Doument of

The World Bank

FOM OFFCIaL USE ONlY

Iqpot No. 11490

PROJECT COMPLETION REPORT

YUGOSLAVIA

SERBIA REGIONAL DEVELOPMENT PROJECT(LOAN 2307-YU)

DECEMBER 24, 1992

M1ICROFICHE COPY

Report No.:11490 YU Type: (PCR)Title: SERBIA REGIONAL DEVELOPMENT PRIAuthor: JAMES, ENERGYExt. :31756 Room:T 9057 Dept. :OEDD1

Agriculture and Water Supply Operations DivisionCountry Department IIgurope and Central Asia Regional Office

Tbis document has a restricted dstribution and may be used by recipients only in the performance oftbeir official duties. Its contet may not otherwise be disclosed without World Bank authorization.

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(Average for the calendar year.)

Currency Unit - Dinar (Din)

Appraisal Year (1982): US$ 1 - Din 46

Intervening Years:1983 US$l - Din 931984 US$1 - Din 1533985 US$1 - Din 2701986 US$1 - Din 3791987 US$l Din 7371988 US$1 - Din 2,5231989 US$1 - Din 28,7641990 US$1 - New Din 11.321

Completion Year (1991): US$ 1 - New Din 19.63

ABBREVIATIONS

CA Consortium AgreementCP World Bank Cooperative ProgramFAO Food and Agriculture OrganizationHA HectareGSP Gross Social ProductICOR Increurental Capital Output RatioIRC Intercommunal Regional CommunitiesSAL Structural Adjustment LoanSAR Staff Appraisal ReportSDK Social Accounting ServiceSFUR Serbian Fund for Underdeveloped RegionsUBB Udruzena Beogradska BankaUOC Union of Cooperatives

EISCAL =EA

January 1 to December 31

3 so N g Od 190. a New oamen (Now ss at bsd S1 te antm of Now 0lna 1 - OMas 10.000.

FOR OMCIAL USE ONLYTHE WORLD BANK

Washington, D.C. 20433U.S.A.

Offlo of DireotorvGomalOpeadens Evaluation

December 24, 1992

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIQENT

SUBJECT: Project Completion Report on YugoslaviaSerbia Regional Develonment Project (Loan 2307-Y:I=)

Attached is a copy of the report entitled "Project Completion Report on YugoslaviaSerbia Regional Development Project (Loan 2307-YU)* prepared by the Europe & Central AsiaRegional Office. The Borrower did not contribute Part II.

The project succeeded in Its first major objective: development of the private farmsector through improved drainage and on-farm investments. The project was managed byAgrobanka, a new financial interrnediary, which was institutionally strengthened by projectcompletion. The second major objective, modernization and reconstruction of the socialsector agroindustry component did not succeed. These Industries require financialstrengthening, improved management and appropriate legislation. The project was extended2.5 years and 31 percent of the loan funds were cancelled.

Overall, the project is judged as marginally satisfactory because the farmcomponent had a significant impact in regional development and job creation.. However, itssustainability is rated as uncertain.

The Project Completion Report provides an adequate account of projectachievements. No audit is planned.

1.

Attachment

Th documen has a rsstrted dbton sad may be used by redplt oy I the performce oftIr off-i duts. he ontent may not ohwise be disce wthout Word Ban _utoa.

FOR OMCIAL Use ONLY

PRWJECT Cao= RZR

; WS~~~~~~~~~~UOSLLISERBIA RtEGIONAL DEVELPMEN PROJECT

(L 2307-YU)

TABLE COTNS

Preface ........................... 4Evaluation Suary .... . . . . . . . . . . . . . . . . . ill

PART Is PROJECT REVIEW PREO BANK'S PERSPECTIVE . . . . . . . 1

A. PROJECT IDENIFY . . . . . . . .. . . .. .. . . . . . 1

B. BACKGROUND . . . . . . o. o.... . . a. . . *. . . . 1The Main Features of Agriculture in Yugoslavia . ... 1PolicyContext .*. . . . . . . . . . . . . . . . . . . 1Linkage. Between Project, Sector and Macro Policy . . . 2

Objectives

C. PROJECT OBJEJ71VES AND DESCRIPTON . . . . . . . . . . 2Project Background . . . . . . . . . . . . . . . * . . 2ProjectObjectives .................. 3Project Components .... o............ 3

D. PROJECT DESIGN AND ORC&NII O ...... .... 4Conceptual Foundation of Project Design . . . . . . . . 4Innovations Under the Project Concept . . . . . . . . . 5Appropriateness of Project Scope and Scale . . . . . . 5Quality of Project Preparation . . . . . . . . . . . . 5Appropriateness of Project Timing . . . . . . . .*. . . 6Responsibilities of Participating Institutions' . . . . 6

E. PROJECT I L h NT TIO . . . . . . . . . . . . . . . . 7Variances Between Planned and Actual Project . . . . . 7

ImplementationIdentification of ProjectRisks. .* .9... . . . 8

Fo PROJECT RESMLTS . . . . . . . . . . . . 8Geveral A sseammet * . o. . o. . . . . . . . o 8Project Impact . . . . . . . . * * . . . . . * . . 9

G. BPOJECTSUIL ..................ST....T............. 10

HO* BANK PERFORMANCE ......... 10Bank Performance During Preparation and Appraisal Phase 10Bank Performance During Implementation Phase . . . . . 11Lessons Learned . . . . . . . . . . # . . . . . . . o . 12

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

TABL1E 0 -CgE=S (Cant'd)

ILBORROWERPRPO BANCE ................. 12Bowror Performance During Preparation aud Appraisal Phase 12Borrmor Performae Duriug Implementation .. .* . . . 13

Jo PROJECT RELATIONSHIP .... .. . . . .. . . . . .. . 14

L PR.JECT DOCMUHT&TONDAND DATA . . .. . . . . . . . .o 14

PART Is PROJECT REVIE POR BORROWER'S PERSPECTIVE . . . . 15

PART IIt STATISTICAL IWORMATION . . . . . . . . . . . . . 17TablelsRelatedBank Loans ......... . 17Table2: ProjeatTietable. ..... ..... . 18Table3s LoanDisburesemet. . . . . . . ... . 19Table 4 Project Costs . . **. * . 20Table5: ProjectFinancing. ......... . 20Table6: Project eults . . . .. **. . . 21Table 7: Status of Legal Coveants . ...... 23Table8: StaffveekSuwy .............. . 25Table9S MissionData ............. 26

NAPSs IBRD 16607IB 16608

PRCT COMLTON P

YTIGSLAVI&SnIAI REGCO DEVLOP PROJECT

a1 2307=n11

PRilACZ

This is the Project Completion Report (PCR) for the SerbiaRegional Development project In Yugoslavia, for which Loan 2307-YUin the mount of US$136.0 mllion equivalent was approved on June 9,1983. The loan was closed on Aursot 31, 1991, about two aud a halfyears behind schedule. An amount of US$42.0 million equivalent wascanceled from the loan account in April 1986. Total disbursementsamounted to US$94.0 million or 69Z of the original loan amount. Thelast disbursement was made on September 19, 1991.

The PCR was prepared for the Agriculture and Water SupplyOperations Division (EC2AW) of the Burope and Central Asia Region bythe Agriculture Operations Division (ENTAG) in the TechnicalDepartment of the Europe and Central Asia, and the Middle East andNorth Africa Regions (Prefaces, Ealuation Suraty, Parts I and IUI).The draft PCR was sent to the Borrower for comments, but none werereceived.

The report is based an the Staff Appraisal Report; theLoan, Guarantee, and Project Agreementst Supervision Reports;correspondence between the Bank and the Borrower; and internal Bankmemoranda.

