Document ofThe World Bank

Report No: 20493-MK

PROJECT APPRAISAL DOCUMENT

ONA

PROPOSED CREDIT

IN THE AMOUNT OF SDR 7 MILLION

TO THE

FORMER YUGOSLAV REPUBLIC OF MACEDONIA

FOR THE

TRADE AND TRANSPORT FACILITATION IN SOUTHEAST EUROPE PROJECT

June 21, 2000

Infrastructure Sector UnitTurkey and FYR Macedonia Country UnitEurope and Central Asia Region

CURRENCY EQUIVALENTS

(Exchlange Rate Effective April 24, 2000)

Currency Unit = Denar (Den)1 Denar = US$0.015

1 US$ = 64.44 Denars = 0.739 SDR

FISCAL YEAR

January 1 - December 31

ABBRtEVIATIONS AND ACRONYMS

ADP Automated Data processingASYCUDA Auto:mated System for Customs Data

BCP Border Crossing PointCEFTA The Central European Free Trade Agreement

EU The E,uropean UnionFIATA Federation of International Forwarding Agents

FMS Financial Management SystemFNRR Fund for National and Regional Roads

FYR Macedonia The former Yugoslav Republic of MacedoniaGDP Gross Domestic Product

GOM Govemment of FYR MacedoniaICIS Integrated Customs Information SystemIDA Intermational Development AssociationIRU International Road Transport Union

IT Infornation TechnologyLAN Local Area NetworkMCA FYR Macedonia Customs AdministrationMOF Ministry of FinanceMOU Memorandum of Understanding

PIT Project Implementation TeamRSC Regional Steering CommitteeSAD Single Administrative DocumentSECI Southteast European Cooperative InitiativeSOE Statement of Expenditures

TCP/IP Transfer Control Protocol/ Information ProtocolTEN Trans-European NetworkTFP Transit Facilitation ProjectTIR Transport International Routier

TOR Terms of ReferenceTTFSE Trade and Transport Facilitation in Southeast Europe

UN-ECE United Nations Economic Commission for EuropeWAN Wide Area NetworkWTO World Trade Organization

Vice President: Johannes F. Linn, ECAVPCountry Director: Ajay Chhibber, ECCO6Sector Director: Ricardo A. Halperin, ECSINSector Leader: Eva Molnar, ECSINTeam Leader: Graham Smith, ECSINTask Manager: Anca Dumitrescu, ECSIN

FORMER YUGOSLAV REPUBLIC OF MACEDONIATRADE AND TRANSPORT FACILITATION IN SOUTHEAST EUROPE PROJECT

CONTENTS

A. PROJECT DEVELOPMENT OBJECTIVE ................................................................ 31. PROJECT DEVELOPMENT OBJECTIVE ................................................................ 32. KEY PERFORMANCE INDICATORS ................................................................ 3

B. STRATEGIC CONTEXT ................................................................ 31. SECTOR-RELATED COUNTRY ASSISTANCE STRATEGY (CAS) GOAL SUPPORTED BY THEPROJECT ............................................................... 32. MAIN SECTOR ISSUES AND GOVERNMENT STRATEGY .................................................... 43. SECTOR ISSUES TO BE ADDRESSED BY THE PROJECT AND STRATEGIC CHOICES .............. 7

C. PROJECT DESCRIPTION SUMMARY ................................................................ 71. PROJECT COMPONENTS ................................................................ 72. KEY POLICY AND INSTITUTIONAL REFORMS SUPPORTED BY THE PROJECT ......... ............83. BENEFITS AND TARGET POPULATION ................................................................ 94. INSTITUTIONAL AND IMPLEMENTATION ARRANGEMENTS .............................................. 9

D. PROJECT RATIONALE ............................................................... 121. PROJECT ALTERNATIVES CONSIDERED AND REASONS FOR REJECTION .......... ............... 122. MAJOR RELATED PROJECTS FINANCED BY THE BANK AND/OR OTHER DEVELOPMENTAGENCIES ............................................................... 1 33. LESSONS LEARNED AND REFLECTED IN THE PROJECT DESIGN ................ ...................... 1 34. INDICATIONS OF BORROWER COMMITMENT AND OWNERSHIP ...................................... 145. VALUE ADDED OF BANK SUPPORT IN THIS PROJECT ............................... ..................... 14

E. SUMMARY PROJECT ANALYSIS ......................................... ...................... 141. ECONOMIC ............................................................... 142. FINANCIAL AND FISCAL ............................................................... 153. TECHNICAL ............................................................... 154. INSTITUTIONAL ............................................................... 155. SOCIAL ............................................................... 156. ENVIRONMENTAL ASSESSMENT ............................................................... 167. PARTICIPATORY APPROACH ............................................................... 16

F. SUSTAINABILITY AND RISKS ............................................................... 171. SUSTAINABILITY ............................................................... 172. CRMCAL RISKS ............................................................... 183. POSSIBLE CONTROVERSIAL ASPECTS ................................................................ 19

G. MAIN CREDIT CONDITIONS ............................................................... 191. EFFECTIVENESS CONDMONS ............................................................... 192. OTHER ............................................................... 19

H. READINESS FOR IMPLEMENTATION ............................................................... 20I. COMPLIANCE WITH BANK POLICIES ............................................................... 20

ANNEXES

ANNEX 1. PROJECT DESIGN SUMMARYANNEX 2. DETAILED PROJECT DESCRIPTONANNEX 3. ESTIMATED PROJECT COSTSANNEX 4. ECONOMIC ANALYSIS OF THE TOTAL INVESTMENT OF THE PROJECTANNEX 5. FINANCIAL SUMMARYANNEX 6. PROCUREMEN'T AND DISBURSEMENT ARRANGEMENTS

TABLE A. PROJECT COSTS BY PROCUREMENT ARRANGEMENTSTABLE Al. CONSULTANT SELECTION ARRANGEMENTSTABLE B. THRESHOLDS FOR PROCUREMENT METHODS AND PRIOR REVIEWTABLE B 1. PROCUREMENT PLANTABLE C. ALLOCATION OF CREDIT PROCEEDS

ANNEX 7. PROJECT PROCESSING BUDGET AND SCHEDULEANNEX 8. DOCUMENTS IN PROJECT FILEANNEX 9. STATEMENT Ol LOANS AND CREDITSANNEX 10. ENVIRONMENTAL MANAGEMENT PLANANNEX 11 MACEDONIAN CUSTOMS SYSTEM REFORM STRATEGYANNEX 12. COUNTRY AT A. GLANCE

MAPs No. 30919 AND 3100)3

FYR MacedoniaTrade and Transport Facilitation in Southeast Europe Project

Project Appraisal DocumentEurope and Central Asia Regional Office

Turkey and FYR Macedonia Unit

Date: June 21, 2000 Program Team Leader: Graham SmithCountry Manager/Director: Ajay Chhibber Sector Director: Ricardo HalperinProject ID: 7E-PE-70089 Sector: TY- Other TransportationLending Instrument: Specific Investment Credit Theme(s): Public Sector

Poverty Targeted Intervention: [ ] Yes [X] No

Project Financing Data [ ] Loan [X] Credit [H Guarantee [] Other [Specifyl

For Loans/Credits/Others:Amount: SDR 7 milion (US$ 9.3 miUlion equivalent)Proposed terms: [X] Multicurrency [ Single currency, specifyGrace period (years): 10 [1 Standard Variable [] Fixed [ ] LIBOR-basedYears to maturity: 35Commitment fee: 0.5% on undisbursed credit balance, beginning 60 days after signing less any waiver.Service charge: 0.75%

Finaning plan (US$m):Source Local Foreign Tota

Government 3.1 0.0 3.1USA 0.1 1.9 2.1IDA 1.8 7.5 9.3Total: 5.1 9.5 14.5

Borrower: former Yugoslav Republic of MacedoniaGuarantor: N/AResponsible agency: Ministry of Finance, Macedonian Customs Adnministration

Estimated disbursements (IDA FY/ US$M):FY FY2001 FY2002 FY2003 FY2004

Annual 0.9 3.8 4.4 0.3Cumulative 0.9 4.7 9.0 9.3

Project implementation period: 3 1/2 yearsExpected effectiveness date: October 31, 2000 Expected closing date: June 30, 2004Implementing agency: Macedonian Customs Administration

Contact person: Sladjana DamjanoskaAddress: 13, Lazar Licenovski Str., 1000 Skopje

Tel: + 389 91129 155 Fax: + 389 91 237 832 E-mail: sladjana.damjanoska@customs.gov.mk

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The TTFSE Proiect: Key Desien Concents

How does this project differfrom the typical project?

Reyional character. The TTFSE projects are regionally linked in a program supporting fYRMacedonia, Albania, Bosnia amd Herzegovina, Bulgaria, Croatia and Romania in their efforts tofoster trade. All these countries are beneficiaries of the Stability Pact'. They seek to promote moreefficient and less costly trade flows across the borders of the participating countries and provideEU-compatible customs standards. This requires the cooperation of the participating countries anda mutual sharing of concerns iFor the reform of their Customs services. To assist such cooperationand facilitate the sharing of information, a Regional Steering Committee (RSC) has been created.All participating countries are represented on this committee and have signed a Memorandum ofUnderstanding detailing its ro:Le and activities. The United States (US) is funding a secretariat forthe RSC and experts to assist each government in procurement management.

Reform combined with the provision of infrastructure. The project will support theimplementation of ongoing customs reforms and focus on integrated solutions at selected pilot siteslocated on main European corridors. Customs reform is an essential part of the activities fYRMacedonia needs to undertake to join the European Union. These pilots will increase theproductivity of border agencies, enabling shorter processing time at border crossings and inlandtermninals. Reforms and pilots will need to be supported at some border crossings by the upgradingof infrastructure. The project will finance physical improvements at these border crossings, oncecritical elements of reform proceed.

Non-duplicative structure. The TTFSE seeks to offer the Customs services the guarantee thatreform needs will be addressed in a way least costly to the government. Governments willcontinue ongoing customs reforms led by the European Union (EU) and will use grant fundingfrom the EU and the USA for most of the technical assistance components.

Participatory approach. The design and implementation of the TTFSE is based on participatorymethodology to ensure that the projects belong to the participating countries and are endorsed andowned by the various stakeholders, including the beneficiaries. Consultations with customsofficials and users have occurred during the design phase and mechanisms are built into the projectto obtain regular user input in the monitoring and evaluation process.

Building on previous/ongoins tiatives. Several international organizations have recognized theneed to help countries in the region improve transit across borders and have provided assistance tostart addressing it. The EU was the first in the Balkans to start addressing this issue. Its experiencehighlights the need for comprehensive reforms and carefully selected upgrading of infrastructure.The Southeast European Cooperative Initiative2 also promotes economic and environmentalcooperation among the countries in the region, with a focus on efficient transit, and combatingcorruption and smuggling.

The Stability Pact for South Eastern Europe, adopted in Cologne on June 10, 1999 at a special meeting of ForeignMinisters, representatives of international organizations, institutions and regional initiatives concerned with SouthEast Europe, commits these parties to the adoption of a comprehensive, coordinated and strategic approach to theregion, replacing crisis management with preventative diplomacy.

2 Consisting of Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Greece, Hungary, Moldova, Romania, Slovenia,fYR Macedonia and Turkey, established iin December 1996.

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A: Project Development Objective

1. Project development objective: (see Annex 1)

The proposed project forms part of a regional program for Trade and Transport Facilitation in SoutheastEurope3 that aims to strengthen and modernize the customs administrations and other border controlagencies in the former Yugoslav Republic of Macedonia, Albania, Bosnia and Herzegovina, Bulgaria,Croatia, and Romania. The Program, the result of a collaborative effort between the Government, IDA,the EU and the US, seeks two development objectives:

(i) to reduce non-tariff costs to trade and transport; and(ii) to prevent smuggling and corruption at border crossings.

The project would achieve these objectives by: (i) supporting customs reform; (ii) strengtheningmechanisms of interaction and cooperation between private and public parties at regional, national andlocal levels; (iii) disseminating information and providing training to the private sector; (iv) financinginfrastructure and equipment at selected border crossings; and (v) implementing, at pilot sites, anintegrated set of new customs procedures, information technology, human resource managementtechniques, supporting infrastructure, and cooperation mechanisms4 for agencies at border crossings. Thefinancing of infrastructure will be dependent upon the successful implementation of the reforms, notablythe application of targeting and selectivity techniques.

In fYR Macedonia, the EU, based on its experience in the country, will continue to support theimplementation of the Customs System Reform Strategy developed by the Ministry of Finance (MOF) andfYR Macedonia Customs Administration (MCA). This is part of the association process. The processnecessary to change institutional cultures and ingrained behavior is expected to take a substantial time,about 8 to 10 years. The reform involves simultaneous and sustained actions on: (i) change inadministrative and operational procedures; (ii) definition of staff profiles for the organization and hiring ortraining according to them; (iii) elaboration and implementation of a staff development plan; and (iv)introduction of up-to-date information technology and regional interconnections. This project will providesupport to implement the customs reform at border crossings and inland terminals during the first phase ofthe process.

2. Key performance indicators: (see Annex 1)

Progress towards the objectives will be monitored by key performance indicators covering theperformance of MCA services at one pilot inland terminal and three pilot border crossings, and overallefficiency indicators for the MCA as a whole. The indicators include: (i) transport costs to/from the threemain trading partners and the transaction costs at these pilot sites; (ii) number of physical or documentaryexaminations and their effectiveness; (iii) clearance time; (iv) the value of recorded trade; and (v)occurrence of corruption. In addition, a set of regional indicators will be used to measure cost/timereduction in regional transport on three major corridors to evaluate the overall impact of the program. Adetailed set of indicators has been defined to follow the national and regional progress throughout theproject life (Annex 1).

B: Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1)

CAS document number: 18162MK Date of latest CAS discussion: 06/13/2000 (Progress Report)

3Referred to in this document collectively as "the program" and nationally as the "TTFSE" project.4Including shared access to information and intelligence systems, and training for interagency awareness.

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The assistance strategy of the Bank Group emphasizes the three priority areas outlined in theGovernment's "National Development Strategy for Macedonia": (i) Promote private sector growth. Thehighest priority is given to support for policy reforms to further liberalize trade, eliminate directgovernment participation in the sector, and establish the prerequisites for efficiency in markets. The Bankprogram supports economic policy reforms, including delicensing, regulatory and tax simplification, andcompetitive privatization, especially to prevent opportunities for corruption; (ii) Increase effectiveness ofthe state. The Bank will support, as a key criterion for EU accession, the strengthening of publicadministration. Its assistance will focus on the role and organization of the state, and on reforming publicexpenditure management. This will include improving the transparency and accountability in publicfinance management, developing the basis for a merit-based civil service system, and providinginstruments to address the existing weak governance in public sector; and (iii) Alleviate poverty anddevelop human capital. The Bank will support building up programs aimed at strengthening front linesocial services: basic health, primary education, social assistance, and labor services.

The proposed project is especially in line with the objectives (i) and (ii) above. It will support therestructuring of MCA to better serve trade activities by reducing non-tariff transport costs, lowering theprice of imported goods, and improving the competitiveness of Macedonian products, thereby promotingprivate sector growth and creation olf new jobs in the country. The project will also support the MCA instrengthening its tax collection capacity and enforcing several international conventions relating to theenvironment, while reinforcing ongoing efforts against corruption. The proposed border crossinginfrastructure improvements would allow a cost-efficient cross-border system with positive results for roadtransport.

2. Main sector issues and Government strategy:

Trade is highly significant to the fYRZ Macedonia's economy, representing on average about 86% percentof GDP in 1998 (see trade indicators in Annex 4). FYR Macedonia is already considered one of the mostopen trading countries in the region. The conflict in Kosovo blocked fYR Macedonia's main transportcorridor to the rest of the world, as well as closed off its second largest export market, FR Yugoslavia.However, the negative impact of the crisis has turned to be much less than anticipated. In fact it hasboosted the construction and service sectors, as fYR Macedonia has become the major transport route toKosovo. Trade is increasingly changing its old patterns in terms of partners, and progressively incomposition of products. Export volumes continue to grow in response to strong demand from Kosovo.Trade has become mainly oriented towards the EU (though transport routes have been damaged as a resultof the conflict in the region), with main trading partners being Germany, Greece and Italy (about 35% oftrade) (see Map 30919). The United States are also an important partner, with over 13 percent of exports.The country's main exports consist of clothing, iron and steel, and drinks and tobacco products. Importsconsist mainly of food products, manufactured consumer goods, mineral fuels and lubricants.

FYR Macedonia has strengthened trade links with its neighbors. It entered into free trade agreements withits main partners in the region (Bulgaria, Croatia, Slovenia, and FR Yugoslavia), and it has made similarproposals to Albania and Romania.

The MCA describes its major objectives in its strategy (Annex 11) as : (i) to promote fair trade; (ii) toincrease attractiveness of foreign investors; (iii) to ensure protection for the citizens and business in allareas involving imports and exports in a clear, uniform, simple way as efficiently as possible; (iv) tofacilitate a practical system to collect taxes, customs duties, excise, and VAT (starting April, 2000); and(v) to respect the provisions on environment protection.

