World Bank Document · EMERGENCY HOUSING REPAIR PROJECT (CREDIT NO. 2902-BA) Preface This is the Implementation Completion Report (ICR) for the Emergency Housing Repair Project in

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 17486-BA

IMPLEMENTATION COMPLETION REPORT

BOSNIA AND HERZEGOVINA

EMERGENCY HOUSING REPAIR PROJECT

CREDIT 2902-BA

May 29, 1998

Infrastructure UnitEurope and Central Asia Region

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

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CURRENCY EQUIVALENTS(as of March 3, 1998)

Currency Unit = Konvertible Marka1KM = US$0.55

US$1 = KMI.81

AVERAGE EXCHANGE RATES

(not applicable, new currency introduced in 1998)

WEIGHTS AND MEASURESMetric System

ABBREVIATIONS AND ACRONYMS

DTF - Dutch Trust FundEU - European Union

GTZ - Deutsche Gesellschaft fuer Teclnische ZusammenarbeitHMME - Housing Maintenance and Management Enterprise

IBRD - Internatioiial Bank for Reconstniction and DevelopmenitIDA - Intemational Developmenit AssociationIFC - Intemnational Finanice Corporation

1MG - Intemational Management Group (EU)KfW - Kreditanstalt fiuer Wiederautbai

NGO - Non-governmental OrganizationPIU - Housing Project Implemenitation Unit. Federation of Bosnia and

HerzegovinaPMAU - Procurement Monitorinig and Audit Unit

PPF - Project Preparation FacilitvSFOR - Stabilization Force (NATO)

SOE - Statemiienit of ExpenditurcsUNHCR - United Nations High Commliiissioner for Refugees

USAID - United States Agency for International Development

BOSNIA AND HERZEGOVINA FISCAL YEAR

Januarv I to Decemiiber 3 I

Vice Prcsident: Johannies Linni. ECAVPCounltry Director: Clristiaan J. Poortirnani. ECC04

Sector Director: Ricardo Halperin. ECSINSector Leader: Margret Thalwitz, ECSIN

Respoinsible Staff Michael Kochi (ECSPF/ECCBA). Sonia Hamminan (TWIJRD)

FOR OFFICIAL USE ONLY


BOSNIA AND HERZEGOVINAEMERGENCY HOUSING REPAIR PROJECT

CREDIT NO. 2902-BA

Contents

PREFACE ....... ................................................................... I

EVALUATION SUMMARY .......................................................................... II

PART L PROJECT IMPLEMENTATION ASSESSMENT ........................................................................... 1

A. Statement/Evaluation of Objectives ......................................................................................... IB. Achiievemenit of Project Objectives ................................................................................................. 2C. Implementation and Major Factors Affecting the Project ................. ..................................... 4..4D. Project Sustainability . ................................................................................................ 6E. Bank Perfonnance . ................................................................................................ 7F. Borrower Perfonnance ................................................................................................. 7G. Assessment of Ouitcome ................................................................................................. 8H. Future Operations ....................................... ......................................................... 8I. Key Lessons Learnied . ................................................................................................ 8

PART IL STATISTICAL TABLES .......................................................................... 10

TABLE 1: SUMMARY OF ASSESSMENTS.11TABLE 2: RELATED BANK LOANS/CREDITS ........................... , 12TABLE 3: PROJECT TIMETABLE.13TABLE 4: LOAN/CREDIT DISBURSEMENTS: CIUMULATIVE ESTIMATED AND ACTUJAL .13TABLE 5: KEY INDICATORS FOR PROJECT IMPLEMENTATION .13TABLE 6: KEY INDICATORS FOR PROJECT OPERATION .13TABLE 7: STUDIES INCLUDED IN PROJECT .14TABLE 8A PROJECT COSTS ............................................................ 14TABLE 8B: PROJECT FINANCING ............................................................ 14TABLE 9: ECONOMIC COSTS AND BENEFITS ............................................................ 15TABLE 10: STATUS OF LEGAL COVENANTS ............................................................ 15TABLE 11: COMPLIANCE WITH OPERATIONAL MANUAL STATEMENTS ............................................................ 16TABLE 12: BANK RESOURCES: STAFF INPUTS ............................................................ 16TABLE 13: BANK RESOURCES: MISSIONS ............................................................ 16

Appendixes:A. Mission's Aide-Meinoire ................................................ 17B. Borrower Contribution to the ICR ................................................ 20C. Sources of Project Finaiicing ................................................ 32D. Map: IBRD 29463

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.


BOSNIA AND HERZEGOVINAEMERGENCY HOUSING REPAIR PROJECT (CREDIT NO. 2902-BA)

Preface

This is the Implementation Completion Report (ICR) for the Emergency Housing Repair Project inBosnia and Herzegovina, for which Credit 2902-BA in the amount of SDR 10.5 million was approved onJuly 30, 1996 and made effective on August 13, 1996.

The original and expected credit closing date is June 30, 1998. The credit was fully disbursed, thelast disbursement took place on March 16, 1998. Cofinancing and parallel financing for the project wasprovided by the European Union, the Government of Germany, the Government of Italy, The NetherlandsGovernment, the Saudi Fund for Development, and the United Nations High Commissioner for Refugees.

The ICR was prepared by Michael Koch, Private and Financial Sectors Development Unit, Europeand Central Asia Region, and Sonia Hammam, Transportation, Water and Urban DevelopmentDepartment. The ICR was reviewed by Margret Thalwitz, Sector Leader, Infrastructure Unit, Europe andCentral Asia Region, and cleared by Christiaan Poortman, Country Director, Bosnia and Herzegovina.

Preparation of this ICR was begun during the Bank's final supervision mission in November 1997.The ICR is based on the findings of an ICR mission which visited Bosnia and Herzegovina in February1998 and on information obtained from the project files. The borrower contributed to preparation of theICR by furnishing its own assessment of project performance. A copy of the Aide-Memoire of the ICRmission is attached as Appendix A. The draft ICR was sent to the borrower and cofinanciers for commentson March 18, 1998, and comments received have been incorporated.



(CREDIT NO. 2902-BA)

Evaluation Summary

Introduction

1. The project was designed as an emergency recovery assistance operation and was prepared withina few months of the signing of the Dayton Peace Agreement. The project intended to assist in the urgentrepair of war damage to housing on the territory of the Federation of Bosnia and Herzegovina, one of thetwo entities that constitute the State of Bosnia and Herzegovina.