WOCOSL&VISERBIA REGIONAL DEVELOPMEWT PROJECT

(LOAN 2307-YU)

Obiectives

1.. The Serbia Regional Development Project was appraised by the Bankin 1982 as one of several similar projects intended to support the lessdeveloped regious, promote agriculture, carry out institutional reforms, andreduce the external resource gap. Agriculture has been a priority sector fromthe point of view of both the government and the Bank, and its development hascontributed to the realization of other objectives related to reducingregional income disparities and generating employment. The specific objectivesof this project, as described in the Staff Appraisal Report, were to focus onthe development of the individual farm sector of the Kolubara and Danuberegions by generating economic growth that would specifically aim at (i)increasing agricultural production; (ii) improving rural incomes andemployment opportunities; (iii) reducing income disparities between developedand less developed communes; (iv) increasing availability of processed foodproducts for the domestic and export markets; and (v) strengthening thetechnical support and credit d4livery systems in the project area. Theproject comprised of six major components: (a) on-farm production investments,aimed at achieving an increase in the labor-intensive production of livestockand crops through provision of credit to about 10,900 individual farmers 2;

(b) support services, that included farm mechanization equipment, seedprocessing plants, repair workshops, fuel storage depots, poultry hatchery andbreeding farms, sheep and pig breeding farms, milk collecting centers, and atobacco drying plant; (c) extension services; (d) agro-industries, includinginvestments in modernization and reconstruction of 14 agro-industryfacilities; (e) improved drainage over an area of about 27,000 ha; and (f)technical assistance to Agrobanka, the executing financial intermediary forthe project (paras. 5 to 8).

Implementation Experience

2. Although project implementation encountered many difficulties,efforts to address them led to progressive improvement, especially in theorganization and management aspects of the implementation process.Implementation experience in respect of the different project components wasmixed; while some were, on the whole, implemented successfully, e.g. thedrainage and primary production components, others were less successfully

V ftwdda Wm= who wwo igib to r.csi r no proj er ha to te memder d coopwads or be aoct.d wth ftswWsia - by du Cf bcomm *il thmelo r produce or cpaUh9 t0h soda r.

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executed. Four areas, in particular, reflect significant variance between theplanned (at appraisal) and the actual implementation: (a) the Bank fundsactually borrowed under the project (about US$92 million) were significantlyless than expected (US$186 million that included, in addition to US$136million under the Bank Loan, also a B loan of US$50 million which was notsigned), and the remaining US$44 million of the Bank loan had to be canceledin 1986; (b) funds actually borrowed for the primary production componentconstituted only about one quarter of the originally estimated amounts; (c)implementation of the major part of the drainage component started after asignificant delay, and to allow completion of this component, the project hadto be extended by two and a half years; and (d) the extension servicescomponent was implemented only to a very limited extent (paras. 20 to 25).

3. The estimated project cost, as appraised, was about US$486.0million but the actual cost is estimated at about US$230.0 million. The much'' wer than expected cost of the project can be attributed to several reasons:ka) significant overestimation at appraisal of the funds needed for interestduring construction; (b) lower borrowing for primary production than wasexpected at appraisal; and (c) savings arising from exchange rate changes thatresulted in a faster rate of devaluation of the Dinar against the US dollar ascompared to the rate of domestic inflation. While some of the variancesbetween the expected and the actudl cost of the project could not have beenavoided, in re;:ospect, a more rigorous review process could, perhaps, haveprevented some of the unfavorable discrepancies (paras. 20 to 25).

Results

4. Overall, the project has had a significant impact on thedevelopment of the two regions targeted under the project, and the economy ofSerbia in general (para. 28). The project has also made a major contributionin respect to human resources development, creating about 2,000 new jobs(para. 29). In respect to therperformance under the different projectcomponents, results were mixed; objectives were substantially met in respectof some components whereas success was limited in the case of others. Thedrainage component can be considered a success because the expectations of thebeneficiaries were met in regard to improvement in production yields andincome. Economic rates of return of the subareas under the drainage componentare likely to meet the expectations at appraisal. The. financial and economicresults of farms which received credit under the project for investments underthe primary production component are likely to be satisfactory as well (para.27). In respect of institutional strengthening, there has been a noteworthyimprovement in the operations of Agrobanka (paras. 38 to 39). However, theachievements in respect of the agro-industries and supporting services, andthe extension services, components were much more limited. While twenty-twoof the twenty-nine originally planned agro-industries and supporting serviceswere established, only six of the investments showed positive financialresults, the rest facing significant financial difficulties that stemmed, tovarious degrees, from ineffective management, marketing problems, insufficientcapacity utilization, insufficient raw material supply, poor domestic demandfor the manufactured products, barriers in foreign markets, an overvaluedexchange rate, and other causes (para. 27). Improving the situation in theagro-industries would require, among other things, the development of aprogram of privatization and restructuring. Although this has been generallythe intention of both the Federal and the Republican governments, theappropriate enabling legislation has not yet been enacted, and prospects in

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this regard remain uncertain in the face of the current unclear politicalsituation in the country (para. 27).

Sustainabilitv

5. Project benefits are more likely to be sustainable in certainareas than in others. Most investments under the primary production anddrainage components are expected to be sustainable, and to be able to maintain

* an acceptable level of net benefits throughout their economic life. In regardto the agro-industries and supporting services components, sustainability isnot assured for all the investments under the components. Kost of theseinvestments, including even those that are presently profitable, are likely toneed substantial restructuring in rogard to management, accounting, marketing,production, labor force utilization, and ownership. However, suchrestructuring goes beyond the scope of this project, because the difficultiesexperienced by the investments under the project reflect issues resulting fromthe socio-economic system of the country. Project sustainability will alsobe subject to stabilization of the macroeconomic situation--int ility of thegovernment to stabilize the economy and control inflation would drive manyproducers out of business, including those in the project areas. Finally, theoperation and maintenance of the drainage system as established under theproject is critical to its viability, and in that regard, appropriate userfees, and their efficient collection and management, are imperative (para.30).

Findings and Lessons Learned

6. The main lessons from the experience under this project are: (a)The implications of a distorted and deteriorating macroeconomic environment onsectoral operations, like the project, should be more explicitly assessedduring project preparation. In hindsight, it would appear that the projectconcept was formulated without sufficient regard to difficulties steaming fromproblems in the macroeconomic environment; because of this the borrowing forprimary production, and the results of the investments in agro-industries andsupporting services, have been substantially less than expected. (b)Attention must be paid to the link between formulating a comprehensive projectconcept that would relate primary production to end-users (agro-industries),

* supporting services, marketing, and both the individual and the social sectorsinvolved in the production activities. (c) Directed credit in a Bank lendingoperation may have some justification if the market mechanism has notdeveloped sufficiently; however, the project may have been over-designed inthis respect in that it deprived sub-borrowers of the flexibility required toadjust to changing market and economic conditions. (d) The difficulties inproject implementation arising from the complexity of a project that includedso many components demonstrates the need to simplify the project concept fromthe outset. It was necessary to have several supervision teams to coverdifferent aspects like drainage, agroindustries, primary production, creditoperations, and the institution building activities concerning Agrobanka.Without adequate supervision resources, it would be difficult to focus oneffective implementation of such a complex project, and to provide timely andappropriate assistance to the Borrower and the beneficiaries. (e) Timelyevaluation of the financial management system of the project beneficiaries andintermediary banks is essential in diagnosing elements that are critical tothe project's successful implemi;ntation. (f) The technical assistance needsunder the project were identified correctly but, in retrospect, without

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sufficient repard to relevant maWemefit and organization aspects, and theirfulfillment proved difficult under the politically uncertain environment.These considerations apply as well to the extension services under theproject, and to the improvement of the operations in Agrobanka. Under thesocio-economic system prevailing at that time the government had no role inproviding extension services. Despite the substantial improvement in theoperations of Agrobanka, many more improvements are needed which could only beundertaken under a comprehensive reform of the banking system. The Bank hadbeen engaged in supporting the government in its eC:arts to carry out afundamental reform of the financial sector which, .40ever, was brought to ahalt by the outbreak of the hostilities in Yugoslavia (para. 36).