The MCA plays a critical role in serving both the State and the trading community. In 1999, the MCAcollected about 25 percent of the total state budget revenues (about US$208 million equivalent), and thepercentage is expected to increase with the recent introduction of VAT, to be also collected by MCA. TheGovernment has achieved partial success in improving the services of MCA and reducing trade andtransport impediments through the recent restructuring of customs. Particular efforts have been made tostrengthen the law enforcement at the borders by establishing an Intelligence Department. Private sector

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observers recognize the efforts of MCA but underline that much remains to be accomplished. Thefollowing obstacles to trade and transport have been identified in consultation with both Customs andvarious stakeholders:

a. Modernizing Customs Code and Procedures

The Government, in close collaboration with the EU, IMF, and the Bank, has already taken various stepsto improve customs legislation, procedures and documentation. The MCA introduced the increased use ofa Single Administrative Document (SAD)5 along with the ASYCUDA6 system. A new tariff, aligned tointernational standards, has been introduced. The different categories of duties have been consolidated,and the present one percent ad valorem fee collected on all imports will be replaced by a flat declarationhandling fee, consistent with WTO-compatible practice. The Government has also introduced, as a part ofthe Transit Facilitation Project supported by the Bank7, a wide range of training programs for moreefficient customs operations. The EU-compatible Customs law incorporates modern features and willenable the MCA to operate according to EU practice. The passing of the law has placed the MCA underthe Ministry of Finance (an IMF ESAF8 requirement) to ensure coordination between tax collectingagencies and improve transparency. An improved version of the law, together with implementingregulations, became effective as of April, 2000.

Despite this modernization, the actual implementation of MCA procedures needs further attention tofacilitate trade and transport activities. Stakeholders have indicated they have concerns about: (i) changesin the legal system and regulations without advance notice; (ii) clarity and transparency of customsregulations; (iii) application of legislation at border points; (iv) coordination among border agencies; and(v) interaction with the Government. At the same time, MCA management has signaled the followingmajor impediments to trade facilitation: (i) the need to revise the definition of responsibilities betweenCustoms and Border Police, as well as (ii) the lack of sufficient training in legislation and procedures byboth trade operators and customs officers.

The MCA intends to address these issues. Assistance is on-going within the PHARE Multi-beneficiaryCustoms Program. Regulations are being designed for a new EU assistance program to certain countries ofSouth East Europe, including fYR Macedonia, under the name Community Association andReconstruction Assistance to the Western Balkans - CARA. However, customs-specific assistance withinthe program is unlikely to be implemented in the near future.

b. Upgrading Customs Facilities

Even if procedures are reformed and professional standards are strengthened, the design and facilities ofsome of the main border crossing points will prevent MCA from fulfilling its trade facilitation, collectionand enforcement functions. Insufficient facilities (both physical infrastructure and equipment) at theseborder crossing points (BCPs) are one of the reasons for delays.

The Government has already started to rehabilitate BCPs with its own funds and with assistance fromdevelopment partners. Of the country's five major international BCPs, modernization of Bogorodica (onthe Greek border) was funded by EU - PHARE. Kafasan ( on the Albanian border) was built with UnitedNations Development Program funding. However, the lack of processing lanes for traffic and the limitedcapacity of inspection areas are the most common difficulties. Tabanovce9, strategically most importantfor fYR Macedonia, has not been financed by any donor programs, yet requires partial reconstruction.

5A standardized format for waybills and related transport documents, promoted by UN.6Automated customs declaration processing system developed by UNCTAD7The project is closed; it was implemented between 1995-19998 Enhanced Structural Adjustment Facility9 The border facilities at Tabanovce, at the border with FR Yugoslavia, were developed only recently and aretemporary in nature. The Government has decided on its full reconstruction rather than rehabilitation; IDA willfinance only the first phase, based on the most critical needs.

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Critical needs for improvement also still exist at Kafasan and Deve Bair even after multi-donor funding ofcore facilities.

With respect to equipment and information systems, the MCA started in 1996 to introduce the ASYCUDAsystem with the support of the EU (implementation of a pilot site and technical expertise from UNCTAD)and the Bank (roll out of the system under the Transit Facilitation Project). Hardware, software, andcommunication devices were also introduced under the Transit Facilitation Project. However, some partsof the systems used by the MCA date back to 1994, and the hardware, software, and telecommunicationsystems need to be updated. At the same time, equipment to raise the quality of inspection and processingat major border stations, and communications equipment to complete the customs national network arecritically needed.

c. Preventing Smuggling and Corruption

Despite the efforts of the MCA and the Government, stakeholders have reported that corruption andparticularly the lack of transparency generate significant additional costs (albeit the degree is lesssignificant than in other Balkan countries). Freight rates set by companies operating in the regionfrequently include a mark-up to cover unofficial payments. Users complain that unequal treatment ofimporters is a constant problem, and tax collection procedures allow arbitrary action by customs andprovide opportunities for rent seeking behavior at the border crossings.

Improvement of customs ethics is a major objective of the MCA. In addition to the previous Bank/IMFefforts'°, the EU has assisted MCA in introducing their Ethics Code, including the basic principles ofcustoms ethical behavior (as stated in the Arusha Declaration on Integrity in Customs), communicationwith clients, and disciplinary procedures. The MCA has been the first in the region to implement an ethicsmodule training program. The Government of the fYR Macedonia has prepared a new "Code of Ethics"(anti-corruption measures) within the package of the Strategy for Public Administration Reform supportedby the EU and the Bank.

d. Improving Private-Public Interactions

Limited and sometimes late prior consultation with the trade community prevents meaningful andconstructive interactions. The Economic Chamber of fYR Macedonia and Mak-PRO'1 committee providemechanisms to reach more consensual decisions. The lack of accountability of the MCA in facilitatingtrade is a core reason for the discoinection between users and the MCA. Customs officials do not feelliable for the delays they cause in the release of goods, cargo transfer, and down-time suffered by vehicles,whether these delays are justified or not, and the related costs are solely borne by the cargo owners.Limited foreign language skills among operational officers cause time-consuming and costly transactionsrequiring translations. The MCA increasingly provides training to its officers to improve the quality oftheir interactions with the private sector, but further efforts will be required to achieve the quality of theservices available in, and compatible with, the European Union.

e. Strengthening Regional Coopieration

FYR Macedonia, like all other participants in the South European Cooperative Initiative (SECI)'2,recognizes the importance of coordinated actions to address the above issues. It is recognized that, tosome degree, each country can expect to gain more from actions to be taken by its neighbors than those it

'° The Bank and IMF had previously prepared a computerized fraud data base, which is now partly operational, andprovided advice on the introduction of the preventive service and the general organization of the investigations unitwithin the framework of the new Customs Law.1 Professional body that seeks to improve international trade through the simplification and harmonization ofprocedures and practices in administration, commerce and transport, in accordance with UN/CEFACT guidelines.12 See footnote 2. SECI was set up in December 1996, to promote regional economic and environmental cooperationamong the countries in the region. The initiative is being supported by UN-ECE, the US government and thegovernments of Italy, Austria, Greece, arid Turkey.

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should take itself. A regional view has thus emerged, according to which participant countries wouldsimultaneously apply coordinated and compatible measures to reduce trade/transport impediments andcorruption/smuggling opportunities. The regional cohesion can be symbolized by the signing of theregional Memorandum of Understanding by the six countries, as well as their willingness to benchmarkcountry performance and to work on streamlined solutions at paired border crossings' (Map 31003). Thesupport shown by the EU and United Nations Economic Commission for Europe (UN-ECE) as well assuch bilateral donors as the US reflects the importance attached to the development and stabilization of theregion.

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

The project will address the issues described above, building on previous efforts and taking full account ofongoing EU support to avoid any duplication. The project will combine resources from the IDA and theUSA. Given the interest of fYR Macedonia in the implementation of EU-compatible standards and theneed to ensure the overall compatibility of the program, close relationships with the EU will bemaintained. The project will seek improvements in: (i) procedures of border agencies; (ii) borderinfrastructure and equipment; (iii) the ICIS; and (iv) trade/transport business environment and professionalperformance.

C: Project Description Summary

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

The project consists of the following components:

a. Customs Administration Institutional Reform

Includes: (i) improvement of customs procedures; (ii) ) assistance to streamline operations at three borderposts and one inland terminal on a pilot basis; (iii) ) customs training in new procedures, and training forinteragency awareness and cooperation; and (iv) organizational restructuring of the MCA.

b. Trade Facilitation Development

Includes activities to be financed by the US Govemment: (i) provision of technical assistance and advisoryservices to trade and international transport participants through the Economic Chamber; (ii) improvementof communication between border control agencies and trading community by using a virtual forum'4; and(iii) provision of equipment to support information availability.

c. Improvement if Integrated Customs Information System (ICIS)

Includes: (i) ) software and assistance for information system improvement; (ii) hardware and works forICIS and communication improvement; (iii) ICIS personnel training; and (iv) a regional program ofexperience-sharing. This component will stimulate regional and inter-agency cooperation.

d. Improvement of Border Crossing Facilities

Includes: (i) rehabilitation and a new truck terminal at Tabanovce border crossing; (ii) improvement ofDeve Bair border crossing; (iii) improvement of Kafasan border crossing; (iv) equipment for enhancing theprocessing capacity at customs stations, and improving the MCA's training capacity; and (v) design andsupervision of the civil works.

e. Program and Project Implementation

13 Between FYR Macedonia and Bulgaria, and between FYR Macedonia and Albania14 Creation of an internet website that will enable exchange of views, user surveys and consultation.

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Includes the services required to support implementation of the program. At the regional level these willconsist of the secretariat services to the RSC and at the national level the auditors and procurementconsultants, the establishment of a financial management system, and training to the ProjectImplementation Team (PIT).

Component Category Cost Incl. % of IDA % of IDAContingenc. Total financing financing

(US$M) (US$M)A. Customs Administration InstitiLtion Building 2.0 14.0 0.4 4.6Institutional ReformB. Trade Facilitation Consulting 0.4 3.0 0.0 0.0Development Service/Training/

EquipmentC. ICIS Improvement Consulting Services/ 5.6 38.9 4.4 47.1

Training/Equipment/ CivilworksCivil Works / 5.9 40.8 4.2 44.8Consulting Services

E. Program and Project Operating costs and 0.5 3.3 0.3 3.4Implementation Consulting Services

Total 14.5 100.0 9.3 100.0

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

FYR Macedonia has indicated its commitment to market reforms, including deregulation and privatization.The project will supplement ongoing policy and institutional reforms seeking the following objectives.

a. Strengthening of the MCA

The capacity building activities will address the following aspects:

. implementation and enforcement of new legislation aligned with the European Unionlegislation, with reference to the acquis communautaire 16 and related legislation;

* adoption of simplified and standardized customs and border inspection procedures(compliance measurement and selective inspection based on risk assessment);

* human resource management to develop customs/border inspection expertise and enhancesystem integrity;

* training for customs personnel to ensure uniform application of the new legislation, to improvethe fulfillment of MCA's mission, and to enhance integrity;

* creation of a partnership among border inspection agencies and the trade/industry communityto better coordinate operations, procedures, and the exchange of information; and

* adoption of audits and account management processing to facilitate trade and trade dataexchanges

b. Strengthening of the Integrated Customs Information System

Improvements to the information systems in use will have the following impacts:

15 Due to rounding, items may not add exactly to totals.16 Treaties and the accumulated body of agreements on substance, procedures and protocols effective in the EuropeanUnion that must be accepted by countries wishing to join.

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* elimination of multiple data entry;

* support of selectivity and targeting procedures at all customs locations;

* support of international Electronic Data Interchange standards to enable fast integration intothe international trading community;

* monitoring of Customs performance, traffic patterns and capacity use;

* information exchange with other governments in the region; and

* prevention in corruption opportunities by lessening human intervention.

c. Strengthening Regional Cooperation

The project will lead to greater regional cohesion. The implementation of joint pilot projects with Bulgariaand Albania at selected border posts will strengthen regional cooperation at both local and national levels.

3. Benefits and target population:

a. Benefits

It is hoped that the Customs reform and decreases in trade and transport costs will lead to transparentcustoms procedures, a more reliable business environment, and economic growth as a result of lowerprices of imports and more competitive prices/services for exports. This will translate into:

* cheaper import goods / inputs for Macedonian consumers and industries;

* better and more reliable business environment for private sector activities, particularly for the

trade activities of small and medium enterprises;

* more predictable and reliable economic setting for foreign companies;

* improved facilitation for transit traffic;

* prevention of corruption and smuggling opportunities;

e improved revenue collection by the MCA, enabling reduction in tariffs;

- uninterrupted services of ICIS and better integrity of data; and

- improved alignment with EU standards and procedures.

b. Target Population

The beneficiaries of the proposed Project will be transport operators, importers, exporters, freightforwarders, other trade industries, foreign investors, and ultimately, consumers and producers inside andoutside the region. Travelers and tourism will also benefit.

4. Institutional and implementation arrangements:

a. Implementation Period

The project will be implemented over three years and a half (FY2001-FY2004). It will be completed byDecember 31, 2003, and closed by June 3, 2004. The Customs reform process will last about 8 - 10 years.

b. Executing Agencies

FYR Macedonia, through its Ministry of Finance (MOF), will be the borrower for the IDA credit. Its solebeneficiary will be the MCA. Through the proposed co-financing, other project beneficiaries will be theMOF, the Border Police, and the Economic Chamber. The implementation arrangements will include thefollowing elements : (i) a project manager and a project implementation team; (ii) a project coordinator;(iii) a facilitation coordinator; (iv) a website coordinator; and (v) a regional steering committee (RSC).

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The MCA will implement the project. The MCA management has appointed a Project Manager, and aProject Implementation Team (PIT) covering procurement, loan management and reporting functionsacceptable to the IDA will be completely established by credit effectiveness. The project manager willmake an evaluation of the workload for the PIT and plan resources accordingly. The PIT will coordinateproject management for the various beneficiaries, prepare terms of reference, hire consultants, and contractfor services, training, goods, and civil works as necessary for the implementation of the project. The PITwill include representatives of the Public Enterprise (see paragraph 3.c below).

The proposed Project Coordinator is the finance minister of fYR Macedonia. The Coordinator will calland chair coordination meetings of the various border control agencies and manage their input. The projectcoordinator has authorized the director general of MCA to represent the country at the Regional SteeringCommittee (see below).

The Economic Chamber of fYR Macedonia will manage the trade facilitation component and has designeda Facilitation Coordinator, who will interact with the Project Manager for the implementation of thecomponent. The MCA will interact as Website Manager.

The MCA and the Border Police will ensure that appropriate technical expertise is engaged to support theProject Manager. Cooperating partners (the ministries of Transport, Environment, and Agriculture) will beinvolved in the definition of new procedures for border controls.

Given the scope (six countries) and complexity of the Regional Program and the related policy andinstitutional reforms anticipated, a Regional Steering Committee (RSC), meeting periodically at theregional level, will oversee the overall implementation of the program. The participating countries havesigned a Memorandum of Understanding (MOU) setting up the RSC. The RSC is constituted of high-levelofficials of the participating countries (general director of MCA in the case of fYR Macedonia), and donorrepresentatives as observers. It will provide guidance for the necessary sector policy and reform decisions.Meetings will rotate among the participating countries, with the project manager of the host countryproviding support services to the RSC.

The UN-ECE is providing a secretary to the RSC to support the implementation of the program. Thesecretary17 will: (i) prepare the agenda, supporting documentation and minutes for the RSC meetings; (ii)consolidate on a semi-annual basis the implementation reports of the countries involved in the program;(iii) consolidate the annual review report of the Project Implementation Teams; (iv) assist in the tradefacilitation efforts; and (v) establish a link to the SECI-PRO committees.

In order to provide a model of pragmatic solving of border crossing problems, the project will includeimplementation of operational restructuring at three pilot border crossings located on the maininternational corridors (Tabanovce on the border with FR Yugoslavia, Deve Bair on the border withBulgaria, and Kafasan on the border with Albania) and one pilot inland terminal (Kumanovo). Bulgariaand Albania will similarly be creating as one of their pilot stations the facilities on the other side of theborder with fYR Macedonia (Guyeshevo and Qafe-Thane, respectively). All the TT1FSE neighboringcountries will develop pilot sites at their borders with each other, whenever possible, thus creating acorridor for implementation of border crossing operational restructuring. A more detailed set of indicatorsfor management purpose will be developed at these pilot sites. The indicators will be used by each countryto examine and allow the evaluation of comparative performance

This framework will provide an assessment tool for identifying problems and tracking the success of thesolutions applied in each case, providing an evolving case study. The results will be updated each quarterby the PIT in addition to the project indicators in Annex 1 and offered to the RSC for review andcomparison. The lessons learned i.rom these case studies will be extended to other specific bordercrossings in the participating countries and to change management in general. Sharing the case studies,along with other project reports, with the customs services and transport associations in countries not

]7 The secretary will be sharing his time between his TTFSE responsibilities and the management of the SECI-PROcommittees.

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associated with the TTFSE will enable the projects to stand together as a quasi pilot of customs reform forapplication to countries outside the Program.

c. Procurement and Disbursement

Civil works, goods and services financed by IDA will be procured in accordance with the IDAprocurement guidelines. Procurement will be undertaken by the PIT established within the MCA. The PIThas been staffed permanently with a procurement specialist, who prepared the draft Procurement Plan. Theprocurement specialist will be supported with outside procurement advisors as required18. Contracts for allcivil works at border locations, and for the design and supervision of works will be prepared incooperation with the Public Enterprise'9 , to comply with local legislation.

The project components not financed by IDA will be procured in accordance with national regulations orthe procurement regulations of the co-financing institutions. The project elements, their estimated cost andprocurement methods are summarized in Table A of Annex 6. Consultant selection arrangements aresummarized in Table Al of Annex 6. A procurement plan detailing the packaging and estimated scheduleof the major procurement actions is presented in Table C of Annex 6 (to be agreed upon and finalized atnegotiations). All other procurement information, including the capability of the implementing agency,estimated dates for publication of the General Procurement Notice and IDA review process is presented inTable B of Annex 6. All disbursement arrangements are set out in Annex 6.

d. Accounting, financial reporting and auditing arrangements

A Financial Management System20 (FMS) will be established prior to credit effectiveness. The FMS hasmet the minimum IDA financial management requirements (4-B LACI Certification) prior to Boardpresentation. IDA made a preliminary review of the systems in place and made recommendation for theinstallation of an appropriate FMS. IDA has reviewed the FMS and prepared a report identifyingweaknesses and proposing remedial actions to enhance the system and enable the development ofappropriate project management reports with a view to the possible transition to PMR-based disbursementmethodology at the Borrower's option. IDA has defined a time-bound action plan to specify the stepsnecessary for: (i) board presentation; (ii) credit effectiveness and (iii) further strengthening of proceduresand staff development during implementation. The development of the FMS will be monitored by IDAbefore effectiveness, during the first supervision mission, and throughout project implementation.