Project Objectives

2. The principal project objectives, which were both relevant and realistic, were: (i) to carry outurgent housing repairs to both publicly and privately owned housing; and (ii) to contribute to thedevelopment of a framework to sustain the recovery and development of the housing sector through gradualintroduction of cost recovery of repair works.

3. The project included the following components: (a) a pilot project in four municipalities to test theGovernment's approach towards the repair of (i) common building elements of 10 apartment buildings inSarajevo, and (ii) 210 private houses located in other municipalities; (b) restoration of common areas(stairs, entrances, external walls) and weather-proofing of building structures (repair of roofs, windows,drainage gutters) of multi-story public housing in selected cities, benefiting up to 20,000 flats at an averageper-flat cost of up to US$2,500; and (c) institutional support and technical assistance.

4. The project was designed in a modular manner, aiming to provide a vehicle for other donors tochannel their funding, while offering flexibility to adapt project size and scope to cofinancing available.Due to the demonstration effect of private housing repairs under the pilot project, donors contributedUS$22.4 million for repairs managed by the Project Implementation Unit (PIU) in the Ministry of PhysicalPlanning and Environment, leading to a new project component for private housing repairs. At the sametime, concerning public housing repairs, less donor cofinancing (US$9.0 million) than planned wasmobilized, reducing the size of this project component. However, due to lower average per-apartment costsof public housing repairs, the actual number of benefiting flats matched projections made at appraisal.

Implementation Experience and Results

5. The project has surpassed its physical objectives. The pilot project succeeded in meeting itsobjectives of testing the implementation approach, method of damage assessment, procurement methods,building selection criteria and contracting procedures for both private and public housing repairs. Housingunits were identified in May 1996 and construction was completed by September 1996. A total of 215private housing units and 10 public apartment buildings containing 150 units were repaired.

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6. Public housing repairs were carried out in the expected quantity and on schedule, within a muchreduced component funding envelope of US$22.4 million, financed by IDA (US$13.4 million), the EU(US$5.6 million), Italy (US$0.9 million) and UNHCR (US$2.5 million). This was possible due to loweraverage unit costs of US$1,245 per flat as compared to appraisal estimates. A total of 767 apartmentbuildings, located in 11 different municipalities and containing 19,360 flats, benefited from repairs underthis project component, affecting an estimated 80,000 residents. Repair works were critical to salvaging thestock of damaged public housing, preventing further damage and deterioration and improving livingconditions of residents. While the majority of the buildings were inhabited despite the damage, an estimated2,000 units that were unusable were restored as a result of repairs to roofs.

7. Private housing repairs carried out were much beyond the intended original scope of the project.Following the successful pilot phase, the PIU secured donor financing for private housing repairs from Italy(US$2.8 million), the Saudi Fund for Development (US$18.6 million), and UJNHCR (US$0.8 million). Thisled to the repair of 2,622 private houses, located in 16 Federation municipalities, affecting some 10,500residents, at an average cost of US$7,954 per house. At least 80 percent of houses repaired represent newincremental living space that was not habitable prior to the works.

8. The project's sector and financial objective of introducing cost recovery on repair works for publichousing has been partially achieved. Cost recovery as envisaged at appraisal, through raising of rentalcharges in benefiting public apartment buildings, has occurred in Sarajevo, the main project location, whererents have been raised fivefold since the inception of the project. But rents have not been raised or evencharged in the other project municipalities, primarily due to the lack of existing organizations to collectrents there. The Federation government, however, introduced a second, indirect level of cost recovery byobliging the regional Cantons to enter into on-lending arrangements covering the value of IDA-financedrepair works benefiting the respective Canton. The institutional objective of establishing a functioning andcost effective mechanism for the Government to implement emergency housing repair works has been fullymet.

9. Major affecting the project have been as follows: (a) excellent local project management; (b) use ofstreamlined competitive bidding procedures; (c) satisfactory local contractor performance; (d) strong donorinterest, including innovative joint Bank-donor financing arrangements with the European Union andUNHCR, increasing the leverage of IDA resources; (e) social post-war factors, constraining the ability ofmunicipalities to raise or even charge rents on apartments located in buildings repaired under the project;and (f) adequate project design and parameters, reaching a maximum number of beneficiaries by limitingrepairs to common elements only of public apartment buildings. However, this also reduced the potentialimpact on directly promoting the return of refugees to their pre-war flats.

10. Overall project sustainability is likely. Sustainability of the emergency project approach itself islikely since it has proven to be an effective mechanism for implementing urgent housing repairs in a timelyand cost-effective manner. Sustainability of repairs can be assessed on two levels: (a) the quality of repairworks, which were of good workmanship, making their sustainability likely; and (b) the capacity of localinstitutions to raise rents to a level where they can assure maintenance and operations of the buildings oncerepairs are made. The latter measure of sustainability has been more uncertain to date since the projectoperates in the context of a number of constraining factors: other essentially grant-financed donor andNGO-managed programs; the weakness or non-existence of local institutions to charge rents and carry outapartment building maintenance; and low household incomes and a constrained ability to pay rents.Financial sustainability is likely given the introduction of on-lending agreements between the Cantons andthe Federal Ministry of Finance, covering the value of IDA-financed repairs.

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Bank and Borrower Performance, Assessment of Outcome

11. Bank performnance was satisfactory. The straightforward design of the project has been sound andthe use of a pilot to test the contracting approach has allowed a quick start-up of the project. The Bank'sinvolvement and its introduction of simplified national competitive bidding procedures, as well as ofinstruments for procurement, technical and financial monitoring and auditing, has raised donor confidencein locally managed reconstruction projects and encouraged donor participation. The Bank headed the effortto create an awareness among donors and the borrower of the need for cost recovery and sustainability ofhousing repair projects. The management of project supervision through the Bank's Resident Mission inSarajevo has contributed to cost-effective and responsive interaction with the client.

12. Borrower performance was satisfactory throughout project preparation and appraisal, and highlysatisfactory during implementation. Government commitment to the project was very high. The PIU quicklymobilized to work with benefiting communities of both etlnic groups in the Federation of Bosnia andHerzegovina. The PIU's efforts to introduce cost recovery at the municipal level through raising of rentalcharges were substantial and successful in so far as respective agreements were signed. The PIU deliveredfinancial and project progress reports generally in a timely manner, compliance with credit covenants wassatisfactory.

13. The project's outcome has been satisfactory. This emergency project surpassed its primary,physical objectives, met its institutional objectives, and partially met its secondary, sector and financialobjectives. The achievement of the cost recovery objective has been partial since, to date, only Sarajevofully implemented its commitment to raise rental charges.