YUL'JIAVSERI REIMOAL DSVELOPNT PROECT

(LOAN 2107-YU)

PART I: PROJECT REIRV PR I BANR'S PSRSEC4=VE

A.Eg= IETT

Name: Serbia Regional Development ProjectLoan Number: 2307-YU

RVP Unit: Europe and Central AsiaCountry: YugoslaviaSector: Agriculture

Subsector: Agricultural Credit

B.

The Main Features of Ajriculture in YuLoslaXia

1. Agriculture is an important sector in the Yugoslav economy. In1988 it contributed around 14 percent of Gross Social Product (GSP) and,together with agro-industries, about 9.5X of exports. The sector employsapproximately 17 percent of the labor force (19 percent with agro-industries).The importance of agriculture is, however, higher than these figures suggestsince over half of the total po tion is rural and remains closely linked .to_agriculture, even if not actively engaged in production.

2. A special feature of Yugoslav agriculture is the dual existence ofa large scale, "modern' social sector, and a small scale family sector whereyields and labor productivity are comparatively low. Although about 80percent of cropped land is in the hands of private farms, only 48 percent ofthe coamercialized production originated from the private sector in 1988, downfrom 55 percent in 1982. This was maiuly because of the virtual completecontrol that the social sector had over credlt, marketing, and inputs.Consequently, during the difficult economic period of the 1980s, priority forprovision of subsidized capital, inputs, and other services was given, underthe then prevailing Yugoslav system, to the needs of the social sector.

F°licv Context

3. Prior to the political changes and outbreak of hostilities inYugoslavia in 1991, the Government was implemuenting a major reform programthat included a stabilization and structural adjustment program which wasexpected to lead to a market-oriented and more competitive economy. Theagricultural sector was prominent in the structural adjustment program becausethe sector, along with other productive sectors, had been subject toinefficient systems of production, input distribution, and marketing patterns,which stymied economic incentives and constrained growth performance. The

2

significance of agriculture also arises from its impact on the standard ofliving, employment, and regional development. The sector provides essentialgoods required by the population, with food products constituting about halfof household consumption expenditures. While the need for policy reform ofthe sector received little attention in the past, the Government at the sametime provided incentives in the form of subsidies for inputs, such asfertilizer, and for interest rates with the objective of stimulatingproduction. Low interest rates encouraged the use of debt, led to arelatively rapid pace of capital investment, especially in the social sector,and eventually contributed to problems of liquidity. However, only arelatively small number of individual farmers had access to credit foragricultural investments other than in the form of farm inputs for crops grownunder contract. Liquidity shortages in social secto- enterprises was the maincause for the severely restricted access of individual farmers to credit.Prior to the onset of the uncertainties stemming from the currently difficultpolitical situation, the Government was taking measures to gradually reduceagricultural subsidies, including subsidized credit, and to encourageproducers, including those in the agriculture sector, to apply economic andfinancial criteria to the making of investment decisions.

Linkages Between Proiect. Sector. and Macro Policy Objectives

4. The Bank's objectives in respect of its assistance to Yugoslaviahave been to support: the development of the less developed regions,promotion of agriculture, design and implementation of institutional reforms,and reduction of the external resource gap. Agriculture has been a prioritysector from the point of view of both the government and the Bank, and itsdevelopment has contributed to the realization of other objectives related toreducing regional income disparities and generating employment. Althoughagriculture has been the only major sector, other than personal services, inwhich social ownership is not predominant, the social sector, until recently,was predominant in terms of ids access to financial resources and inputs, aswell as its control of agricultural marketing and processing. The officialpolicy toward the role of the individual farmer changed during the late 1980s,and it is now realized that the individual sector contains many unexploitedopportunities that should be realized by provision of inputs and greatermarket orientation. The Government's policy to borrow for the promotion ofagriculture in the less developed regions of the count)ry coincided, at thetime the project was prepared, with the Bank's concern for lending to benefitthe poor. To that extent, the project, which was formulated and prepared inthe early 1980s and is located in the less developed areas of the SocialistRepublic (SR) of Serbia, supported the objective of reducing incomedisparities between regions, and fits well the criteria mentioned above.

C. PROJECT OBJECT-VES AND DESCRIPTION

Project Background

5. The Serbia Regional Development Project was first identified bythe Serbian government in 1980, and the early preparatory work was carried outby the Institute for Agricultural Economics and the Institute for IndustrialEconomics in Belgrade. The project was subsequently further prepared, andpre-appraised, by the Bank in 1981 and 1982 respectively. Preparation of the

3

drainage component of the project was assisted by the FAO/CP. The project wasappraised in July 1982.

6. The project area is located in the Kolubara and Danube regions,which are in the northern parts of Serbia. The area has a total population ofabout one million persons, of which about 60 percent reside in rural areas,representing about 27 percent of the agricultural population of the republic.Individual farmers own over 90 percent of the agricultural land. The percapita income within the project area is the lowest in Serbia with theexception of the Morava region. Pockets of rural poverty and considerableincome disparities are present. Of a total of 25 communes in the projectarea, 16 have been declared less developed (per capita income between US$1200and US$1500) by the Government and were qualified for assistance from theSerbian Fund for Underdeveloped Regions (SFUR). At the time of projectpreparation, it was perceived that the development of agriculture in theproject area was constrained due to a high level of migration from the ruralareas to the urban centers, lack of- credit and extension services to theindividual sector, inadequate market arrangements, and lack of capital toimprove land drainage and to replace outdated equipment and machinery. Theproject was designed to address these development constraints.

Proiect Obiectives

7. The main objectives of the project, as described in the StaffAppraisal Report, were to focus on the development of the individual farmsector of the Kolubara and Danube regions by generating economic growth thatwould specifically aim at (i) increasing agricultural production; (ii)improving rural incomes and employment opportunities; (iii) reducing incomedisparities between developed and less developed communes; (iv) increasingavailability of processed food products for the domestic and export markets,and; (v) strengthening the technical support and credit delivery systems inthe project area.

Proiect Components

8. The project components included the following:

(a) On-farming oroduction investments. EThis component was aimedat achieving an increase in the labor-intensive productionof livestock and crops through provision of credit to about10,900 individual farmers 3 with a specified pre-appraisednumber of livestock production, hectares of deciduousorchards, tobacco, sugarbeet, fruit nurseries, wheat, maize,sunflower, and vegetables.

(b) Sunporting services. This included farm mechanizationequipment; two seed processing plants; repair workshops andfuel storage depots; a poultry hatchery and two poultry

breeding farms; a sheep breeding farm; milk collecting centers; a tobaccodrying plant; and a pig breeding farm.

2/tXNVI bm. howeer, Wh0o W_ eligib, to flw mod! unhe C l ei~he hd toemenhem_ fd coopetae or anowithUW soc" cOr hy dI bi conmed to nmau ther produc or Cro thUgh the aW l $ oc.

4

(c) Extension services. This component was intended tostrengthen the existing extension services at the level ofthose basic organizations and cooperatives that weredirectly involved in the implementation of the on-farminvestments. Financing under the project was intended to beprovided for vehicles, apartments for extensionists, andpreparation of a master plan for extension and research forSerbia.

(4) Agroindustries, Sub-loans were to be provided formodernization and reconstruction of 14 agro-industryfacilities, including four fruit and vegetable processingplants; three cold storage facilities for fruits,vegetables, and meat products; two livestock feed millingplants; a potato processing plant; two poultryslaughterhouses; a grain elevator facility, including dryerand silo; and a vegetable oil mill.

(e) Drainagle This was aimed at improving drainage over an areaof about 27,000 ha, in seven sub-areas.

(f) Technical assistance to Agrobanka, the executing financialintermediary of the project to improve its operations inselected areas.

