Document of v t, 4 8 0

The World Bank

FOR OFFICIAL USE ONLY

Report No. P-2680-RO

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

TO THE

INVESTMENT BANK FOR ROMANIA

WITH THE GUARANTEE OF

THE SOCIALIST REPUBLIC OF ROMANIA

FOR A

DANUBE-BLACK SEA CANAL PROJECT

December 26, 1979

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

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CURRENCY EQUIVALENTS

Currency Unit : Leu. (plural Lei)

1. Official Rate

Lei 4.47 = US$1.00Leu 1.00 = US$0.22

2. Tourist Rate

Lei 12.00 = U$l.00Leu 1.00 = US$0.08

3. Conversion Rate for Traded Goods

Lei 18.00 - US$1.00Leu 1.00 = US$0.06

The Official Exchange Rate of lei 4.47 per US$1 is used only for accountingpurposes. The rate used for tourist transactions is lei 12 per US$1. Be-ginning in March 1978, a trading rate of lei 18 per US$1 has been used to

convert the prices of all traded goods; this rate is considered representa-tive of the average cost of convertible foreign exchange.

Fiscal Year

January 1 to December 31

GLOSSARY OF ABBREVIATIONS

AFDJ - River Administration of the Lower Danube

DBSCC - Danube Black Sea Canal Central

DWT - Department of Water Transport

IEPC - Constanta Port Enterprise

MTTc - Ministry of Transport and Telecommunications

NAVROM - River Navigation Enterprise

ROMTRANS - Romanian Maritime Fleet

FOR OFFICIAL USE ONLY

ROMANIA

DANUBE-BLACK SEA CANAL PROJECT

LOAN AND PROJECT SUMMARY

Borrower: Investment Bank of Romania

Guarantor: Socialist Republic of Romania

Beneficiary: Danube Black Sea Canal Administration

Loan Amount: US$100 million equivalent

Terms: Repayable in 15 years, including a 3-1/2-year grace period,

through semi-annual installments, with interest at 7.95 percent

per annum.

ProjectDescription: The project would consist of the construction of a 64 km canal

from Cernavoda on the Danube to South Constanta-Agigea on the

Black Sea. It would include construction of three ports on

the canal (at Cernavoda, Medgidea, and Basarabi), two locks and

their operating equipment (at Cernavoda and Agigea), related

ancillary works and equipment (such as service roads, rail

connections, utilities, buildings, signalling and control

systems), and replacement, reconstruction or relocation of

existing transport, irrigation and other facilities affected by

the construction of the canal. The benefits for the Romanian

economy of using its low cost energy saving inland waterway

system more fully for large volumes of bulk cargo movement

would be considerable as would the benefits generated from

savings in ocean freight costs as a result of using large bulkcarriers. The project would also benefit other Danubian

countries, and would become an integral part of the European

waterway system when the Rhine-Main-Danube canal is completed

in 1984. It would also help accelerate economic development

in the relatively poor Dobrogea region through which the canalruns, and provide local irrigation and power benefits. The

risk of the project not being completed on time is small.

Our traffic assumptions on the value of imported materials

transported on the canal are conservative and are based on

production targets, planned plant location, raw material

requirements and export estimates made during the recent

subsector studies on the steel and chemical industries, the

two principal users of the canal. The risk of a shoytfall in

traffic is thus small.

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

Cost Foreign xEstimates: Local Exchange Total F.E.

-------------( 7u mMillon)…-----------

Civil WorksCanal 679.4 310.9 990.3 56.6Locks and Canal ports 97.0 78.0 175.0 10.0Other 84.2 28.5 112.7 6.4

Equipment 58.1 13.4 71.5 4.0

Signalling and Control 3.7 0.7 4.4 0.3

Expropriation and Compensation 19.7 - 19.7 1.1

Other 114.4 - 114.4 6.6

Physical Contingencies 95.1 38.8 133.9 7.7

Price Contingencies 46.7 81.4 128.1 7.3

Total Project Cost 1,198.3 551.7 1,750.0 100.0

ForeignFinancing: Local Exchange Total

---------(US$ Million)-------

State Budget 1,198.3 301.7 1,500.0Cofinancing - 150.0 150.0 /1IBRD - 100.0 100.0

TOTAL 1,198.3 551.7 1,750.0

/1 Notional amount.

EstimatedDisbursements: US$ Million

FY 1980 1981 1982 1983

Annual 5.0 55.0 27.5 12.5Cumulative 5.0 60.0 87.5 100.0

Economic Rate of Return: About 25 percent

Appraisal Report: Number 2676a-RO; dated December 20, 1979EMENA Projects Department

REPORT AND RECOMMENDATION OF THE PRESIDENTOF THE I]BRD TO THE EXECUTIVE DIRECTORS ON A

PROPOSED LOAN TO THE INVESTMENT BANK OF ROMANIA FORA DANUBE-BLACK SEA CANAL PROJECT

1. I submit the following report and recommendation on a proposed loanto the Investment Bank of Romania, with the guarantee of the Socialist Republicof Romania, for the equivalent of US$100 million to help finance the Danube-Black Sea Canal Project. The loan would have a term of 15 years, including3-1/2 years of grace, with interest at 7.95 percent per annum. Cofinancingof about $150-200 million is being sought from foreign commercial lendinginstitutions.

PART I - THE ECONOMY 1/

2. The first basic report on Romania (Report No. 1601-RO, "The Indus-trialization of an Agrarian Economy under Socialist Planning") was circulatedto the Executive Directors on April 20, 1978. As preparation for the produc-tion of a Country Economic Memorandum, an economic mission visited Romaniaduring June 1979 to collect information on economic performance in 1978 andto discuss the 1979 Annual Plan and the new economic measures announced inFebruary 1978. This part incorporates the mission's findings. Country socialand economic data are given in Annex I.

3. Over the past 25 years the Romanian economy has undergone a radicaltransformation and has sustained one of the highest growth rates in the world.The level and diversification of industrial production has increased rapidly,providing the basis for the modernization and expansion of other economicsectors and a general increase in labor productivity and national income.With the transfer of labor from agriculture to industry, the population hasbecome increasingly urbanized. Standards of living have increased substan-tially, not only because of the growth of personal incomes but also becauseof the provision through the state budget of expanded and improved education,medical services, housing and social expenditures of other kinds. Further-more, Romanian participation in the world economy has changed significantly asthe level of trade has risen and its composition altered.

4. These changes represent the outcome of a development strategydesigned to accelerate the rate of growth and to catch up, as quickly aspossible, with the level and structure of development in the developed coun-tries. The main features of the strategy can be summarized as: high andincreasing rates of saving and investment; the creation of a broad industrialbase; the development of local natural resources; the reorganization andmodernization of agricult:ure; the balanced regional distribution of productionand income; the expansion of foreign trade and international economic rela-tions; and the development of human resources.

1/ This Part I is identical to that contained in the President's Reportfor the Covurlui Irrigation Project to be considered by the ExecutiveDirectors on the same date as the proposed project.

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5. The main instrument for carrying out the strategy has been thesystem of comprehensive central planning and management. Economic managementis organized along socialist principles, which include state and cooperativeownership of almost all productive resources and obligatory developmentplanning coordinated by the central party and government authorities. Thenational plan, drawn up on a five-year time frame and elaborated each yearin an annual plan, sets out for the economy, by sector and branch and on aregional basis, specific tasks for economic and social units. It is drawnup through a combination of central directives and aggregation of individualenterprise plans, any differences being reconciled through discussions betweenthe entities involved. Over the past decade, Romania has undertaken measuresto improve the planning and management system, to increase the responsibilityof enterprises in preparing and implementing the plan and to orient theeconomy to a more efficient use of resources (see para 20 for the latestchanges).

6. The technical and functional Ministries are the State's chief agentsfor the administration of economic activity. They are assisted by subordinateunits known as Centrals, which coordinate and supervise activities within acommon branch or industry without being directly engaged in production. Enter-prises subordinate to the Centrals are responsible for production which iscontrolled through a system of financial and physical production targets. Inagriculture, large State farms and cooperatives are the predominant units ofproduction.

7. To achieve the objectives of rapid growth and structural change, theRomanian authorities have made great efforts to mobilize domestic resourcesfor development and to maintain a high rate of capital formation. Over thepast 25 years, investment has grown at 13 percent per annum, and by the 1971-75 Five-Year Plan, the proportion of national income utilized for accumula-tion 1/ had risen to 34.1 percent (equivalent to 27-28 percent of GNP). Thesectoral allocation of investment throughout the period reflected the priorityof industrialization and the creation of a broad industrial base orientedtowards self-sufficiency; approximately 50 percent of investment has beenallocated to industry and, of this, by far the largest part has been directedto the producer goods sector. This has resulted in rapid growth of theindustrial sector, over 13 percent per annum during the last decade, with theproducer goods sector growing more rapidly than consumer goods. In 1978industry was the leading sector of the economy, accounting for 58 percent ofnational income, and employing approximately 33 percent of the labor forcecompared with 14 percent in 1950. Heavy industry, led by chemicals, ferrousmetallurgy, engineering and machine building, comprised 64 percent of grossindustrial production.

8. This industrialization strategy has greatly increased the demandfor raw materials and energy. Romania has concentrated on exploiting localresources of fuels, metals and minerals to be as self-sufficient as possiblein these items. However, in spite of the rapid growth in production of the

1/ That is, net investment plus change in stocks.

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wide range of raw materials found in Romania and recent efforts to conserveand economize on the use of raw materials and energy, Romania has become a netimporter of many important items, particularly coal, iron ore and oil. Therapid growth of energy consumption, 8.6 percent per annum since 1950, has out-paced the growth of domestic production. Having started to import oil in1968, Romania became a net importer of energy in 1973 and in 1979 is expectedfor the first time to import more crude oil than is produced domestically.In response to those changing circumstances, the Government has recentlypublished an energy program for the period 1980-2000, proposing the develop-ment of all energy resources and the restructuring of energy use to reducereliance on hydrocarbons. This program, and the reassessment of futurepetrochemical development which is taking place within the context of thepreparation of the 1981-85 five-year plan, indicates the substantial impactupon the Romanian economy that the oil price increases and the curtailment ofoil production in Iran are having. It is not possible to quantify the impactof the price increases upon Romania's import bill because we have no informa-tion upon the contract prices; however, the impact was certainly exacerbatedby the curtailment of supplies from Iran (which supplied about 50 percent ofimported oil) and the need for Romania to purchase oil on the spot market inthe short-term while looking for new contracts.

9. Notwithstanding the emphasis on industrialization, agricultureremains a key sector of the economy, still employing 33 percent of the laborforce in 1978 (compared with 74 percent in 1950). Apart from supplying foodsand other agricultural products as inputs for agro-industries, the sector alsosupplies about 30 percent of the nation's convertible foreign exchange earn-ings. Though agricultural output almost tripled in the last 25 years, thefaster growth of non-agricultural sectors has reduced the share of agriculturein national income to about 15 percent by 1978. Over the past decade, agricul-tural performance has improved with the increased emphasis on agriculturaldevelopment and the increased investment funds made available. However, thelevel and growth of production have remained below the sector's potential.

10. Romania's population growth is about 1 percent per annum. The rapidgrowth of industrial employment has therefore drawn labor from the ruralareas. The estimated average GNP growth of approximately 9 percent per annumsince 1950, calculated on. the basis of official national income statistics,implies a percentage growth in output per head of about 8 percent per annum,with GNP per capita reaching an estimated $1,750 in 1978, using the Bank Atlasmethodology.

11. The organization of the economy is such that all labor is employed(indeed, required to work). There is, however, some seasonal labor surplusin agriculture. Income distribution is also relatively equal, through govern-ment policy controls over the level, growth and structure of wages. By lawthe maximum wage is limited to five and a half to six times the minimum.Monthly wages were increased by 10.6 percent in 1978 to an average of 2,011lei. The Government also promotes its income distribution policies throughregional allocation of industrial investment.

12. The Government aims to give the population a basic needs package,partly by providing services such as education, health and housing. From this

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basic level, the Government has planned annual increases in living standards.Real incomes have risen at an annual rate of 6.6 percent since 1950, with thegrowth rate accelerating particularly in the last decade as more benefits ofa rapidly expanding national income were channelled to consumption. Pricesof essential consumer goods and services such as foodstuffs, rents and urbantransport remain low and most social services, notably education and healthcare, are provided free of charge.