Future Operation and Lessons Learned

14. The main future activity necessary is to monitor the timely repayment by Cantons of their share ofthe IDA credit to the Federation budget in order to ensure cost recovery at this macro level. This role wouldbe either carried out directly by the Federation Ministry of Finance or delegated to a local commercialbank. Monitoring of cost recovery at the local level would be the responsibility of the Federation Ministryof Physical Planning and Environment.

15. The lessons learned can be summarized as follows: (a) emergency projects should be of lowcomplexity. Contracting of housing repairs is more efficient than the bulk supply of building materials; (b)the policy content of emergency projects should be limited to cost recovery objectives which need to bebrought in harmony with the social post-war context and with other donors active in the country, (c) inparallel or shortly after emergency projects are established, economic sector work should be initiated; (d)emergency projects should be of modular nature, allowing for continuous adjustments to project size andscope; (f) highly qualified borrower personnel should be appointed already during project preparation; (g)the project unit of the borrower should enjoy a large degree of autonomy in its day-to-day operations; (h)continuos technical assistance should be built into emergency projects from preparation through the firstyear of implementation; (i) delegation of project supervision to Bank staff located in a field office isessential to ensure timely client service; (j) streamlined procurement guidelines and accelerateddisbursement procedures are important further ingredients for speedy implementation; (k) donor confidencein emerging governmental project management units should be strengthened through special procurementreviews as well as teclnical and financial audits.




PART I. PROJECT IMPLEMENTATION ASSESSMENT

A. Statement/Evaluation of Objectives

1. The project was designed as an emergency recovery assistance operation and was prepared withina few months of the signing of the Dayton Peace Agreement. The principal project objectives were: (i) tocarry out urgent housing repairs to both publicly and privately owned housing; and (ii) to contribute to thedevelopment of a framework to sustain the recovery and development of the housing sector through gradualintroduction of cost recovery of repair works. The project was designed to assist in the repair of wardamage on the territory of the Federation of Bosnia and Herzegovina, one of the two entities that constitutethe State of Bosnia and Herzegovina.

2. These project objectives were important and realistic in the post-war context of Bosnia andHerzegovina. The need to quickly rehabilitate war-damaged housing property was and remains until todaythe most critical precondition to enable refugee return from abroad and the return to their homes ofinternally displaced persons. This pressing need is clearly recognized by the State and FederationGovernments, as well as by the donors contributing to the international reconstruction program for Bosniaand Herzegovina. It was also a central theme of the Bank's Country Assistance Strategies (CAS) discussedin 1996 and 1997.

3. The project was small when viewed in the context of the country's war damage and reconstructionneeds in the housing sector, which are estimated at some US$5 billion. Given these large financing needs,and in light of the fact that most donors are financing housing repairs on a grant basis during the initialphase of reconstruction, the project's objective of introducing gradual cost recovery of repair works wasparticularly well justified. Cost recovery would generate revolving funds and enable further housing repairsand investments in the future. It would also allow for the reintroduction of maintenance of public apartmentbuildings which had been inadequate already prior to the war and was abandoned entirely during the fiveyears of conflict.

4. The project intended to use the following main components to address its objectives: (a) carryingout of a pilot project in four municipalities to test the Government's approach towards the repair of (i)common building elements of 10 apartment buildings in Sarajevo, and (ii) 210 private houses located inother municipalities; (b) restoration of common areas (stairs, entrances, external walls) and weather-proofing of building structures (repair of roofs, windows, drainage gutters) of multi-story public housing inthe cities of Sarajevo, Mostar, Kupres, Olovo and Gorazde, benefiting up to 20,000 flats at an average per-flat cost of US$2,000 to 2,500 for lightly damaged and structurally sound buildings; and (c) institutionalsupport and technical assistance for the project implementation unit and to facilitate the preparation ofdamage assessments and repair designs, and the supervision of repair works.

5. As an emergency assistance operation, the project was designed in a modular manner, aiming toprovide a vehicle for other donors to channel their funding towards housing reconstruction, while offeringthe flexibility to adapt total project size and scope to the donor cofinancing becoming available. Due to the

demonstration effect of private housing repairs under the pilot project, several donors contributed US$22.4million equivalent (in addition to IDA financing of US$0.2 million) for repairs managed by the ProjectImplementation Unit (PIU) in the Ministry of Physical Planning and Environment, leading to a new projectcomponent for private housing repairs. At the same time, concerning public housing repairs, less donorcofinancing (US$9.0 million, in addition to IDA financing of US$13.4 million equivalent for this purpose)than planned at appraisal (US$32.5 million of cofinancing) was mobilized during implementation, reducingthe size of this project component. However, due to lower actual average per-apartment costs of publichousing repairs than estimated at appraisal, the actual number of benefiting flats matched projections atappraisal, as set out below.

6. The project was straightforward in design but demanding to implement for the PIU given the needto restore a maximum number of housing units to habitable conditions in the shortest possible period oftime. Delays caused by lack of available or able contractors in the immediate post-war environment, poorworkmanship of repairs, diversion of advance funds paid to contractors, and bottlenecks in project cashflows through the PIU's access to the Special Account were risks identified at appraisal. None of thesewere significant constraints during implementation towards the achievement of the project's physicalobjectives. The cost recovery objective, in contrast, proved to be challenging to achieve for the PIU since itdepended on municipal housing maintenance organizations that are either not functional or remain to becreated after the war.

B. Achievement of Project Objectives

7. While this emergency project had no specific macroeconomic objectives, it contributedsubstantially to raise domestic employment and household incomes by generating an estimated 25,000 man-months of temporary construction labor, and by creating a demand for domestic supply of buildingmaterials contracted by the PIU. The project's sector and financial objective of gradually introducing costrecovery on repair works for public housing has been partially achieved. Cost recovery as envisaged atappraisal, through raising of rental charges in benefiting public apartment buildings, has occurred inSarajevo, the main project location, where rents have been raised fivefold since the inception of the project.However, rents have not been raised or even charged in the other project municipalities, primarily due tothe lack of existing organizations to collect rents there. The Federation government, however, introduced asecond, indirect level of cost recovery by obliging the regional Cantons to enter into on-lendingarrangements covering the value of IDA-financed repair works benefiting the respective Canton.Introduction of cost recovery on private housing repairs carried out through bilateral grants fromcofinancing donors has not been envisaged by these donors.