D. PROJECT DESIGN AND ORGANIZATION

Conceptual Foundation of Project Design

9. The project actually consisted of five (rather than six) distinctand diverse components because two of the components, namely those forsupporting services and agro-fndustries included somewhat similar items, e.g.the supporting services included items such as investments in a tobacco curingand drying plant, two seed processing plants, a hatchery and two poultryfarms, similar to investments included in the agro-industries component. Eachcomponent under the project was designed in great detail, e.g. in regard tothe number of beneficiaries, number of livestock, machinery and equipment, andtype of products to be developed. Despite the overalL detailed design of theproject, the individual project components were in fact largely independent ofeach other. Th. primary production component, for example, which was verydetailed at appraisal, was only marginally related to the increase inproduction capacity of the agro-industries and support services financed underthe project. In retrospect, it would appear that the project design wasactually more a collection of individual investments rather than a systematicplan that coherently established a link between developing additionalproduction of raw materials, and availability of labor, marketing, andcapital.

10. Despite the detailed design of the primary production component,when project implementation started, it turned out that most of the farmerswho were polled during preparation regarding their interest in investing underthe project, actually did not apply for sub-loans. In retrospect, it wouldappear that the local institutes that prepared the project, and later the Bankas well, did not sufficiently take into account the likely adverse effects on

S

credit demand of the distorted and deteriorating macro-economic conditions,which included price controls, negative but rising interest rates, rapidinflation, and lagging dinar devaluations. These factors also causedsignificant differences between the original targets and actual implementationof investments in other components.

Innovations under the Project Concent

11. While the project concept, as a whole, was not innovative, certaincomponents had innovative features, e.g. the technical aspects of the drainagecomponent were innovative in that they approached comprehensive development ofwell-defined areas in a way that major physical and institutional constraintswere to be addressed, and measures were to be taken to optimize production,albeit under the constraints of distorted prices and interest rates.

Anprogriateness of Project Scope and Scale

12. In retrospect, the project scope would appear to have beendesigned somewhat over-optimistically. Also, both the project cost and theensuing financing needs seem to have been substantially overestimated. Forexample, the funds required for interest during construction were estimated tobe about 35 percent of the base cost, of which the foreign exchange componentwas about 27 percent. In hindsight, these figures appear to be rather high inrelation to the anticipated implementation schedules of the agro-industry,supporting services, or the drainage components, none of which were expectedto exceed two years. The primary production component was expected to beimplemented in an even shorter period. Subsequent realization of the possibleoverestimation in this regard appears to have obviated the need for thesupplementary financing from the negotiated B loan (US$50 million) which,consequently, was not signed by the Yugoslav team.

13. At the time the Ba&k loan was approved by the Board, it was thelargest Bank-financed project in Yugoslavia. For Agrobanka, at the time arecently created bank, it was the first experience in handling a Bank-financed project. Again, in retrospect, the relative inexperience of theexecuting bank would appear not to have been taken sufficiently intoconsideration in regard to its ability to handle a project of such magnitudeand complexity. Experience in other similar Bank projects, all much smallerin size, has shown that such projects can be implemented only at a much slowerpace, even under the management of more experienced financial intermediariesthan was the case, at the time, in this project.

Qualitv of Proiect Preparation

14. The feasibility studies carried out by the institutes that firstprepared the project served as a basis for the Bank's technical and economicevaluation of the agro-industry and the supporting services components of theproject. The engineering and technical aspects of project preparation werecovered well. However, it appears that the business and accounting systems ofthe enterprises involved were inadequately evaluated throughout the process ofproject preparation and appraisal, and marketing aspects were insufficientlyreviewed as well. The Bank would seem to have accepted the local institutes'judgement as to whether sufficient market demand existed without lookingcritically enough at the institutional aspects affecting the capability of the

6

project beneficiaries to compete domestically or internationally, or reviewingwhether the concerned enterprises had viable marketing strategies. At thetime of project processing, the domestic market was quite protected, but thiswas not the case concerning exports, which called for independent reviews ofthe export marketing practices of the-beneficiaries. These were apparentlynot undertaken.

15. The feasibility studies for the drainage component of the projectwere well prepared. But in several instances the final design was notprepared before Board approval, but rather during project implementation.Significant effort was made to preserve the environmental aspects of thedrainage subareas. Environmental impact studies were carried out for all thedrainage sub-projects, and reviewed by international agencies and consultants.The results were supported by the relevant institutions concerned. Biddingdocuments were prepared by various consulting groups. Most were adequatelyprepared, but a few required substantial modifications and resulted indelaying implementation.

ADpropriateness of Project Timing

16. The project was prepared in the early 1980s when inflation in thecountry was relatively low, but was showing a persistent trend towardsincreasing. By the time the project was approved in 1983, a StructuralAdjustment Loan (SAL) loan to Yugoslavia had also been approved.Nevertheless, expectations that the overall macroeconomic situation wouldimprove in a sustained manner did not materialize, and the projectimplementation period was marked by a deteriorating macroeconomic environment.

Resionsibilities of Participating Institutions

17. Udruzena Beogradsl& Banka (UBB) was the Borrower of the Bank loan.It had only nominal responsibility for project implementation, since all theproceeds of the Bank loan were to be passed on to the executing bank,Agrobanka, of which UBB was the holding bank. Agrobanka, together with thetwo Intercommunal Regional Communities (IRCs) of the Kolubara and the Danuberegions, signed a Project Agreement with the Bank for the implementation ofthe project. A Consortium Agreement (CA) was executed between UBB, Agrobankaand some other major banks to ensure the availability of local funds for theproject. In addition, Agrobanka signed an agreement with SFUR to providerepublican funds at concessionary interest rates for local financing.

18. Project coordination was carried out at three levels. The overallresponsibility was assumed by a committee headed by Agrobanka that includedrepresentatives from the Serbia Executive Council, the Republican Committeefor Agriculture, SFUR, UBB, the two IRCs, and the Union of Cooperatives (UOC).At the regional level, there was a coordinating board presided over by thepresident of the IRC, and comprised of representatives from the local chamberof commerce, the association of cooperatives, communes, and basic banks' workorganizations. A third level of coordination was established at the kombinatlevel to coordinate on-farm investments for associated farmers, and toimplement investments related to kombinats.

19. The organizational set-up was, in effect, a command system and wasto an extent effective in reaching consensus at the board level in regard to

7

targeting and implementation of credit lending. It did not prove to be asefficient in dealing with the effects of changing circumstances, such as whenrelative prices changed, and farmers or enterprises declined to borrow fundsaccording to their original plans. Even with the liberalization of the systemin 1990, when all farmers, including non-associated farmers, became eligibleto receive credit, the above situation has not changed significantly in thatindividual non-associated farmers are still not adequately representedregarding their specific interests.

E. IKJLECT 5ymE oN

Variances Between Planned and Actual Progegt Imnlementation

20. Four areas, in particular, reflect significant variance betweenplanned (at appraisal) and actual implementation: (a) The Bank funds borrowedunder the project (about US$92 million) were significantly less than theestimates at appraisal (US$186 million). The B loan of US$50 million, asmentioned before, was not signed (para. 12), and US$44 million of the Bankloan were canceled in 1986. (b) Funds borrowed for the primary productioncomponent constituted only about one quarter of the amounts provided for thepurpose. (c) Implementation of the major part of the drainage componentstarted after a significant delay, and to allow completion of this component,the project had to be extended by two and a half years. (d) The extensionservices component was implemented only to a very limited extent.

21. Interest During Construction. In hindsight, the varianceattributed to the substantial overestimation of interest during construction(para. 12) could have been avoided if, during the project review process, moreattention had been paid to the underlying assumptions in regard to the projectcosts as is currently done through reviews by departmental/regional advisers.

22. Primary Productio* Conmonent. The problem of the lower thanexpected borrowing for the primary production component could have beenmitigated if, at the time of project preparation and appraisal, more attentionhad been paid to the experience gained from similar ongoing projects inYugoslavia and in other countries facing difficult and deteriorating macro-economic situations. In retrospect, the allocation for the primary productioncomponent (originally about US$47 million) was significantly overestimatedwhen compared to other similar loans in Yugoslavia. For example, in acountrywide multipurpose credit project (Loan 1801-YU), whose implementationperiod overlapped for about three years with that for the project, it tookapproximately seven years to disburse about US$55 million of the primaryproduction component.