13. The value of Romania's trade grew at an average annual rate of 13percent in the past 25 years, with a gradual acceleration in the last decade,reflecting not only the effects of international inflation but also an in-crease in the importance of trade, particularly industrial imports, to theeconomy. The level of imports rose in response to the need for capital goodsand raw materials, reaching $8.64 billion in 1978. Exports have also grownrapidly, reaching a level of $8.06 billion in 1978, and the share of manufac-tured goods in total exports has increased to 50 percent, reflecting theprogress of Romania's industrialization. Trade with LDCs and developed marketeconomies has also been increasing rapidly in response to policies of diver-sifying sources of raw material supply and as a consequence of exports of moremanufactured goods. In recent years, there has also been a tendency to moveaway from trade on a bilateral basis towards trade involving multilateralpayments, within the framework of the general trade cooperation agreementssigned with almost all of the country's trading partners. These agreementsalso cover cooperation in production, technical assistance and economicrelations. In 1977 and 1978 the convertible balance of payments deteriorated,however, reversing the trend of the previous three years. After a surplus of$76 million in 1976, the trade balance experienced a deficit of $81 million in1977 as a result of additional imports made necessary by the earthquake, thediversion of export goods to the domestic economy for reconstruction andcontinued weak demand in the developed countries for some Romanian exports.In 1978, the deficit increased to $560 million; to a large extent this was theresult of poor agricultural performance, but it also reflected shortfalls inproduction in some industrial subsectors, continued weak demand in developedmarket economies for some Romanian exports and the need for supplementaryimports of raw materials. With an increased deficit on the invisibles accountof $219 million compared with $192 million in 1977, there was a convertiblecurrent account deficit of $779 million in 1978 compared with $273 million in1977.

14. The structure of Romania's trade with the developed market economiesis still characterized by exports of natural resources and imports of capitalgoods, although there has been a gradual increase in the share of exports inthe form of manufactured goods. Because of the present low level of reserves,any instability in export earnings, as frequently arises from shortfalls inagricultural output or a softening in prices, tends to place the importprogram, largely sophisticated machinery and components and raw materials, inimmediate jeopardy.

Recent Economic Developments

15. The current Five-Year Plan covers the period 1976-80. The highrates and the pattern of growth planned for this period suggest that the

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present decade has been viewed as the decisive period during which Romaniashould overcome the major constraints on its transformation from a developingcountry into a developed and technologically advanced country. There havebeen substantial and comprehensive revisions to the Five-Year Plan targetsduring 1977 to help accomplish this. In July, increased targets for standardsof living were announced and in December, following the Eleventh Conference ofthe Romanian Communist Party (RCP), revised targets for all other areas of thePlan were announced. Also, in January 1978 important decisions were taken toincrease work incentives substantially by allowing workers to participate insharing the profits of enterprises (see para 20).

16. According to the revised plan, national income is to grow at 11percent per annum between 1976-80, practically the same rate as achievedbetween 1971 and 1975. Gross industrial production will increase at 11.5percent, compared with the original target of 10.2-11.2 percent, while grossagricultural production is expected to grow at a rate of 6.9-9.0 percent perannum, which would require a significant improvement over previous resultsin that sector. In addition, investment is to increase by 12.7 percent perannum, approximately the same rate of growth as in the original plan. How-ever, the revised plan contains a larger number of investment projects, as newprojects were added following a reexamination of existing projects which ledto a reduction in investment costs of about 10 percent on average. Thisreexamination, which took place in 1976 and 1977 was part of the generalcampaign to increase utilization of existing capacity and to economize on theconsumption of raw materials and intermediate goods. The volume of foreigntrade is to increase by 109.1 percent in real terms over the five years, amuch faster rate of growth than in 1971-75 when trade merely doubled incurrent prices. Furthermore, the Government plans to encourage the growth ofexports so that it exceeds that of imports, so as to pursue its long-termobjective of reducing external debt and allowing for the accumulation ofreserves. While the rate of growth of consumption will remain below that ofproduction, it will nevertheless be increased under the revised plan. Realwages are now to increase by 32.3 percent over the five years compared withthe previous target of 22 percent. As a result, targets for retail trade andservices for the population have been increased.

17. Although the mcost recently available figures published by the Gov-ernment indicate that the economy is expected to fulfill, more or less, thefive-year plan targets, very high rates of growth of the major economicindicators will be required in 1979 and 1980 to make up for the relativelydisappointing performance in 1977 and 1978. In March 1977, the economy wasdealt a serious blow when a violent earthquake occurred in the east of thecountry, causing damage valued at $2 billion and leading to a detrimentaleffect upon the balance of payments totalling $630 million during 1977 and1978.

18. The Government organized immediately an intensive reconstructioneffort with the stated aim of avoiding any impact upon the implementation offive-year plan targets. While these efforts enabled the economy to continueits growth, 1977 plan targets were only partially fulfilled. National incomeincreased by 8.6 percent compared to a plan target of 11.3 percent and an

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increase in the previous year of 10.5 percent. Economic performance in 1978

also fell below plan, although the economy continued to grow at a relatively

rapid rate. National income increased by 7.6 percent, compared with the

annual plan target of 11-11.5 percent. Gross industrial production increased

by 9.0 percent rather than the planned 10.6 percent, and there are sizable

shortfalls in the production of several major products, particularly oil,

coal, chemicals and food products. Gross agricultural production increased by

only 2.4 percent compared with a plan target of 6.9-16.1 percent growth and

most of the growth was in the livestock subsector. Arable output fell far

below plan targets, partly because of climatic difficulties but also as a

result of managerial weaknesses and shortages of inputs. The shortfalls not

only affected the production of industries using agricultural raw materials

but also resulted in lower exports than planned. Investment, on the other

hand, increased almost as quickly as planned, 16.2 percent compared with a

plan target of 16.8 percent; however, in absolute terms, it did not make up

the shortfall brought about by the earthquake, despite the considerable

physical and human resources introduced into the construction sector. The

transfer of labor from agriculture to the non-agricultural sector increased

faster than planned, and, indeed, the economy, as in previous years, showed

relatively greater ability to create new production than to use existing

resources more efficiently; the targets for increased labor productivity and

reduced material expenditures could not be attained. While production targets

were generally underfulfilled, consumption rose more or less as planned.

Average monthly wages rose by 10.6 percent and real incomes of the population

by 8.9 percent, one percent more than planned.

19. The Annual Plan for 1979 signals no significant deviation from the

previous path. The growth rates published in the plan - 8.8 percent for

national income, 11.5 percent for net industrial production (in keeping with

the new economic measures, the 1979 Plan specifies industrial growth in net

rather than gross terms), 5.1-5.6 percent for gross agricultural production,

16.6 percent for foreign trade, 9.1 percent for investment and 7.5 percent

for real incomes - do not, however, fully reflect the high rates of growth

expected by the Government during the current year. Early in 1979, the Gov-

ernment announced that the shortfalls in production from 1978 should be made

up in the last two years of the plan period, so that the economy may attain

its 1980 plan levels. Thus, for the major indicators the real growth rates

must be considerably higher than those included in the annual plan.

20. In February, 1978 the Government announced changes in economic

and financial mechanisms designed to improve the planning and management of

the economy, to stimulate improvements in labor productivity, in cost reduc-

tion and efficiency of production and also to make existing provisions for

enterprise self-management more effective. The major change announced was

the introduction of net production as a major plan target, both for inducing

enterprises to fulfill plan objectives, particularly in the areas of increased

efficiency and reduction of costs and as the basis upon which worker's wages

and bonuses are paid. In future, enterprises are also to retain a higher

proportion of profits, have increased responsibility for socio-culturalexpenditures, be more concerned in the final stages of the annual plan prep-

aration, be permitted to enter into longer term contracts to ensure a closer

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correlation between the plan and actual contract provisions and will have moredirect responsibilities for the achievement of foreign trade targets. Themeasures are still under detailed discussion, with further refinements beingconsidered, although the major changes in planning, net output targets, profit-sharing and enterprises' financial responsibilities were introduced as ofJanuary 1, 1979. In early 1979, the Government announced that the measuresfor net output and profit-sharing would be extended to cooperative agriculture.In a complementary vein, the creation was also announced of approximately 700Agro-industrial Councils which will coordinate the development of agriculturewithin a given geographical area and provide a forum for determining the mostefficient use of resources in the sector. All these measures are designed tomake the existing management and planning system operate more efficientlyrather than to cause radical changes. However, they are a step in the direc-tion that the basic economic report suggested was desirable if the economy wasto meet its objectives. Furthermore, they will set up new pressures betweenthe various levels of the economy which may lead to more substantial changesin the future.

External Assistance

21. The expansion of Romania's trade with the non-socialist industrialcountries has led to an increased need to obtain convertible currencies topay for imports from those countries. Romania has met this need both byborrowing abroad and by mounting a major effort to expand exports and tourismearnings. In 1978, new commitments of convertible medium and long-term loanstotalled $1,216 million and consisted mainly of supplier and financial creditswith relatively short repayment periods. Gross disbursements of convertiblemedium and long-term loans during the year were $1,167 million. This repre-sented a net inflow of $585 million after accounting for the country's repay-ment obligations. There was also a net inflow of $456 million on short-termloans during 1978. After almost a decade of gradually reducing the size ofoutstanding short-term debt, the Government was compelled in 1977 to reversetemporarily its policy of reducing reliance on short-term debt, because ofthe additional financing needs generated by the earthquake. This action hadto be continued in 1978 because of the size of the current account deficit,which could not be covered by medium and long-term sources, despite Romania'sincreased involvement in the Eurocurrency market.

22. As part of its effort to expand its foreign trade and cooperationrelationships, Romania has also taken active steps to attract long-termprivate capital. A regulation passed in 1972 defines the conditions underwhich foreign firms can establish joint ventures with domestic enterprises,preferably in foreign exchange earning or saving industries. As of November1978, ten joint venture agreements had been signed and a number of othersannounced. In contrast with the earlier ventures, which involved total directforeign investments of only $10-15 million, the seventh agreement, signed inearly 1977 with Citroen, involves a contract of FF 2.5 billion (about $500million) and will lead to a total capital inflow of aproximately $250 million.The eighth agreement is f-or a joint production company with British Aircraftfor the manufacture of commercial aircraft; the ninth is with Data-productsCorporation, USA, for the manufacture of computer software; and the tenth is a

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joint shipping company in cooperation with Libya. However, negotiations havebeen broken off by Romania and Kuwait for the construction of a petro-chemicalcomplex which would have cost $1.25 billion and involved a capital inflow ofabout $500 million. Many other joint ventures are at various stages of nego-tiation.

23. Romania also receives medium-term trade credits from the U.S. Exim-bank and trades under Government guaranteed supplier credit schemes, ECGD,COFACE, and HERMES with the United Kingdom, France and the Federal Republicof Germany, respectively. During 1977, Romania became the first East Europeanrecipient of a Japanese Eximbank loan, receiving $80 million for the expansionof the port of Constanta. In 1975 Romania succeeded in securing a $100 mil-lion, eight-year loan from Kuwait as part of a general cooperation agreementand also a $420 million loan from Iran on concessionary terms. However, it isin its Eurocurrency borrowings that the Government has made most progress inimproving its access to capital markets and in raising substantial sums atgood and improving terms. During 1977, it negotiated two Eurodollar loanstotalling $125 million. In January 1978, Romania negotiated a further $100million on the Eurocurrency market and late in the year, a further borrowingof $300 million. The terms for the latter, an eight-year loan with four-years' grace, are 0.625 percent above LIBOR for the first three years and0.750 percent for the remaining years. As part of its strategy to securelong-term energy supplies, Romania has concluded a long-term contract withOccidental Petroleum for the purchase of coal from the U.S.; a banking con-sortium raised a $53 million loan in April 1978 to finance Romanian participa-tion in the Island Creek coal mine in West Virginia. In March 1979, Romaniasecured a loan of $320 million from a consortium led by Canadian banks tosupplement a $650 million loan by the Export Development Corporation of Canadafor the purchase of heavy-water reactors for the first nuclear power projectin Romania. Finally, Romania has access to non-convertible currency invest-ment credits from the International Investment Bank, Moscow.

24. Nonetheless, Romania's access to long-term finance in convertiblecurrencies is still very restricted as shown by the fact that, in 1977-1978,in spite of the above developments, short-term borrowing has been necessary.The IBRD remains the major source of long-term development finance, althoughRomania is making efforts to improve its access to financial markets. TheBank's presence on a significant scale, and its effort to associate Bankfinanced projects with co-financing through supplier or financial credits,has a positive influence in this regard and serves to build outside confidencein the country, thereby improving in the long-term Romania's independentaccess to the world's financial markets.

Prospects

25. Romania has good potential for further economic growth. Endowedwith important natural resources (fuels, some minerals, timber, rich soilsand sources of irrigation water for agriculture, and a favorable climate foragriculture and tourism) and located conveniently with respect to its majorinternational markets in the East and West, the country has built a broadindustrial infrastructure (power, metallurgy, chemicals) which will serve as

a base for the expansion of secondary manufacturing sectors such as machinebuilding and consumer durables. Above all, Romania has a hard-working andincreasingly skilled population. To attain its growth objectives, however,Romania will have to rely on a major expansion of exports of manufacturedgoods in order to finance modern foreign technology and an increasing depen-

dence on imported raw materials and fuel.