8. The institutional objective of establishing a functioning and cost effective mechanism for theGovernment to implement emergency housing repair works has been fully met. Coordination of the PIUwith regional and local authorities, as well with all major donors active in the sector, has been excellent.The PIU has mobilized rapidly to manage a total of 333 civil works contracts within the implementationperiod of one and a half years. The overhead cost of the PIU's institutional structure for projectmanagement was 1.3 percent for direct operating expenditures and 3.2 percent for contract services of localengineering consultants; this is a low cost when compared with other aid-funded programs in the countryfinancing similar types of housing repairs managed by expatriate experts or international NGOs, which areobserved to have overhead costs of between 5 and 20 percent.

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9. The project has surpassed its physical objectives. The pilot project succeeded in meeting itsobjectives of testing the implementation approach, method of damage assessment, procurement methods,building selection criteria and contracting procedures for both private and public housing repairs. Housingunits were identified in May 1996 and construction was completed by September 1996, using advancefinancing available under a Dutch Trust Fund of US$1.3 million. A total of 215 private housing unitslocated in Gornji Vakuf, Vitez and Olovo were repaired at an average per-unit cost of US$5,000. InSarajevo, ten apartment buildings containing a total of 150 units were repaired as well. The speed withwhich the PIU was able to provide local authorities with information about program procedures led to theidentification of an additional pipeline of projects for public housing repair for which procurement could beinitiated prior to IDA credit effectiveness. Additional Dutch grant resources (US$1.7 million) and a PPF(US$2 million) were secured to ensure that construction could commence and implementation of anexpanded program continue uninterrupted through the short construction season prior to the onset of winter1996/97.

10. Public housing repairs were carried out in practically the expected quantity and on schedule whencompared with plans at appraisal, within a much reduced total component funding envelope of US$22.4million, financed by IDA (US$13.4 million for this component), the EU (US$5.6 million), Italy (US$0.9million) and UNHCR (US$2.5 million). This was possible due to lower average unit costs of US$1,245 perflat as compared to appraisal estimates of up to US$2,500 per flat. Lower unit costs were partly due to theselection of buildings with lower per-flat costs of repairs, a reduced scope of works in some cases, as wellas gradually falling unit prices quoted by contractors as a consequence of simplified national competitivebidding procedures applied by the PIU with resulting increased contractor competition and use of smallerfirms. Appraisal costs were based on estimates provided by larger contractors and costs in other donorprograms that did not apply the samne degree of competition. A total of 767 apartment buildings, located in11 different municipalities and containing 19,360 flats, benefited from repairs under this projectcomponent, affecting an estimated 80,000 residents. Repair works were critical to salvaging the stock ofdamaged public housing, preventing further damage and deterioration and improving living conditions ofresidents. While the majority of the buildings were inhabited despite the damage, an estimated 2,000 unitsthat were unusable were restored as a result of repairs to roofs.

11. Private housing repairs carried out were much beyond the intended original scope of the project.Following the successful pilot phase of the project, the PIU secured donor financing for private housingrepairs from Italy (US$2.8 million), the Saudi Fund for Development (US$18.6 million), and UNHCR(US$0.8 million). This led to the repair of 2,622 private houses, located in 16 Federation municipalities,affecting some 10,500 residents, at an average cost of US$7,954 per house. This average cost is among thelowest observed for donor-funded programs in Bosnia, despite the inclusion of more than lightly-damagedunits under the program funded by the Saudi Fund for Development. At least 80 percent of houses repairedrepresent new incremental living space that was not habitable prior to the works. The PIU managed toorganize these unforeseen private housing works within the original time horizon of the project, in additionto public housing repairs. The specifications set under the pilot project for private housing repairs provedadequate and were also applied by the PIU under this component, limiting repairs to weather and intruder-proofing of living areas, operating sanitary facilities, means of heating, electrical installations, andrenovation of one living room/ kitchen, one bathroom, and up to two sleeping rooms. The specificationswere subsequently adopted by most other bilateral donors and NGOs engaged in private housing repairsoutside of the PIU mechanism.

12. The project did not have specific poverty reduction or social objectives, although through itscreation of habitable conditions for retuming refugees and displaced persons, it has contributed to easingsocial tensions in a post-conflict environment. The project had a limited but positive impact on private

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sector development through contracting of repair works with local private small-scale contractors. It alsohad a limited positive impact on public sector management through introduction of cost recovery.

13. This emergency project has followed a least-cost approach to achieve its physical objectives. Unitcosts of housing repairs contracted by the PIU were among the lowest observed for similar donor programsin Bosnia; PIU overheads were lower than for any other donor program. The cost of public housing repairsfell short of appraisal estimates by 52 percent, without a significant reduction of scope of intended works.

C. Implementation and Major Factors Affecting the Project

14. Project Appraisal and Organization. A Bank appraisal mission visited Bosnia and Herzegovinain May 1996. The credit was negotiated in June 1996 and presented to the Board in July 1996 and signedthe same month. The responsibility for project implementation was entrusted to the PIU in the Ministry ofPhysical Planning and Environment of the Federation of Bosnia and Herzegovina. The PIU was in chargeof contracting consultants for preparation of damage assessments, final designs and bidding documents,and for works supervision. The PIU carried out contractor prequalification, procurement of works andservices, verification and processing of payment requests from contractors, and interaction withparticipating donors. Project municipalities were responsible for identifying target apartment buildingsaccording to criteria established at appraisal, and selecting and supervising local engineering consultants.Municipal housing maintenance and management enterprises (such as Sarajevostan), if and where theyexisted, were to raise and collect rental charges from tenants of public apartment buildings for the purposeof cost recovery.

15. Implementation indicators and project costs are shown in Tables 5 and 8A, respectively. Set outbelow are major factors affecting the achievement of the project objectives.

16. Project Management. The achievement of project objectives was greatly enhanced by earlyappointment of the key staff of the PIU, at the time of project appraisal, a factor fully under Governmentcontrol. The high professional caliber of PIU staff, and the significant degree of operational independenceof the PIU from the Ministry of Physical Planning and Environment in day-to-day project management,contributed to the cost-efficient and timely implementation of the project. The average length of processingcycle for a civil works repair contract by the PIU, from project identification to works completion,averaged 12 weeks for most works and 24 weeks for heavily damaged buildings or private houses locatedin remote areas. With the initial assistance of expatriate experts financed by Bank Trust Funds andsubsequently by the German Government, project accounting records and financial management andcontrol systems were kept in a manner satisfactory to the Bank. Internal controls, responsibility andaccountability within the PIU were adequate.