The PIT will establish and maintain project accounts adequate to provide information regarding projectresources and expenditures. To that end, the MCA has hired a suitably qualified accounting/financialspecialist. The PIT will have accounts audited every fiscal year by independent auditors acceptable to IDA,in accordance with IDA guidelines and International Standards of Auditing, issued by the InternationalFederation of Accountants and IDA guidelines. The reports of such audits will be submitted to IDA nolater than six months after the end of the Borrower's fiscal year. The PIT will also maintain alldocumentation related to project expenditures and keep financial records in accordance with soundaccounting practices. A management letter giving an opinion on internal audit controls should besubmitted to IDA six months after effectiveness of the credit.

e. Reporting

The PIT will prepare quarterly progress reports and transmit them to IDA and the RSC; the RSC secretarywill consolidate the reports on a semi-annual basis, and forward them to IDA. These reports will include:the progress of each project component, key performance indicators, procurement issues (actions dealt

18 The procurement advisors will be individuals with satisfactory country and World Bank procurement experience, tobe funded by the US government.19 Government's agency in charge with public procurement of civil works, including at borders

20 Including accounting, financial reporting, auditing and proper internal control systems.

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with, actions planned, and an update of procurement implementation). The reports will measureperformance against the implementation schedule and compliance with Credit covenants.

f Supervision and evaluation arrangements

Supervision will be managed at the national level by World Bank Headquarters staff with activeinvolvement of the Country Office, and at the regional level by a program team leader from World BankHeadquarters. The World Bank will devote some 50 staff weeks for supervision of program and projectprogress through FY2003. This includes the Bank's contribution to the time of a senior customs specialist,jointly funded by a French trust fund.

Each October or November during the implementation of the project, IDA together with the PiT and theother development partners (EU, US) will conduct a review of project execution. The review will assessthe status of regional and national project implementation and cooperation, progress made at the level ofpilot sites compared to targets, implementation of donor programs and productivity of the MCA. Thereview will offer refined targets and objectives for the following year and a set of recommendations. Theschedule of procurement for the coming year will be agreed at the time of the review, considering theprogress to date in the institutional reform.

g. Monitoring

Overall, project monitoring will be based on performance targets and indicators (Annex 1) and the ProjectImplementation Plan. This plan was finalized by the Borrower and agreed on during negotiations.Monitoring will be carried out by the MCA, assisted by consultants as necessary.

D: Project Rationale

1. Project alternatives considered and reasons for rejection:

a. Separate individual projects carried out by each country

The possibility of preparing independent projects for each participating country was reviewed and rejected,since the achievement of overall project objectives will be greatly aided by simultaneous standardizationand harmonization of cross border institutions, operations, and legal frameworks among countries and withthe EU.

b. Regional program of investment projects

A regional program of coordinated border crossing facilitation projects is more advantageous and wasselected since it will:

* generate substantial benefit spill-over to customs users, producers, and consumers in the tradepartner countries of fYR Macedonia, which, if also implementing the program, will in tumbring benefit to Macedonian industries/consumers;

* allow the program countries to share information and introduce more consistent customs andborder control procedures/operations;

* be flexible enough to respond to country differences, the pace of European integration, and theimpact of the EU enlargement process;

* enable IDA to coordinalte with other donors that also implement regional projects; and

* maximize project benefits and minimize project implementation/supervision costs by near-simultaneous implementation.

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c. Regional Adaptable Program Lending (APL)

A regional or "horizontal" APL, including Alternative b above as a first phase, would have enabledsequential entry of countries in the Program. The delegation to the Regional Vice President of approval ofoperations according to a well defined operational blue print was proposed. This horizontal APL,however, was judged to be infeasible because (i) such delegation by the Board was thought unlikely; and(ii) the determination of the future value of performance indicators to include potential borrowers in theprogram would have been a delicate and risky task, given the inherent complexity of the program. Forthese reasons, Alternative b was preferred.

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

Sector issue Project Latest Supervision (Forn 590)Ratings

(Bank-financed projects only)Implementation DevelopmentProgress (IP) Objective (DO)

Bank-financedTransportation Macedonia, fYR: Transit HS HS

Facilitation ProjectTransport Sector Project S S

Transportation Albania: Durres Port S STrade Facilitation Estonia Transport N/A N/APublic Sector Management Turkey: Public Financial S S

ManagementPublic Sector Management Albania: Tax Administration S S

ModernizationOther development agenciesEU EU-PHARE programs, Customs

Multi-Beneficiary programsEBRD Trade Facilitation ProgramIP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory), N/A (notyet available)

3. Lessons learned and reflected in the project design:

FYR Macedonia has made considerable effort to improve its border crossings with external aid. Despitethe progress made, further efforts are still required. The border crossing problem, by its nature, requirescoordinated and mutually reinforcing actions in many areas The reform effort is integrated to ensurecomplementarity between assistance from the EU, the US and the World Bank.

The Transit Facilitation Project in fYR Macedonia (completed in 1999, ICR# 19408) highlighted the needto: (i) tailor the complexity of the project's design to what can be achieved under a single loan; (ii) ensurethe capability of the implementing agencies; (iii) address issues perceived as real priorities by theborrower; and (iv) maintain flexibility to ease implementation.

Both the EU-PHARE and UNDP experiences show that in order to lessen transaction costs at bordercrossings, border crossings investments need to be supplemented by: (i) reliable traffic data; (ii) accurateinformation on waiting times; (iii) adequate remedial actions on both sides of a border crossing; (iv)attention to multi-agency needs; (v) linkage to national transport policies; (vi) reliable communicationinfrastructure and equipment; (vii) communication with users; and (viii) coordination and simplification ofcustoms procedures and removal of state controls on international trade.

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These lessons are reflected in the design of the present project. The project design was tailored to respondto stakeholders' concerns following active consultations. The project will cover the first phase of customsreform and focus on the implementation of integrated solutions at a national level and local level (pilotborder crossings). The pilots will stimulate cooperation across border and among agencies to optimizeprocedures, communication links and monitoring of performance. Customs users will receive training andadvisory services to enhance their professional skills. They will be encouraged to voice their concerns andpriorities and will receive accurate and timely information on existing procedures.

4. Indications of borrower commitment and ownership:

FYR Macedonia's commitment to the reforms under the project comes from long standing interest inexpansion and liberalization of legitimate trade, and participation in such regional initiatives as thosepromoted by SECI. The potential future EU accession acts as a strong stimulus for reforms. Under SECI,fYR Macedonia and other participating countries declared their strong commitment to facilitate legitimatetrade. As long ago as September 1998, the Government affirmed its commitment to the development andimplementation of such a project. I'he continuous dialogue with the country and the agreements reachedduring project preparation, stand as clear statements of borrower commitment and ownership.

The Memorandum of Understanding setting up the Regional Steering Committee for the TTFSE programwas signed by all six countries' representatives in Skopje, on February 10, 2000, confirming projectownership and commitment towards program implementation and regional cooperation.

Commitment to the reform at an operational level (border posts, regional directorates) is less assured andwill be a special point of focus through the pilots.

5. Value added of IDA support in this project:

At the outset, the commitment of the participating governments to the T1TFSE objectives was weak. fYRMacedonia was unable to fund borcler crossing improvements entirely from its own budgets; also, long-term financing was more attractive. The EU and other donors have limited capacity to fund infrastructure.As to technical assistance, the government was (and remains) reluctant to borrow for foreign technicalassistance because of its high cost relative to local salaries. The best solution therefore was to combineIDA credit financing for infrastructure with US grants for TA. The fact that the IDA was willing tofinance infrastructure only on condlition that Customs reform and institutional strengthening was carriedout in parallel, has reinforced the attention given to the latter. Furthermore, IDA through its broaderlending and country assistance strategies is well placed to help promote cooperation and coordination ofpolicies and public spending

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

1. Economic: (supported by Annex 4)

[X] Cost-Benefit Analysis:

NPV=US$1.7 million @ 12%; ERR= 16%

The project would have a fair-return/low-risk profile. The net present value is estimated at US$1.7millionon an investment and recurrent expenses of US$11.5 million. Two benefits have been quantified: (i) lowertransport costs due to the diminution of waiting times at border crossings and inland terminals; and (ii)economic benefits of trade expansion resulting from the project. Waiting at border crossings is the concretemanifestation of inefficiency in trade related services. In the European Union customs administrations arerequired to keep 90 percent of vehicles waiting no more than 20 minutes, or about 40 minutes to cross bothsides of a border point. FYR Macedonia is expected to take a few years before it achieves this standard.The difference between present waiting times at Macedonian borders and a target of 40 minutes to onehour to cross both sides of the boider has been used as the basis to test the economic justification of

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investing in border crossing improvements and equipment. The savings on transport costs are estimated inexcess of US$2.2 million per year after 2004 for vehicles entering fYR Macedonia.

The reduction in costs to trade and the increased reliability of delivery times are expected to lead, in themedium run, to a significant increase in trade volumes, which would make use of existing excessproduction capacity. Extrapolating from analysis of some specific cases, the trade expansion resultingfrom the project is assumed to generate a benefit equivalent to 20% of transport benefits. The switchingvalues and sensitivity analysis confirm that the risks are acceptable.

2. Financial and Fiscal:

The fiscal impact of the project is expected to be positive. There is evidence to suggest that the real volumeof trade is much higher than shown by official records, both as to quantities and unit values. The improvedperformance of border crossings should provide the basis for a significant expansion of the official volumeof trade and generate additional customs duties and excise taxes.

IDA will finance all foreign costs and, in the case of civil works, a small part of local costs in keeping withgeneral World Bank practice in fYR Macedonia. The Government will fund all other local costs, as wellas all taxes and customs duties, when applicable.

Provision of local funds for the project financing is not expected to create a problem - they represent onaverage about US$1 million (or about 0.1 percent) of the annual state budget (see Annex 5). Debt servicingresponsibilities will be fulfilled by the MOF.

3. Technical:

The site and building works in the project require some moderately complex design or constructionmethods (Tabanovce). It is important that the design is scrutinized, not only to minimize costs, but also tofit the construction time within the project duration. The overall work is relatively complex, involvingseveral buildings, emergency electrical systems, and numerous site utilities. The construction market isdeveloping fast, particularly since the reconstruction in Kosovo has started, with some contractors able tocompete internationally. It is necessary to employ full-time site supervision services of independentconsulting firms to ensure quality. ICIS improvement will be carefully tailored and implemented to reflectthe already advanced Macedonian system and to secure its compatibility with the EU system.

4. Institutional:

a. Executing Agencies: Project Manager and her Project Implementation Team (PIT)

Implementation will be overseen by the Project Manager and her Project Implementation Team (PIT). TheProject Coordinator will enable the PIT to obtain the input of the various agencies involved. The FinancialManagement Specialist will continue to assist the Project Manager in establishing the financialmanagement system. The established PIT will receive technical support from the donor-fundedprocurement expert. During negotiations, agreement was reached on the organization, staffing, andresources necessary for the PIT to operate satisfactorily. Its full implementation will be a condition ofeffectiveness.

The Trade Facilitation Development component will be managed by the Economic Chamber of fYRMacedonia in collaboration with Government agencies and the private sector. The Economic Chamber hasdesignated a Facilitation Coordinator, who will interact with the Project Manager, and with the WebsiteCoordinator located in MCA.

b. Project Management: Regional Steering Committee

The Regional Steering Committee (RSC), meeting at least once every three months, will oversee thecoordination and implementation of the Program and the proposed project. The RSC will be constituted of

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high-level officials of participating countries (the director general of MCA in the case of fYR Macedonia)empowered to implement necessary sector policy and reform decisions.

5. Social:

The Project will have an indirect impact on the poor. The reduction in border crossing delays will reducetrade and transport costs and, in turn, also the cost of imported goods, leading to benefits to consumers andlower cost of inputs required for local manufacturing with corresponding creation of new jobs. This importeffect will however be partly offsei: by the loss incurred by local producers, when new imports replacelocal products.

The project aims at improving access to knowledge related to trade, transport and logistics through thetraining extended to the business community. The TTFSE website will allow access to all informationrelated to border crossings in the six countries involved in the Program, improving to a large extenttransparency, thereby reducing opportunities for illegal payments. The electronic forum under the websitewill empower the business community in the region and outside by enabling it to voice its opinion on thequality of the border services received and propose corresponding recommendations to smooth trade andtransport activities.

6. Environmental assessment: Environmental Category []A [X] B [] C

Since the improvement at border crossings involves mainly the enhancement of existing facilities withindeveloped areas, the Environmental Category is B. The IDA will finance the rehabilitation and a new trucktermninal at the Tabanovce border station. The Ministry of Environment has endorsed the relatedenvironmental assessment study concluding that there are no issues related to land expropriation,relocation, or affected flora and fauna. Works consist of the demolition of existing customs buildings andtheir replacement by new ones, addition of utilities, the erection of canopies, and theenlargement/construction of parking and truck terminal areas, or the addition of paved lanes. There maybe some small environmental impacts in the creation of additional paved areas, but no major fills areenvisioned or disturbance of forested or wetland areas. Removal and disposal of waste and demolitionmaterials should conform to international standards and be a contractual obligation.

All designs for station improvemenl.s will ensure compatibility with local environmental regulations andconditions. The project Environmental Management Plan (Annex 10), reviewed with the client, willminimize negative environmental irmpact and strengthen coordination and collaboration with the Ministryof Environment. The Environmental Management Plan is included as an annex to the PIP, and was agreedupon during negotiations. Training will be provided to sensitize operational personnel in the MCA toenvironmental issues. In any event, the overall impact of the project should be positive, since it shouldlessen waiting times and vehicle emissions from trucks and other vehicles at the border crossings.

The project will enable customs officials to better enforce the terms of international conventions andagreements relating to the environient. Especially relevant will be the regulations included in suchagreements as (i) the European Agreement Concerning the International Carriage of Dangerous Goods byRoad (ADR) of September 1957 with its Protocol of October 1993; (ii) the Convention on the InternationalTrade in Endangered Species (CITES); (iii) the Convention on the International Carriage of PerishableFoodstuffs and on the Special Equipment to be Used for Such Carriage (ATP), of September 1970; and(iv) Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and theirDisposal, of May 1992.

7. Participatory approach:

The project has been designed to fillly reflect the views expressed by principal stakeholders, includingsuch customs users as truckers and freight forwarders. IDA staff conducted extensive interviews andstakeholder analysis to identify trade impediments and their remedial actions. In addition, the activitiesplanned under the Trade Facilitation Development component will foster opportunities for closer, morefrequent and transparent contact and feedback between Customs and the trading community.

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In support of the reform of the work culture for the MCA, the project will make available a consultant toestablish and assist focus groups of key stakeholders. This activity will be coordinated with other aidagencies and existing stakeholder groups (the Economic Chamber and Mak-PRO). The Government willalso initiate a public information program designed to reach stakeholders and the public. User surveys areenvisioned as a basis for performance indicators. Principal stakeholders, for example truckers, will also beinvolved in monitoring border delays. The project and the program will make intense use of the Mak-PROcommittee and count on its feedback to monitor improvements.

The project has been prepared in collaboration (COL), consultation (CON), and information sharing (IS)with the following:

a. Primary Beneficiaries and Other Affected Groups:

* Exporters, importers, producers, and consumers (CON)

* Road transport operators (COL)

* Freight forwarders/shippers (COL)

* Traders organizations and Economic Chamber of Macedonia (CON)

* Foreign investors (IS)

* Ministry of Finance and Macedonian Customs Administration (COL)

- Ministry of Transport and Communications (CON)

* Ministry of Agriculture, Forestry and Water Economy, as well as sanitary and veterinaryinspection agencies (CON)

* Fund for National and Regional Roads (COL)

b. Other Key Stakeholders:a The European Union (PHARE), the US

- IRU and FIATA2'

* Private companies, and population in the vicinity of borders (IS)

A specialist in participatory methodology will assist in the design and implementation of a Project LaunchWorkshop in each country. The specialist will also provide a preliminary action plan, which will beadopted as a guide for user participation under the Trade Facilitation Development Component (Annex 2).The Action Plan will use output provided by the participants that attended the Project Launch Workshop.

As follow-up to the Project Launch Workshop, the Action Plan will include, for example, such activities asa series of user focus groups as well as user surveys. The focus groups will provide an open index of usersatisfaction. Surveys of such key stakeholders as truckers and freight forwarders will provide the basis formore quantifiable information as part of the verification plan for the performance indicators, assuring acentral role of such stakeholders in project monitoring. The PIT with the assistance of the EconomicChamber of fYR Macedonia will be responsible for implementing the Action Plan. The results will bereported as part of the annual review.

F: Sustainability and Risks

1. Sustainability:

The project will support values that are critical to fulfilling fYR Macedonia's long-term objective ofachieving sustainable growth. Once these reforms are in place, the sustainability of the effort will beassured by transparency in customs operations, regular cooperation among border crossing agencies

21 FIATA = Federation of International Forwarding Agents.

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including those of other countries, and the gains accruing to all parties involved in legitimate trade. Theexpected increase in revenue collection will allow continuous upgrading of the customs services,procedures, management, and equipment enabling the MCA to cope with trade and traffic growth,technological advance, and continued compatibility with the EU.

At the level of fYR Macedonia, the risks of project failure are moderate. At the level of the region,effective cooperation could greatly enhance the development impact, but is subject to much greateruncertainty.

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

Risk Risk Risk Mininiization MeasureRating

Annex 1. cell "from Outputs to Obiective "The flows of traffic linked to Kosovo will M While these flows may be only temporary, thedisappear . reconstruction effort will last at least five more

years.