26. Economic growth and structural change call for the introduction ofnew technologies, improvements in the quality of products, more efficientuse of materials and factor inputs and reductions in production costs. Theachievement of export targets requires improvements in the quality of productsand responsiveness to customer demands, areas in which the economy appearsto have lagged in past years. To keep up with these changes and requirements,large programs of education and manpower training have been mounted, invest-ments in scientific and technological research have been emphasized, andefforts are being made to strengthen technical cooperation with industrializedcountries and international organizations. The increasing diversity and com-plexity of Romania's economic structure also require continuing improvementsin the efficiency of economic planning and coordination and further refine-ments in economic management.

27. The growth rate is expected to remain quite high by internationalstandards during the next five-year plan period, although the latest figurespublished by the Government do indicate considerably slower growth between1980 and 1985 than originally intended. The draft plan Directives publishedin July indicate an annual growth of national income of 6.7-7.4 percent com-pared with 8.6-9.5 percent in the guidelines for the plan published at theend of 1977. Targets for industry, investment and standards of living havebeen reduced correspondingly. The Government plans to achieve its targets byemphasizing, first, the utilization of the country's own resources and a largelocal investment effort, and second, more effective use of human, capital andnatural resources. However, in order for Romania to attain its growth targetsand its long term plans for creating a competitive industrial economy, it willhave to attract foreign resources and technology and secure loans to supportits development efforts.

Creditworthiness

28. As of June 30, 1979, Romania's total medium and long-term externaldebt amounted to $5,958 rmillion. Most of these debts ($5,817 million) weredenominated in convertib:Le currencies, the major creditor countries being theFederal Republic of Germany, France, the United Kingdom (UK) and Italy. Whilethe total debt does not appear excessive in relation to the volume and growthof external trade, average maturities are relatively short and convertibledebt service payments are estimated to be in the order of $1,141 and $1,142million a year in 1979 and 1980 respectively. The convertible medium andlong-term debt service ratio was 19.4 percent in 1978 and is expected to be19.9 percent in 1979.

29. The organization of economic activity in Romania, the pursuit of adevelopment strategy involving high investment and saving rates, and rapid

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income growth ensure the effective use of foreign credits. Moreover, thecountry's major efforts to expand exports (particularly to convertible cur-rency areas) are increasing the foreign exchange available for debt service.Convertible export earnings rose from $830 million in 1971 to $4,072 million(not counting $387 million in non-factor services) in 1978. The preferentialtrade status accorded to Romania by the European Community in June 1973 isfacilitating the expansion of exports, as is the granting of most favorednation status by the U.S. Since the early 1970s, the Government has restrictedthe use of short-term credit from Western suppliers in an effort to improvethe structure of the country's external debt, but in view of the earthquake'simpact upon the balance of payments and the trade performance in 1978, short-term debt increased again in 1977 and 1978. Assuming a continuation of presentexport and debt management policies, we estimate that the debt service ratioin 1980 will be about 20 percent after which it will remain fairly stable.The country's present outward-looking posture, the success of both its domesticgrowth and foreign trade policies, and its potential for continued developmentall support the judgment that Romania is creditworthy for substantial Banklending.

30. With the exception of certain Swedish claims, all pre-war foreigndebts of the country had been settled. The Swedish claims concern publicloans from the prewar period, nationalized Swedish property and other in-terests, such as concessions granted to Swedish companies before the SecondWorld War. The eleventh meeting to discuss settlement of these claims washeld in Bucharest in October 1976 and further discussions were planned at adate to be established through diplomatic channels. The Bank has been unableto obtain a consistent picture from the two Governments of the present statusof this matter and has, therefore, urged the Romanian and Swedish authoritiesto clarify their respective positions directly with each other.

PART II - BANK GROUP OPERATIONS IN ROMANIA

31. The proposed loan and the proposed loan for the Covurlui IrrigationProject ($90 million) would bring total Bank commitments to Romania to$1,452.8 million for twenty-five loans in agriculture, industry, power andtransport. Disbursements under the Bank's initial loans were slow during 1975,but this situation has improved considerably since 1976. Annex II contains asummary statement of Bank loans to Romania and notes on the execution ofongoing projects as of November 30, 1979.

32. Foreign exchange, especially in convertible currencies, continuesto be a major constraint and one of the major objectives of Bank lendingcontinues to be to help alleviate the country's shortage of foreign exchangeby providing long-term external capital and by financing projects which willexpand foreign exchange earnings or savings. The Bank has been assisting theGovernment by helping to mobilize cofinancing for appropriate projects. TheBank has helped to attract foreign commercial banks to provide a $100 millioncofinancing for the Second Livestock Project for which a Bank loan of $75million was approved by the Executive Directors in March 1979. Through theircontacts with commercial banks with assistance from the Bank, and subsequent

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negotiations with those banks, the Romanian authorities now appear convincedof the positive value of cofinancing in the form of financial credits, andhave indicated their intention to seek similar arrangements for future proj-ects. Bank lending also aims at supporting the Government's efforts tointroduce new industrial technologies, to improve the quality of products andproduction efficiency, to reduce production costs and to provide for necessaryelectric power development. Market aspects and marketing, especially forexport goods, are also emphasized. Special attention is given to agriculturewhich is heavily dependent upon favorable weather and where productivitylevels are still comparatively low.

33. A number of further loans are under consideration, including loansfor projects for horticulture, irrigation, industry, power, and a fourth live-stock project. The Government has also proposed that the Bank consider lend-ing for an integrated road and rail transport project.

34. In addition to lending, the Bank (through EDI) has assisted Romaniaby conducting training courses on economic and financial evaluation andanalysis methodologies in various sectors, including industry and transporta-tion, for 165 Romanian officials in Belgrade in 1973 and in Bucharest annuallysince 1975 in collaboration with an academic institution in Romania. Addi-tional courses, including one for agricultural project appraisal, are underdiscussion with the Government. The methodologies taught in these coursesare becoming more widely known in Romania and are expected to begin to supple-ment the methodology normally used by the Romanian planning authorities.

35. The projects, for which assistance has been committed or is beingconsidered, represent only a small portion of Romania's total need forexternal financing of its total disbursed convertible debt. However, theywill provide a substantial net addition to the inflow of convertible currencyfinance, and may set a pattern for obtaining longer-term convertible financefrom other sources. The disbursed debt outstanding to the Bank is expectedto constitute about 13 percent of Romania's total projected convertiblecurrency debt in 1980; the Bank's share in Romania's debt service paymentsin 1980 would be about 4.5 percent.

PART III - THE TRANSPORT SECTOR

A. General

Organization

36. Romania is served by a fairly well-developed transport networkwhich is uniformly distributed throughout the country. It includes 11,000route-km of railways, and some 78,000 km of roads about two-thirds of whichis gravel and earth surfaced. The Danube, which is navigable, flows throughabout 1075 km in Romania, mostly along its southern border. Pipelines have a

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limited and specialized role. Ninety percent of the foreign trade is handled

through the port of Constanta on the Black Sea, and the Constanta Bucharest

transport corridor is the most important in the country.

37. The Ministry of Transport and Telecommunications (MTTc) is respon-

sible for all transport, including common-carrier road services, but exclud-

ing aviation and pipelines. Aviation is the responsibility of a separate

department directly subordinated to the Council of Ministers, and pipelines

are the responsibility of the Ministry of Mines, Petroleum and Geology.

MTTC's organization also includes construction and maintenance facilities. In

general, it is well staffed with competent managerial and professional staff.

Road fleets own transport, which are state owned, are operated by individual

centrals or enterprises. Motor car ownership is the only private form of

vehicle ownership in Romania.

Traffic

38 Rail and road are the most important modes of inland transport

in Romania. For freight, rail is dominant in terms of ton-km in 1977 (81

percent) though its share is slowly declining, while the share of common

carrier road services (12 percent) is rising; in tons, however, road services

are dominant (63 percent). Common carrier road passenger services are growing

rapidly, accounting for 45 percent of passenger km. Danubian river transport

and pipelines account for about 3 percent and 5 percent of ton-km, respectively.

Air and sea transport are relatively unimportant for domestic transport.

Performance

39. The Government plans transport services to make the most efficient

use of resources, and they are operated within the framework of the national

plan. Different modes complement each other, and roads from railway stations

act as important distributors/collectors of considerable volumes of railway

traffic. Given the nature of Romania's centrally planned economy and on the

basis of its reviews of the sector to date, the Bank considers this approach

to transport planning and management leads to reasonably efficient provision

of transport services and modal allocation of traffic, although there is some

evidence of underinvestment in highways in the past.

40. The railways are operated as a single organization subdivided into

nine regions. They are in a strong financial position, the working ratio

generally not exceeding 76 percent during the last five years and for the next

seven-year forecast. This is due to the high traffic density and staff

productivity (14.7 million gross ton-km per year and 568,000 traffic units per

employee in 1978), well ahead of any other Bank client operating a general

service railway.

41. One of MTTc's centrals administers 41 road transport enterprises,

which operate passenger and freight services. The operations of each enter-

prise are carefully planned and controlled on the basis of performance indices,

and there are special inter-enterprise arrangements to minimize empty running.

The financial performance of each enterprise is planned on the basis of its

traffic forecast, country-wide tariffs, and enterprise costs.

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Transport Coordination

42. The choice of mode is left in the first place to the transport user,who makes his selection on the basis of tariffs and quality of service, intime for its inclusion in the plan for his chosen mode. Periodic administra-tive reviews are made to take into account changes in transport users' require-ments and the capacity of each mode; the latter is particularly importantbecause transport investments have been limited to provide little sparecapacity.

43. In principle tariffs are cost-based, but discussions with theRomanian authorities indicate that railway tariffs, and perhaps also roadtariffs, tend to reflect country-average rather than service-specific costs.Again, road tariffs do not include a charge for the recovery of road infra-structure costs.

Investment Policy

44. The Romanian authorities have adopted hitherto a conservativeapproach to transport investment, in that transport capacity was built up tomeet demand arising from regional and industrial development, rather thanbeing used as a tool to stimulate economic development. Thus they haveconcentrated primarily on modernization of the existing system by increasingcapacity to eliminate bottlenecks rather than by extending the system. Themain investment criterion has been the payback period, which has normally beenlimited to 10 years for transport.

45. As transport infrastructure has a relatively long life, the 10-yearpayback criterion has tended to restrict transport investments, which histori-cally has amounted to only 10 percent of Romania's total investments. Inother countries transport investments account for some 18-25 percent of thetotal. However, Romania has had a high overall investment rate, over 30percent of the net national product, so that 3 percent of that product isallocated to transport, which is comparable to other countries. The Romanianauthorities feel that they have therefore been able to devote sufficientresources to the execution of high priority transport investments, but thatthey also exercised careful investment discipline, for example resorting tostaged construction whenever possible; thus, when double-tracking a railwayline, relatively short sections were doubled as they approached saturation.

46. While the investments undertaken so far are sound, total transportinvestment appears low. For example, the railways propose to overhaul 3120 kmof track during 1981-85. Since Romania has some 15,000 km of track (exclusiveof station and other sidings and marshaling yards) this means that overhaul isundertaken, on average, once every 24 years. This rate is low, especially inview of Romania's high average traffic density (about 15 million gross ton-kmper year). Again, the returns on railway electrification increase withtraffic density, yet only 215 percent of Romania's route-km were electrified in1977 and planned to increase to 20 percent by 1980 while in neighboringYugoslavia, where the average traffic density was only about six million tonkm per year, 25 percent of route km have been electrified, almost entirely aspart of Bank projects.

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47. On roads, special attention had been given to structures and theelimination of level crossings. However, some main roads carrying relativelylarge traffic volumes, are still gravel-surfaced. Furthermore, in the past,when gravel roads were modernized, relatively lightly designed pavements wereadopted, and this policy has resulted in high maintenance costs at the presenttime. One objective of Bank participation in highways would be to ensure thatthe design of project roads would be related to traffic.

48. The proposed Bank loan would be the first Bank Group operation fortransport in Romania. A clearly defined Bank strategy to assist the transportsector has not as yet emerged, but the proposed project has provided the Bankwith an introduction to the transport sector and its role in the economy inRomania, and an overview of the issues facing the sector in the future. TheBank could make significant contributions to sound and rational transportpolicies, project evaluation, investment programming and implementation in thesector. The Government has shown considerable interest in the Bank's cost-benefit analysis techniques, and several joint EDI-CEPECA (Romania's managementand administration center) transport courses have been held in Romania for 75persons involved in transport planning, investment and operations. Introduc-tion of these techniques would improve selection and design. This would givethe Romanians practical experience with these techniques and would also permitthem to test their validity as compared to the methods in general use inRomania. Discussion with the Government on this idea is continuing.

B. Waterways and the River Danube Navigation System

49. In pursuing its policy objective of energy conservation, the Govern-ment has begun to work towards a more intensive utilization of the inlandwaterway network. This is centered on the Danube river system, which playsonly a small role in the country's transport system, accounting for 0.9percent in tonnage and about 3 percent in ton km; it is confined mainly tobulk transport to and from industrial complexes along the Danube. Its poten-tial for providing energy efficient transport of low value bulk commodities isconsiderable. Improvement of other rivers would become economic with thedevelopment of large traffic volumes generated by linking the Danube riverwith deep-water port facilities.