17. Procurement. Applying simplified competitive bidding procedures, the PIU re-introduced theprinciple of competitive bidding and contracting into the local contracting industry. A review of the PIU'sprocurement performance revealed that: 219 local contractors were pre-assessed by the PIU during theproject life; between 5 and 10 contractors were invited to bid on most contracts with a minimum of 3invited contractors; on each package, a least 25 percent of invited contractors were out-of-town firms so asto ensure competition on a regional and national level; on average, each pre-assessed contractor obtainedless than two contracts of the 333 works contracts entered into by the PIU, with a maximum of 6 contractsfor one contractor, suggesting a low concentration ratio. Competitive procurement of works resulted in agradual decrease of unit costs of works over the first 12 months of project implementation, contributing

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partially to the achievement of the physical project targets for repairs of public apartment buildings despitea lower-than-expected donor funding envelope for this component. PIU unit costs for repairs werepublished and made available to other donors agencies, serving as a benchmark for works financed by otherdonors in Bosnia.

18. Contractor Performance. While only partially under government and PIU control, contractorsperformed generally well which contributed significanutly to the achievement of physical project objectives.An independent technical inspection of 119 apartment buildings repaired in Sarajevo was carried out inApril 1997 by engineers of the NATO Stabilization Force, upon request by and under terms of referencedrafted by the Bank. The inspection concluded that works performed were of consistently goodworkmanship and remained within the guidelines of the agreed type of works. The error rate for minortechnical deficiencies was 3.1 percent; two buildings had leaking roofs after repairs, the contractorscorrected these errors subsequently. Despite the disruption of business activities after the war, within only 6months of the end of hostilities, the PIU was able to mobilize a sufficient number of qualified contractorswhich themselves faced little constraints in the availability of materials or labor. The relatively mild wintersof 1996/97 and 1997/98 allowed works to proceed through most of the winter season.

19. Cofinancing Donors. Attracted by the efficient performance of the PIU, numerous donors joinedthe project after IDA Board approval of the credit. Early availability of the Dutch Trust Fund to establishthe PIU and finance the pilot project was critical for timely project start-up. In total, IDA resources ofUS$15 million equivalent were able to leverage some US$36 million in donor cofinancing, a high ratio evenby standards of emergency reconstruction projects in Bosnia. To secure EU cofinancing for public housingrepairs, an agreement was reached between the EU, IDA and the PIU that EU funds would finance 70percent of repair works, representing the average value of materials and supplies, with the IDA creditfinancing the cost balance representing construction labor. Under a cooperation agreement with UNHCR,the PIU financed repairs to the interior of apartments using UNHCR resources while IDA funds were usedfor exterior building repairs. UJNHCR selected the beneficiaries, favoring minority refugee returns andprojects located in so-called "Open Cities" that welcome the retuum of pre-war residents. Overall, theavailability of donor cofinancing was critical to achieve the large project scope. If and when donorcofinancing became available, the PIU generally gave priority to the contracting and disbursement of suchfunding over the use of IDA resources, with a view of attracting further donor cofinancing due to efficientperformance.

20. Social, Security and Political Factors. Not being subject to government control, Bosnia's socialissues affected the ability of municipalities to raise or even charge rents on apartments located in buildingsrepaired under the project. Poverty both among current residents and retuming refugees and internallydisplaced persons, combined with uncertain tenancy rights and the lack of functioning housing managementinstitutions (outside of Sarajevo and Mostar) resulted in delays to achieve cost recovery objectives at themunicipal level. During 1996 until mid-1997, the post-war environment also caused personal securityissues for PIU staff when traveling to and from Gorazde, the Posavina area, and the majority Croat areas inthe southern Federation. International vehicle license plates provided by the German GTZ advisors, andproject staff IDs issued by the Bank's Resident Mission in Sarajevo to PIU officials alleviated some ofthese security constraints. Political factors relating to the sharing of project benefits between the ethnicgroups within the Federation of Bosnia and Herzegovina did not delay project implementation due to aproactive and integrative approach taken by the PIU to address this issue.

21. Project Design and Parameters. The project was designed to reach a maximum number ofbeneficiaries by limiting repairs to common elements only of public apartment buildings. A secondrationale for this choice was to avoid issues of contested tenancy and property rights on individual

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apartments in public housing. This choice greatly facilitated timely project implementation since theverification of property rights was limited to entire apartment buildings. However, it also reduced thepotential impact of the project on directly promoting the return of refugees to their pre-war flats. Limitingrepairs to common elements of apartment buildings also meant, in some cases, that flats remained emptyuntil building owners or residents were able to mobilize the financial means to repair or renovate theinterior of apartments. Technical parameters for selecting buildings and specifying repair works, as set outat appraisal, were adequate. The planned 18-month implementation period for this emergency project wasrealistic; had donor cofinancing been available in its entirety by IDA Board approval, the project couldhave been completed within a shorter period of time.

D. Project Sustainability

22. There are three primary aspects of sustainability of this emergency operation: (i) overallsustainability of the project approach; (ii) sustainability of the improvements made through repairs of thehousing stock; and (iii) financial sustainability through cost recovery on the credit-financed part of works.Overall sustainability of the project approach as an emergency operation can be judged as likely. Theproject approach and the PIU have proven themselves to be effective mechanisms for implementing urgenthousing repairs in a timely and cost-effective manner. They have made substantial contributions to localjob creation and the employment of the local engineering and contracting industry. The PIU has become animportant contributor to the overall number of housing repairs completed using donor financing in theFederation of Bosnia and Herzegovina, accounting for about 20 percent of donor resources channeled intothe housing sector since the end of war. Significant new donor financing commitments will ensure theoperations of the PIU until end-1998 and beyond. Eventually, the PIU is expected to be integrated into theFederal sector ministry, possibly dealing with public housing investments and building standards. SomePIU staff are likely to enter the private sector as engineers and project management consultants.

23. Sustainability of Repairs can be assessed on two levels: (a) the quality of repair works; and (b)the capacity of local institutions to raise rents to a level where they can assure maintenance and operationsof the buildings once repairs are made. On the first count, the technical audits confirm that works were ofgood workmanship, making their sustainability likely. The second measure of sustainability throughincreased rents has been more uncertain to date. The project operates in the context of: other essentiallygrant-financed donor and NGO-managed programs; the weakness or non-existence of local institutions tocharge rents and carry out apartment building maintenance; and low household incomes and a constrainedability to pay rents. The project's overall focus on development of the housing sector through cost recoveryand institutional reform has not been reinforced by the donors active in the sector who provide the bulk offinancing (some US$400 million in total donor commitments through end- 1997, compared with a financingshare of IDA of US$15 million equivalent).