Cooperation among border agencies faces inertia S The high-level coordinator will have theand strong resistance. authority to request meetings gathering involved

agencies.

Reducing costs to trade and tariffs will n,ot reduce M Enforcement of new customs legislation willillegitimate trade. reduce significantly the risk

Political commitment is not adequate to resist M The prospect to eventually join the EU is apressure groups (public or private) and to ensure the strong incentive to proceed with the reform.success of the institutional program.

Coordination by RSC is not effective and does not M Donors are an integral part of the Prograimn. Thereceive participation by donors RSC will include key decision-makers of each

program country and observers from donorcountries.

Regional cooperation issues prevent the achievement H The MOU, the RSC, the regional website, theof regional goals. benchmarking and the willingness to access the

EU will create a favorable environment forproper cooperation.

Annex 1, cell "from Components to Outputs"

The willingness to introduce deep change at pilot S The performance at pilot sites will trigger thesites across agencies is low. disbursement for some physical infrastructure

components.

The targeting and selectivity techniques are not M The effective implementation of targeting andeffectively implemented at an operational level. selectivity techniques will trigger the

disbursement for some physical infrastructurecomponents.

Overall Risk Rating M This is a modest risk, fair return projectwith a potential for good return.

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

22 The Kosovo crisis has affected the Macedonian economy and increased the volume of traffic going to Kosovo.

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3. Possible Controversial Aspects:

Risk Type of Risk Risk Minimization MeasureRisk Rating

Delays in institutional G M Coordination with other donorschanges

Resistance by some MCA G S The MCA has started to address corruptionofficers (loss of revenue) (Ethics Codex). The transparency of

requirements using the website will reduceopportunities.

Corruption in customs system G M Efforts to strengthen integrity have beenlaunched, and additional training will beintroduced to enhance the capacity of MCA toaddress corruption.

Type of Risk: S (Social), E (Ecological), P (Pollution), G (Governance), M (Management capacity), 0 (Other)Risk Rating: H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk)

G: Main Credit Conditions

1. Effectiveness Conditions:

a. Establishment of a Project Implementation Team with appropriate staffing, organization, systems(including a financial management system), funds, facilities, and other resources in a mannersatisfactory to IDA.

b. Selection of independent auditors acceptable to IDA

2. Other: (according to covenant types used in the Legal Agreements)

a. By November 15 of each year, the Borrower and IDA will review progress achieved under theproject, including at the pilot sites based on agreed performance monitoring indicators, and willconfirm the implementation program (including procurement packaging) and performance targetsfor the following year.

b. Except as IDA shall otherwise agree, the Borrower shall ensure that the total number of customsdeclarations which result in a physical inspection by the MCA at its pilot inland terminal does notexceed on a monthly basis (i) 80 percent by September 30, 2001; (ii) 60 percent by September 30,2002; and (iii) 40 percent by September 30, 2003.

c. Except as IDA shall otherwise agree, the Borrower shall ensure that the monthly number of truckscompleting import clearance in less than 15 minutes at its pilot inland terminal will exceed (i) 10percent by September 30, 2001; (ii) 20 percent by September 30, 2002; and (iii) 30 percent bySeptember 30, 2003.

d. Except as IDA shall otherwise agree, the Borrower shall ensure that the number of trucks openedon a monthly basis at its pilot border crossings will not exceed: (i) 80 percent by September 30,2000; (ii) 65 percent by September 30, 2001; (iii) 50 percent by September 30, 2002; and (iv) 35percent by September 30, 2003.

e. By December 31, 2001, the Borrower, through its Project Coordinator, will establish a mechanismacross all border agencies to provide the Website Manager with up-to-date information on waitingtimes and opening hours at border crossings, customs law, by-laws, and procedures of borderagencies; this information shall be binding and made available to customs users in order to contesta decision at a border post.

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f. The Borrower will maintain its participation in the Regional Steering Committee and inform IDAof actions taken at the RSC level which may affect the implementation of the Regional Program orof measures included in the P'IP.

H. Readiness for Implementation

[ ] The engineering design documents for the first year's activities are complete and ready for the start ofproject implementation. [ ] Not applicable.

[ ] The procurement documents for the first year's activities are complete and ready for the start of projectimplementation.

[x] The Project Inplementation Plan has been appraised and found to be realistic and of satisfactoryquality.

[ ] The following items are lacking and are discussed under credit conditions (Section G):

1. Compliance with Bank Policies[x ] The project complies with all applicable Bank policies.

The following exceptions to Bank policies are recommended for approval:

ik -Program Team Leader/Task Manager: Graham Smnith/An mitrescu, ECSIN

Sector Director: Ricardo A Halpern, ECSIN

Country Director: Ajay Chhibber, C06

FYR MacedoniaTrade and Transport Facilitation in Southeast Europe Project

Proiect Design Summary

Narrative Summary Key Performance Indicators Monitoring and Critical AssumptionsEvaluation

Sector-related CAS Goal: (Goal to Bank Mission)

Promote private sector growth Total trade increasing from US$2.9 billion in Ministry of Finance Wealth is distributed appropriately to alleviate1999 to US$4.3 billion in 2002 poverty.

Increase effectiveness of the state Quality of customs services gradually Ministry of Finance Tax proceeds will be used transparently and

improving in user survey appropriately.

Alleviate poverty and develop human Availability of information and training for the MCA Adequate social security net is introduced.

capital professionals involved in trade and transport

Project Development Objective: (Obiective to Goal)

I .Reduce non-tariff costs to trade and Transport costs for the main commodity traded * Annual sampling * Business environment such as competitivetransport to the three main trading partners decreasing by Chambers of market, post-privatization corporate governance

annually by 2 % on average from year 2001 Commerce and and judicial and regulatory systems will beevolution of improved.

CIF/FOB ratio. * Reform in the banking/insurance sector willStudy performed reinforce trade activities. Reduction in tariff

at project levels and non-tariff costs will enhance tradecompletion. incentives.

2. Prevent smuggling and corruption at * Value of recorded imports increased from * MCA annual Non-customs tax collection will also be made more

border crossing US$1.8 billion in 1999 to US$ 2.5 billion report efficient.in 2002 * Annual survey of

* Occurrence of corruption reduced by 50% truckers crossingby 200323. the border

Outputs:(Outputs to Objective)1. Strengthen the institutional capacity of * Import clearance time at pilot terminal * Logs of Customs The transport sector will offer a competitive

MCA and other border agencies down from 4 1/2hours in 1999 to I hour on * IRU in environment.average in 2003. cooperation with Cooperation between border agencies will be

* Physical examination down from 100% in the National supported by the Finance Minister

1999 to 40% in 2003 Association of Border agencies will be given the political mandate

* Percentage of trucks cleared in less than 15 Road Transport to innovate at pilot sites.minutes up from 0 in 1999 to 30% in 2003. Operators

* Ministry of

23 See definition of indicators

CD 1>

Finance

* EconomicChamber

2. Support customs users Internet framework and forums set up in 2001 MCA through the The banking / insurance industry will be able tofor private/public sector information exchange. Website Coordinator provide services to the trade sector at a reasonableInternet site visits exceed 300/month in 2001. price.Current MCA situation available on the internetin 2001.

3. Strengthen ICIS to provide high level Full support to targeting and selectivity by * Customs Information will be used by other agencies for theinternal and external services December 2001. * Economic improvement of respective services.

Chamber4. Improve main border crossing facilities All works completed by December 2003. Periodic surveys of The border crossings selected will remain critical in

users on the duration the aftermath of the Kosovo crisis thanks to theirand the convenience location on main corridors.of border crossings(incl. monitoring ofcongestion)

5. Strengthen on-site inspections to * Irregularities/number of examinations up * Ministry of Reducing costs to trade and tariffs will result inprevent smuggling from 8 % in 1999 to 10 % in 2003 (borders) Finance significant regularization of trade.

* Incidents of corruption reduced by 50 % * MCA Political commitment is adequate to resist pressureover project life groups (public-private) and ensure the success of the

institutional program.Project Components/Sub-components: Inputs: budgetfor each component24 (Components to OUtputs)A. Customs Administration Institutional 1.8 Surveys of Customs Border agencies will actively participate in theReform Brokers implementation of pilots.* Improvement of customs procedures* Organizational restructuring of

customsB. Trade Facilitation Development 0.4 Other on-going regional initiatives for trade will* Training & Seminars continue operating.* Expertise and advice

_ _ __ _ I _ _____I

>

-

24 The costs described below are base costs; therefore, they do not include contingencies.

C. ICIS Improvement 4.2 The modules for targeting and selectivity will be* ICIS Personnel Training operational nationwide by December 2001.* Equipment for ICIS Improvement

D. Improvement of border crossing 4.4facilities* Deve Bair Border Improvements* Kafasan Border Improvements* Border Crossings Equipment

E. Program and Project 0.4Implementation* Advisers and Auditors* PIT consultants and operating costs

x

Annex IPage 4 of 7

FYR Macedonia

Trade and Transport Facilitation in Southeast Europe Project

Performance Tareets

Indicators 1999 | 2000 | 2001 | 2002 [ 2003

ActActg. Acctt Targ. Act Targ. Act

1. MCA Performance

PILOT INLAND TERMINAL OF KUMANOVO

Import Clearance Time (min.) 280 240 150 100 60

Physical Examination (%) 100 100 80 60 40

Trucks cleared in less than 15 min. (%) 0 0 10 20 30

Irregularities/ No. of examinations (%) 3 5 8 10 12

Tabanovee Pilot Border Crossing

Truck Examination (%) 100 80 65 50 35

Irregularities/ No. of Examinations (%) 8 8 10 10 10

Average Border Exit Time (min.) 20 18 16 13 10

Average Border Entry Time (min.) 60 50 40 30 30

Surveyed Occurrence of Corruption (%)

Pilot Border Crossing Deve Bair

Truck Examination 100 80 65 50 35

Irregularities/ No. of Examinations 8 8 10 10 10

Average Border Exit Time 20 18 16 13 10

Average Border Entry Time 60 50 40 30 30

Surveyed Occurrence of Corruption (%) _

Pilot Border Crossing Kafasan

Truck Examination 100 80 65 50 35

Irregularities/ No. of Examinations 8 8 10 10 10

Average Border Exit Time 20 18 16 13 10

Average Border Entry Time 60 50 40 30 30

Surveyed Occurrence of Corruption (%)

2. Development Objective Achievements

Revenue Collected/Customs Staff (US$000) 297 300 330 360 400

Total MCA Cost/Revenue collected (%) 2.1 1.9 1.8 1.7 <1.5

Salaries/Revenue Collected (%) 1.5 1.4 1.3 1.2 1.0

Trade Volume/ Number of Staff (US$000/staff) 4,100 5,200 |_ |_ 5,600 6,100

Annual Number of Declarations/ Custom Staff 324 400 550 650 800

Transport Cost for the main export commodity 100 100 98 96 94traded with the three main trading partners (US'S-base 100 in 1999)25

Value of Recorded Imports (US$ mil.) 1,795 2,110 2,287 2,477

Value of Recorded Exports (US$ mil.) 1,191 1,515 |_ |_ 1,696 1,895 | _ l _l

25 Belgrade: US$ 833; Munich: US$ 2,100; Thessaloniki: US$ 566

Annex IPage 5 of 7

Source of actual values 1999Total MCA Revenue Collected (US$ mil.) 208Total MCA Cost (US$ million) 4.5Total Number of MCA Staff 700Total MCA Salaries (US$ million) 3.2Annual Number of Declarations 227,000Trade Volume (US$ million) 2.9

Annex IPage 6 of 7

Performance Indicators - Definitions

Indicators Description Remarks1. Pilot Sites Clearance Performance

PILOT INLAND TERMINALS

Import Clearance Time Time between entrance of truck into Information on truck identification and time ofthe terminal and its exit from the arrival and departure will be recorded with theterminal after release of goods. use of computer terminals or time clocks

installed at the terminal entry and exit points.

Physical Examination Number of times goods are Information will be derived from the computerexamined cr the cargo compartment system that records all declarations and theis searched compared to the total requirement to prepare an automated report ofnumber of import, export, and the results of each physical examination.suspense declarations.

Trucks Cleared in Less Number of times that a truck Information will be developed using the sameThan 15 Minutes completes import clearance (time system that provides the data on import

between entry into the terminal and clearance times.departure after release of goods) inless than filteen minutes compared tothe total number of importclearances.

Irregularities/Number of Number of irregularities discovered Information will be obtained from theExaminations during physical examinations automated reporting of the resuits of all

compared to the total number of physical examinationsphysical examinations carried out.

Pilot Border CrossingsTruck Examinations Number of entering trucks actually Information will be compiled through the use

opened (i.e seals broken) compared of computerized traffic logs and theto the total number of entering trucks requirement to prepare an automated report ofprocessed. the results of each truck examination.

Irregularities/Number of Number of irregularities discovered Information will be extracted from theExaminations during exarninations compared to the automated reports of truck examinations.

total number of trucks examined.Average Border Exit For trucks exiting the country, it is Information on truck identification and timesTime the time bet:ween joining the queue will be recorded continuously with the use of

and crossing the border. Physically computer terminals or time clocks installed atinspected trucks are excluded. appropriate locations.

Average Border Entry For trucks entering the country, it is Information on truck identification and timesTime the time between crossing the border will be recorded continuously with the use of

and departing the station. Physically computer terminals or time clocks installed atinspected trucks are excluded. appropriate locations.

Reported Occurrence of Number of cases when a driver Information to calculate this indicator will beCorruption makes or is asked to make an derived from surveys of truck drivers using the

unauthorized payment compared to crossing point. This survey will be conductedthe total number of survey on a continuous basis through cooperatingresponses. ________________________ transport companies.

Annex IPage 7 of 7

2. Development Objective Achievements

Revenue Collected Total revenues collected/Total Information to be obtained from records/Customs Staff number of Customs employees maintained by the Customs Service.

Total MCA Total budget of the Customs Service Information to be obtained from recordsCost/Revenue Collected (including salaries, overtime, maintained by the Customs Service.

bonuses, and benefits)/Total revenuecollected irrespective of itsdestination

Salaries/Revenue Total agency salaries, overtime, Information to be obtained from recordsCollected bonuses, and benefits/Total revenue maintained by the Customs Service.

collected irrespective of itsdestination

Trade Volume/Customs Trade Volume/Number of Customs Information to be obtained from recordsStaff employees maintained by the Customs Service.

Annual Number of Total number of declarations Information to be obtained from recordsDeclarations/ Custom (import, export, suspense regimes, maintained by the Customs Service.Staff but excluding transit), irrespective of

the number of items/Total staff________________ employed by Customs

Regional Performance Indicators

2000 2001 2002 2003 2003as % of

____________________ ~~~~~~~~~~~2000I. Istanbul-Bucharest Avg. Time (hours) 80 78 75 71 89

Average Cost $1,015 $1,000 $975 $940 93

11. Istanbul-Tirana Avg. Time (hours) 192 189 182 172 90

Average Cost $2,800 $2,760 $2,690 $2,600 93

III. Sarajevo-Ljubljana Avg. Time (hours) 40 40 39 38 95

Average Cost $750 $740 $730 $720 96

Base-year values are estimated by Bank staff for a single 20 ton truck-load, based on a survey of freight forwarders inthe Southeast Europe region

Annex 2Page I of 6

FYR MacedoniaTrade and Transport Facilitation in Southeast Europe Project

Detailed Project Description

(NBF) = Non Bank FinancedNote: All costs in the tables are without contingencies, and do not include taxes

A. Customs Administration Institutional Reform (funded by IDA, US Government)Total cost with contingencies US$ 2.0 million

1. Improve- 1.1 Develop a 60, 000 Refine mechanisms for collecting and uising productivity andment of monitoring (NBF) workload indicators for each customs functions to measureCustoms mechanism for the performance of MCA, and design the correspondingProcedures productivity and monitoring systems. These indicators should enable the

workload comparison between MCA and the region, and worldwide.indicators toenableinternationalcomparisons

1.2 Study and 240,000 Review the current situation at border crossings and inlanddesign of new (NBF Customs stations to identify procedural problems andcustoms shortcomings. Develop and implement a new workprocedures methodology for border operations and for clearance at

inland Customs stations. New design will emphasizetransparency, simplification, and the establishment ofstandards. The new procedures at the border crossings willalso maximize the possibilities for cooperation among theborder agencies, as well as cross-border cooperation. Atinland Customs stations, the new procedures will strengthenthe working relationship between Customs and the brokers toreduce clearance times.

1.3. Designated 660,000 Establish programs to implement new border processingborder stations (NBF) procedures and practices on a test basis, with a view toand inland expanding the use of successful ideas nationwide. Areas toCustoms stations be addressed include procedures, staffing, automation andwill serve as test cooperation among agencies.sites for ideas toimproveoperations. _

1.4. Training 60,000 Elaborate a training program designed to provide staff withprogramming (NBF) the knowledge, skills and attitudes required to handle the

new procedures and techniques. The program will addressthe needs of three categories of staff. At management level,the goal will be to obtain comprehension and acceptance ofthe new procedures through seminars, study tours abroad arndworkshops. The second and third levels will be

_________ __ _differentiated by existing and newly recruited staff. Both of

Annex 2Page 2 of 6

these levels will be instructed in the application of these newprocedures. Training for existing staff will emphasize howthe new procedures give them better tools to perform theirfunctions.

1.5 Training 80,000 The training will include:activities (NBF) (i) a study tour abroad for 2 high-ranking customs officers

during a two-week period ($20,000); and

(ii) at least one month of training on new procedures for alloperational customs officers, during the second and thirdyears of the project, evenly distributed as proposed in thetraining program ($ 60,000)

1.6 Interagency 30,000 Enhance cooperation among the border agencies through aawareness and (NBF) greater awareness of each other's functions andtraining responsibilities. Will include

(i) sensitization of customs officers to the importance ofenvironmental issues;(ii) familiarization of customs officers with veterinary,phyto-sanitary and immigration processing;(iii) seminars for judges, police and other officialsresponsible for prosecution of Customs violations; and(iv) assistance for the implementation of internationalconventions related to environment.