23. Savings Attributed to Exchange Rate Differences. Savingsresulting from exchange rate changes as a result of the faster rate ofdevaluation of the Dinar against the US dollar as compared to the rate ofdomestic inflation could not have been foreseen at appraisal.

24. Delay in Implementation. The drainage component consisted ofseven subareas. Some communities that initially expressed interest inborrowing funds under the project for this purpose later decided to drop out.Others delayed their decision until they could observe the results of thedrainage implementation investments in the first few areas, and also because

8

of the uncertain macroeconomic environment. Some new coumunities were allowedto come in as substitutes for those that dropped out, but the inclusion ofthese now drainage areas required significant lead time for preparation.Bidding documents were of differing quality standards, and were generallyprepared well after the concerned projects had been approved by the Bank.Some of the delay could have been avoided, but at a cost of not implementing amajor part of the drainage component. Since the experience in implementingthe drainage schemes in the first two areas was positive, extension of theloan closing date to accommodate completion of this component was justified.

25. Extension Services Component. A master plan for extension andresearch for SR of Serbia was prepared by the Agricultural University ofZemun. However, the master plan was not implemented because the SerbianGovernment did not have the budgetary appropriations for it, and because,under the socio-economic system at the time, each agro-kombinat wasresponsible for providing its own extension services. In retrospect, itappears that these factors may not have been sufficiently appreciated atappraisi.-. The sub-borrowers for the extension services were social sectorenterprises (for all the elements other than the master plan for extension,para. 8 (c)), but the beneficiaries were to be the individual farmersassociated with the social sector. Since the social sector enterprises werereluctant to bear the foreign exchange risk for loans that would benefitindividual farmers, this component was implemented very slowly and most partsdid not materialize. Again, in hindsight, these implications may not havebeen adequately appreciated at appraisal. However, the Yugoslav counterpartsdid not object to including the extension services component under theproject. It is, therefore, difficult to see how this variance could have beenavoided.

Identification of Proiect Risks

26. Most of the projeet risks that actually transpired were identifiedin the Staff Appraisal Report (SAR). However, the risk of macroeconomicinstability, which the project encountered throughout its implementation,impacted on project performance much more significantly than was foreseen atappraisal. The SAR identified the possibility that farmers might be reluctantto invest if there were to be significant changes in input/output priceratios. It suggested that these would have to be dealt with on a case by casebasis as new price ratios developed. Since the Bank loan was, by and large,directed credit, there was little flexibility given to the executing bank todeal with any adverse impact on a case by case basis, short of canceling partof the loan. Agrobanka, to its credit, developed a system of lending in kindfor primary production, which was quite successful in offsetting thedetrimental impact of inflation on demand for credit (para. 38).

F. PROJECT RESULTS

General Assessment

27. Overall, the project results were mixed; objectives weresubstantially met in respect of some components whereas success was limited inthe case of others. The drainage component can be considered a successbecause the expectations of the beneficiaries were met in regard toimprovement in production yields and income. Economic rates of return of the

9

subareas under the drainage component are likely to meet the expectations atappraisal. The financial and economic results of farms which received creditunder the project for investments under the primary production component arelikely to be satisfactory as well. In respect of institutional strengthening,there has been a noteworthy improvement in the operations of Agrobanka.However, the achievements in respect of the agro-industries, supportingservices, and extension services components were much more limited. Whiletwenty-two of the twenty-nine originally planned agro-industries andsupporting services were established, only six of the investments showedpositive financial results, the rest facing significant financial difficultiesthat stemmed, to various degrees, from ineffective management, marketingproblems, insufficient capacity utilization, insufficient raw material supply,poor domestic demand for the manufactured products, barriers in foreignmarkets, an overvalued exchange rate, and other causes. Improving thesituation in the agro-industries would require, among other things, thedevelopment of a program of privatization and restructuring. Although thishas been generally the intention of both the Federal and the Republicangovernments, the appropriate enabling legislation has not yet been enacted,and prospects in this regard remain uncertain in the face of the currentunclear political situation in the country.

Project ImDact 4

28. The project has had a significant impact on the development of thetwo regions that were targeted under the project, and the economy of Serbia ingeneral. The project has not yet reached its full development potential, butbased on an estimated Incremental Capital Output Ratio (ICOR) of 3 foragriculture in Yugoslavia, the project cost, estimated at about US$230 millionin 1991 prices (Part III, Table 3), would generate at the project's fulldevelopment, an estimated total production valued at about US$75 million ofwhich about 60 percent to 70 percent would be value added. At appraisal, theestimated FAR varied from 13 prercent to 60 percent for the primary productioninvestments, 12 percent to 17 percent for the drainage component, and 13percent to 28 percent for the agro-industries and supporting servicescomponents. Most investments under the drainage and primary productioncomponents are likely to be within the range estimated at appraisal. Theinvestments in the agro-industries and supporting services have not yieldedthe results expected at appraisal. However, many of thiem, with improvedmanagement and restructuring, could possibly turn around and produce betterresults.

29. From the point of view of human resource development, the projecthas had a major contribution. Approximately 2,000 new jobs were created, ofwhich about one-third are estimated to have been for skilled labor. Theseincluded technical staff or engineers in food processing enterprises,agronomists in chicken breeding farms, nurseries, orchards, and horticulturecrops. The physical environment was also improved, as a result of eliminationof water logging, while preserving areas of marshes, forests and green belts.The environmental authorities in Yugoslavia have not recorded any significantdetrimental impact arising from the project on wildlife or fauna in the

J/ Bem c li. ongingamdlUl Yugohta maiotduDa tmet plci resuieonde _s - ctnceled.TeWe Is tc OUg da to iesMst VW M edtuMM cd lit. lWesdtmWs K nd s bb ma eNdor MUMasu cb su MOinkde on.

10

project areas. In regard to the social environment, the project areas,considered to be poor and underdeveloped by Yugoslav standards, haveexperienced robust development. The project also resulted in increasingdemand for improvement of the social infrastructure, but the funds availablewere insufficient to meet this demand. The Yugoslav authorities requestedthat a new project financed by the Bank should address this issue. Lastly,during the course of project implementation, there has been a noteworthyimprovement in the institutional functioning of Agrobanka: a well-organizedmanagement information system was put into operation; a monitoring andevaluation unit was established and consistently provided Agrobanka'smanagement and the Bank with well-informed reports; remarkable improvement hastaken p'ace in Agrobanka's accounting system; and the project unit inAgrobanka has become a well-administered and managed organization.

G. PROJECT SUSTAINABILITY

30. Project benefits are more likely to be sustainable in certainareas than in others. Most investments under the primary production anddrainage components are expected to be sustainable, and to be able to maintainan acceptable level of net benefits throughout their economic life. In regardto the agro-industries and supporting services components, sustainability isnot assured for all the investments under the components. Most of theseinvestments, including even those that are presently profitable, are likely toneed substantial restructuring in regard to management, accounting, marketing,production, labor force utilization, and ownership. However, suchrestructuring goes beyond the scope of this project, because the difficultiesexperienced by the investments under the project reflect issues resulting fromthe socio-economic system of the country. Project sustainability will alsobe subject to stabilization of the macroeconomic situation--inability of theGovernment to stabilize the economy and control inflation would drive manyproducers out of business, including those in the project areas. Finally, theoperation and maintenance of the drainage system as established under theproject is critical to its viability, and in that regard, appropriate userfees, and their efficient collection and management, are imperative.

H. BANK PERFORMANCE

Bank Performance Durin2 Pre2aration and ApDraisal Phase

31. The Bank provided skilled and competent staff for t...eparation andappraisal. As a result, the Bank gained the confidence of the Borrower, theexecuting bank, the Government of the SR of Serbia, and other institutionsinvolved in the project organization and implementation. However, the mainfocus of the Bank's review was the engineering and economic justificationaspects of the project. The inadequacies in the financial management systemof Yugoslav enterprises, however, was an issue that was not appropriatelyreviewed at the preparation and appraisal stage. The Bank does not appear tohave seriously questioned the way that the financial system was functioning,even though it was the main cause for the financial and economic failure ofinvestments and enterprises as going concerns.