50. Historically, the River Danube has been important for transport inall its riparian countries, who continue to use it for both local and interna-tional traffic. Romania has tended to locate industrial enterprises needinglarge volumes of bulk raw materials on or close to the lower reaches of theDanube. Within Romanian territory there are 25 river ports, most of whichhave road and rail connections. However for the reasons described below, mostof these ports are underutilized. At present barges of up to 1000 dwt.capacity can be used on the river, and oceangoing ships drawing a maximum of 7meters can navigate through the Sulina Ship Canal and about 175 km up river toGalati and Braila where cargoes are transshipped to barges.

51. The fuller transport utilization of the Danube is limited by thephysical conditions of its delta and by the capacity of the 61 km SulinaShip Canal. This was constructed 100 years ago and traverses the delta from

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Sulina on the Black Sea ito Tulcea. It is not practicable or economical toimprove the situation by constructing a deep-water port at or near Sulina,because of the extended shallow "berm" created by siltation from the Danubeand the effect of the southerly flow of the littoral drift. Romania has formany years been considering the possibility of constructing a new deep-waterport and a barge canal in order to bypass the now uneconomic lower Danube.Work began in 1976 on the proposed project, and about 15 kms of the totallength have already been completed. Above the delta, with fairly minorimprovements in depth and curvature, the river could accommodate convoys ofsix barges of 3000 dwt. capacity each propelled by one pusher tug for whichthe canal is designed. This would provide energy efficient and cost effectivetransportation.

52. All waterways transportation is administered or operated by enter-prises responsible to the Department of Water Transport (DWT) in the MTTc.The principal enterprises are: the Romanian Maritime Fleet (ROMTRANS); theRiver Navigation Enterprise (NAVROM) responsible for all barge and tug opera-tions on rivers, for port services at all ports on rivers, and for operatingthe 3 river ports for oceangoing ships at Galati, Braila and Tulcea, and forriver passenger transport services; and the River Administration of the LowerDanube (AFDJ) responsible for operating the Sulina Ship Canal and for provid-ing pilotage services on the Lower Danube. These and the other enterprisescontrolling waterway traffic are covered by a comprehensive tariff structure,excluding freight charges, published in 1971. Individual tariff charges arefixed by law and normally remain in force for five years.

The Borrower

53. The borrower for the proposed loan would be the Investment Bank,which is the specialized agency, under the Ministry of Finance, for investmentprojects in all sectors of the economy except agriculture (including waterresources) and food processing. It has a large technical and economic staffwith branch offices in all districts of the country. The Investment Bank'sinvolvement in investment projects begins with preparation; its staff appraisesall major investment projects technically and financially and recommends foror against their financing to the Government. When a particular project andits financial plan have been approved by the Council of State, all funds arechannelled through the Investment Bank in accordance with the approved finan-cial plan. All payments for the execution of a project must be authorized bythe Investment Bank, which keeps separate accounts for each category in thefinancial plan for every enterprise. The Investment Bank is required toensure that a project is executed according to the financial and technicaldata included in the final technical and economic study approved by theCouncil of State. Its inspectors check whether the project is proceedingaccording to the schedule approved in the Plan.

54. While the Investment Bank's supervision and control function isthus rather strong during implementation of a project, its functions are muchmore limited during operation of a project. Although it has the right andobligation to verify that an enterprise is meeting the targets set in the

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investment plan, it has no legal authority to influence directly the manage-ment of the enterprises or to force the enterprise directly to take opera-tional actions which it considers necessary. In practice, however, it canrequest such actions very effectively by reporting through the Ministry ofFinance to the Government.

55. The Investment Bank is the channel for all sources of major domesticinvestment financing other than in agriculture, but its own funds for onlendingas credits are relatively small. The primary source of its funds is the StateBudget. The Government would ensure the availability of sufficient fundsincluding foreign exchange requirements for the implementation and operationof the project (Section 2.02, Guarantee Agreement). The Government would alsoensure that the Investment Bank can meet the debt service on the Bank loan(Section 2.01, Guarantee Agreement).

The Beneficiary

56. Because of the size and complexity of the undertaking the Governmentestablished a new enterprise, the Danube Black Sea Canal Administration, tooperate the canal. The enterprise was legally established on May 12, 1979 byPresidential decree, and a nucleus of top staff has been recruited and is intraining. It will be fully operational by the time canal operations areexpected to begin by the end of 1982. Provisionally and until the new enter-prise takes over, construction of the project is the responsibility of theConstanta Port Enterprise (IEPC), which is an autonomous enterprise responsiblefor the operation of the present port of Constanta, and which is subordinatedto the DWT in the MTTc. It created a special unit whose responsibilities aresupervision of construction, purchase of equipment for operations and mainte-nance, staff recruitment and training, financial control, preparation ofoperating, navigational and staff regulations, and general responsibility toensure that the Canal Administration is competent to operate the canal whenthe traffic starts using it. The Canal Administration is now taking overthese responsibilities and is in the process of absorbing the special unit.

57. The Danube Black Sea Canal Administration is a fully establishedorganization with full legal authorities and jurisdictions as normal underRomanian law. Decision making power at the enterprise level formally belongsto the Enterprise's General Assembly which includes all the workers andnormally meets twice a year. A Working People's Executive Committee, chairedby the enterprise's General Director and consisting of elected workers' repre-sentatives and some members of the management, is responsible for operations.The General and Technical Managers of the enterprise are responsible forimplementing the decisions of the Executive Committee. It is expected thatits financial position and performance will be satisfactory (see para. 65).

PART IV - THE PROJECT

58. The project was first discussed by the Bank and the Romanian Govern-ment in the spring of 1975. A formal request for Bank financing was made inMarch 1977, and following receipt of adequate preparation data, a preparation

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mission visited Bucharest in March 1978. The project was appraised inFebruary/March and July 1979. Negotiations were held in Washington inDecember 1979. The Romanian delegation was headed by Mr. Ratoi, Senior VicePresident, Investment Bank and included representatives from the InvestmentBank and the Ministry of rransport and Telecommunications. A report entitled"Staff Apprais±! Report Danube Black Sea Canal Project" (No. 2676a-RO) datedDecember 20, 1979 is being distributed separately to the Executive Directors.The main features of the project are summarized in the Loan and ProjectSummary and in Annex III.

Project Description

59. The project would consist of the construction of a 64 km bargecanal from Cernavoda on the river Danube to South Constanta-Agigea on theBlack Sea. The canal would be 70-90 meters wide at the bottom, and 95-135meters wide at water surface. Its design takes into account adequate safetyand operational requirements which are in accordance with prevailing inter-national standards. It would also consist of the construction of three portson the canal (at Cernavoda, Medgidia and Basarabi), two identical locks (atCernavoda and Agigea) each with two chambers 310 m long and 25 m wide andprovision of equipment for operating the locks. It would include the con-struction of two service roads, one on each side-of the canal, construction ofrailway connections, installation of utilities, buildings, signalling andcontrol systems (radar and radio equipment, lights and buoys, etc.). It wouldalso include the replacenment, reconstruction or relocation of existing trans-port, irrigation and other facilities that have to be moved or destroyed as aresult of canal construction, as well as expropriation and compensation costsfor 600 ha of unreplaced agricultural land, and for reclamation of 2,800 ha ofland to replace 5,200 ha to be occupied by the canal (of this total 1,800 haare now non-productive). It would also include miscellaneous facilities, suchas concrete mixing plants and worker housing, needed to implement the project.Financing for the project: would include substantial cofinancing from foreigncommercial lending institutions. This feature is significant in our work withRomania since this is only the fourth time it has been included in a Bankfinanced project in the country. Construction of the canal began in 1976, and15 km. had been completedi by July, 1979. The project will be fully completedby the end of 1984 although the canal will be open to through barge trafficby the end of 1982. The Government has established a schedule satisfactory tothe Bank for on site delivery of all construction equipment and materials aswell as the permanent equipment for the project which would be financed by theBank to ensure that the project would be completed within the planned imple-mentation schedule (Loan Agreement, Section 3.02).

Project Objectives

60. The Danube Black Sea Canal is the major component of a larger pro-gram which also includes construction of deep-water facilities at the portof South Constanta-Agigea, adequate to handle large bulk carriers, expansionof certain river ports and improvements in depth and curvatures of the riverDanube, and an expansion in and introduction of new types to Romania's barge

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and tug fleet to accommodate the anticipated traffic increase. The Governmentwould complete these other projects to the extent necessary for the canal tohandle forecast traffic from the time it will be opened to through traffic(Loan Agreement, Section 4.01(b)). The Government has informed the Bank thatRomania will operate the canal in a non-discriminatory manner. The Canal istechnically sound and well prepared. The 64 km canal and the new deep-waterfacilities would eliminate the restrictions imposed by the Sulina Ship Canaland Lower Danube Navigation reaches on cargo movements and would shorten thedistance to the sea by about 360 km. Under the terms of the Danube Conven-tion, the Government will maintain the Sulina Ship Canal and Lower DanubeNavigation reaches to accommodate existing levels of traffic. The projectwould enable Romania to use its cost efficient energy saving inland waterwaysystem more fully for the movement of large volumes of bulk cargo mainlyconsisting of imported raw materials. The project would add significantadditional transport capacity needed for the growing economy and, with anestimated 14 percent of total traffic being international transit traffic bythe year 2000, would also benefit other Danubian Countries, including Austria,Yugoslavia and the Federal Republic of Germany by efficient movement of theirimported raw material requirements as well as their exports. The project,moreover, would become an integral part of the European waterway system afterthe completion of the Rhine-Main-Danube Canal in 1984. Completion of theproject would also make it economical to improve several of the tributaries ofthe Danube and incorporate them into the waterway network. The Canal wouldalso help accelerate the economic development of the Dobrogea region, throughwhich it runs, one of the poorer regions of Romania. The benefits of theCanal are well indicated by its economic return (see para. 68). The projectis particularly suitable for Bank financing because it benefits other ripariancountries and is a large project with an international aspect, which makes itattractive for cofinancing. The Bank's participation in the preparation ofthis project has helped to ensure that the most efficient construction equip-ment configuration has been found to enable on-time project implementation andhas made a contribution to Romanian project management techniques. It hasalso provided the Bank with an introduction to the transport sector in Romania.The Bank's insistence on international competitive bidding would expose theRomanian construction equipment and materials manufacturers to internationalcompetition.

Project Implementation

61. The project is being constructed by the Danube Black Sea CanalCentral (DBSCC), the Romanian Construction Trust established especially forthe project under contract with the legal but provisional beneficiary, theConstanta Port Enterprise (IEPC) (see para. 56). DBSCC's Director-General isa Deputy Minister (of the Ministry of Transport and Telecommunications) whohas overriding powers over all government agencies related to the constructionof the canal and who reports directly to the President of Romania. DBSCCemploys a labor force of 15,000, including 1,000 qualified engineers; thesewill be increased to a peak of 30,000 and 1,500 respectively by 1980. Itcarries out most of the construction work directly but does subcontractspecialized works. DBSCC is well organized, its performance is good, and isonly hindered by the present shortage of earth-moving equipment.

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Project Cost and Financing

62. The estimated total project cost, excluding interest during cons-truction is US$1,750 million equivalent, with an estimated foreign exchangecomponent of US$551.7 million. The costs of equipment and materials have beenestimated at prices prevailing as of November 1979. Physical contingencieshave been estimated at 9 percent of the base cost. Price contingencies onforeign exchange costs are based on an annual increase of 7 percent forimported equipment during the construction period. Due to very low inflationunder the Romanian system of administered prices, price contingencies on localcosts have been calculated at one percent per annum.

63. The proposed Bank loan of US$100 million would finance 18.2 percentof the estimated foreign exchange costs of the project. The proposed loan tothe Investment Bank would have a term of 15 years, including 3-1/2 years ofgrace, with interest at 7.95 percent per annum, and would be guaranteed by theGovernment. The Investment Bank would carry the foreign exchange risk on theBank loan. Of the balance of the foreign exchange costs, US$229.5 million hasalready been expended by the Government. The remaining balance of US$222.2million would be financed partly by cofinanced financial credits, and thebalance by the Government from the State Budget. The Investment Bank isexpected to arrange cofinancing of about US$150-200 million. In the unlikelyevent that this does not materialize, the outstanding balance would be financedfrom the State Budget, which has already planned funds to be available for thispurpose. All the local currency funds required by the project would also befinanced from the State Budget.

Financial Analysis of the Danube Black Sea Canal Administratrion

64. The new Danube-Black Sea Canal Administration is an integral partof Romania's centrally planned economy under which all enterprises conformto national development plans which are financed very largely from the StateBudget. As concerns Romanian traffic using the canal, which would be 86percent of total estimated traffic in the year 2000, the great bulk of thefinancial benefit accrues to the State in all cases. For this reason, thefinancial performance of the new canal enterprise cannot be viewed in isolationfrom the rest of the economy and financial performance is meaningless as anindicator of investment performance, which is provided by the economic rate ofreturn. Nevertheless a proforma financial analysis was undertaken to obtainan idea as to its financial position and performance.