24. The institutional framework for policy reform in the Federation of Bosnia and Herzegovina is stillweak. However, the Government is beginning to tackle issues of overall housing refonn. It has focusedinitially on legislation for housing privatization, while relegating the issues of management and maintenanceof apartment buildings to future Cantonal level legislation. It has also taken an active role in ensuring thatcost recovery in terms of repayments of the IDA credit are made the responsibility of Cantons (see nextparagraph). While this is commendable, it still leaves the issue of how the units are to be maintainedunanswered. Only in Sarajevo, which has the largest number of damaged units and repair programs, hasthere been a continued effort to raise rents. Rents have increased from DM 0.06 per m2 at the time of creditnegotiations in June 1996 to DM 0.34 per m2 by February 1998, with plans to raise rents to DEM 1.0 per

m' by October 1998 which would bring rents up to pre-war levels. There has also been a concerted effort toimprove rent collections in Sarajevo, with collection rates reaching 60 percent despite a fivefold increasesince the inception of the project. In other, smaller project municipalities, despite PIU signature ofagreements with municipalities that stress raising of rents to adequate levels, rents have generally not beenincreased nor are they in fact systematically collected. Rents in Mostar are about a fraction of rates inSarajevo at DM 0.13 per m2 while collection rates equal reportedly only 30 percent. No rental charges andcollection records were available from the other project municipalities.

25. Financial Sustainability is likely given the introduction of on-lending agreements between theCantons and the Federal Ministry of Finance, covering the value of IDA-financed repair works benefitingthe respective Canton. The terms and conditions of these on-lending agreements mirror those of the IDAcredit. Cantons would generate the funding required from their budgetary revenues and may enter intosubsidiary credit agreements with specific project municipalities.

E. Bank Performance

26. Bank perfonrance during preparation, appraisal and supervision was satisfactory. Despite acompressed preparation and appraisal phase (February-May 1996), the straightforward design of theproject has been sound and the use of a pilot to test the contracting approach has allowed a quick start-upof the project. The evaluation of the post-war capacity of the local contracting and building materialsindustry during appraisal was realistic. The Bank took the lead in developing and demonstrating localproject implementation capacity in the housing sector to utilize and manage donor resources swiftly andeffectively. The Bank's involvement and its introduction of simplified national competitive biddingprocedures, as well as of instruments for procurement, technical and financial monitoring and auditing, hasraised donor confidence in locally managed reconstruction projects and encouraged donor participation.The Bank's efforts in getting donors interested in the project were instrumental to securing cofinancing.The Bank headed the effort to create an awareness among donors and the borrower of the need for costrecovery and sustainability of housing repair projects. The management of project supervision through theBank's Resident Mission in Sarajevo has contributed to a cost-effective and responsive interaction with theBorrower, allowing for the turnaround and clearance of bidding documents in a matter of days. Internalreporting of project implementation progress was timely and complete.

F. Borrower Performance

27. Borrower performance was satisfactory throughout project preparation and appraisal, and highlysatisfactory during implementation. Government commitment to the project was very high, resulting in theearly appointment of PIU staff of high caliber who worked with Bank staff during preparation andappraisal. The PIU quickly mobilized to work with benefiting communities of both ethnic groups in theFederation of Bosnia and Herzegovina. Assisted by expatriate experts, it developed suitable procedures andguidelines for building selection, damage assessment, identification of eligible works, procurement ofcontracts and on-site monitoring of works, and was very effective in communicating these to localengineering consultants and municipalities. The Federation Government has been supportive of the PIU asa largely autonomous implementing agency, and there is full borrower ownership of the project. Physicalimplementation speed and quality was impressive. The PIU's efforts to introduce cost recovery at themunicipal level through raising of rental charges were substantial and successful in so far as respective

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agreements were signed. However, implementation of these agreements by municipalities and the owners ofpublic apartment buildings was deficient with the exception of Sarajevo. As a consequence, the Federationgovernment took the initiative to enter into on-lending agreements with the Cantons which are scheduled forsignature in early May 1998. The PIU delivered financial and project progress reports generally in a timelymanner; the end-1996 financial audits became available two months after the established deadline. Onbalance, compliance with credit covenants and borrower commitments was satisfactory.

G. Assessment of Outcome

28. The project's overall outcome has been satisfactory. This emergency project surpassed its primary,physical objectives, met its institutional objectives, and partially met its secondary, sector and financialobjectives. The achievement of the cost recovery objective has been partial since, to date, only Sarajevofully implemented its commitment to raise rental charges. In retrospect, full achievement of this objectivewould have required a more sustained Bank involvement in the sector with parallel sector work anddialogue, or follow-on operations beyond the immediate emergency reconstruction phase focusing oninstitutional and sector policy issues. At the stage of project preparation, this policy framework and relateddialogue were relegated to other donors and the Housing Sector Task Force chaired by the InternationalManagement Group in Sarajevo.

H. Future Operations

29. Given the emergency nature of the project and the kind of repair investments financed andcompleted, a formal Operational Plan for the future of the project is not required. The main future activitynecessary is to monitor the timely repayment by Cantons of their share of the IDA credit to the Federationbudget in order to ensure cost recovery at this macro level. This role would be either carried out directly bythe Federation Ministry of Finance or delegated to a local commercial bank acting as an agent on behalf ofthe Federation. Monitoring of cost recovery at the local level would be the responsibility of the FederationMinistry of Physical Planning and Environment which would monitor apartment rents charged on publicapartment buildings throughout the Federation of Bosnia and Herzegovina, and evaluate to what extentthese rents cover the estimated full cost of building operation and maintenance. This Ministry would be incharge to develop concepts for the establishment and strengthening of housing management andmaintenance organizations for the public housing stock.

I. Key Lessons Learned

30. The lessons learned from this post-conflict emergency housing project can be sununarized asfollows:

* Emergency projects should be of low complexity, using a simple design to be verified through a pilotphase. Contracting of housing repairs is more efficient than the bulk supply of building materials tohome owners and residents.

-9 -

* Policy content of emergency projects should be limited to cost recovery objectives which need to bebrought in harmony with the social post-war context and with other donors active in the country. It isunrealistic to expect full cost recovery in an environment where donor grant resources for similaremergency activities dominate.

* In parallel or shortly after emergency projects are established, economic sector work should be initiatedto develop a firmer understanding of the policy issues to be addressed beyond the immediate emergencyphase.