11

32. The staffing of the Bank missions at the preparation and appraisalstages did not include financial analysts. Consequently, there was nocritical review of the financial position of the investing enterprises, andsignificant deficiencies in important areas such as adequate managementinformation systems, cost accounting practices, cash flow projections, andother elements of appropriate financial discipline were insufficientlyaddressed.

33. Bank missions would seem to have made only a cursory review of themarketing aspects of investments, particularly when it involved sizable

* exports into markets that were not tested, and tended to accept investors'claims regarding the viability of the exports or that such exports were notsignificant in comparison to total market demand.

34. The Bank's review of Agrobanka was documented in a meticulousdiagnostic report that covered almost every aspect of the bank's organizationand its operations. Despite substantial shortcomings that the report listed,including inadequate organization, insufficient staffing, lack of internalauditing, inadequate accounting, and deficient training, Agrobanka wasrecommended to be the executing bank for the project in the expectation thatimprovements in its operations could be secured relatively quickly. Inpractice, this could only be gradually achieved over a number of years (para.29), which affected project implementation unfavorably during the early years.

Bia Performance Durins Im2lementation Phase

35. At the beginning of the implementation stage, Bank supervisionmissions encountered typical issues concerning procurement and interpretationof the legal documents. However, it immediately became clear that the projectfaced difficult problems that resulted from Agrobanka's relative lack ofexperience to undertake its tesponsibilities for this complex project. Theproject unit in Agrobanka at first lacked adequate leadership, and its stafflacked experience in banking operations in general, and in projectimplementation in particular. The accounting system in Agrobanka was mostlymanual, and the project accounts, the foreign exchange accounts, and thegeneral accounting of the bank were incompatible with each other. Inaddition, there was no consolidated client account system, and the clientaccounts and the bank accounts were incompatible. Agrobanka also did not havea monitoring and evaluation system. All these shortcomings were pointed outto Agrobanka's management during Bank supervision missions, and were graduallyremedied over time (para. 29). The Bank demonstrated its support duringimplementation by providing skilled and competent staff for supervision. As aresult, the Bank gained the confidence of Agrobanka's staff and management,and investors, who accepted the Bank's advice on issues concerning projectimplementation and management. Cooperation between the Bank, Agrobanka, andinvestors was based on mutual respect, and generally facilitated improvementsin impleme :ation of the project. The main weaknesses, on the other hand,related tu: (a) the overall complexity of the project which called fordeployment of much higher supervision resources than proved possible in thelast three years of implementation because of budgeting constraints; and (b)occasional delays in processing bidding documents. This was later remediedwhen specialized staff were assigned to deal with procurement issues.

12

Lessons Learned

36. The main lessons from the experience under this project are: (a)The implications of a distorted and deteriorating macroeconomic environment onsectoral operations, like the project, should be more explicitly assessedduring project preparation. In hindsight, it would appear that the projectconcept was formulated without sufficient regard to difficulties stemming fromproblems in the macroeconomic environment; because of this the borrowing forprimary production, and the results of the investments in agro-industries andsupporting services, have been substantially less than expected. (b)Attention must be paid to the link between formulating a comprehensive projectconcept that would relate primary production to end-users (agro-industries),supporting services, marketing, and both the individual and the social sectorsinvolved in the production activities. (c) Directed credit in a Bank lendingoperation may have some justification if the market mechanism has notdeveloped sufficiently; however, the project may have been over-designed inthis respect in that it deprived sub-borrowers of the flexibility required toadjust to changing market and economic conditions. (d) The difficulties inproject implementation arising from the complexity of a project that includedso many components demonstrates the need to simplify the project concept fromthe outset. It was necessary to have several supervision teams to coverdifferent aspects like drainage, agroindustries, primary production, creditoperations, and the institution building activities concerning Agrobanka.Without adequate supervision resources, it would be difficult to focus oneffective implementation of such a complex project, and to provide timely andappropriate assistance to the Borrower and the beneficiaries. (e) Timelyevaluation of the financial management system of the project beneficiaries andintermediary banks is essential in diagnosing elements that are critical tothe project's successful implementation. (f) The technical assistance needsunder the project were identified correctly but, in retrospect, withoutsufficient regard to relevant management and organization aspects, and theirfulfillment proved difficult utider the politically uncertain envirorment.These considerations apply as well to the extension services under theproject, and to the improvement of the operations in Agrobanka. Under thesocio-economic system prevailing at that time the Government had no role inproviding extension services. Despite the substantial improvement in theoperations of Agrobanka, many more improvements are needed which can only beundertaken under a comprehensive reform of the banking system. The Bank hadbeen engaged in supporting the Government in its efforts to carry out afundamental reform of the financial sector which, however, was brought to ahalt by the outbreak of the hostilities in Yugoslavia.

I. BORROU PEPRNANCE

Borrower Performance During Prenaration and Appraisal Phase

37. UBB was the nominal borrower and did not play a significant roleat any stage of project preparation or implementation (para. 17), except forparticipation in the negotiations for the project and for the cofinancing.Agrobanka acted on behalf of the Borrower as the executing agent and handledall the business that related to the project. Agrobanka was cooperativeduring the preparation period and served well in its capacity of coordinatingthe various organizations involved in project preparation (para. 18).

13

Borrower Performance During Proiect Implementation

38. The initial period of implementation was particularly difficult.There was a large turnover of staff and managers in Agrobanka during the firstthree years with adverse effects on project implementation. The situation,however, gradually stabilized and the staff became increasingly effective inperforming work related to project processing and management. To counter thedecreased demand for credit by the individual sector as a result of the highinflation rate in Yugoslavia, Agrobarnka introduced a unique system of creditdenominated in kind for financing primary production. Under this system theterms of a farmer's loan were fixed in terms of the commodity to be produced,and the interest was set at 12 percent for the life of the loan. ForAgrobanka the value of the principal varied according to the price of thecommodity, and the real interest rate was the same as the nominal rate if theprice of the commodity rose with the general price level. Agrobanka, ofcourse, took the risk in case the commodity prices rose to a lesser extentthan the general price level. Nevertheless, the system encouraged an increasein demand for borrowing, and to that extent was very successful.

39. During the second half of project implementation, Agrobankaperhaps performed better than most other financial intermediaries that managedBank- financed projects in Yugoslavia. Aspects that showed particularimprovement were the timely submission of progress reports, consistentcollection of information regarding monitoring and evaluation of projectperformance, timely preparation of annual reports, improved managing ofdisbursements and collections, and timely repayments of amortized loans.Performance in certain procurement matters was less than adequate at times,but progressively improved. Agrobanka was generally cooperative andaccommodated itself well to the requirements under International CompetitiveBidding (ICB) procedures.

40. Compliance with ptovisions of the legal documents was mixed. Thefirst main area concerns the onlending interest rate. Under a provision inSupplemental Letter No. 7 that refers to the Letter of Development Policy of1983, Agrobanka was supposed to adjust upwardly its onlending interest rate atthe start of project implementation. This provision was not complied withuntil at least the middle of 1985. However, Agrobanka was not exceptional inregard to non-performance in respect to the interest rate provision. Mostother banks in Yugoslavia would seem to have not complied with the interestrate guideline of the 1983 Letter of Development Policy. The second arearelates to a provision in Schedule 2.C of the Project Agreement thatstipulated that 'repayment of the principal of the portion of Sub-loansfinanced out of the proceeds of the Loan shall be determined from theprojected cash flow of the Investment Project financed." Non-performance inthis case arose from the view taken by Agrobanka (and other Yogoslav banks)that, under a provision in then prevailing Yugoslav Banking Law, a bank was afiscal agent of its borrowers. This meant, according to the Yugoslavinterpretation, that the terms and conditions of Bank lending to Agrobankaapplied to the sub-borrowers as well. This dispute was not resolved until1990 when the banks in Yugoslavia became joint stock enterprises under theongoing reform program. By then, all the sub-loans under the project werealready signed. The third area concerned foreign exchange risk. Inaccordance with Supplemental Letter No. 6, social sector sub-borrowers weresupposed to bear the full foreign exchange risk. This was only complied within regard to the direct foreign exchange portion of sub-loans. However, when

14

it concerned the indirect portion of the foreign exchange in sub-loan, theNational Bank of Yugoslavia undertook to bear the full foreign exchange risk.This issue was not resolved until 1987.