65. Since the canal enterprise is a new entity and will not operateuntil after the project is completed, no past or present financial data areavailable. The financial analysis, therefore, is a proforma one and is basedon the principles that the enterprise would be financially and economicallyviable and would be self :Liquidating over its economic life of 65 years. Thecanal is a highly capital--intensive investment. Pricing policy for the canalwould ensure that canal dues would be established at levels that would not onlycover actual cash operating costs, which are very small, but would recover thetotal cost of the investment over 65 years (the equivalent of depreciation),and interest on external financing, in equal annual parts, to loan maturity.Within the context of the Romanian system, this approach is satisfactory to

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the Bank. This approach to canal dues compares most closely with normalpractice accepted in Romania and would ensure that the financial position andperformance of the enterprise would be satisfactory. The Government hasagreed that this is the approach it would establish (Loan Agreement, Section4.01(a)(ix)).

Procurement

66. Equipment to be incorporated into the project, including the lockgates, with a total estimated cost of $25 million, construction materials(bitumen and reinforcing steel) with a total estimated cost of $35 million andconstruction equipment with a total estimated cost of $40 million, togetherequivalent in cost to the proposed Bank loan ($100 million) would be procuredaccording to ICB under the proposed loan. There would be no retroactivefinancing or advance contracting under the proposed loan. Items costing $100million including contingencies would be procured following internationaladvertising and competitive bidding in accordance with the "Guidelines forProcurement Under World Bank Loans and IDA Credits - March 1977." Romanianmanufacturers and suppliers would be allowed a preference of 15 percent or theapplicable customs duty, whichever is lower. It is estimated that foreignsuppliers would win contracts estimated to cost about $5 million principallyfor specialized machinery and equipment for the lock gates. Other items to beprocured through ICB (about $95 million) are available domestically and, basedon experience with previous Bank-financed irrigation and power projects, itis expected that Romanian manufacturers and suppliers would be successful inbidding for most of these items. Cost estimates are based on the conversionrate of US$1 = lei 18. The balance of equipment and construction materialswould be procured under Romanian procedures and would not be eligible forfinancing under the proposed Bank loan. The Bank would not be financingconstruction works under the project which would be carried out by the RomanianConstruction Trusts which are familiar with local conditions, methods andregulations.

Disbursements

67. The proposed Bank loan of $100 million would be disbursed for(i) 100 percent of foreign expenditures for imported equipment, spare partsand construction materials procured through international competitive bidding;and (ii) 100 percent of the ex-factory price of equipment, spare parts andconstruction materials manufactured or supplied locally and procured throughinternational competitive bidding.

Benefits and Risks

68. The total program as described in para. 60 would enlarge and improvetransport capacity in the most critical and important transport corridor inthe country (see para. 36) by establishing a direct canal link between theDanube and the new deep-water facilities at the port of South Constanta-Agigeawhich will be able to handle bulk carriers. Other alternatives were carefully

considered, but were rejected as being infeasible or less attractive economi-

cally than the proposed project. The benefits for the Romanian economy of

using its low cost energy saving inland waterway system more fully for the

movement of large volumes of bulk cargo mainly consisting of imported raw

materials would be considerable; as would the benefits generated from savings

in ocean freight costs as a result of using large bulk carriers. Completion

of the project would make it economical to improve several of the tributaries

of the Danube within the borders of Romania and incorporate them into the

waterway network. As noted in para. 60 the project would benefit other

Danubian countries, includiing Austria, Yugoslavia and the Federal Republic

of Germany, and with the completion of the Rhine-Main-Danube Canal in 1984,

the project would become an integral part of the European waterway system.

The project would also help accelerate the economic development of the Dobrogea

region through which the Canal runs--one of the poorer regions of Romania--and

provide local irrigation and power benefits. In 1985, it is estimated that

about 51 million tons of traffic would move through the canal, of which about

7 million tons would be international transit traffic. By 2000, total traffic

would rise to about 100 miLlion tons, of which about 14 million tons would be

international transit traffic. These estimates are based to a great degree on

specific projects which are already under or will begin construction in the

near future. They reflect the expected growth and diversification of theRomanian economy in the 1980's, as well as Romania's growing dependence on the

external sector in the future. Because projected traffic volumes predominantly

consists of bulk cargo, barge transport is inherently the most effective mode.

Moreover, in Romania alternative transport modes are treated as complementary

rather than competitive, and MTTc is responsible for modal allocation of

traffic. Given the clear cost and energy saving advantages of barge transport,

MTTc will allocate the traffic to the project facilities. In addition, the

available alternative transport facilities, essentially rail, along the routes

to be served by the project are already operating near full capacity and could

not handle the projected traffic. For the purposes of the economic evaluation,

the complete works, including the project which the Bank would help finance,

as well as the other works described in para. 60, were considered. The eco-

nomic evaluation of the project was carried out in two stages. A least cost

analysis compared the cost of constructing the canal to the cost of construct-

ing railway capacity additional to the present double track railway line,

which was the "next-best" alternative. The canal was found to be the least

cost approach for discount rates at or below 24 percent excluding sunk costs

and 16 percent including sunk costs. This result held true even when its

traffic volumes and cost estimates were varied in a manner adverse to the

canal alternative. The second stage was to estimate the economic rate of

return for the project. This is estimated at 25 percent excluding sunk costs

and 19 percent including sunk costs. The sensitivity analysis shows that a 20

percent reduction in project benefits reduces the economic return to 18 and 12

percent respectively. However our assumptions with respect to traffic projec-

tions are conservative (see para. 69), and this outcome is considered unlikely.

This compares very favorably with return expectations for similar investments

in other countries.

69. The clear economlic justification for the project and the planned

nature of the Romanian economy which helps ensure that traffic forecasts will

be realized reduce the risks that otherwise might be expected in this project.

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One risk to the project is the uncertainty of the export prospects of itsprincipal user industries - steel and chemicals. The future of these twoindustry subsectors has been the subject of a separate examination by theBank. The conclusions of this work indicate that the risk is small in thecase of the steel industry, whose exports will be largely in the form ofmanufactured goods, which will not use the canal for shipment out of Romania.For the chemical industry, the risk of export shortfalls is much greater. Butthese are expected to be only a small portion of the forecast traffic and inthe event that they did occur, these items would be consumed domestically anda proportion of them would be transported on the canal to meet market demandin the Dobrogea region. A second risk to the project would be a shortfall inthe volume of imported raw materials transported on the canal to Romaniandestinations. Our traffic assumptions with regard to this are conservativeand are based on production targets, planned plant location, raw materialrequirements and export estimates made during the separate examination of thetwo subsectors, which estimates themselves are conservative. We expect thatphysical implementation will be completed and will not be subject to seriousdelay since construction is well underway, and that the canal will be effi-ciently run once it is open to traffic.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

70. The draft Loan Agreement between the Bank and the Investment Bankof Romania, the draft Guarantee Agreement between the Socialist Republic ofRomania and the Bank, and the report of the Committee provided for in ArticleIII, Section 4(iii) of the Articles of Agreement are being distributed to theExecutive Directors separately.

71. Features of the project of special interest are listed in SectionIII of Annex III. 1

72. I am satisfied that the proposed loan would comply with the Articlesof Agreement of the Bank.

PART VI - RECOMMENDATION

73. I recommend that the Executive Directors approve the proposed loan.

Robert S. McNamaraPresident

byI.P.M. Cargill

AttachmentsDecember 26, 1979Washington, D.C.

- 23 - ANNEX IPage 1 of 5 pages

SAJLE 3AROMANIA- SOC3 INDICATORS DATA SHEET

REFERENCE GROUPS (ADJUSTED AXERAGESLAND AA (TOUSAND A - OST RECENT ESTIMATE) -

TOTAL . 237.5 SAME SAME NEXT HIGHERACRICULTURAL 149.6 MST RECENT GEOGRAPHIC INCOH1 INCOHE

1960 /b 1970 /b ESTIMATE /b REGION Ic GROUP /d GROUP 1.

GNP PER CAPITA (US3) 180.0 510.0 1750.0 2906.3 1942.6 3075.3

ENERGY CONSUMPTION PER CAPITA(XILOGRABS OF COAL EQUIVALENT) 1342.0 3013.0 4036.0 2033.2 1646.7 2518.6

POPULATION AND VITAL STAISNS)ICSPOPULATION, DID-YEAR (MTLLIONS) 18.4 20.4 21.6UEJA1 POPULATION (PERCENT OF TOTAL) 33.7 40.8 44.0 56.3 51,2 72.1

POPULATION PROJECTIONSPOPULAtION IN YEAR 2000 (MILLIONS) 26.0STATIONARY POPULATION (MILLIONS) 30.0YEAR STATIONA9Y POPULATION IS REACIED 2095

POPULATION DENSITYPER SQ. EN. 77.0 85.0 91.0 81.5 28.2 33.5PER SQ. KM. AGRICULTURAL LAND 126.0 135.0 144.0 138.8 100.5 91.3

POPULATION AGE STRUCTURE (PERCENT)0-14 YRS. 28.2 25.9 26.0 25.6 35.4 33.3

15-64 YIS. 65.1 65.5 65.0 62.9 56.3 57.565 YES. AND ABOVE 6.7 8.6 9.0 10.2 5.1 5.7

POPULATION GROWTH RATE (PERtCENT)TOTAL 1.2 1.0 0.9 0.9 1.7 2.1URBAN 3.8 2.8 2.5 2.6 3.0

CRUDE 3tRSTH RATE (PER THOUSAND) 20.0 20.0 19.0 18.5 27.5 31.4CRUDE DEATH RATE (PER THOUSAND) 9.0 9.0 9.0 9.2 9.2 8.2GROSS REPRODUCTION RATE 1.2 1.3 1.2 1.2 1.8 1.9FAMILY PLANNING

ACCEPTORS, ANNUAL (THOUSANDS) .. .. ..

USERS (PERCENT OF MARRIED WOMEN) .. .. ..

FOOD AND NUTRITIONINDEX OF FOOD PRODUCTION

PER CAPITA (1969-71-100) 85.6 89.0 140.0 115.7 102.0 98.7

PER CAPITA SUPPLY OFCALORIES (PERCEYT OF

REQUIREMENTS) 105.0 118.0 123.01L 134.2 120.8 112.7PROTE1NS (GRAMS PER DAYI 81.0 92.0 96.719 95.4 80.9 70.3

OF WHICH ANIMAL AND PiULSE 24.0 28.0 .. 45.4 31.3

CHILD (AGES 1-4) MORTALIY RATE 3.0 2.4 1.0 1.3 5.1 2.5

HEALTHLIFE EXPECTANCY AT 8IRTH (YEARS) 64.0 69.0 70.0 70.0 65.6 68.7INFANT MORTALITY RATE (PERTHOUSAND) 75.7 49.4 31.0 31.5 45.5 20.8

ACCESS TO SAFE UATER (PERCENT OFPOPULATION)

TOTAL .. .. .. .. 69.4 73.9URBAN .. .. .. .. 85.1 94.6RURAL .. .. .. .. 43.0 64.6

ACCESS TO EXCRETA DISPOSAL (PERCENTOf POPULATION)

TOTAL .. .. .. .. 70.1URBAN .. .. .. .. 88.3RURAL .. .. .. .. 33.2

POPULATION PER PHYSICIAN 780.0/f 840.0/i 750.0 661.6 1343.2 981.8POPULATION PER YURSING PERSON 620.0/f .. 590.0 677.1 765.0 397.8POPULATION PER HOSPtTAL ISED

TOTAL 130.01f 120.0 108.0 180.1 197.6 240.6UR8AN 5so.67? 50.0 60.0 ., 260.2RURAL 620.07f 770.0 730.0 .. 1055.0

ADIUlSSIONS PER HOSPITAL SED .. 23.0 .. 15.3 17.3 19.2

HOUSINGAVERAGE StZE OF HOUSEHOLD

TOTAL .. 3.2/h .. .. 4.7URBAN .. 2.8/h .. ,. 4.4RURAL .. 3.4/h .. .. 5.1

AVERAGE NU8BER OF PERSONS PER ROOMTOTAL .. 1.4/h .. .. 1.1URBAN .. 1.3/h .. . 1.2RURAL .. 1.4/h .. . 1.2

ACCESS TO ELECTRICITY (IERCENTOF DWELLINGS)

TOTAL .. 49.0/h .. .. 66.0URA8N .. 86.0Th .. .. 85.1RURAL .. 27.075o ..