2.Organiza- 2.1 Strengthening 280,000 MCA willtional of preventive & (NBF) (i) introduce mobile control units to complement therestructu- investigation selective inspection at borders;ring of services (ii) develop its investigative capacity; andCustoms 380,000 (iii) strengthen post-release audits.

This will involve 12 months of TA, 2 weeks training abroadfor 6 operational staff, and communication, computer andsmall inspection equipment

Total without contingencies 1,790,000

B. Trade Facilitation Development (funded by US Government)Cost with contingencies US$ 0.4 million

1. Streng- 1. I Establish and 100,000 Design a regional website and mechanisms to update it. Thethening of maintain a (NBF) website will enable transparency on policies, legal andPrivate- regional website regulatory framework and cooperation at a local, national andPublic to support the regional level among private and public parties.

Partnership program and act It will offer a comprehensive information resource on borderas a national crossings and inland terminals (pictures), on procedures offocal point for border agencies in the region, and support thetrade facilitation implementation of the TTFSE Program. All training

materials developed under the Trade FacilitationDevelopment will be made available on the site. This

Annex 2Page 3 of 6

component will include the necessary equipment to operatethe site

2. Improve- Expert services 300,000 Develop and implement programs under the Distancement of the and training (NBF) Learning Initiative (DLI), in trade, transport and logisticsperfor- focussed on facilitating trade. It includes delivery ofmance of conventional training and seminars.trade facili-tation The programs will consist of: (i) a study guide; (ii) studyagents sessions; (iii) reference readings; (iv) frequently asked

questions; (v) exams; and (vi) certification by a leadprofessional association. Seminars will be offered for themost critical study sessions. Materials will be available eitherelectronically on the website or in the form of paper copiesprinted out at the Economic Chamber.

Total without contingencies 400,000

_ (NBF)

C. Customs Administration ICIS Improvement2 6 -(funded by IDA)Cost with contingencies US$ 5.6 million

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~fX'

1. ICIS 1. I Implement 180,000 Establish the use of electronic document as the exchangeMonitoring electronic data method between all regional institutions/parties involved inAssistance interchange and trade. The process would lead to fully automatic procedures(Software) payment of duties with no human intervention and should use the

UN/EDIFACT international standard messages. It wouldalso include:(i) the development of a pilot electronic payment schemewith one bank and a large importer,(ii) extension to the rest of the banking system, and(iii) data interchange based on the ASYCUDA transitmodule and regional efforts in that field; and (iv) inter-change of data between MCA and other agencies inside andoutside the country.

1.2 Implement the 60,000 Establish the use of the digital signature; consider thedigital signature selection of the most appropriate translator and digital

signature software including the main aspects involved inthis topic. The consultant will evaluate the differentalternatives and suggest the most suitable one. In addition,elaborate the necessary procedures to authorize a privatecompany as a Certifying Authority. This company will beresponsible for giving the private and public key to eachinstitution involved in the electronic process.

1.3 Implement 80,000 Establish the IT process for generating the first version ofthe risk criteria, and determine the best way to include these

26 This component will be dimensioned to enable shared use with other border control agencies and to prepare for future data sharing withneighboring countries.

Annex 2Page 4 of 6

selectivity for the criteria in the ASYCUDA++ system, including automaticexamina-tion of feedback and refining.goods

1.4 Final design 200,000 Assist MCA in designing and implementing a system ofand implemen- transit enabling the fast processing of correspondingtation of vehicles, cargo and drivers. The system should be properlyASYCUDA- interfaced with the first sub-component.compatiblenational transitsystem

2.Equipment 2.1 Introduce 1,030,000 Includes the purchase of servers for the data center andfor ICIS servers, PC and customs houses, and computers and printers for the wholeImprovement printers according Administration, including HQ, customs houses, and the

(Hardware) to current main border-crossings.standards

2.2 Purchase 500,000 Includes the purchase of detection equipment for majorequipment for border crossings and international corridors, correspondingadvanced transit communication and server equipment, handheld readingmonitoring devices.

2.3 Bar code 100,000 Expedited remote entry of data into the automated customsequipment for system to match documents and discharge procedures. Thisclearance also allows Customs to enter data into the system directly atmanagement the truck control point.

3. Civil Works 3.1 Build special 400,000 Set up a data center in the HQ. Will include such aspectslocations in such as: generator; uninterrupted power supply; special powermanner as to circuits; fireproof walls; access control; separate locationsallow for an for servers, printers, and telecommunications equipment;uninterrupted and air conditioning. At Customs houses, it includes theservice set-up of special lockers with adequate power and air

conditioning. These lockers will be safe areas forinstallation of the local servers.

3.2 Build an ADP 1,000,000 Building of a central site for the management ofCenter computerized operations related to clearance, border transit

management, and data interchange with other agencies; willalso be used for the management of mobile enforcementunits.

4. Telecom- 4.1 Install and 300,000 Install and update LAN in HQ, Customs houses and mainmunication update local and border crossings; the amount of connections in each locationequipment wide area network according to the number of computers installed. At the

in HQ, Customs border crossings the LAN must consider border controlhouses, and locations, and provide for direct communication withborder crossings adjoining country border agencies.

The characteristics of the LANs must be according tocurrent standards, i.e., to include racks, patch panel, routers,and hubs connecting in a star topology over TCP/IPprotocol. The wide area network must establishconnections, taking into account the telecommunicationscompany capabilities. Where this is not possible, install

L______________________________ dedicated lines between each point; it must evaluate ISDN

Annex 2Page 5 of 6

technology. The speed of the line must be at least 64 KBPS.Additionally, it would establish TCP/IP addresses accordingto international standards.

5. ICIS 5.1 Provide 160,000 Prepare training modules and supporting documentation forPersonnel specialized ASYCUDA functions that are not yet documented,Training training to especially the transit module. A "train the trainers" course

Customs staff in will be organized, followed by training sessions for 300the use of officers.computer- basedCustoms systems

5.2 Prepare and 100,000 Prepare training programs in (i) database management,carry out an internal tools and mechanisms, & website design andurgent training development, & (ii) telecommunications, CASE tools andprogram for the IT IT methodologies. The training will be delivered locallystaff (database management, internal tools and mechanisms), and

abroad, to 25 ADP staff in CA.

5.3. Training 40,000 Equipment for improving and supporting Customs trainingequipment capacity

5.4 Regional 50,000 Organization of seminars to share regional experience andexperience sharing find technical solutions in implementing the reform.program

Total without contingencies 4,200,000

D. Improvement of Borider Crossing Facilities (funded by IDA, GOM)Cost with contingencies US$5.9 million

1. Tabanovce LI .1Upgrading of 2,000,000 *Expand the existing border station to provide additionalBorder thie existing ,,traffic lanes and secondary inspection areas for privateConstruct. facility vehicles;

* Provide a bus inspection facility;

* Construct a truck processing and inspection facility.

1.2 Improve the 40,000 Equip BCP with a power generatorpower supply

Sub-total 2,040,000

2. Deve Bair 2.1 Improve the 500,000 . Build an additional dedicated lane for entering trucks;Border existing facilities * Construct a water pump station and supply;Improve- * Build disinfection pits;ment . Demolish existing buildings..

2.2 Improve the 40,000 Equip BCP with a power generator.power supply

2.3 Advance 100,000 Roadside equipment and sign-posting automaticallysignaling informing drivers of border crossing delays.

Annex 2Page 6 of 6

Sub-total 640,000

3. Kafasan 3.1 Make the 600,000 * Remove the old administrative building;Border newly built BCP * Complete construction of the heating and water supplyImprove- operational systems;ment * Paving;

* Control barriers;* Canopy revision;. Disinfection pits.

3.2 Furnish new 40,000 Equip building with office furniturebuilding

Sub-total 640,000

4. Design -and 4.1 Design 150,000 Design of works at the three border crossings and inlandSupervisioncetrof Works 4.2 Supervision 230,000 Supervision of works.

Sub-total 380,000

5. Enhance- 5. I. Surveillance 90,000 * Four closed circuit television stations for monitoringment of equipment traffic and operations at major BCPs;processing 5.2 Inspection 600,000 * Equipment for inspecting trucks at pilot BCPscapacity at equipmentcustomsstations

Sub-total 690,000

Total without contingencies 4,390,000

E. Program and Project Implementation (funded by IDA, US Government)Cost with contingencies US$0.5 million

1. PIT 1.1 Incremental 100,000 * Office equipment and materials (US$75,000); FMSOperating operating costs (IDA) software (25,000)Costs 1.2 Consultants 100,000 . Accountant and procurement consultants (US$75,000);

and PIT training (IDA) training to PIT staff (US$25,000)

2.RSC Consultant 105,000 Secretary (US$ 45,000) and procurement advisors (US$Secretariat services (NBF) 60,000) financed by the US Government.

ProcurementAdvisors

3. Auditors 1.3 Consultant 100,000services (IDA)

Total without contingencies 405,000

Annex 3Page I of 2

FYR MacedoniaTrade and Transport Facilitation in Southeast Europe Project

Estimated Proiect Costs

Traie and Tnsiport Facilitation in SE Eipe % %TotalGCoxoents Prijed Cost Smnany (LS$ M1ion) Forign BaSse

1x arl F o Totdal Costs

A Cnstonis AMinistration ntiitutioml Refonnlniim'et ofQiErna PtzoIt 0.0 1.1 1.1 98 9Org4izational 1keorting of the N'CA 0.3 0.4 0.7 59 6

Subtoial TAtorr Adnisitr]ation Isiational Reform 0.3 1.5 1.9 83 14R Thide Fadlitation lDevlopmnut

Fpetise ardAdvice 0.0 0.3 0.3 85 2Training&Snina 0.0 0.1 0.1 85 1

Subtcla Trade Facilitation Dewlwpnrt 0.1 0.3 0.4 85 3C IdS lnmwenmt

IQSQvil wrks 0.8 0.8 1.6 51 13IC[S Qvil ws 0.1 0.5 0.6 84 5IC0S Pomnel Trainig 0.2 0.2 0.4 51 3Eguiprst for ICIS Jnprnn't 0.5 1.9 2.3 79 18

Subtotal ICS Inpwncnt 1.6 3.4 5.0 68 39B InpqnEgt of 130ier Cring Faiht"ie

Tabanowe Bcer Re1hbilitationi 1.2 1.2 2.4 51 18lDxe Bair Bxer I1npwnrts 0.3 0.3 0.6 51 5Kafasan Border 1Tp nirts 0.3 0.4 0.7 51 5Border-ssingEquiprent 02 0.9 1.1 80 8

Subtotal rownut of B order CrosingFacilitie 2.2 29 5.2 57 40E Pgram and Pniject fir#lernntation

Advises &Auditors 0.1 0.1 0.2 48 2PIT Comultantnad Q)erating Costs 0.1 0.1 0.2 44 2

SuilBalPrgam aid Pfoject in-#emertation 0.2 0.2 0.4 46 3Total BASEL XCONE( 4.4 8.4 12.8 65 100

Physical CGntirgeries 0.4 0.7 1.1 63 9Price Cbntinrgies 0.2 0.3 0.6 61 4

Toal PROJECTC1S 5.1 9.5 14.5 65 113

Annex 3Page 2 of 2

Copnenents by Financiers LocalIDA GOM USA Total For. (Fcl. Duties &

Amount % Amounlt % Amount % Amount % Fchk. Taxes) Taxes

A. Customs Administntion Istitutional ReformImprovement of Customs Procedures - - 0.0 - 1.2 100 1.2 8 1.2 0.0OrganizationalRestructusingofthe MCA 0.4 53 0.1 10 0.3 37 0.8 6 0.5 0.3 0.1

Subtotal Customs AdministrationInstitutional Reform OA 21 01 4 1.5 75 2D 14 1.7 03 0.1B. Trade Facilitation Development

Expertise andAdvice . 0.0 - 03 100 03 2 0.3 00Training & Seminars - - - - 0.1 100 0.1 1 0.1 0.0 -

3ubtotal Trade Facilitation Development - - 0.0 - 0A 100 OA 3 OA 0.1 -

C. ICIS ImprovementICIS Civil works 1.2 65 0.7 35 - 1.9 13 1.0 0.6 0.3ICIS Monitoting Assistance (Software) 0.6 84 0.1 16 - 0.7 5 0.6 0.1ICIS PersonnelTraining 0.3 84 0.1 16 - 0.4 3 0.2 0.1 0.1Equipment for ICIS Improvement 2.3 84 0.4 16 - - 2.7 18 2.1 0.1 0.4

SubtotalICIS lmprovement 4A 78 1.3 22 - - 56 39 39 09 09D.IurprwementofBorder Crossing Facilities

TabanovceBorderRehabilitation 18 65 09 35 - - 27 19 14 0.9 04Deve Bair Border Improvements 0G4 65 0.2 35 - - 0.7 5 03 0.2 0.1KafasanBorderlmprovements 0.5 65 03 35 - - 0.3 6 0.4 03 0.1BorderCrossingsEquipment 1.0 84 0.2 16 - - 1.2 8 10 00 0.2

Subtotal Improvementof BorderCrossingFacilities 4.2 71 1.7 30 - - 59 41 33 L6 09E. Program and Project hnplemeltation

Advisers & Auditors 0.1 44 0.0 8 0.1 47 0.2 2 0.1 01 0.0PIT Consultants andOperatingCosts 0.2 87 0.0 13 - - 0.2 2 0.1 0.1 0.0

Subtotal Program and Project Implementation 0.3 66 0.1 11 0.1 23 0.5 3 0.2 0.2 00Total Disbursement 93 64 3.1 22 2.1 14 14.5 100 95 3.1 2.0

Annex 4Page I of 6

FYR MacedoniaTrade and Transport Facilitation in Southeast Europe Project

Cost Benefit Analysis of Total Proiect Investment

Table 4.1. Summary Economic Benefit from the Project

COSTS BENEFITSFY Net Benefits

(in US$ million) (in US$ million) (in US$ million)2001 1.4 0.1 -1.32002 5.0 0.7 -4.22003 5.5 2.0 -3.62004 0.3 2.4 2.12005 2.1 2.12006 1.6 1.62007 1.6 1.62008 1.7 1.72009 1.7 1.72010 1.8 1.82011 1.8 1.82012 1.8 1.82013 1.9 1.92014 1.9 1.92015 2.0 2.02016 2.0 2.02017 2.0 2.0Total 1 12.2 29.0 16.8

Internal Rate of Return 16%

Dsount Rate 1 | 12%INPV (@ 12% |9.31 11.01 1.61

The Principles of the Economic Evaluation

The border crossings proposed for i]mnprovements under this project were selected on the basis of: (i) hightraffic; (ii) geographical location (on international routes); (iii) long waiting time at present; and (iv) needfor upgrading. These border crossings were designed to ensure efficient and transparent borderoperations, while fitting the more stringent norms of the European Union as regards office spaceoccupancy. The analysis was built in close coordination with local parties (customs services, Ministry ofFinance, Border Police) reviewing alternative remedial measures.

The economic cost-benefit analysis compares the economic costs and benefits of the project over theimplementation period and over its assumed 15-year period of expected life. Detailed calculations oncosts and benefits are shown in Table 4.1. All costs and benefits are expressed in constant 2000 prices.All investment and recurrent costs are net of import duties, taxes or subsidies.

Annex-4-TeJle 4.2Economic Cost-Benefit Analysis fr ofMtcedania

(US$ Million in 1999 prices)

FY 20011 2902 2Q03 2904 |265 206| 2007 2008 209| 2010 2011 2012 2013 2014 2015|

Coat:Investment Costs

lfh the P oJedTrade Facilitation Development 0.15 0.17 0.11

Customs Adrn. Institutional Reform 0.41 0.84 0.79 0.W0

ICIS improvement 0.33 1.77 2.35 0.29

Border Facilities unprovement 0.50 2.19 2.29

Total VRth tha Prjejct 1.38 4.97 5.55 0.29

Total hcrementid Coate 1.3 497 5.55 0.29 0.Q 0.0 0.0 0.6 0.0 0.0 0.0 0.0 Q8. 0.Q Q8.

Econe..i Benefita1. Trna-prt Cost Reductiox (withpr.ject)

Pilot Crosm2ss 0.1 0.43 1.17 1.50 1.54 1.58 1.61 1.65 1.70 1.74 1.78 1.83 1.87 1.92 1.97

Otker CrossinispPostsPilot Inland Tesmisal 0.03 0.17 0.47 0.60 0.62 0.63 0.65 0.66 0.68 0.70 0.71 0.73 0.75 0.77 0.79

Total 0.10 0.60 1.64 2.10 2.15 2.21 2.26 2.32 2.38 2.44 2.50 2.56 2.62 2.69 2.76

2. IJnact of Reduced Tramaprt Costr on Trad*Trade Benefits from Trarsport Cost Reduction 0.02 0.12 0.33 0.42 0.43 0.44 0.45 0.46 0.48 0.49 0.50 0.51 0.52 0.54 0.55

3. Tranwprt Cost Reduction (withoutproject) -0.13 -052 -106 -109 -111 -114 -117 -120 -123 -126 -129 -132

TotaI Benefit from Project 0.12 0.72 1.97 2.39 2.07 1.59 16.3 2.67 1.71 1.75 1.80 1.84 1.89 1.94 1 98

Net Benefit* from Project -127 -4.25 -3.58 2.10 2.07 1.59 163 1.67 171 1.75 1.80 1.84 189 194 19

O X

Annex 4Page 3 of 6

Costs

The project cost considered for the economic evaluation amounts to US$12.2 million excluding taxes andincluding physical and price contingencies. It includes components under: (1) Customs AdministrationInstitutional Reform; (ii) Trade Facilitation Development measures; (iii) Integrated Customs InformationSystem; and (iv) Border Crossing Facility Improvements. It does not take into account the cost of the PITand assistance to PIT.