J. PQaICT RELATXIUNSgIP

41. The relationship between the Bank and project management remainedexcellent at all times. Although, Bank supervision missions from time to timepointed out to Agrobanka various shortcomings, this was accepted as beingconstructive, and sincere efforts were made to correct deficiencies. Thisresulted in a significant improvement in Agrobanka's performance of itsresponsibilities during project implementation. In particular, the exchangeof technical views in regard to the drainage component of the project wasproductive, and helped in upgrading the design of the concerned sub-projectsand their implementation. A very good relationship was also establishedbetween the Bank and the Social Accounting Service (SDK); this was useful indiscussions concerning the annual financial statements of Agrobanka, andresulted in streamlining certain accounting procedures in Agrobanka. The SDKrepresentative occasionally joined the Bank field supervision team andprovided significant assistance in clarifying various aspects of the sub-borrowers' financial statements.

K. PROJECT DOC!NENTATION AND DATA

42. The SAR and loan documents followed the standards of otherYugoslav agricultural projects. Because of the many changes in political andeconomic conditions in the country during project implementation, the value ofthe SAR for project implementation was, thereby, limited.

43. Agrobanka prepared good semi-annual progress reports, andexcellent annual reports based on adequate monitoring and evaluation.

1S

PROJC CG TION ItPORT

YUGOSLAVIASERBIA REGIONUL DEIZOPiT PROJECT

LOQANI 230-_

PART IIl PROJECT RMVIEW IRO= BORROWER'S PERSPEC

The draft PCR was sent to the Borrower for comets, butnone were received.

d dod d d dl d, dl R d n lE

E~~~ U __ 3 _d _d dgf

- _ _--- - - - I - I I - -

Fi E o

0iE|!XXX§MEE

'-4 E¢ESa33ii f

AR r '- 46tgipi l8X4||i2f

0SFS2

~- =====

ii IiI}t l' II

'-4l 0g 1-1

i_~~ ~~ ;1 4 10*g! Xiibi gi

co~ ~ ~~~c

0' a a1114111 - a a1 - i i -- - - a

r1~~~~~c

11881# #+PPPiCttitSm

,0 j~~~~~ ~~P 1I IIII

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20

Table 4: Proiect -Cost (US$ Million)

Compofloot _ _ _ _" IMLocal PoFOlgP Toma Laws____ Fonig TOMa

On Fean 6m SUus 1.4 S24 113.8 122 184 30.6

Suppo SMM 31.4 3z? 64.1 36.3 19.4 #i.7

E8de ton SerIc. 1.5 1.4 2.9 0.1 02 0.3

AgOIrAtaY383 3a. 74.9 39. 2.7 672

Oralne M15 187 34.0 42.3 1&2 65

AqofognrIa 0.3 0.3 _ _

Total Se Coa 147.9 142.1 200.0 130.4 85.9 216.3

PhyaSconlngnoth 3ie 14.9 28.5 ma0M

mm ca mnclc. 21.0 19.9 40.9 .n.

Total PROW cam 82.5 176.9 359.4 130.4 85. 2183

FfortEndFee 1.0 1.0 ntL 1.0 1.0

mm" 9ow Conls 91.3 34.1 125.4 7.a 7t1 14.9

Total Raoi"et |Wf 273.8 | 212.0 r 4856 f 138.2 | 94.0 2322

Table 5: Proiect Financina (US$ Million)~~~~~~~~~~.

sum Appala E-tm AdI'

-cd 8u* 136.0 "A

A _ __ 1 0 1258 38.3

SPUR 25.1 1 18.3

Locld SW" 127.0 4.7

lieaos COnC _to 71.9 429

TOTAL 488 252.2

3 Ema Cost d IAmwtl rvUeId up to eomba 31. 190t

!J The Owe Of ls locl ftia Wu WAl uptO Osmmw 31.1 i9

jQ tU niiae tapeslta oiadn ono abutUS50mIlIn oudsuplmn goalmsswo oug

21

Table 6: Proiect Results

Investments Implemented Uner the Ploiect

A. Amroindustries and Suorting Services

The suiwp d ATV of nvstmnt '

I. FAt JiU fMey ht Vae n n I peduln cactY fom 14 to 11_________________ 26 thousand tone per etr. _VW

.Z Gran Eevaar ad oiw in vaElb Cw aply d iO0O tons a dr wi.______________ cy dapaclof 12 t/h.

3 ane Room" In Vaoi Ma cpacty of 10.250 tons.

4. CoNd Stoa ant FM Us V e Incrm cIan ay m 3 to8 thousandtoas and now feezngte l itW 1.5 t/h

I. Cold Stoe Pan In S8bac Cpi 1zOoO tos 11.

PaP Cl at In Iuboa New MOo of pmne cad capcty 3.O00 tofn 39

7. Percpan hls In Oena C4pa 1o 50 tons per annum. 1O.

8 Cold Store Plant ILaoo Capacity of 5800 ton$ a horem In 4J__ be dialtber Cap4iy by 2000 tos l

9. vegetale on Rpat In Vaco Gadle Inf iC In Cspety f tm mNtan_t asproc n m t18 to 55 thousa tons,

10. feed MMa b Poc In Capacity ffam 30 to 50 stousand 0ttoil

1I. Col St e P"nt Ir Pac Capacty of 250 tons an feming tune 7f 2.5 t/h.

12. Seed RooMng Plant In Sabc CapacIty 34.000 tons per annum 11.6

3. lm an PAn In Sova Capacity d0 tons ot drtd plum pw 1.0anntum

14. FPum Cry od _ I Va w d t200 tons o a"d plum pw

1 ToDaco ytg and cn" Par in CsPedY d 5.000 tn Of cured atoao per Q S

la Storage Pte WA Shac S OD Storage atils wAth toa 240 ubcm 1JWordStops capacty a4 sewc uuops _______________

17. Chkn Fafm and atcry In CapaCty to a 60.000 onety old chIc 55

vtadlr and hatche r 8.4 mSL. eggs

18 Chcken reedin Pain In Powa Capaiy ofIt00 ancstl pbr and a.n

1hac d 1.5 mi eggs

t9. Seed rocong lt In POazravc Capaciy d 10.000 ton per anm. 4.1

20. Sneep Brdng Farm mI Z2ubca Capacy d 2000 wes and 5 rat an 0A_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ~devslOPMerit 0(40 ha mteadoWs.L_ _ _ _ _ _ _ _ _

21. Famin MechanIzato in PozmArew Rnancing agIculftua machlney and6mequ.pmm _ _

2. Plg Bren Fum in Vezil PRana Capc it 1,1000 so and forow h lm as

S es on kted bIAstment as d De er 31. 1900

22

B. Drainag2

Eight sub-projects were completed as follows:

Area Name Ha Amount (USS million

Danube Region

1. Zabari 7,074 16.92. Malo Gernice, Right Bank 1.311 2.23. Halo Cernice, Left Bank 1,750 2.44. Petrovac - Rosanac 3,342 8.45. Zabari Extension (Kusilijevo) 2,168 2.16. Smedervska Planka 3,600 7.67. Equipment for O&M 3.0

Kolubara Region

8. Velika Plana 3,400 3.59. Cer Canal 7,771 9.510. Equipment for O&N 2.7

11. Gravel Roads Along Mainand Secondary Drains 2.2

Total 30,416 60.5

j3/ Rswu as d Decembr 31. I80

23

Table t- Status of Legal Covenants

Section of Loan Short Description | Complianceor Project IAgreement1 31

PA Section 2.04 Require any of the Social This provision was only(a)(vii) Sector Sub-borrowers: (A) to partially and

have its accounts and inconsistently compliedfinancial statements (balance with. Most of thesheets, statements of income social sectorand expenses and related enterprises, in fact,statements) for each fiscal have not complied withyear audited in. accordance this provision, but alsowith appropriate accounting those enterprises thatprinciples consistently attempted to comply,applied by the Social were unable to do soAccounting Service; (B) to because of thefurnish to Agrobanka as soon difficulty faced by theas available, but in any case Social Accountingnot later than six months Service due to theafter the end of each year, shortage of auditors incertified copies of its Yugoslavia.financial statements for eachyear as so audited and thereport of such audit;

PA Section 2.10 Promptly after completion of Not complied.(e) the project, but in any case

not later than six month afterthe Closing Date, Agrobankashall prepare and furnish tothe Bank a project completionreport.