-24 - AMNEX IPage 2 of 5 pages

TASLE 3AROMANIA - SOCIAL LIDICATORS DATA SHLET

NEFERENCE CROUPS (ADJUSTED 'AMERAGUSROMANIA - MOST RECENT ESTIMATE) '&

SAME SAME NEXT HIGHERHGST RECENT GEOGRAPHIC DNCOME 04CfXE

1960 /b 1970 /b ESTIMATE /b REGION /c GROuP /Id CROUP /0

EDUCATIONADJUSTED ENROLLMENT RATIOS

PRIMARY: TOTAL 98.0 113.0 109.0 105.7 101.7 107.6MALE 101.0 112.0 110.0 107.1 110.0FEMALE 95.0 114.0 108.0 104.5 92.8

SECONDARY: TOTAL 24.0 45.0 *62.0 65.9 51.2 39.7IALE 27.0 51.0 65.0 70.3 56.4FEMALE 22.0 38.0 59 0 62.2 43.7

VOCATIONAL ENROL. (2 OF SECONDARY) 54.0 58.0 70.0 20.4 18.3

PUPrL-TEACHZR RATIOPRIMaRY 25.0 21.0 21.0 26.7 27.1SECONDARY 16.0 18.0 19.0 .. 25.3

AD3LT LITERACY RATE (PERCENT) .. . 98.0 *- 86.1

CONSUMPTIONPASSENGER CARS PER TNOUSAND

POPULATION .. .. .. 105.5 53.4 68.1RADIO RECEIVERS PER THOUSAND

POPULATION 109.0 152.0 146.0 233.7 225.9 210.3TV RECEIVERS PER THOUSAND

POPULATION 3.0 73.0 120.0 148.0 102.6 117.7NEWSPAPER ("DAILY GENERALINTERESTI") CIRCULATION PERTHOUSAND POPULATION 147.0 169.0 129.0 .. 78.5CiNEMA ANNUAL ATTENDANCE PER CAPITA 9.0 9.8 8.7 6.4 3.6

LABOR FORCETOTAL LABOR FORCE (THOUSANDS) 9600.0 9900.0 10200.0

FElALE (PERCENT) 44.9 45 44.6 32.3 24.5 27.2AGRICULTURE (PERCENT) 64.5 49.o 3414 25.8 28.9 23.8INDUSTRY (PERCENT) 20.5 23.0 32.7 33.1 30.6

PARTICIPATION RATE (PECENT)TOTAL 57.1 56.0 55.9 37.6 33.8 40.1MALE 64.5 63.3 62.8 57.0 51.3 55.7FEMALE 50.1 49.0 49.1 28.0 16.3 24.7

ECONOMIC DEPENDENCY RATIO 0.7 0.7 0.7 1.0 1.3 1.0

INCOME DISTRIBUTIONPERCENT OF PRIVATE INCOMERECEIVED BY

RICHEST 5 PERCENT OF HOUSEHOLDS .. .. ..

HIGHEST 20 PERCENT OF HOUSEHOLDS .. .. .. 47.9 57.6LOWEST 20 PERCENT OF HOUSEROLDS .. .. .. 5.0 3.4LOWEST 40 PERCENT OF HOUSEHOLDS .. .. .. 15.4 11.0

POVERTY TARGET GROLUPSESTIMATED ABSOLUTE POVERTY INCOMELEVEL (USS PER CAPITA)

URBAN .. .. ..RURAL .. .. ..

ESTIMATED RELATIVE POVERTY INCOMELEVEL (USS PER CAPITA)

URBAN .. .. 378.0 .. 550.0RURAL *- '- 378.0 436.1 403.4

ESTIMATED POPULATION BEM.OW ABSOLUTEPOVERTY INCOME LEVEL (PERCENT)

URBAN .. .. ..

RURAL .. .. ..

Not availableNot applicable.

NOTES

/a The adjusted group averages for each indicator are population-eighted geomecric means, excluding the extresmvalues of the indicator and the most populated country in each group. Coverage of coumtries among theindicators depends on availability of data and is not uniform.

/b Unless otherwise noted, data for 1960 refer co any year between 1959 and 1961; for 1970, between 1969and 1971; and for Most Recent Estimate, between 1974 and 1977.

/c Europe; /d Upper Middle Income (51136-2500 per capita. 1976); /e Nigh Income (over $2500 per capita.1976); /f 1962; LE Av. 1972-74; /b 1966; /L WHO estimate.

Mosc Recent Estimate of GNP per capita is for 1978.

AuguSt, 1979

-25- ANNEX'I=Tmn OF $WI" nrAn Page 3tTf 5 pages

tine Alnsishthe ate ra b fina cercese sunrelir JsdS the ant inthoitatie end remlleI, it absld ejas be Lacted noat tbq Lw not be interma-t1 i earbehras fthe 1.0k of stamdardiand defletiane id amcenptused by diffeint c0atin.t L. eolleti.g the dt.. The data are, momsthelean,useful to describe orders of maiistde, indimle trame, ned charastemne certain -Jov dlfferwsens hotessa countrien.

The p4pflgdgrep ewrmp for neck indicator ens mopalemi"e-wigtnd gnomestric sass, excluding the esine uan of thnidctredi. . uuanccunijWiUj9ijZ~hIito lark of data, group scenges,o all indicsatrs for Capital lUIrpis Oil Exportnrs aed of indicators of Access to Water and borate

Disposal, Mosains, woran Dictribtion and Fwenty fon othe otey apsm nraopsletion-weidttnd geometrio mmmsi ~iit t eb-imb of the estram Xcuiin adthe moet poPaIted retry. Biase the of orut mine : the imad4atw M,its - emelabilit. of date -ad is not aicecaution mini berarcoied

inrelatian_e.r uso_n_a5ao~_onohr be cuie r a) ieful asym imaitian or eixsrtnd- " Mins ynb CannnEnf the rabiesofaindicator at a ti NE pM the etntrar end refereo* Wasps.

iAnS AliA (thnsuesd sq.h.) Acewes to borate iwsl(eoo o ouain. otl rs dsr ~TtTotal_sorter area rnqsr 'on lend are.a nd inijmd waters lie fpol ttl ob,nd7nl evd yeesadsonWMutsri-tt rncst ci..t.-.u of Wgirultsral .r.e used tmeprarily per.og.t.s of noair repecti-e pyoplations. berets disposal ap Inolsds

on pessatly for crops, peatures, marist end knithon gerd or to the collection end disposal, win or without treattent, of luame scenstnim. fallos. sod cats-water by wtatr-bone synstes or the ass of pit privies and s.iler

casta.llatioo..glaM CMA rA (MA - GPEPpr.capita setimaten at correal nerirt prices., 9p4lpp 4in-Ppulation divded by -encr of prsotiriog plysictaeailiIiad W

7ii" "oorcson method as Wonld Isak Atlas (1976-78 basic); jtflUNiYod~e school at Zni-rety leve.

196., 1970, sod 1978 data. poaslati"o"e larsise Torsos - Population divided by -ster of preeticiag aIr

SPlITY ClZRUNTRfIO PEP CAPITA - Annual o-suptis of oc. srial ... rgy cAn fsaLl gredcte -isee, practical cures., ad assistant mirses(coa oen lignite, peirolere, natural go end hydro-, onecsr -d- ab Pnfleticai sr Hospital bed - total, obs. an oeral - Papuintios (total, orbio,

tis-In cloatricity) in kilgruec of coal equtrleot Pci' capita; 1960, an -Ial)divided by their rnpective asr f hopitl beds asiabri1970, and 1976 data. poblir and privatc gorra1 and specili.ed bontpit:! asd e-ibilitatios rice

Hcspita.ls arc retablisins.to perenet]y staffed by at least cu iecso.PORUIATIONI All) VITAL STATISTICS Estails -et. providing prioripafly cutodial -e er sot inluded. Rural

Total ?i,.tn idya illi.o..( Ac of Jo]4' 1; 1960, 1970, end b.hopitas occ,mmi cliedndclonrsntprnetj tfe1977 dt,by aphsiciso, (but by a endoaLl assistant, curs, eidifc, etc.) which of fc

Ulbce oplto (Rreto ttl atio of bris to total popultioc; in-peticnt accoindation and provde a liaitr9 range of erdical facilitie..diLffvc t dcA.fitio of etFrti acssay nff-t conpn-billty of data Adnissiion pr Hospital Red - Total senior of edmissions to or discinrgca freesag oetrici; 1960, 1970, and 1975 data. heit dicidod by tic ounher of hedu.

PrisoletionPrj ectibonPopultoni ea c- fecet popilotioc projectiiin err based on HOUSING

1975 j in ~ hl tota population by ag sod cc sod thric euctlity sod fertility Avre leo Hseii prsons ver b-uoh.1d) - total. ric and meal -eae.Poetion peran.ror foe sortality ratcs c-speic of threc AiecidosIseof a grop of individuals soc shars living quince and

Ic-ei ausesig I fc vopccten at bitth inteussci cootry's turic sain arelo. A boarder or lo.c my or ay not Be in-iuded In ticPIre cpito in _c1cc, nd fesalo life ropctanoy tibilisiga cohl o tatiotoa prec..

75 ar.Thc parat.re for fcrtility ratc also ihr three Ice_lo Aeeg nosir'of ocor..v. on-ttl,ubn n oal-Araensca-cendg Zicoio in fertility nccording to moan ls-c sod past oprsPuper mo i al ubnadrral oecpivd convecilsoa duiliogo,fsnily ol nnog poefrnnec. Each coutry is then aissigned onc cf three reipctecl. oding coelde non-peesanet itructur and u-occpicd psrto.

nie ombinatioso of sociality ci f-ettlity trcnde for projectionAcest tlcerilit (croc-t of dwvllinao) -toa.ib,ndral-C-pirpos...ctional deliligs cth electricity in liringqate ccp etage of

Stttionc p.pooclation - to a utatiocury popeitioc three is no grooth total, uric, sod cora dellinga -vp-tiv-ly.sues the birth rate ie etesi to thc death atc, soi also tic ogestrocturt rtais contant.Tis if achievd only after fertility rateo EMATIl9N

dellio toti repacevt lviofeuot rcproductioc rate, oh.a Aj-cted Enrolnment Patios"hc g"ncrtioc ofroi epinces atcclf .... ctiy. 'T'i etationa.cy po.o- Friay school - total, mai sod freale - dec.. total ale sod frea-Le -uoi-

muon ill ca v.. itiatd'on tic bacic of tie projoeted ciara,t.reitiec _tn of all ages at tic priser lcvc as pvrocotcgc o rpo iorpemryof the popu1ctio in tic yce. 2000, sod tin rate of decilor of f-ctility c-hool-oge popeitic.Ic; n_wlly includes ciidreo gcci 6-li yvc hocbrate to repl=oert I-vi.' adjcted for diffeern lengtho of prieury education; for couctriv. cith

Y.a. sta,tionar oultion Ii reheahd - The yec sirs tationcry population niversal cId_ation socoat sa coce.d itO poroct noe0c puptilsloe ins hero ecacici. cc~~~~~- ieloc or c-iic the official sciol agc.

Population iccoity Pvc~~~~~~~~llondsot schooli- total, nair and fecair - Conputd as i c; ecodPv4 =. a.-Mld-yno population per oqurec kiloevte, (110 hrotsees) of edctotcqie cI...ot for year of app-cod .p .ey itorolo;total ar_ p-oidee g-nral coctiona.l, or tearher training icat-utoi- foe popslr

Per q no.h. ngrieultera1 lan - Cosputd no sio for ogriculto..l land usualy of 12 to 17 yvaro of ngv; -orcpoodvec -oun- a.. gcnvralip

SouainM trootue rrpoct) - Childre (0-14 yvcs(), cociig-age Vont ioca -orolac- occnt -fdncci ) -Vo.ation..I -ototui- ioolode(15-64yvacs, and ctire (65 yarn ad cove) a- preovoingr of sid-ycur trohaial oretia,c oticer prgr_s och operete i.d.perd.ntlyora

population; 1760, 1970, sod 1977data. depryatic of seodary icetitutions.Poultion tGoh Onty (pverovt) - total - Annua growth rairo of total eid- Ppnil-tcahic ratio - cenary. and ar...iary - Total ctudeoto -iro1i iiyvc: popu.lntono for 1990-hO-, 1960-70, -i 1970-.77"t prisao'y and nccd-ry le,els dicidvd by numbero of t-ahies. - the cen

Ponultlon Grocth Rtot (pe-ct) - urba - Annel growth eaten of urban pending lcenl..pooitio_ for 1950-it, 1960-70 and 1970-75. Adult lit-eray rate )pvrcvnt) - Liteecte odo1to (able to rod nod ucite)a

CdBithate I c P.tioh ai- -Anul live hirtt. peri thooad of aid- apore_tcgc of total sdit populatio aged 15 pec- and core.jibo7Polatiiill 071970 and 1977da.