* Emergency projects should be of modular nature, allowing for continuous adjustments to project sizeand scope without jeopardizing the viability of any project-financed investment.

* Highly qualified borrower personnel, subsequently to be responsible for project implementation, shouldbe appointed during project preparation and work as a teaun with Bank staff to prepare and appraise anemergency project.

* The project unit of the borrower should enjoy a large degree of autonomy from its line ministry in itsday-to-day operations, including direct access to Special Accounts, while being subject to independentexternal audits.

* Continuos technical assistance should be built into emergency projects from preparation through thefirst year of implementation.

* Delegation of project supervision to Bank staff located in a field office is essential to ensure timelyclient service necessary for early project start-up, clearance of bidding documents, processing ofdisbursement requests, and adjustments of the project to rapidly changing political and securitycircumstances.

* Streamlined procurement guidelines, using higher-than-standards thresholds, and accelerateddisbursement procedures are important further ingredients for speedy implementation.

* Donor confidence in emerging governmental project management units should be strengthened throughspecial procurement reviews as well as technical and financial audits.

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PART II. STATISTICAL TABLES

Table 1: Summary of AssessmentTable 2: Related Bank Loans/CreditsTable 3: Project TimetableTable 4: Loan/Credit Disbursements: Cumulative Estimated and ActualTable 5: Key Indicators for Project ImplementationTable 6: Key Indicators for Project OperationTable 7: Studies Included in ProjectTable 8A: Project CostsTable 8B: Project FinancingTable 9: Economic Costs and BenefitsTable 10: Status of Legal CovenantsTable 11: Compliance with Operational Manual StatementsTable 12: Bank Resources: Staff InputsTable 13: Bank Resources: Missions

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Table 1: Summary of Assessments

A. Achievetnent of Obiectives Substaitial Partial Negligble Not applicable

Macro Policies 5 5 5Sector Policies 5 5Financial Objectives 5 L ElInstitutional Development [mx = E I

Physical Objectives E3 0l I

Poverty Reduction 5 5 0Gender Issues I I L [

Other Social Objectives l LI [I]EEnvironnental Objectives 5 5 CPublic Sector Management U E E I]

Private Sector Development Dl El EE LOther (specify) 5 L El

B. Project Sustainabilitv Likely Unlikely Uncertain(/) (/) )

HighllyC. Bank Performance satisfactory Satisfactory Deficient

(V) (/) (/)

Identification D

Preparation Assistance 0 5

Appraisal 5 3 Supervision . Ix a

(continued)

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HighlyD. Borrower Performance satisfactory Satisfactory Deficient

Preparation E E [

Implementation Li

Covenant Compliance OE

Operation (if applicable) g

Highly HighlyE. Assessment of Outcome satisfactory Satisfactory Unsatisfactory unsatisfactory

(/) ~~(Y') (V') )

lI El El

Table 2: Related Bank Loans/Credits

Loan/credit title Purpose Year of approval Status

Preceding operations

N/A

Following operations

Reconstruction Multi-sector FY 1998 Project is in its firstAssistance Project reconstruction project year of implementation(Credit 30280-BA) (including housing) for

Republika Srpska

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Table 3: Project Timetable

Steps in Project Cycle Date Planned Date Actual

Identification (Executive Project Summary) 02/96 02/96

Preparation 02/96 02/96

Appraisal 05/96 05/96

Negotiations 06/96 06/96

Board Presentation 07/96 07/96

Signing 08/96 07/96

Effectiveness 09/96 08/96

Project Completion 12/97 02/98

Credit Closing 06/98 06/98 (expected)

Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual(Ul$ thousands equivalent)

FY97 FY98

Appraisal estimate 13,500 15,000

Actual . 11,407 15,000

Actual as % of estimate 85 100

Date of final disbursement 3/16/98

Table 5: Key Indicators for Project Implementation

Estimated Actual

L Key implementation indicators in SAR.

1. Benefiting flats (public housing) 20,000 19,510

2. Repaired private houses 210 - 240 2,837

3. Job creation (man months) 35,000 25,000 (estimated)

Table 6: Key Indicators for Project Operation

No specific indicators have been established for Project Operation.

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Table 7: Studies Included in Project

Other than standard damage assessments required for the selection of buildingsand specification of repair works, no studies were included in the project.

Table 8A: Project Costs

Appraisal estimate Actual/latest estimates(US$ million) (US$ million)

Item Local Foreign Total Local Foreign Totalcosts costs costs costs

1. Pilot Project Works n/a n/a 1.33 2.70 0.30 3.00

2. Emerg. Public Housing Repairs n/a n/a 46.87 20.16 2.24 22.40

3. Private Housing Repairs n/a n/a 0.00 20.24 2.25 22.49

4. Institutional Support n/a n/a 1.80 1.14 1.15 2.29

Total n/a n/a 50.00 44.24 5.94 50.18

Note: For repair works an average actual local cost share of 90 percent hias been assumed; for institutional supportthe percentage used is 50 percent.

Table 8B: Project Financing

Appraisal estimate Actual/latest estimates(US$ million) (US$ million)

Item Local Foreign Total Local Foreign Totalcosts costs costs costs

1. IDA n/a n/a 15.00 12.52 1.71 14.23

2. European Union n/a n/a 0.00 5.02 0.56 5.58

3. Government of Germany n/a n/a 0.70 0.23 0.24 0.47

4. Government of Italy n/a n/a 0.00 3.46 0.43 3.89

5. Government of The Netherlands n/a n/a 3.50 2.85 0.44 3.29

6. Saudi Fund for Development n/a n/a 0.00 17.04 2.14 19.18

7. UNHCR n/a n/a 0.00 3.12 0.42 3.54

8. Donors to be identified n/a n/a 30.80 0.00 0.00 0.00

Total ii/a n/a 50.00 44.24 5.94 50.18

Note: IDA funding of SDR 10.5 million was equal to about US$14.23 million in equivalent disbursements at theend of the project taking into account exchange range fluctuations during the project. For repair works an averageactual local cost share of 90 percent has been assumtied; for instittutional support the percentage used is 50 percent.

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Table 9: Economic Costs and Benefits

Not applicable for this emergency project. A least-cost approach has been followed.