Benerits - With Project Scenario

Two benefits have been identifiecl: (i) lower transport costs due to the diminution of waiting times atborder crossings and inland terminals; and (ii) economic benefits of trade expansion resulting from theproject.

Trade and Transport Costs Reduction. The savings on transport costs at Macedonian border crossingsand the inland terminal under the project would progressively reach about US$2.15 million by the end of2005. Delays at border crossings and inland terminals are symptomatic of a number of issues associatedwith deficiencies in trade related services: procedural complexity, cumbersome documentationrequirements, systematic inspection of vehicles, slow customs clearance steps, scarce and unreliableinformation technology and telecommunications, absence of standard service times and inadequateinfrastructure.

Assumptions. The progressive reduction of border crossing time2 7 to one hour for incoming traffic hasbeen used as the basis in the economic evaluation of the project. The three pilot border crossings and thepilot inland terminal would progressively2 8 meet this objective by 2003. Other border posts scheduled forimprovements under the project, but not selected as pilots, would experience similar waiting timereduction with a lag of one year. The average waiting time for trucks in the "do nothing" alternative is themid estimate as reported by customs users and officials. The average value of time for trucks wasobtained through interviews (US$250/day). Natural traffic growth was estimated at 2.5 percent under thecategory "trade and transport cost reduction".

In order to realize the economic benefit from the waiting time reduction, both the physical investmentsand the customs reform are jointly required because the customs reform alone can not completely reducethe waiting time. For example, the implementation of new procedures requires additional lanes to allowfor traffic segregation, appropriate space covered by canopies for secondary inspection 29, propercommunication capacity with limited interruption (LAN, WAN, phone, fax), access to power sources toenable computers to function or lighting to be available during evening shifts. The project willspecifically address these border posts where infrastructure or equipment bottlenecks exist.

Economic Impact of Increased Trade. The impact on trade under the project comes from: (i) reductionin waiting time at border crossing points; and (ii) increased reliability in the delivery of goods. In acompetitive market, these two elements will be reflected in the price of traded goods, and stimulate trade.The increased reliability of international delivery times will facilitate the integration of local companiesinto international production chains.

In the medium run (from 2003) these two elements should enable a significant increase in trade volumes.30Such trade gains are obtained by combining trade creation and trade-substitution effects . Imports would

be the most affected initially, since the border inefficiencies bear mostly on imports. However the

27 From entering the border area in one country to exiting the border area in the next country.28 5% in FY2001, 30% in FY2002, 80% in FY2003 and 100% in FY2004 of the targeted time reduction (down toone hour).29 Selectivity means not only that not all trucks are inspected, but that those inspected are subject to a far moredetailed inspection than today.30 The trade creation effect is the increased demand in the importing country for a commodity from an exportingcountry, resulting frorn the price decrease associated with the elimination or reduction of distortions. Trade substitutionaccounts for the tendency of importers to substitute goods from one source to another in response to a change in theimport price of supplies from one source,

Annex 4Page 4 of 6

regional nature of the project would simultaneously impact exports. Increased import volumes wouldbenefit local consumers (including local companies relying on foreign inputs for their production) byincreasing their consumer surplus and would create a loss for some local manufacturers, whose productsbecome replaced by new imports. Increased export volume would benefit local producers by opening newmarket opportunities and would reduce local consumer surplus by reducing the quantity available on thelocal market at the initial price.

The broad economic impact of cheaper international transport is complex to analyze even in countrieswith valid statistical data and requires general equilibrium models taking into account themonetary/foreign exchange impacts of new trade patterns. Given the current level and quality of dataavailable on the six Balkan countries, such a detailed evaluation would not be realistic. The outcome ofvarious studies on this phenomenon shows these additional benefits ranging between 20 and 30 percentover the transport savings generated. For the purpose of this evaluation, 20% was considered as the mostappropriate. Exhibit 4.1 provides an at-a-glance summary of trade for Macedonia.

Benefits - Without Project Scenario

If the project were not taking place, reform efforts supported by the EU would continue to beimplemented, although at a slower pace than neighboring countries, given the reduced EU involvement.The differential between the with or without project scenarios in terms of costs includes only the projectcosts as described above. The EU support would enable the Customs services to partly achieve theobjectives of this project on a delayed schedule. The benefits associated with "the without project"scenario were subtracted from the benefits in the "with project scenario" to obtain the project benefits. Itwas estimated that, without the project, 5 percent of annual with project benefits would be achieved inFY2004, 20 percent in FY2005 and 40 percent in FY2006 and onwards. The absence of neededinfrastructure without Bank's financing would impose a limit to the efficiency that could be achieved,explaining that only 40 percent of the savings could be reached without the project.

Sensitivity Analysis on EIRR

Tables 4.3. presents the various assumptions tested and their influence on the economic internalrate of return of the project. The internal rate of return for the project is above the opportunitycost of capital. The switching values combined with the reform assumptions indicate that theproject has a good likelihood of exceeding 12 percent of return on capital. The projected rate ofreturn remains above the opportunity cost of capital unless investment cost were to go up to 20%and traffic were simultaneously to go down by 20 percent.

Table 4.3. Sensitivity Analysis

%o Change in Parameter

_ _Upside_+20% | Downside .20%Modified Parameters EIRR EIRRDaily Truck Value (US$) 21% 11%Trade Related Savings 17% 15%Traffic Volume 21% 11Investment cost (-) 22% 12%

Investment cost (-) and Traffic Volume 29% 7%

Annex 4Page 5 of 6

Table 4.4. Switching Values (for IRR @ 15 percent)

Daily Truck Value (US$/day) 210Trade related benefits coeff. <0Traffic volume/existing traffic 85%

Minimum Time SavingsI (in minutes) 77

Annex 4Page 6 of 6

Macedonia Goods Trade Outlook (1998)TRADE INDICATORS

1993 1994 1995 1996 1997 1998 Trade BalanceExports (FOB) in US$ mn 1,055 1,086 1,205 1,147 1,150 1.322 1"3 1994 1ws sa 1997 1991

Imports (FOB) in USS min 1,012 1,271 1,425 1,464 1,755 1,914 2,O-Balance on Goods 43 -185 -220 .317 -388 -592Growth Exports 2 9% 11 0% 4 8% 4 7% 12 0% IGrowth Imports 25 6% 121% 2 7% 8 5% 91% ITotal Trade of Goods in US mln 2,067 2,357 2,630 2,611 2,790 3,236 ' tat,Growth Trade volume 14 0% 11 6% 0 7% 6 9% 16 0%/Real GDP in USS billion 1.90 1.90 1.90 1.90 1.90 s r.Exports as % of GDP 57% 63% 60% 62% 70%Imports as % of GDP 67% 75% 77% 92% 101%Trade balance as % ofGDP 10% 12% 17% 20% 31%Tradeas%ofGDP 124% 138% 137% 147% 170/% O1o3OE-C.,.d. FOB Otp-nGcr d,IOB

TRADE STRUCTUREKey 1997 trade goods in Thous tons, ranked by value

export importZinc (not alloyed) 47 3 Crude oil 375.4 1997 exports, 1997 iniports,Cotton shirts for men and boys 19 Passenger cars 78 (total USD 1,237 min, fob) (total USD1,779 min, cif)Hot-rolled iron products 149 2 Fuel oils not imcluded elsewhe 238 4 0Cigarettes containing tobacco 5 8 Gas oils 140 1 0.1% 0.8%Tobacco 124 Flat-rolled iron products 776Ferro-mckel 13 Motor spirit 99 1 CBlouses for women and girls I I Blouses for woman and girls 1 3 C A 27 5%Ferro-silicon 51 I Zinc (not alloyed) 739 944 Y 521% AWine made from fresh grapes 653 1 r3%1997 Main Erports (total USD 1,237 million, fob) 10 6%/Clothing (248 8), Iron and steel (178 5). Drieks and tobacco (162 3), BNon-ferrous metals (93 6), Machinery and Transport Equipment (90 9) 3 3%1997 Main Imports (total USD 1,779 million, cif) AFood products (239 2), Manafactured consumer goods (212), C - RawC materGals intemediates B-CapitalGoodsMineral fuels and lubricants (194.8), Chemicals (189.4), Iron and steel (110 7) C - Conwmer Goods D - Othem

TRADE by TRANSPORT MODE and TRADE DIRECTION

1998 Export 199S Imponrthous t USD min thous t USD mln Exports partners, 1998 | Imports partners, 1998

Sea transport - 0 6 0 3 (total fob US$1,322 mi) (total cif US$1,914 min)Railways 437 3 143 0 1695 0 301 3RoadTransport 10375 11469 17864 14982 1 1r1Air transport 5 1 25 6 2 0 79 6 |,3% Irae, I t.xnOthers 81 66 191 341 |tan Germn en |

14896 1322 1 35032 19135 |n 13.3% 7.\1%Mnja, border eronsing,, 1998 33,/ , 14%

Export thous t USD mln t/USD e s a\1 Highway Tabanovce 3 1 7 525 4 593 3 S Gece Si.Bogorodica 309 3 353 3 875 5 VYogoO 7JX2 1 via,Railway Tabanovce 297 1 90 5 3282 9 '12..2Blace 1888 997 18937 7Raiway station Gevgelija 128 4 49 4 2599 2

Import thous.t USDmin t/USD Trade with EU 1997 1998Raiway station Gevgelija 1051 5 159 1 6609 1 Exports, fob 452 584Bogorodica 696 0 273 0 2549 5 tmprts, cif 644 693Raiways station Skopje-Tt-bares 611 4 142 5 4290 5Highway Tabanovce 448 I 747 6 599 4

Macedonian foreign trade exceeds its GDP and increase by 47 % over the period 1994-1998. Both imports and exports grew following stagnation in 1990-94 Untilrecently Yugoslavia was the most important export partner contributing 23% to export receipts. Following signing a trade agreement with the EU in late 1997,however, exports to EU countries expanded raptdly and Genmany beeame Macedonia's leading export partner In the 1998 list of export partners, Germany wasfollowed by Yugoslavia, US, Greece and Italy In 1997 the mast important Macedonia's export goods were clothing (21 1% of total export receipts) iron and steel(15 1% of receipts), and tobacco products(13 S% ofthe total)The trade deficit (fob-fob) widened from $31 7m in 1996 to $40

0m in 1998 because of a substantial expansion in imports Partly this expansion was accounted for

an increase in steel and textiles imports, necessary inputs for processing isdastries Food products comprised the biggest share in imports (14%) A slight rise inliving standards contributed to the expansion in imported consumer goods, which comprised 12% of total imports in 1997. Germany and Yugoslavia were the mostimporant suppliers of imports followed by Slovenia, Ukraine and Italy The conflict in Kosovo blocked FYR Macedonia's main transport corridor to the rast of theworld, as well as closed off its second largest export market, FR Yugoslavia However, the negative impact of the crises has turned to be much less than anticipatedIn fact it has boosted the constuction and service sectors, as FYR Macedonia has become the major transport route to Kosovo

Annex 5

FYR MacedoniaTrade and Transport Facilitation in Southeast Europe

Financial Summary

Project Components Cost and Financing Plan

Project Components by Year -- Totals Including Contingene(US$ Million)

FY2001 FY2002 FY2003 FY2004 Total

A. Customs Administration Institutional ReformImprovement of Customs Procedures 0.3 0.4 0.4 - 1.2Organizational Restructuring of the MCA 0.1 0.4 0.4 - 0.8

Subtotal Customs Administration Institutional Reform 0.4 0.8 0.8 - 2.0B. Trade Facilitation Development

Expertise and Advice 0.1 0.1 0.1 0.3Training & Seminars 0.0 0.1 - - 0.1

Subtotal Trade Facilitation Development 0.1 0.2 0.1 - 0.4C. ICIS Improvement

ICIS Civil works 0.6 1.0 0.3 1.9ICIS Monitoring Assistance (Software) 0.1 0.3 0.3 0.7ICIS Personnel Training 0.1 0.2 0.1 - 0.4Equipment for ICIS Improvement 0.2 1.0 1.5 - 2.7

Subtotal ICIS Improvement 0.4 2.1 2.8 0.3 5.6D. Improvement of Border Crossing Facilities - - - -

Tabanovce Border Rehabilitation - 1.3 1.4 - 2.7Deve Bair Border Improvements - 0.2 0.5 - 0.7Kafasan Border Improvements - 0.2 0.6 - 0.8Border Crossings Equipment 0.4 0.8 - - 1.2

Subtotal Improvement of Border C'rossing Facilities 0.6 2.6 2.7 - 5.9E. Program and Project Implementation - - - - -

Advisers & Auditors 0.1 0.1 0.1 0.0 0.2PIT Consultants and Operating Costs 0.1 0.1 0.1 0.0 0.2

Subtotal Program and Project Implementation 0.1 0.1 0.1 0.0 0.5Total PROJECT COSTS 1.7 5.9 6.6 0.4 14.5

Project Financing FY2001 FY2002 FY2003 FY2004 TotalIDA 0.9 3.8 4.4 0.3 9.3Government 0.3 1.3 1.5 0.1 3.1USA 0.5 0.8 0.7 0.0 2.1

Total Project Financing 1.7 5.9 6.6 0.4 14.5

Annex 6Page I of 8

FYR MacedoniaTrade and Transport Facilitation in Southeast Europe Project

Procurement and Disbursement Arranaements

Procurement

The following procurement arrangements will apply to all contracts wholly or partly financed by IDA:

General. Goods and works wholly or partially financed by IDA will be procured in accordance withthe Guidelines for Procurement under IBRD Loans and IDA Credits published in January 1995 andrevised in January and August 1996, September 1997 and January 1999. Consultant's services whollyor partly financed by IDA will be procured in accordance with the Guidelines for Selection andEmployment of Consultants by World Bank Borrowers published in January 1997 and revised inJanuary 1999. Standard documents published by the World Bank will be used by the PIT for thepreparation of bidding documents and request for consultant's proposals.

Procurement of Works. Civil work contracts estimated to cost more than US$0.5 million will befinanced under International Competitive Bidding procedures (ICB).

Procurement of Goods. Contracts for the supply of goods valued at US$100,000 or more will beprocured under ICB. Office and training equipment for Customs for a total of US$100,000 will beprocured through National Shopping (NS).

Prior and post review by IDA for Goods and Works contracts: All IDA financed goods and workscontracts under ICB will be subject to prior review procedures in accordance with the Guidelines ofIDA. All other contracts will be subject to post review.

Procurement of Consulting Services: Recruitment of consulting firms for the design and supervisionof works will be carried out under the Quality and Cost Based Selection method (QCBS) inaccordance with the Guidelines of the IDA/Bank. The design for the border crossings civil works willbe based on the Urban Plan design undertaken by the Public Enterprise. For financial audits the LeastCost Selection (LCS) method will apply. Short-term consulting services to PIT (accountant,procurement consultant) will be procured according to Section V of Consultants Guidelines forindividual consultants. Costs associated with training for the PIT staff will be financed from theconsulting services category. Consultants for ICIS personnel and other training will be selected basedon qualifications.

Prior and post Review by IDA for consultants' contracts: All consultant contracts awarded throughcompetition and expected to cost the equivalent of $100,000 or more per contract with firms and$50,000 or more per contract with individuals will be subject to prior review by IDA. All othercompetitively awarded contract not subject to prior review under these thresholds will be subject topost review. All contracts not awarded through competition and all Terms of Reference (TOR) will besubject to prior review.

Procurement Implementation Schedule and Advance Procurement Actions: The MCA and IDAhave agreed on the procurement plan (Table B2) at appraisal; the Plan was finalized duringnegotiation. This timetable will be used as a basis for monitoring of procurement processing. Inparticular, the following advance procurement actions have been identified and are hereby proposed tothe MCA as critical milestones so that main contracts can be signed soon after Credit effectiveness:(a) the General Procurement Notice was published on May 31, 2000 in UN Development Business; (b)submit draft Specific Procurement Notice for the construction works and provision of goods by June30, 2000; (c) submit Terms of Reference, short lists, Letter of Invitation (LOI), and draft modelcontract for consulting services by June 30, 2000. All notices to be published in the UN DevelopmentBusiness should be submitted to IDA at least 45 days prior to publication.

Annex 6Page 2 of 8

A Project Preparation Facility advance (PPF) of US$75,000 has been made available to GOM tofinance establishment of the PIT, including the financial management system and staffing with aqualified accountant/financial expert, office equipment, as well as procurement consultants to assistthe PIT.

A Procurement Capacity Assessment has been undertaken by the IDA procurement specialist, and theoverall risk assessment has been rated high. The Action Plan for remedies has been agreed with theBorrower, and is attached to the project files.

Disbursement

Disbursement: Disbursements against the categories described in Table 6.C will be made upon receiptby IDA of fully documented applications, except for contracts valued at less than US $0.5 million forworks, US $100,000 for goods, US $100,000 for consulting firms and US $50,000 for individualconsultants, as well as operating costs which will be made against certified statements of expenditures(SOE). Supporting documentation for SOEs will be retained by the Borrower and made available toIDA during supervision. The minimum size of application for direct withdrawals and issuance ofcommitments from the IDA credit account would be 20 percent of the amount of the AuthorizedAllocation to the Special Account.

Special account: To facilitate project implementation, the Borrower will establish a Special Accountin its National Bank on terms and conditions satisfactory to the IDA to cover the IDA's share ofexpenditures. The Authorized Allocation will be US$1 million, representing about four months ofaverage expenditures made througlh the Special Account. During the early stage of the project, theinitial allocation to the Special Account will be limited to an aggregate of US$500,000. However,when the aggregate disbursements under the Credit have reached the level of US$2 million, the initialallocation may be increased up to the Authorized Allocation of US$1 million by submitting therelevant Application for withdrawal. Applications for replenishment of the Special Account may besubmitted monthly or when one-third of the amount has been withdrawn, whichever occurs earlier.Documentation requirements for replenishment will follow the standard IDA procedure as described inthe Disbursement Handbook, Chapter 6. Monthly bank statements of the Special Account which havebeen reconciled by the Borrower will accompany all replenishment requests.