PA Section 4.02 Agrobanka shall have its Complied.(a) accounts and financial

statements of income andexpenses, and relatedstatements (balance sheets,statements of income andexpenses and relatedstatements) for each fEscalyear audited by the SocialAccounting Service.

Table 8:continued

_LM " D4USSt I MtW a LA OM RPOM sOPmM* a PX

24

PA Section 4.02 Agrobanka to submit certified Complied(b) financial statements and SDK

audit reports on a yearlybasis, within six months ofthe end of each year.

PA Schedule 2 1. Sub-loans to individual Not complied.B. (b) (v) farmers should include

provision of extensionservices and recovery ofservice charge.

PA Schedule 2 C Repayments of sub-loans Not complied.financed out of the proceedsof the Loan shall bedetermined from the projectedcash flow of the InvestmentProject financed.

Table 8: Staff Inuts staffteeks

FY81 FY82 FY83 FY84 ms FY86 FY87 FY88 FY89 FY90 FY91 Total

Lending Operations

Pro-appraisal 7.8 67.3 3.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 78.7Appraisal 0.0 13.9 92.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 106.7Negotiation 0.0 0.0 10.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 10.5

Subtotal 7.8 81.2 106.9 0.0 OgO 0.0 0.0 0.0 0.0 0.0 0.0 195.9

Project Supervision 0.0 0.0 1.4 24.0 27.9 28.2 10.0 27.3 15.7 19.7 9.3 183.5

TOTAL 7.8 81.2 108.3 24.0 27.9 28.2 10.0 27.3 15.7 19.7 9.3 379.4

26

Table 9: Lsion Dal&

Hisslo Hsntb It. og Da,L s.uSeaaLat.ln foumuo. Tle. ofYew Perz,s Field Re4"sead a/ Rating b/ TSrcd Psfblis ct

IdeatifticatU 03/61 1 6 AIdet±ficat$n 06/81 3 4 A.lN.!Pr.ooat1ont 09/81 5 it AIN Y. E EPresat403 12/81 1 3 APrepeatIam 02/82 3 9 A.F.ZAppaieaJa 08/82 .L& ; A,f,A,llE.,.HM,NF,D.O

subtotal 24 57

Superviason 1 05/83 4 10 z,e,a., 1 2 F.M.TSupervision 2 03/84 3 4 1.3E 1 1 F,MSuperviuion 3* 02/84 1 8 3 1 1 TSupervs1ion 4 10/84 2 12 1,F 3 3 F.MSuperviston 5 03/85 2 18 I.? 3 1 F.MSupemar on 6 09/85 4 21 E1Y N,V 3 2 F.A.?Supesvision 7* 05/86 1 3 N 1 1 TSupervision g 05/88 3 7 Ely 3 3 F.M,tSupevision 9 05/87 3 9 F.F.R 3 3 F.M.tSupervision 10 06/88 3 It Z,1, 2 2 F."Supervision 11^ 08/89 1 13 I 2 2 TSu>pevsion 12 05/90 1 14 F,3 2 Z F.tSupervision 13 11/90 I 5 E 1 2 F7M

Subtotal 12 131

TOTAL a

8 A - Agriculturalst. K - Eonomist, F - Financial AnsLyst.i - Enuginer, I - Iortioulturist, M - Marketins Speotalf t0 - Education

b/ 1 - Mint prblm. 2 * toderate Prablms 3 - ItWe loblew

/ F Financial, T - ocbnical. M - anagerial

upervision of the drainage component only.

34/ Thep at FAO/CP mimlnewiUch low ple bi 9 ot1 .aZe IcerS v* PedduUlem ib nut _

AUSTRS .. NG 20 SEPTEM1lER 19M

YUGOSLAVIA r f < R ROMANIA

SERBIA REGIONAL DEVELOPMENT PROJECT * .4 0 ' .4

DANUBE REGION * ROMANIA.R J. RO< AA A0 N I A Zk ,tt

* ^ Coldstore V O VODIN8 Animal Feed /Mitt* Center

4oW Sed Processing R.rAEO

t Milk 4foducoicn i Pose<so ; j

M Sbeep Sreeing 4

I J Cattle FatteningN Piglet Production 0#39 40

M Pig Fattening m

II Broiler Fattening A @ Eggs Production

® BeekeepingFruit Orchards T

A Extension Services

a an Drainage AreasVineyards PODRUCJE iA3

IL Oil Factory BEOGRADAU Mechanization KuUvoesc

@ Poultry FarmVine Rootstok Nursery\Y

SOMIEPrimary RoadsSecondary RoadsrhMTertiary Roads \t A Xk2:l7 |

-s--Railways '

S z Rivers a ( / J / i *-'* \ ) ZAJECARSKI

Commune Boundaries REGIONRegion BoundariesRepublic and Autonomous Province Boundaries

. International Boundaries

ELEVATIONS:

500 -1000 meters200-500 X }< Voa b

la 10- 200 Tob $ W)

O 10 20 30 Kilometers SUMADIJSKO- POMORAVSKI REGION

teed&*. .hm~*, 5.. dm v.*,. mfd Wsd dU.*.If.o,5 of .55 5.b .. e . id.*Tw eXU# ##y4 4lL>@UP#4S4'7Ss4fl8wf

IBRD 16601-SEPTEMER E19l;

YUGOSLAVIASERBIA REGIONAL DEVELOPMENT PROJECT

KOLUBARA REGION

ELEVATIONS: Primary Roads A Juice Production1000-2000 meters Secondary Roads 0 Finishing and Packing of Prunes

500 -1000 Tertiary Roads DO Grain Elevator with Dryer

200-500 Railways U Coldstore

S R BOSNA t S E so =_ 0- 200 ---- 'iuers Service W orkshop10 - - - - ~~~~~~~Subregional Boundaries Fuel Oil Storage

HERZEGOVINA Region Boundaries Milk Collection CenterVOJ VODIIVA -.- Republic and Autonomsous 0 Plum Dryer

Province Boundaries S Mechonized Sugar Beet Productionm ~~~~~~~~~~~~~~~~~~International boundaries 03Mill and Flour Elevator

o Animal feed Mill* Center for Seed Processing

9| Broiler Hatchery

13Poultry SlaughterhoAseTo Balgnrde 10~~~~~ Fruit Nursery

41 Center for Medicinal Herbs/ < 9 g3 li V l a d - 5 (TERITORIJA I "Redrying" Tobacco Dryer

BEOGRADA ® Prune Coke* Communal Slaughterhouse

ADairy / Beef Farm

IlSheep BreedingI.lCattle Fattening

(I ~~~~~~~~~~~~~~~~~~~~~~~~Piglet Production-- -. III ~~~~~Pig Fattening

IlBroiler Fattening

@ Eggs Production

ID 70 Fitovo Uiico ; 7itovo UzBeekeeping*Fruit Growing

A Extension Services

ljoacDrainage Areas

Kilomneters

die cwirrEiianca of tile macrate or ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ A T / 1~~~~~ ROMANiOANI

flk apha he prwwadby the

EzY Lvlaflt convenmceh of o U

w W*&y w any ~~~~~~~~ ~~~~~~~~~~KRALJEVA& KIREGIONW cracaptac Of such hacnsdaias

To Titovo Ulice , r'v ice*.EC