Crude loath Rntv cce tohour-n - Anea ictbho per th-undi of rid-yea- lltlRIdppito;19 0, 1970, c "ioS I 7 - 1977 data Pa-ng C- (perr th . .a.d puua.tio-) - Pacceogee -c -up-oo ator- c

Proc tio Perdoi.o Rate - ieAge onhvr of diugt-ru ncoac cull bc orstiog leic than eight pe-uno; vocludco onhlance, iv--v and nilitaryiher -o1a epeoductioc period If ab _operivooi pemi age- veicl_

opecifc fvrtlity rte,; uually ive-year -owrgv vodiog in 1960 Radio P-ee-ev (per thioucod populntitn) - ill typro of r-o-ocr for r.idL0970, ad 1975. iro.icacto to gonro .. lrprtocndo ooalc colde- uclic-ed

Fsoily flaning -A-Pcto-c.A-..Il)thouoand.)- A. L -b , oof eoIoIaooutie nin yeusnioitoccfrLiotutiocopt-re of bieth-ecteol diico under onpicen of t otionol fcnily iffect; datn for -eet yra- sq ncct be copa... hie ci-o -t.0 cooctrip-ianohi poges.. abolicied lice-oig.

Foly lnnn ' dec prcn f e,ined.cos-ee -iPerooctage of carried TV Peceiv-c (per itneani popultioc( TV rcie~ for broodoant to geocraconof- hl-bcig g (i-iyer) bb u iiti,-cntrol dviccob uiii pee thnecadpoeti; ecluvo nicenoe,dfTVecicr iccountrieto all curied coven in cane agc group. ad ic ypvc che regiotratton ofTV Itm _cinff eti.

Nrospaper Ciroolation (per tihoradipopltin-lcetcovrgoscaicFOOD AND NTifTRITTCN of 'al eea io etoeppR, teiac2tn hpreithoci puhica iloIndie of Focd Production per Ccpita (19691-71=1 - Ind- of pvec-piti devoted priacily to recording geoal ccci. n fItcconaid-red to he 'doi1y"

anolprodutilc of all fooZ osdie.Pod uct)t on vcludec ccc ad if it eppears at leatI ou ti-ecacek,fcv sd iicccaendar yecr Idc. Coaoi ti. c-vee pricory goode Ci-em AnounI Atteticoc per Capote -e Pear - B-od cc tic l-eur h fti-keto(e.g.ouaae instead of.sugar) thlci-arc dilte and cootoinoocrie-t i-1i doriog tie year, -ocldiog adti-c.. to drive-ic cionao i-i noble

(eg coffe Ined tea are ccc drd). Ag grrrte production of cool coutry mtiu btoed or net ioa aveag producer price clghts.Per ccci~to oppiY o ceois (percet of esui--tenc) - Computed from LABORc POtCO

v-rgy equiv.leot of net food -uppliec -vilbile in country p-ee cpita Totalblhr Piece(tihoca-ic - E-n-mi-aly -ct-c perroc ocuo acdper day. A_eilbhe cuppliec _onprio doar~ti Leprod_ction, ap_to Illo force, cd un-picyrd lo cooding hou-ivoc_, otodtets, etc lefio'it__oroport,, and hangre irstock. Net ouppliec coolode anical feed, reed,, Lcevairi-o ctri-o aretcot ocarII.untiticcued cc foci proceos_g, ad licc.. i d-tbteiotlo. Reqeire- Penn l _erceoltr) - Penile Pucel force t peceotage of ti to1 lat. force

veete cere ecticiaed bp PhF he cc phyiological cre1do" foe coca 9geltrce .pcpeo L oreIcfmn,forctry, hunting andacilvi n aod heath cocterioc rde 'unetca tropertr, o 4 -eghto, fichiog co percentage of toto1 1hbe force.

agean 1oro ditr,ibtic-o, f popooti-, and al11-log 10 peeceot for Induotry (percnt) - Lour force in ain,g, cotc -),nao tcorieg aidnateIat Iouhld le_v. electr-itp, enter and gao I. peec-tage oftotlIcbe force.

Per tpt opp o protect (g-un per day) - P-cte,e-t-et .' poe, Peocnloht pret oa,ae n cie-Peiio nocapita -ct -uppl f foo peay. Ne~t cupl f fodc cl naticityl entertare copoted Iu totl r0 o eoriirfrcet prab-oc. hequir--ee foe ali oc-utrie- 1c toPblYohed ipUSA pro-lde foe a -ctaget of total, nile andfial popuicicc of cliage "eieot%olp;Inioiesccs aluce, of £0 gec of totol p-ri.ti per dy and 2P grae of 1)60, 191,ad 1975 dat.Th-ei cc 11,0't pcntccipctconrateoreflccteanice cd po1ue protein, of hcih 10 g-sn ohould be animal protein. ge-c_ot-utor of.thepopulation, and long tie teend. A fec ettinatec

Tece taad-- are -eer tban tione of 75 gron of total protein and ar frococolo.il oco_e,.PS ean of -ne prot eco I to a_erge for the -1d, propoced bp PAP fnrocnl Peeiny Ratlc - tiOl cf popoltioc under iS and 65 cod over to

ic tie Ticd Woreld ood Porvy. tie laborfcdrocinc age group of 15-hi yer.-Per _cipttprotein -upepy Peon noinl and pule - Foteic -opply of foci

derce rm n i so uc,i rn e a.INCO0M DISTRIBUTIPPChl .oe 1I_) Sisettltyht pethdad(- An-ua dentho prtho-cad Percentage ofPrvt[coe(o 00ahanhid - Pecovdh ihe

in age groo pi_-pea,., to children in tii g rop u ont dcccl poecc-t, richeat Pt pIernt, poorest 20 pere..et, and pcoreut 40 percentopiog ... ontriec dote d-rtoed fror life toitoc. tf tosholde.

ILEALT POVERTY TARdbFT GRO10SLife Eporet-ey at B-rth (y-a,p - AIvrgo rnter df yeco of life Elumnted A-iclte Poveetp Ticcoo Icede 01$ per ospi to) - orba nod rurl1

reaon t birth; i196, 1970, and 1977. dita. Abcolote povety iocoso level I thait incca 1e-vl hello ohih i ni.iilinfant Mortali ty Rite (per thouand( _- Anua deatho of ifanto under one -utr-tih..aily edequate diet plus ec-etia1 con-foodeculrn cc noct

pec of ago per thcu-sd lice tirtoc. affo_dbte.dArst, ufCoe proto popolatioc - totl uric end,road - Fetimated Poitic- P-oerty In-oc leonl (ul$ per -apt) - -bIrha and c-ci

Nmeofpeopl 'tocel, ore an ua ithreasnalacrs t PRat- catv po-tyrip -oelel is ann-thirdo aegepreenpitar -atrspply iclodec treated orf-ce enters or anrae u ennibon ftecIty eanlclI eoe eothe r-r1 le-c

osotoninted -toer such no that from protected crb-hl-r, upringr, ccit ad-ut-ct fcr hIgher cost of lvn cuhncc,and celtery cello) as pre-ttage of thei r,ecpertio popslnti...u. In ta ted Pcltc ro mide s ty Incom Leve ( ct' - uri and

anurc rc public fountnin or scandpo loae ntsrehnrul- Perevnt of ppulotico (rine andrual sh -e ahe-lte por"200 cotorofro L_ Icuee may he -ocdere,d a cn recnablIc-co f that house.Inorlcas erosvcale owrc_oud inPlythat tie hcuecie or "nv", of the bu-child do tot hi-r to ipeed E.i...occ and local Data Di--ndhuprcp i'tir parIt of the day sn fetotbog tic fnity'. ceter iredo O-o-ii d-ly-s and Pr-pecct-n Pepacteot

-26- ANNEX IPg 2 -of 5 pages

ECONOMIC INDICATORS

GROSS NATIONAL PRODUCT IN 1978

US$M1n. % 1961-65 1966-70 1971-75 1975-78

GNP at Market Prices 36,040 100.0 9.0/ 7.71/ 11.32' 9.1IGross Fixed Domestic Investmrent 10,905 30.3 11.3 11.2 11.2 11.9Gross National Saving 10,126 28.1Current Account Balance -779 2.2 22Export of Goods, RFS 8,639 24.0 9 .OV3 10. 904 23.6'v I1..5vImports of Goods, NFS 9,174 25.5 10.7VJ31 12.7 W / 2 2 . 3 2 j?

OUTPUT, LABOR FORCE ANDPRODUCTIVITY IN 1978

National Income-" Labor Force N.I. Per WorkerUS$Bln. S Min UB U_ S

Agriculture 4.46 15.3 3.36 32.7 1,327 46.8Industry 16.87 57.9 3.41 33.2 4,947 174.6Construction 2.97 10.2 0.92 8.9 3,228 113.9Other

5- 4.83 16.6 2.59 25.2 1,865 65.8

Total/Average 29.13 100.0 10.28 100.0 2,834 100.0

GOVERNMENT FINANCE IN 1978

Central Government

Lei Billions % of GDP

Total Receipts 300.8 52.4Total Expenditures 299.3 52.1Total Surplus 1.5 0.3

MONEY, CREDIT AND PRICES(in billions of Lei, end of year)

1975 1976 1977 1978

Money Supply 176.4 201.4 207.5 232.5Short-Term Bank Credit 170.2 194.0 194.5 212.8Retail Prices (1975 = 100) 103.9 104.4 105.0 107.3Percentage Changes in Retail Prices 0.2 0.5 0.5 2.2

AJ Growth rate of national income ENENA CP1D2/ In current prices3/ Growth rates of exports and imports only.it System of material production methodology. December 18, 19795/ Includes net output of the non-productive sector.

- 27 - ANNEX I

Page 5 of 5 pages

BALANCE OF PAYMENTS (Convertible Currencies) MERCHANDISE EXPORTS 19T8All Currencies)

1971 1978 US $ Mln %(Millions US $)

Exports of Goods and NFS +944 3,983 4,459 Capital goods 2,289 28Imports of Goods and NFS -988 4,080 5,018 Consumer goods 1,405 17Resource Gap (deficit = -) -44 -97 -559 Foodstuffs 784 10

Intermediate goods 667 8Interest Payments -40 -195 -168 Raw materials 2,911 37Other Factor Payments (net) -25 +19 -52 Industrial 2,538 32Balance on Current Account -109 -273 -779 Agricultural 373 5

Total 8,056 100Direct Foreign InvestmentNet MLT Borrowingi!

Disbursements +312 +928 1,167 EXTERNAL DEBT (June 30, 1979)Amortization -190 -561 602Subtotal +122 +367 +565 US $ Mln

Export Credits Extended3/(net) 2/ -171 -186Short-Term Credit (net) -20 +156 +441 Total M and LT 5,359Net Errors and Omission - - -1 of which convertibleIncrease in Reserves (+) -7 +32 +49 currencies 5,817

Fuel and Related MaterialsImports 635.6 2,622.1 3,346.5of which Oil and Oil Products 36.6 875.4 n.a.

Exports 425.5 1,463.0 1,800.2 DEBT SERVICE RATIO %of which Oil and Oil Products 143.0 688.1 n.a.

Convertible currencies only 19.4

EXCHANGE RATES

1. Official Rate

Before August 1971 6 lei:US$1August 1971-February 1973 5.53 lei:US$lFebruary 1973-March 1978 14.97 lei:US$lSince March 1978 :4.47 lei:US$l

2. Tourist Rate

Before August 1971 18 lei:US$lAugust 1971-February 1973 16 lei:US$lFebruary 1973-October 1974 114.35 lei:US$1Since October 1974 12 lei:US$l

3. Converstion Rate for Traded Goods

July 1973 - March 1978 20 lei:US$lSince March 1978 18 lei:US$l

/ Includes use of IMF credit. EMENA CP1DV Included in M and LT Capital./ Includes S, M and LT credits extended. December 18, 1979

28- ANEX IIPage 1 of 6 pages

STATUS OF BANK GROUP OPERATIONS IN ROMANIASTATEMENT OF BANK LOANS (A of November 30, 1979

us$ MillionAmount (less cancellations)

Loan Number Year Borrower Purpose Bank TW IDA Undisbursed

Three loans fully disbursed 150.0 -

Ln. 1020-RO 1974 Investment Bank Fertilizer 60.0 5.0

Ln. 1027-RO 1975 Investment Bank Special Steel 70.0 .6

Ln. 1083-RO 1975 BAFI a/ Agricultural Credit 30.0 3.4

Ln. 1169-RO 1976 BAFI Flood Recovery 40.0 1.9

Ln. 1242-RO 1976 Investment Bank Hydropower 50.0 14.3

Ln. 1247-RC 1976 BAFI Irrigation 6o.o 15.6

Ln. 1368-RO 1977 BAFI Irrigation 6o.o 29.6

Ln. 1436-RH 1977 Investment Bank Bearings 38.0 25.1

Ln. 1447-RO 1977 Investment Bank Glass Fiber 18.3 2.0

Ln. 1448-RO 1977 Investment Bank Polyester 50.0 20.1

Ln. 1479-RO 1978 BAFI Agricultural Credit 71.0 45.1

Ln. 1509-RO 1978 BAFI Irrigation 40.5 39.4

Ln. 1536-RH 1978 Investment Bank Tire 85.0 77.4

Ln. 1581-RO 1978 Investment Bank Post Earthquake 6o.o 47.0

Ln. 1634-RO 1979 Investment Bank Chemicals 40.0 33.9

Ln. 1651-RO 1979 Investment Bank Pipe 40.0 40.0

Ln. 1652-RO 1979 Investment Bank Thermal Power 70.0 63.8

Ln. 1669-RO 1979 BAFI Livestock 75.0 67.1

Ln. 1670-RO 1979 BAFI Irrigation 70.0 70.0

Total 1,177.8 c/ 601.3of which has been repaid 7.3

Total nov outstanding 1,170.5

Amount sold 19.8

of which repaid 5.9 13.9

Total now paid by Bank b/ 1,156.6

Total undisbursed 601.3

a/ Bank for Agriculture and Food Industry

b/ Excluding exchange adjustments

c/ In addition, a $85 million loan for the Third Livestqck Project was approved by the Executive Directorson October 30, 1979, and was signed on December 17, 1979. Also a $100 million loan for the Danube-BlackSea Canal Project is to be considered by the Executive Directors on the same date as the proposed project.