Project Accounting and Financial Management: A financial management system (FMS) includingaccounting, financial reporting, plarning, budgeting, auditing, and proper internal control systems willbe established prior to effectiveness. The FMS has met the minimum IDA financial managementrequirements (4-B LACI Certificate) prior to Board presentation. IDA has reviewed the existing FMSin the MCA, and has prepared a report identifying weaknesses and proposing remedial actions toenhance the system and enable the development of appropriate project management reports with aview to the possible transition to PMR-based disbursements. IDA has defined a time-bound actionplan to specify the steps necessary for: (i) Board presentation; (ii) credit effectiveness and (iii) furtherstrengthening of procedures and staff development during implementation. The FMS will becompatible with OP/BP 10.02 and with the Project Financial Management Manual, published by IDA.The development of the FMS will be monitored by IDA before effectiveness, during the firstsupervision mission and throughout project implementation.

The PIT has been staffed with an accountant/financial expert acceptable to IDA. The companyinstalling the FMS will assist the P'IT in establishing and maintaining project accounts adequate toprovide information regarding project resources and expenditures. The PIT will have accounts auditedevery fiscal year by independent auditors acceptable to IDA, in accordance with InternationalStandards of Auditing issued by the International Federation of Accountants and IDA guidelines. Thereports of such audits will be submitted to IDA no later than six months after the end of theBorrower's fiscal year. The PIT will also maintain all documentation related to project expendituresand keep financial records in accordance with sound accounting practices. A management letter giving

Annex 6Page 3 of 8

an opinion on internal audit controls should be submitted to the IDA six months after effectiveness ofthe credit.

Accounting and auditing. An independent auditor acceptable to IDA should conduct an annual auditof the project's account. Terms of reference for the annual audits of the project accounts were agreedupon at negotiations. Certified copies of these audits would be submitted to IDA within six months ofthe end of the Government's fiscal year. Certified copies of the auditors' report would be retained bythe PiT for subsequent review by IDA missions.

Annex 6, Table A: Project Costs by Procurement Arrangements (in US$ million equivalent)

~ Ode NBS. ¶1

A Gvilk 61 - - - 61 -

(4.0) - (4.0) -

R iEmnt&GZxds 5.0 0.1 - - 5.1 -

(4.2) (Q 1) (43)CCtltart mices &'iiirg - - 0.8 1.7 25 -

(0.6) (0.6) -

D TraU - - 0.4 0.3 0.7 -

(0.3) (0.3) -

E xmrEUC OpwaftGsts - - 0.1 - 0.1 -

(01) (QO1)DlLl1 Q1 13 21 145(8.1) (0.1) (1.1) (9.3

Me 1igies patlsis arele-re e aMls finedbyllDA

Note: - Due to rounding, amounts may be slightly different from those in other tables.- Figures in parenthesis are the respective amounts financed by IDA.- The PPF advance of US$100,000 is included under "C" (US$25,000) and "E" (US$50,000)- Auditors (US$ 0.1 million) and Consultants and training to PIT (US$0.1 million) are categorized

under the "Consultant Services and Engineering".- N.B.F. = Not Bank-Financed (financed by the US Government)- Details of "Other" and "N.B.F." are found in the Table 6-A2.

Annex 6Page 4 of 8

Annex 6, Table Al: Consu]tant Selection Arrangements(in US$ million equivalent)

Selection Method Total CostConsultant Services (including

Expenditure Category contingencies)QCBS Q}BS SFB LCS CQ Other N.B .F. _____

A. Firms 0.85 0.15 0.15 1.70 2.80(1.5)

B. Individuals 0.10 0.30 0.40(0.10)

Total 0.85 0.15 0.15 0.10 2.00 3.200.85 (0.15) (0.15) (0. 10) (1.25)

Note: QCBS = Quality- and Cost-Based SelectionQBS = Quality-based SelectionSFB = Selection under a Fixed BudgetLCS = Least-Cost SelectionCQ = Selection Based on Consultants' QualificationsOther = Selection of individual consultants (per Section V of ConsultantsGuidelines), Commercial Practices, etc.N.B.F. = Not Bank-financed.Figures in parenthesis are the amounts to be financed by the IDA Credit.

Annex 6, Table B: Thresholds for Procurement Methods and Prior Review31

Section 1: Procurement Review _

Element (Goods/Works) ICB NCB IS NS Other methods1. Procurement method $500,000 (works). N/A N/A Goods: No objection on an annual budgetthresholds $100,000 (goods) <50,000. for operating costs2. Prior Review All contracts. N/A N.A. N.A. N.A.Element (Consultant Services) QCBS / LCS Section V Other methods3. Procurement method 100,000thresholds4. Prior Review >$l00,000 >$50,0005. Ex-post Review The IDA will monitor procurement activities, contract management and project record keeping during periodic

supervision missions. 20% of contracts will be ex-post reviewed.

Section 2. Capadty of the Implementing Agency in Procrment and Technical Assistance requirements6. FYR Macedonia has several years of experience in implementing Bank/IDA projects. Procurement of works, goods and services has beensatisfactory. Primary responsibility for overseeing implementation of procurement procedures will rest with the Project Implementation Team locatedin Customs Administration.7. Country Procurenient Assessment Report or Country Procurement Strategy 8 Are the bidding documents for the procurement actions of thePaper status: CPAR has not been completed. first year ready by negotiations? No

Secion 3. Training Informnation and Developient on Po t9. Estimated date of 10. Date of General 11. Indicate if contracts are subject 12. Domestic 13. Domestic Preference forProject Launch Workshop: Procurement Notice update: to mandatory SPN in Development Preference for Works: NoOctober 15, 2000 May 31, 2000 Business: Yes Goods: Yes14. Retroactive fmancing No i 15. Advanced Procurement (PPF) Yes16. The PIT within the MCA will oversee all procurement activities under the project and will ensure procurement is done in accordance with WorldBank procedures. Public Enterprise will participate in drafting, evaluating, and monitoring of civil works at border crossings, in line with the domesticlegislation. Procurement reports will be submitted by PIT to the IDA quarterly. PIT will be assisted by procurement consultants, as need be.

Section 4. Procurement Staffing17 Procurement Staff as part of Project Team: Els Hinderdael Division: ECSIN Ext. 33306

18 Role of the Field Office in Procurement: Field Office will liaise between HQ team and PIT on procurement issues.

LA

CC

Annex 6, Table Bi1: Procurement Plan

Deactiplion Type No. of Rstlm. cost fousia o-IdDcmnsBdConc

Customs equipment for G 1 0.6 ICB N/A Draft to Bank: April 15, 1. Invitation: SPN: June 1, 2001 Nov. 1, 2001 Oct. 30, 2002preventive and investigation 2001 2. Opening: August 1, 2001services Bank No Obi: June 1, 2001 3. Eval. & Recom.: October 1, 2001ICIS Software G 1 0.8 ICB N/A Draft to Bank: July 1, 2000 1. Invitation: SPN: August 15, 2000 Jan. 15, 2001 Jan 15, 2002

Bank No Obj: August 15, 2. Opening: October 15, 20002000 3. Eval. & Recomn.: December 15, 2000

ICIS ITequipment G 1 2.1 ICB N/A Draft to Bank: Nov. 15, 2000 1. Invitation: SPN: January 1,2001 June 1, 2001 May 1,2002(computers, bar code and package Bank No Obj: January 1, 2. Opening: March 1, 2001advance transit) 2001 3. Eval. & Recom.: May 1, 2001

Works for ICIS CW 1 2.0 ICB N/A Draft to Bank: May 1, 2001 1. Invitation: SPN: June 15, 2001 Sep. 15, 2001 Oct. 15, 2003Improvement package Bank No Obj: June 15, 2001 2. Opening: August 15, 2001

3. Eval & Recomi.: Septem.erber 15,2001Des;gn for AD.' Center CS i 0.05 CQ N/A Draft to Bank October 1, 1. Invitation: SPN: November 1, 2000 Jan. 15, 2001 Apr. 30, 2001

2000 2. Opening: December 15, 2000Bank No Obj: Novemberl, 3. Eval. & Recom.: January 15, 20012000

ICIS Telecommunication G 1 0.4 ICB N/A Draft to Bank: July 15, 2000 1. Invitation: SPN: September 1, 2000 Feb. 1, 2001 Dec. 31, 2002equipment Bank No Obj: September 1, 2. Opening: November 1, 2000

2000 3. Eval. & Recom.: January 1, 2001ICIS Personnel Training CS 1 0.05 CQ N/A Draft to Bank June 1, 2000 1. Invitation: SPN: July 15, 2000 Dec. 15. 2000 July 31, 2003

1 0.40 QCBS Bank No Obj: July 15, 2000 2. Opening: September 15,2000 .package 3. Eval. & Recom.: November 15, 2000

Office& trainingequipment G 2 0.1 NS N/A Draft toBank: Sept. 1,2000 1. Invitation: SPN Sept. 15, 2000 Nov. 1,2000 Dec. 15, 2000Bank NO: Sept. 15,2000 2. Opening: October 15, 2000

3. Eval. & Recom.: Novemebr 1, 2000Tabanovce border upgrading CW 1 2.5 ICB N/A Draft to Bank: February 1, 1. Invitation: SPN: March 1,2001 June 1,2001 Dec. 31,2003works 2001 2. Opening: May 1, 2001

Bank No Obj: March 1, 2001 3. Eval. & Recorn.: June 1, 2001Deve Bair border CW 1 0.6 ICB N/A Draft to Bank: February 15, 1. Invitation: SPN: March 15,2001 June 15,2001 Dec. 31, 2002rehabilitation 2001 2. Opening: May 15, 2001

Bank No Obj: March 15, 3. Eval. & Recom. June 15, 20012001

Kafasan border rehabilitation CW 1 0.9 ICB N/A Draft to Bank: March 1, 1. Invitation: SPN: April 1,2001 Julyl5,2001 Dec. 31,20022001 2. Opening: June 1, 2001Bank No Obj: April 1, 2001 3. Eval. & Recom.: Julyl, 2001

Design forBC civil works CS I 0.1 QCBS N/A Draft to Bank: July 1, 2000 1. Invitation: SPN: August 5, 2000 Nov. 1,2000 Feb. 1, 2001Bank No Obj: August 1, 2. Opening: September 20,20002000 3. Eval & Recoin: October 15, 2000

Supervision of civil works at CS 1 0.3 QCBS SPNIEOI Draft to BankJanuary 15, 1. Invitation: February 15,2001 May 1,2001 Mar. 31,2003borders July 15, 2001 2. Opening: April 15, 2001

2000 Bank No Obj: February 15, 3. Eval. & Recom.: May 1, 20012001

W

Border Equipment G I 1.1 ICB N/A Draft to Bank: June 30, 2000 1. Invitation: SPN: August 15, 2000 Jan. 15, 2001 June 30, 2002Bank No Obj: August 15, 2. Opening: October 15, 20002000 3. Eval. & Recom.: December 15, 2000

Auditors CS 1 0.15 LCS N/A Draft to Bank: July 1, 2000 1. Invitation: SPN: August 10, 2000 Jan. 10, 2001 Dec. 31, 2003Bank No Obj: August 10, 2. Opening: October 10, 20002000 3. Eval. & Recom.: December 10, 2000

- PIT incremental operating N/A I 0.1 N/A N/A TOR: April 20,2000 N/A June 15, 2000 Nov. 1, 2000costs: office equipm. &FMS

-PIT training CS N/A 0.05 SS N/A N/A N/A May 15, 2000 June 30, 2001

-PIT consultants CS I 0.1 IC N/A TOR: April 30,2000 N/A June 30, 2000 June 1, 2001(acct.&proc)Total 12.4

GPN issued May 15,2000; next GPN update: April 15,2001; Source: UN Development Business

CW= Civil Works, G= Goods, CS= Consulting Services, TR= Training, TA-Technical Assistance, QCBS= Quality and Cost Based Selection, NBF= Not Bank Financed, IS= International Shopping, IC=Individual Consultant s; SS = costs associated with PIT training in the Bank and other training centers

-1

00 a,

Annex 6Page 8 of 8

Annex 6, Table C: Allocation of Credit Proceeds

(US$ Million) Credit DisbursementAmount %

1. Civil Works 3.6 65%2. Equipment, Goods and materials 3.9 100% foreign, 100%

ex factory and 84%of other localexpenditures

3. Consulting Services and Training 0.9 100%4. Incremental Operating Costs 0.1 90%5. Project Preparation Advance 0.1 100%

Unallocated 0.8Total 9.3

Credit amounts financed by I]DA

Note: Due to rounding, the actual sum may be different (e.g. PPF amount is US$ 75,000).

Annex 7

FYR MacedoniaTrade and Transport Facilitation in Southeast Europe Project

Project Processing Budget and Schedule

A. Project Budget (US$000) Planned Actual(At final PCD stage)

B. Project Schedule Planned Actual(At final PCD stage)

Time taken to prepare the project (months) 8 monthsFirst Bank mission (identification) 01/25/1999 01/25/1999Appraisal mission departure 02/14/2000Negotiations 05/15/1999 05/15/2000Planned Date of Effectiveness 10/30/1999

Prepared by: Ministry of Finance, MCA and IDA Team

Preparation assistance: Magdalena KusemilevaDammika SomasundaramMarie Laygo

Bank staff who worked on the project included:Name SpecialtyGraham Smith Program Team LeaderAnca Dumitrescu Task ManagerGerald Ollivier Transport EngineerAly Abu-Akeel CounselAlessandra Iorio CounselBogdan Constantinescu Financial Management SpecialistRohit Mehta Sr. Disbursement OfficerEls Hinderdael Procurement SpecialistPedro Taborga Senior EconomistRyo Eguchi Project OfficerKenneth Gwilliam Principal Transport Economist (Peer Reviewer)James Walsh IMF (Peer Reviewer)

Consultants who worked on the project included:Name SpecialtyPhilip Moeller Office Team Leader, Environmental SpecialistMichel Zarnowiecki CustomsIvan Taborsky Customs

Annex 8

FYR MacedoniaTrade and Transport Facilitation in Southeast Europe Project

Documents in the Proiect File*

A. Project Implementation Plan

B. Bank Staff Assessments

* Management Information System: FYR Macedonia-Bosnia and Herzegovina-Albania* Trade Facilitation Component -- FYR Macedonia

• Customs Institutional Reform: FYR Macedonia -Bosnia and Herzegovina-Albania* Economic and Financial Analysis of the Project

* Technical paper regarding the selection of border crossings- Financial management assessment

- Procurement capacity assessment

C. Other

*Including electronic files.

FYR MacedoniaTrade and Transport Facilitation in Southeast Europe Project

Status of Loans and Credits

Status of Bank Group Operations in Macedonia, Former Yugoslav Republic ofOperations PortfolioAs of April 20, 2000

Difference Between

Board Last PSR Expected and Actual

Date Supervision Rating bl Oricinal Amount in US$ Millions Disbursements a'

FiscalDeeomnImlmnanYear Active Projects DeveloPmen o Imrlementason IBRD IDA Cancel. Undisb. Orig. Frm Revd

Obiectives Proaress1996 P036089 HEALTH SECTOR TRANSI S S 0 16.9 0 12.06 12.92 01996 P010001 MKPRIV. FARMER SUPPORT S S 0 7.9 0 3.68 4.18 01998 P038391 EDUCATION REHAB. S S 0 5 0 0.58 0.63 01998 P038399 IRRIGATION REHAB. S S 7.5 5 0 10.6 1.97 1.341998 P042399 POWER S S 35 0 0 29.45 3.51 01998 P034609 PSD II U U 25 0 0 12.37 -2.26 01999 P065834 EMG. RECOVERY HS S 0 50 0 1.34 1.39 01999 P058056 PENSION REF. T.A. S S 0 1 0 0.67 0.57 01999 P038392 SOCIAL SECTORS ADJ. S S 0 29 0 14.51 14.43 01999 P066221 SOCIAL SUPPORT S S 0 10 0 9.62 2.42 01999 P050589 TRANSPORT S S 32 0 0 19.48 5.95 0

Active Proiects Closed Proiects TotalTotal Disbursed (IBRD and IDA): 96.88 558.71 655.59of which has been repaid: 0.00 294.58 294.58Total now held by IBRD and IDA: 207.14 248.10 455.24Amount sold: 0.00 0.86 0.86of which has been repaid: 0.00 0.86 0.86Total Undisbursed: 113.85 0.00 113.85

Annex 10Page ] of3

FYR MacedoniaTrade and Transport Facilitation in Southeast Europe Project

Environmental Management Plan

1. Overview:

The Trade and Transport Facilitation in Southeast Europe (TTFSE) Project is unlikely to have significantadverse environmental impacts. The project has been rated accordingly as Category B. To prevent,minimize or mitigate site specific; negative impacts, however, this Environmental Management Plan(EMP) and a set of mitigatory measures have been prepared. Upon review with the client government itwill be signed as an attachment to tIhe PIP.

2. Minimization of negative impact:

The major concerns about possible negative site-specific impacts associated with border crossings relateto: (i) emissions from vehicles waiting for customs clearances; (ii) drainage of disinfectants and spills ofoils and fuel; (iii) waste disposal and loose garbage; and (iv) site disruptions caused by upgrades orrelocations of utilities or such infrastructure as buildings, parking/waiting areas, and access roads.

