. High Proposed Completion

Date

(c) Organization andFunctions

(i) Organization of Unit X PIIJ Not established yet X tre International 1/0and Functions consuling firm to

support PIU

(ii) Internal manuals X Not for all GRD Xand Instructions departments

(d) Support and ControlSystem .

(i) Auditing X _ X(ii) Legal Assistance x x

(iii) Technical and X Lack of experience in X Intl TA to provide 06,/00Admin. Controls technical controls OJT

(iv) Code of Ethics X Does not exist X Anti-corruption 12/00measures are to beincluded in WBPublic AdminReform Project

(v) Anticorruption X Plans have been X anti-corruption 12/00Initiatives underway but no initiatives are to be

concrete actions yet included in WBPublic AdminReform Project l

._~~ ~ ~ ~ ~ __ _ _ _ _ __ _ _ _ _

(e) Record Keeping l X l l_l

(i) Public Notices X X Intl Procurement 12/99Specialist will be

hired to assist-t P!T

Attachment IPage 3 of 7

Assessment Risk Assessment

Null Poor Fair Satis- Major Weakness Actions ProposedFactory Low Ave. High Proposed Completion

Date(ii) Bidding Documents X PIU not established X Intl TA firm to

Support ProjectProcurement

(iii) Bid Opening X X Same as (e) (i)

Information

(iv) Bid Evaluation X X Same as (e) (i)Report

(v) Formal Appeals and X Xoutcomes

(vi) Signed Contract X XDocument

(vii) Claims and dispute XResolution Records

(viii) Comprehensive X No accounting system X LACI FM softwareDisbursement Data in place to be in project

(0 Staffing PItU not established to Make PIU effective 12/99date - no staff in place and hire staff and

Intl TA

(g) General ProcurementEnvironment(i) Promoting a X Procurement officer X Same as (e) (i)

Culture of has not been appointedAccountability

(ii) Reputation of X Overall Procurement X Systemic problem. 12/00Procurement Corps Corps does not enjoy a Need of

good image in Albania improvement ingeneral economicenvironment

Attachment 1Page 4 of 7

Assessment Risk Assessment

Null Poor Fair Satis- Major Weakness Actions ProposedFactory Low Ave. High Proposed Completion

Date

(iii) Salary Structure X Salaries of PIU staff X Recognize 012/00are 30% - 40% lower procurement corpsthan private enterprise as a dist.nct careersalaries and provide

necessaryincentive, such asbetter salaries

(iv) Freedom From X Systemic problem X Introduce conflict 12/00Political of interest laws (seeInterference ._ . _ _ (d) (v)

(v) Existence of X No Staff in Place X Make PIU effective 12/00

Experienced and ctAnd Capable Staff

(vi) Clear Written X Only in certain Depts X Include inStandards and of GRD - PIU not operations manualDelegation of establishedAuthority

(vii) Sound X Although government X GOA need toBudget/Financial has been taking continue its effortsSystems measures to introduce in this regard -

sound budget and Project to employfinancial systems, there full time financialremains room for specialist andimprovement - No PIU include intl FMS inyet MC contract

Attachment IPage 5 of 7

Assessment Risk Assessment

Null Poor Fair Satis- Major Weakness Actions ProposedFactory Low Ave. High Proposed Completion

Date

(h) Private SectorAssessment

(i) General Efficiency X XandPredictability

(ii) Transparency X X

(iii) Quality of Contract X General Lack of X Intl TA is includedManagement Experience in Project to

improve ContractManagement

(iv) General X XReputation _ . .

Attachment IPage 6 of 7

Prior Review Thresholds Proposed Overall Risk Assessment

Goods: High 3IS Contracts: less than US $ 100,000 First 3 Average v

NS Contracts: less than US $ 50,000 First 3Low

Works: The "Hlgh" Risk Assessment is based GRD'S existing

- All NCB contracts: < than US $ 2,000,000 per capacity. However due to the fact that the entirecontract procurement process (including preparing technicalFirst 3 under US $ 500,000 -All over US$ 500,000 specifications, biding documents, supervision of civil

-Consulting Services works, etc.) will be coordinated by an full serviceQCBS: All Consultant Contracts professional consulting firm, the Overall risk assessmentIndividual Contract: less than US $ 50,000 First 3 can be rated as "Average"

Post Review Ratio: One in 5 contractsFrequency of Procurement Supervision Missions Proposed: Form Prepared By: Ronald P. IsaacsonOne every 4 months (includes special procurement I (Implementation Advisor /Procurement Accredited Staffsupervision for post-review/audits) Assigned to the Project)

Signature: Sd/-

Date: 10/07/99Comments:.. The PIU to manage the Emergency Road Repair project has not been established to date, but will consist of a Director (tentativelyselected) who is familiar with WB procurement guidelines), a financial specialist, procurement officer, an engineer, and a bilingual secretary.The PIU when established will be strengthened by an international full time professional consulting who will assist the PIU in managing theentire procurement cycle and therefore will have the capacity to procure goods, works and services under the Emergency Road Repair Project.With the procurement support from the international procurement specialist, the PIU can be placed in "average" risk category. Howeverwithout international procurement assistance the risk factor is "high". Additionally, although the country does have the procurement legislationnecessary for fair and transparent procurement processes, there is much room for improvement in the effective implementation of thislegislation. Furthermore, the procurement system in Albania is currently operating in an environment which does not appear to be conducive tofair and transparent procurement processes. Therefore, the procurement system in the country has been rated high risk, but the overall riskassessment will be lessened because the PiU will employ a full time full service consulting firm to assist with all procurement and financialactivities and to s_mnei thA n!i^? Af t c-e ' pr review thresholds recommen(ied above are those applicable to an average riskcountry.

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