- 29 - ANNEX IIPage 2 of 6 pages

B. PROJECTS IN EXECUTION 1/

Ln No. 1020 Bacau Fertilizer Project; US$60 Million Loan of June 28,1374; Date of Effectiveness: December 31, 1974; ClosingDate: September 30, 1980

The project is proceeding satisfactorily after initial delaysdue to changes in site and project scope, and delays in design and construc-tion. Procurement is virtually complete, and construction is nearing comple-tion. Most plants have been commissioned, and the urea plant is expected tobe the last one to be commissioned, probably before mid-1980. The finalproject cost is expected to be close to the appraisal estimate.

Ln No. 1027 Otelinox Special Steel Project; US$70 Million Loan ofJuly 10, 1974; Date of Effectiveness: April 3, 1975;Closing Date: December 31, 1979

Execution of the project was delayed about one year, primarilybecause of the complexity of two large bid packages, the Romanians' lackof familiarity with international competitive bidding procedures under theBank's Guidelines, and lack of interest and competition among suppliers.More recent delays have been caused by late delivery of Romanian manufacturedequipment. The cold mill was commissioned in July, 1979 and construction onthe bar mill is progressing in accordance with contracted schedules withcommissioning expected in February, 1980. Total project costs are expected tobe essentially equal to appraisal estimates. The project is now expected tobe completed in 1980.

Ln No. 1028 Turceni Thermal Power Project; US$60 Million Loan ofJuly 10, 1974; Date of Effectiveness: November 6, 1974;Closing Date: June 30, 1979

Delays in construction due to late delivery of equipment and skilledlabor shortages are likely to result in a fifteen month delay in commissioningof generating units. Prcoject execution is otherwise according to plan andsatisfactory. Training of future operational staff is in hand. The loan isnow fully disbursed.

1/ These notes are designed to inform the Executive Directors regarding theprogress of projects in execution and, in particular, to report any prob-lems which are being encountered, and the action being taken to remedythem. They should be read in this sense, and with the understanding thatthey do not purport to present a balanced evaluation of strengths andweaknesses in project execution.

- 30 - ANNEX IIPage 3 of 6 pages

Ln No. 1083 Sadova-Corabia Agricultural Credit Project; US$30 MillionLoan of February 6, 1975; Date of Effectiveness: April 29,1975; Closing Date: December 31, 1980

Progress continues to be satisfactory in implementing subprojects.Construction of the pre-mix feed mill is satisfactory and final projectprocurement has been carried out under contracts tendered internationally.Disbursements amounted to US$26.6 million as of November 30, 1979 or 89percent of the loan amount.

Ln No. 1169 Flood Recovery Project (Agricultural Component); US$40 MillionLoan of November 12, 1975; Date of Effectiveness: December 2,1975; Closing Date: December 31, 1980

Project execution is proceeding well. Equipment procured underinternational competitive bidding has been delivered and only small quantitiesof spare parts remain to be procured. Delivery of flood warning equipment isexpected to be completed in 1979 and installation will extend into 1980.Disbursements as of November 30, 1979 totalled $38.1 million or 95 percent ofthe loan amount.

Ln No. 1242 Riul Mare Retezat Hydropower Project; US$50 Million Loan ofApril 28, 1976; Date of Effectiveness: July 26, 1976; ClosingDate: December 31, 1981

Due to shortage of manpower, tunneling works have been delayed andmechanized excavation methods will begin early in 1980. Project execution iscurrently about one year behind schedule. Civil works for the dam and under-ground power station are well underway, and 100 percent of the loan amount hasbeen committed.

Ln No. 1247 Rasova-Vederoasa Irrigation and Agriculture Development Project;US$60 Million Loan of April 28, 1976; Date of Effectiveness:November 3, 1976; Closing Date: June 30, 1981

Construction of pumping stations, canals, and other projectworks is progressing satisfactorily. Out of 11 dairy farms, four farms arecompleted and contracts for purchase of 9,130 imported heifers (100 percent oftotal) valued at over US$8 million have been awarded. Procurement contractsfor all equipment have been awarded. The feedmill and silo in Negruvoda isnear to completion and will be operational by the end of 1979. Work on soilerosion control and the land levelling is behind schedule. Disbursement asof November 30, 1979 amounts to $44.4 million or 74 percent of the loan amount.

Ln No. 1368 Ialomita-Calmatui Irrigation Project; US$60 Million Loan ofMarch 2, 1977; Date of Effectiveness: June 23, 1977; ClosingDate: June 30, 1982

Contracts for all equipment and materials have been awarded. Someconstruction equipment and about 35 percent of pipe has been delivered.

- 31 - ANNEX IIPage 4 of 6 pages

Construction of project works is underway, progress is satisfactory, and areabout 40 percent complete. In 1979 about 18,000 ha have been irrigated.Works on surface and tile drains are behind schedule. Disbursements as ofNovember 30, 1979 amounted to $30.4 million or 51 percent of the loan amount.

Ln No. 1436 Brasov Bearings Project; US$38 Million Loan of June 15, 1977;Date of Eff'ectiveness: August 11, 1977; Closing Date:December 31, 1982

Contracts on most major packages have now been signed and imple-mentation of the project is proceeding satisfactorily. Project costs areexpected to be close to, or slightly over, appraisal estimates, according tothe initial cost data and overall economic aspects of the project look some-what more favorable due to the improved market outlook, improved product mix,and changes in project design to achieve lower product costs.

Ln No. 1447 Bucharest Glass Fiber Project; US$18.3 Million Loan ofJune 15, 1977; Date of Effectiveness: August 11, 1977;Closing Date: June 30, 1980

Project implementation is progressing satisfactorily. The Bankhas reviewed the procurement of roving machines and has decided that proce-dures undertaken by the Borrower were inconsistent with those required underthe Loan Agreement. Therefore the portion of the loan (US$197,080) that wouldhave otherwise been eligible for disbursement has been cancelled. The procure-ment of equipment for Section II (Spinning) financed by the Bank is nearlycompleted. However, start-up of this section is now expected before end ofMarch, 1980 with about 12 months delay behind appraisal estimate. This ismainly due to civil construction delays because of severe winter conditionsand also delays in imported equipment delivery and erection. Commissioningand three-shift operation is targeted for June 1980.

Ln No. 1448 Cimpulung-Muscel Polyester Project; US$50 Million Loan ofJune 15, 1977; Date of Effectiveness: October 3, 1977;Closing Date: March 31, 1981

The main supply contract has been signed, and execution of theproject is proceeding satisfactorily with production still expected to beginin the second quarter as planned.

Ln No. 1479 Pig Production and Processing Project; US$71 Million Loan ofJuly 15, 1977; Date of Effectiveness: September 28, 1977;Closing Date: June 30, 1982

The project represents the Bank's first participation in Romaniain a development plan on a nationwide basis. It provides for the develop-ment of a large multiplier herd, establishment of testing and selectioncenters, expansion of industrialized swine production, and provision ofslaughtering and processing facilities. Project implementation is pro-ceeding satisfactorily. Construction materials and slaughterhouse equipmentprocurement under ICB is almost complete. Disbursements as of November 30,1979 were $25.9 million or 36.5 percent of the loan amount.

- 32 - ANNEX IIPage 5 of 6 pages

Ln No. 1509 Viisoara Irrigation Project; US$40.5 Million Loan ofJanuary 27, 1978; Date of Effectiveness: May 15, 1978;Closing Date: December 31, 1983

Bids for all procurement contracts were received in November andDecember, 1978, and almost all contracts have been awarded. Construction ofproject works is proceeding satisfactorily, and about 25 percent of irrigationworks have been completed. Disbursements as of November 30, 1979 were $1.1million.

Ln No. 1536 Tires Project; US$85.0 Million Loan of March 30, 1978;Date of Effectiveness: June 9, 1978; Closing Date:December 31, 1981

Construction of the Zalau plant (truck tires) is slightly behindschedule with expected completion in the first quarter of 1980. The Turnu-Severin plant (off-the-road tires) has been delayed 17 months mainly as aresult of difficulties in obtaining adequate responses from prospectivesuppliers of the main technology and equipment package. The Romanian Govern-ment has recently begun negotiations with prospective suppliers for the OTRpackage.

Ln No. 1581 Post Earthquake Construction Assistance Project; US$60.0Million Loan of June 12, 1978; Date of Effectiveness:September 5, 1978; Closing Date: June 30, 1981

Procurement is proceeding satisfactorily. Disbursements havelagged because the amount of advance contracting has been greatly reduced,because of the use of terms which extend payments far beyond what was envis-aged, and because of delays in submitting withdrawal applications. They areexpected to accelerate later this year.

Ln No. 1634 Craiova Chemical Project; US$40.0 Million Loan of January 15,1979; Date of Effectiveness: May 2, 1979; Closing Date:December 31, 1982

Initial procurement and execution of the project are proceedingsatisfactorily, and the final commissioning is expected by end 1981, asscheduled.

Ln No. 1651 Roman Seamless Pipe Project; US$40.0 Million Loan of February 26,1979; Date of Effectiveness: July 30, 1979; Closing Date:December 31, 1982

After an initial delay of six months procurement and construction areproceeding satisfactorily, and it is expected that a contract for the main tech-nology package will be signed very soon.

- 33 - ANNEX IIPage 6 of 6 pages

Ln No. 1652 Second Turceni Thermal Power Project; US$70.0 Million Loan of

February 26, 1979; Date of Effectiveness: June 29, 1979;

Closing Date: December 31, 1982

The project is expected to be delayed by about one year because of

delays in Tuxrceni I and the necessary sequential arrangements for implementa-

tion of bothl projects. Orders for the three Bank financed 330 MW thermo-

electric units have been placed.

Ln No. 1669 Second Livestock Project; US$75.0 Million Loan of April 16,

1979; Date of Effectiveness: July 6, 1979; Closing Date:

June 30, 1984

Progress in project implemaentation is satisfactory. Draft tender

documents for procurement of construction materials were received and review

comments have been communicated to the Borrower for incorporation in the

revised bidding documents. Disbursements as of November 30, 1979 were $7.9

million or 11 percent of the loan amaount.

Ln No. 1670 Mostistea and Calmatui Irrigation and Drainage Project; US$70

Million Loan of April 16, 1979; Date of Effectiveness:

July 16, 1979; Closing Date: June 30, 1984

Initial preparatory works are proceeding satisfactorily. Draft

bidding documents for procurement of equipment and materials under ICB were

received and review comments have been communicated to the Borrower for

incorporation in the revised bidding documents.

- 34 - ANNEX III

ROMANIA

DANUBE BLACK SEA CANAL PROJECT

SUPPLEMENTARY PROJECT DATA SHEET

Section I: Timetable of Key Events

(a) Time taken by the country to prepare the project: Not known

(b) Agency which prepared the project: Ministry of Transportand Telecommunications(MTTc)

(c) Date of first presentation to the Bank: 1975 and Spring 1977

(d) Date of first Bank mission to considerthe project: March 1978

(e) Date of departure of Appraisal Mission: February 18, 1979

(f) Date of completion of negotiations: December 14, 1979

(g) Planned date of effectiveness: Within three months ofloan signing

Section II: Special Bank Implementation Actions

None.

Section III: Special Conditions

(a) The Government of Romania would operate the canal on a non-discriminatory basis (para. 60);

(b) The Government of Romania would complete the other major projectsit is carrying out in association with the proposed project tothe extent necessary for the canal to handle forecast traffic fromthe time it will be opened to through traffic (para. 60);

(c) The Government of Romania has established a schedule satisfactory

to the Bank for on site delivery of all construction equipment and

materials as well as the permanent equipment for the project whichwould be financed by the Bank to ensure that the project would be

completed within the planned implementation schedule (para. 59); and

(d) The Government of Romania would establish canal dues on the basis

described in para. 65.

______________________________~ ~ ~ ~ ~ IBRD 14312

-- i -\ U.SSR ,- 'JUNE1979iv

SOCIALIST REPUBLIC OF ROMANIA

DANUBE-BLACK SEA PROJECTTRANSPORTATION

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DANUBE-BLACK SEA PROJECT SCHEME

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