The objective of the TTFSE to reduce constraints on traffic flows at border crossings, including thesimplification of paperwork and reduction of processing times, will correspondingly reduce standing timeand vehicle emissions from trucks and other vehicles. Processed and road side waste, garbage and litterwill also be reduced and better managed. The small scale of physical investment, largely limited to theimprovement of in-place facilities, offers only limited potential threat. Specific actions included in theEMP (see Exhibit 1) to further minimize potentially negative impact and promote institutionaldevelopment include:

• liaison with environmental authorities;

- training and sensitization;

- site certification;

* consultations on the harmonization of standards; and

- provisions in construction contracts.

a. Liaison with Environmental Authorities

Contact between the Macedonia Customs Administration (MCA) and the Ministry of Environment (MoE)needs to be intensified. This will be achieved through the appointment of an environmental officer in theMCA who will be responsible for liaison, monitoring and reporting on environmental issues and theEMP to the Project Implementation Team (PIT) of the TTFSE. 32 Incorporation of the functions of theenvironmental officer into the overall, long-term responsibilities of the MCA will be reviewed as part ofthe reform and capacity building processes of the MCA. Environmental issues will be included in thepublic information program to be provided by the MCA.

b. Training and Sensitization

The MCA environmental officer, in collaboration with the MoE, will assist the TTFSF, training consultantin the design and provision of training and sensitization for the staff of the customs service relating to theimportance of environmental issues and protection. Standard procedures and guidelines based on1 thenational environmental regulations will be developed.

32 The MoE has already designated the liaison for the TTFSE.

Annex 10Page 2 of 3

In coordination with the appropriate associated ministries and agencies providing control functions at theborder such specialized training in support of veterinary and phyto-sanitary pre-inspections will bedesigned. Training on the control of the hunting and gathering of endangered flora and fauna will also becovered.

c. Site Certification

In order to promote acceptable practice and minimization of environmental impact at all stations, theMCA environmental officer, jointly with a representative of the Ministry of Environment, will inspect allborder crossings scheduled for investment under the TTFSE or marked as pilot sites. The MoE willreview the capacity and appropriate jurisdiction to participate in these inspections. On the basis ofsatisfactory compliance with regulations and procedures a letter of certification of compliance will beissued. Particular attention will be given to assure corrective procedures relating to (i) the use ofdisinfecting pits at border crossings, (ii) the storage and use of disinfecting materials and chemicals atsanitary and disinfecting sites, (iii) the control of waste materials including hazardous materials, and (iv)the control of road-side litter and garbage.

d. Consultations on the Harmonization of Standards

The project supports the harmonization of standards with those of the EU. Particular attention will begiven to those relating to hazardous materials. The MCA environmental officer will consult with theMinistry of Environment to ensure progressive application of appropriate standards and to ensurecollaboration with relevant environmental programs and activities funded by the EU. Progress in this areawill be regularly reported to the PIT and included in reports to the Bank.

In addition, the project will also enable customs officials to better enforce the terms of internationalconventions and agreements relating to the environment. Especially relevant will be the regulationsincluded in such agreements as (i) the European Agreement Concerning the International Carriage ofDangerous Goods by Road (ADR) of September 1957 with its Protocol of October 1993; (ii) theConvention on International Trade in Endangered Species (CITES); (iii) the Convention on theInternational Carriage of Perishable Foodstuffs and on the Special Equipment to be Used for SuchCarriage (ATP) of September 1970; and (iv) the Basel Convention on the Control of TransboundaryMovements of Hazardous Wastes and their Disposal of May 1992.

e. Provisions in Construction Contracts

Although not required as a result of recent changes in national environmental regulations, environmentalreports will be prepared to examine the potential negative environmental impact and suggest mitigationmeasures for any new construction under the TTFSE. These reports will be prepared by the MCA, theMinistry of Urban Planning, or a qualified consultant and submitted for a 30 day review by the MoE. Theacceptance of and clearance for payment by the PIT for work contracted under the TTFSE will bedependent upon the presentation of such details and a description of supportive action if such wasrecommended by the MoE. All contracts will contain clauses requiring the minimization of noise anddust during construction.

Annex 10Page 3 of 3

Exhibit 1: Summary

Liaison with The MCA has designated an environmental officer who in collaboration withEnvironmental the PIT will be responsible for: (i) liaison with environmental officials of theAuthorities Ministry of Environment; (ii) the review and monitoring of the EMP; (iii) the

provision of periodic status reports to the PIT; (iv) consultations with suchinterested parties as NGOs; and (iv) and the provision of support forsupervision missions. The government will assure that the MCAenvironmental officer has access to information relevant to the project andenvironmental compliance.

Training and The MCA in collaboration with environmental officials of the Ministry ofSensitization Environmnent will provide training and sensitization of staff at each border

crossing. Standard procedures will be specified. Special training will beoffered fir pre-inspection skills in such related areas as veterinary and phyto-sanitary inspections and in support of the protection of endangered species.

Certification of The Ministry of Environment jointly with the MCA environmental officerAcceptable Practice at will inspect each border crossing scheduled for investment under the TTFSEBorder Crossings or marked as a pilot site, for certification of the acceptability of practices and

minimization of environmental impact. Particular attention will be given to(i) the use of disinfecting pits, (ii) the storage and use of disinfecting materialsand chemicals at the sanitary and disinfecting sites, (iii) the control of wastematerials including hazardous materials, and (iv) the control of road-side litterand garbage.

Harmonization of One of the goals of the project is to assist harmonization with EU andStandards international standards. The MCA environmental officer will consult with the

Ministry of Environment periodically on progress and provide progressreports to the PIT. The MCA environmental officer will ensure compliancewith evolving regulatory requirements and conventions.

Construction Designs far new construction will include an environmental report with plansfor the minimization of negative impacts. Contract documents will containclauses requiring minimization of noise, dust, and waste disposal duringconstruction. All works will comply with local environmental regulationswhere applicable.

Annex 11Page 1 of 2

FYR MacedoniaTrade and Transport Facilitation in Southeast Europe Project

Macedonian Customs System Reform Strateg

One of the major devotions of our country is to achieve necessary development level in order tobe accepted as a permanent EU member. Therefore our Customs System Reform Strategy is builton the grounds of the EU Customs policy. The reforms that need to be undertaken shall be guidedby the objectives set forth by our Administration. These objectives are closely connected to thefour basic freedoms of modem, developed societies: freedom of goods, persons, services andcapital.

Using them as cornerstones, we have determined the following objectives, which will be thepresent and future development directions of Macedonian Customs:

1. To promote fair trade

2. To increase the attractiveness of Macedonia as a location for trade and industry andcontribute to the creation of new jobs

3. To 'ring fence' the domestic market and create conditions for trade, which will securemaximum benefit from it for everybody

4. To ensure protection for the citizens and business in all areas involving imports and exportsin a clear, uniform, simple way as efficiently as possible.

5. To introduce new technologies for more effective and efficient performance, together withthe improvement of the knowledge and skills of the staff

6. To facilitate a practical system to collect taxes, customs duties, excise, and the VAT in2000

7. To respect the provisions on environment protection and protection of endangered species

8. To produce statistical data on foreign trade

These objectives shall be achieved through reforms in all areas of the customs work, and morespecifically through the following:

1.1 Building a stable and comprehensive legal system which ensures uniform application ofEU compatible customs legislation (the new Customs Law and implementingregulations), which is designed to strengthen the powers of the customs officials, but alsoto determine their responsibilities;

1.2 Establishing close cooperation with the trade and business;1.3 Respecting ethical standards and principles;1.4 Developing and implementing trade facilitation mechanisms which will create effective

and efficient Customs procedures, but also minimize their cost.

Annex 1 1Page 2 of 2

2.1 Application of working techniques and methods, based on risk analyses and selectivity, inorder to decrease the necessary time and costs of the trade and transport;

2.2 Application of unified and simplified procedures, adapted to EU and world norms, whichare expected to attract foreign interest and capital.

3.1 The Customs Tariff and preferential agreements, concluded with individual countries orgroups of countries, as tariff measures, but also the non-tariff measures, such asintroduction of quantity import reductions, levies, prevention of import of counterfeitedand pirated goods and providing subsidies for the domestic exporters, are just few of themeasures through which domestic producers and producers exporting from othercountries could compete fairly and equally on the domestic market.

4.1 Developing efficient and effective enforcement function capable of detecting, preventingand investigating fraud, preparing cases for prosecution of offenders; the function shouldbe flexible enough to respond to an intelligence-led strategy based on the latest methodsof targeted risk assessment to safeguard the revenue and protect the society;

4.2 The enforcement function should be applicable along the border and throughout customsterritory, which will facilitate the flow of legitimate passengers and trade while ensuringtimely revenue collection and protection of the citizens.

5.1 Developing an IT system and environment, integrated in a developed infrastructure andmodern equipment, which completely support the Customs Business Strategy;

5.2 The IT system and infrastructure support the Transit system based on the EU CommonTransit Convention; they also provide the satisfactory value for the invested money.

5.3 The system of permanent training is a complement to the introduction of new workingtechnologies, thus developing the staff to become capable of implementing the CustomsBusiness strategy.

6.1 Ensuring maximum efficiency and integrity of revenue collection and management, bydeveloping and implementing appropriate policies, systems and procedures to collect andaccount for revenue;

6.2 Taking into account the future collection and management of EU revenue and auditing ofprocedures and accounts by both national and EU authorities.

7.1 The environment protection to be implemented through control of imports of dangerousgoods and waste materials, control of products which could endanger the ozone layer andcontrol of trade with radioactive materials;

7.2 Supervision and prevention of endangered species of flora and fauna according to theWashington Convention 1983 - CITES.

8.1 Collection of statistical data represents indispensable basis for making importanteconomic decisions at national level (macroeconomic policy for improvement of thenational economy);

8.2 Follow up of statistical data from international sources assist in finding new markets fordomestic goods, follow tup world flows of legitimate, but also illegitimate trade.

Annex 12Page 1 of 2

Macedonia, FYR at a glance 4?7?00

Europe & Lowet-

POVERTY and SOCIAL Maoedomia. Centtral middle-FYR Asia income Development diamond'

1998Population. mrid-ear n 2.0 474 2,2t3 LiFe expectancgGNP per capita f/lv4whod e-$ 1800 2,310 1,230GNP (f/A(s method Z1Is 1.0Z8 2,803

Aveeage annual gtowth. 19S2-98

Population i,Y 0.8 01 1.1Labor force (t.r/ 1.2 0.6 1,5 GNP Gross

per primargMost recetrt estimate (latest year available. 199248) capita rnxonx

Povertg gpMt0'pW (p7'?Urban population so 5ff% bFo, 61 6t 58Life expectancg at birth [w.Ps,/ 72 eS 68Infant mrortaltg /y t1tei>MfAs is 23 38Child mnalnutrition /r1, l'AA? ml. i w - Acoess to safe water

Access to safe watet fi ac . .. 75Illiteracg ( a .. 4 14Gross primary enrollment f 99 0oo 103 _ Al'daxre .

Mate 100 101 105 - -

Female 98 99 100 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1977 187 1US7 1i85Economic ratios'

GoP g2ntowcr/, a. 3,7 3,5

Gross domestic investmentfGDP , 224 231Exports of goods and servicestGDP 537S 43.1 TradeGross domestic savingsGaDP .1 8.6Gross national savingslGDP 161 0 15V;

Current account batanc.GOP -74 8.8 o

Interest pagmentslGDP 1.9 t Domaestic InvestmentTotal debtt.DP 34.1 43.3 avingsTotal debt serviceferports . 9,4 g.2Present value of debttGOP L,Present value of debtlexports -.

Indebtedness1877.87 1588-53 1997 19S8 1555-03

GOP .. .. 1.4 2.S .. - lex FJ1

GNP per capita .. .. 0.8 2.1 .. - n

xWports of goods and services .. .. 32.7 15.0 .. ;N______ _________

STRUCTURE of the ECONOMY1977 1987 1997 1938 Growth rates of output and investmen,

AgricuIture bl .. .. 13.0 12.0 se.

industry bf .. .. 34.0 35.0 40 .

Manufacturing .. .. ..

Services bl .. .. 53.0 53.0-20- .19 In I 04 07 It

Private consumption .. .. 73.7 73.8 40

General government consumption .. .. 17.2 17.6Imports of goods and services .. .. 51.1 57.6 GOI -- 0-- GDP

1977-87 1988-98 1997 1998 Growth rates of exports and imports, Nca~ varsn4vciawk/

Agriculture .. 7.1 .. 40

Industig .. .. 0.6 .. 30

Manufacturing .. .. .. .. 20 .

Services 1.5 1e.

Private consumption . .. 3.1 3.2 0

General government consumption .. -2.4 4.1 -1e- 93 or oGross domestic investment .. .. , 7.6 2.5 -20

Imports of goods and services .. .. 28.9 12-8 Exports ImportsGross national product .. . 1.3 3.1

Nlote: 1998 data are preliminary estimates.

'The diamonds show four ket indicators in the countrl fin bold) compared with its income-qroup averaqe. If data are missinq, the diamond willbe incomplete.

Annex 12Page 2 of 2

Macedonia, FYR

PRICES and GOVERNMENT FINANCE1977 1387 1S37 1338 Inflation (%I

Consumer prices .. 0*8 to . iImplicit GDP deflator 3.3 15 s \

cr eisn Abaa.dce it°

Current revenue 34.9 333. 9 95

Current budget balance 0.9 0.1Overall surplustdeficit -0.4 -1.7 G

TRADE1977 1987 1997 1998 Esport and import levels lUSt

Total exports (fob) 1,237 1.322 2500iRaw materials 147Food and beverages 109 105 000Clothing and textile 261 363 ss.

Total imports (cifl _ 7 1,79 1914Food .. - 242 .

Fuel and energy 193 163 s09Capital and intermediate 775 851

Export price index /9.-F=z . 117 126 2 94 95 96 91 9*Import price index tItM-,P 114 122 a Exports a ImportsTerms of trade /Atrn=WJfl 102 104 i

BALANCE of PAYMENTS1977 1937 1937 1398 Current account balance to GOP ratio

Exports of goods and services . .. 1.385 1,453 xImports of goods and services 1.896 2.025 12 92 94 95 9 9 9*

0Resource balance -531 -572 .3 L.J

Met income -33 -17 [iNet current transfers 291 300 JL

Current account balance -273 -289

Financing items (net) 281 328Changes in net reserves g-8 39 -

Reserves including gold (Ssntnsf? 280 333Conversion rate FC;rfl J 69.4 74.2

EXTERNAL DEBT and RESOURCE FLOWS _1977 1987 1997 1938

Mqff0S^fZ Composition of total debt. 1998 (US$ 1iTotal debt outstanding and disbursed 0 0 1,265 1.533 C o t

BRO 0 0 92 115 134 115IDA 0 0 145 179

Total debt service 0 0 120 124 17 3IBR 0 0 13 12IDA 0 0 1 1 114

33414Composition of net resource flows

Official grants 0 0 8 29Officialcreditors 0 0 74 113Private creditors 0 0 20 55Foreign direct investment 16 167 2??Portfolio equity 0 0 2 8 320

World Bank programCommitments 0 0 102 36 A - IBRD E - BilateralDisbursements 0 0 41 51 B - IDA D -Other mlItilsteret F - PrivetePrincipal repayments 0 0 8 5 C - IMF G- Short-termNet flows 0 0 34 46 _ _1 _

Interest payments 0 0 6 9j Net transfers 0 0 28 38

Development Economics 417100

al Calculated usinq market etchanQe rate; bl Share of GDP at factor cost.

MAP SECTION

IBRD 30919

Z. E 7 X % q j W X 4 r ,';,:-X.u S uSOUTHEAST EUROPE REGION

TRADE AND TRANSPORTFACILITATION IN SOUTHEAST

'C -~~~~~~ ~EUROPE PROJECTr ~~-a ~ ~ ,'.

9,,

0F,,- L 9'\ 10/~~~~~~ ~1 N

|DoQO 9'Siji A.ARINO | ,M _ MAAIN TRADE PATTERNS

$767 0 $301 N

N ~~~~~~~IMPORT AND EXPORT PATTERNS (1 998):

EXPORTS (CON, -) MFORS (153. M. 0-

-40t Wo USA i S ;,< 4 < g R.r-<> <.,,,, _gS- G

T

/9 0"- ,9~~~~~~-,Tr,oooooo--/9 Tmoo I', -

Ex NIA P-1, IH-,,)'~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~o,

10/2 1f1/2 IA R--~~~~~~~~~~~~~~~~~~~~~~~To,o -Fade 019 4'U$

U l7 Xe, j,a E ,u EFr 11g--} . 1 j7.,1 y '>~- S(< ' 1l;l $*650np,[, $65

m.; . PS. $) O1020 0

42Z4&P0fl ~~~~~$1390 Imoi

82 ; > A aINTERNATIONAL BOUNDARIES

2 X <> w 94 So 7, n 1 50 ;por0 M MACRO-TRADE INDICATORS:

SAN MAR NO -/ 40/3 ~~~ 6 OS41- bO12GDP PER CAPITA, 1998 (US$)

$240 I~~~~~~~~~~~~~~~~~~~~~253

0 30'. BULGARIA

E9ort 4 ~~~~~~~~~~~~LANA29 -. 1 . 1

19 MACEDONIA ~~~~ Ior F0 ~ E~9 .BOSNIA & 4.1 0.8 2.5 1 200

HERZEGOVINA - - -

F,po,I, 5005 000 - - - - - - - >99m~~~~~~~~~~~~~~~~~ BULGARIA 123 4.6 5. 1220

ALBANIA , ~-' ' "O -CROATIA 200 44A 8.8 4520

0 - -- , f ~~~~~~~~~~~~~~ ~~~~~~~~~FYR MACEDONIA 3.5 1.3 1.9 1290

- - -' ~~~~~~~ ~ ~~~~ ~~~~ ~~~~~~~~ROMANIA 38.2 8.3 11.8 1390

'40' To USA

1Z5 E,p.,k 0 10~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~0 20030

C~~~~~~~~~~~~~t"- KILOMErERS

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