Table 10: Status of Legal Covenants

Covenant Present Original Revised Description of Covenanit ComunentsAgreement Section Type Status Fulfillnent Date

DateCredit Article IV, I CD 04/30/97 The Borrower shall: (i) have the project End-1 996 audit

Section NYD 04/30/98 records and accounts, includinig those for the report furnished to4.01 (a), Special Account, audited for each fiscal IDA by 06/30/97.(b) year, by indepenidenit auditors acceptable to Auditors for end-

IDA, who shall be employed by October 31, 1997 audit report1996; and (ii) fuinish to IDA, as sooII as have been selectedavailable, but in any case no later than four and contracted as of(4) months after the end of the fiscal year, January 1998.the audit report.

Schedule 3 C No withdrawals shall be made in respect of1, para 5. expenditures for works procured under

contracts costing less than $30,000equivalent, anld contracts costing more than$ 1,000,000 equivalent.

Schedule 9 C 02/28/97 The Federation (PlU) shall prepare and Permanent Bank4, para 2. fumish to IDA, by about February 28, 1997, communication &(b) (ii) a report integratinig the results of project correspondence

tioniitorinig and evaluation activities with the PIU on theperfonred, setting out measures project by the Res.recommended to ensure efficient carrying Mission inout of the project and the achievement of the Sarajevo justifiedobjectives thereof during the period to consider thisfollowing this date. covenant as

complied with.Schedule 9 C 03/31/97 The Federation (PIlJ) shall, by March 31, The Bank's Res.4, para 2. 1997, review with IDA the monitoring Mission and the(b) (iii) report mentioned in the previous covenant PIU were in

and shall take all measures required to ongoing discussionsensure the efficient completion of the on the project.project and the achievement of the projectobjectives.

Schedule 3 C The Federation (PH.J) shall enter into Done with some4, para. 2 Subsidiary Agreement with each eligible delays.(d) (i) municipality under tenns and conditions as

set out in the DCA, Schedule 4, para 2 (e).1. =Accounts/audits 8. = indigeiious people Present Status:2. = Financial perfonnance/reveniue generation from 9. = Monitoritng, review, and reporting

beneficiaries 10. = Project implemenitationi not covered C = covenant complied with3. = Flow and utilization of project funds by categories 1-9 CD complied with after delay4. = Counterpart funding 11. = Sectoral or cross-sectoral budgetary CP = complied with partially5. = Management aspects of project/executing. agency or other resource allocation NC = not complied with6. = Environmental covenants 12. = Sectoral or cross-sectoral policyl7. = Involuntary resettlement regulatory/institutionial action

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Table II: Compliance with Operational Manual Statements

Basically, there was compliance with the applicable Bank Operational Manual Statements.

Table 12: Bank Resources: Staff Inputs

Planned Revised Actual

Stage of project cycle Weeks US$ '000 Weeks US$ '000 Weeks US$ '000

Preparation to appraisal 0 0 63.3 166.4 62.5 160.9

Appraisal 0 0 18.0 52.0 24.6 58.9

Negotiations through 0 0 3.6 7.5 4.6 9.5Board approvalSupervision 64.0 129.0 20.0 36.5 34.4 91.5Completion 2.0 6.6 4.5 14.6 4.1 13.3

Total 66.0 135.6 109.4 277.0 130.2 334.1

Note: Of the actual staff inputs, 23.0 weeks or US$55,900 are for Tnrst Funld-finianiced experts advising the PIU onproject implementationi; consequenitly, actual net Bank inptuts for supervisioni matcli the revised budget planfigures.

Table 13: Bank Resources: Missions

Performance Rating Types ofStage of project cycle Month/ No. of Days in Specialization' Implem. Developin. ProbleS3

Year Persons Field status objectivesThrough appraisal 02-05/96 4 60 U, EAppraisal through Board 05-07/96 1 - UapprovalSupervision I 12/96 3 16 F, U S SSupervision II 04/97 3 9.5 F, T, U S S DSupervision III 11/97 2 6 F, T S S F

Completion 02/98 2 11 F, U S S F

I -Key to Specialized staff skills: 2 -Key to Perfonnance Ratings: 3 - Key to Types of Problems:E=Civil Engineer S=Satisfactory D=Donor CofiinancinigF=Financial Economist F=Financial (cost recovery)T=Project AssistantU=Urban Plainer

-17 -




APPENDIX A

MISSION'S AIDE-MEMOIRE

1. A World Bank mission, consisting of Mr. Michael Koch and Ms. Sonia Hammam, visited Bosniaand Herzegovina from February 2-12, 1998 to supervise the implementation progress under the EmergencyHousing Repair Project and gather information necessary to prepare the Implementation CompletionReport for the project. The mission extends its gratitude to the government officials of the Federation ofBosnia and Herzegovina who supported the mission's work. The mission also met with donor partnerscofinancing this project. The conclusions of this Aide-Memoire are those of the mission only and subject toconfirmation by World Bank management.

2. Project Implementation Status. All works financed under the IDA Credit, the Dutch Grant andthe Italian Grant have been completed. This is also the case for works carried out using parallel financingprovided by the European Commission and UNHCR. Works financed by the Saudi Fund for Developmentare close to completion. Final payments to local contractors, under the IDA Credit and Italian Grant, areexpected to be carried out by end-March 1998. Comprehensive project completion documentation has beenprovided to the mission. The mission assesses the overall quality and speed of project management andimplementation by the Housing PIU in the Federal Ministry of Physical Planning and Environment ashighly satisfactory. This view has been confirmed by the cofinancing donors consulted by the mission.The Federal Minister of Physical Planning and Environment endorsed the highly positive assessment of theproject in discussions with the mission.

3. Credit Closing. It has been envisaged to close the IDA Credit three months earlier than originallyplanned, that is by March 31 rather than June 30, 1998, since works will have been completed. However,the Housing PIU has requested to maintain the original Credit closing so as to be able to finance PIUoperating expenditures through end-June 1998 anid allow project documentation to be completed in itsentirety. The estimated final uncommitted balance of some US$60,000 under the IDA Credit, resultingfrom cost savings and foreign exchange movements, would be used for that purpose. After that date, newdonor financing for further repair works would ensure financing of the PIU operations through the end of1998. The mission agreed to the request to maintain the original Credit closing date, if indeed so requiredto finance PIU operations through end-June 1998. Should other donor financing for PIU operationsbecome available prior to that date, the IDA Credit would close earlier.

4. Project Impact. The project has benefited a larger number of flats and private housing units thanoriginally anticipated. Works quality has been consistently good and in line with the agreed projectparameters. In addition, the project had a major impact on introducing strict bidding procedures forhousing repair works in Bosnia and Herzegovina, reducing unit costs and disseminating cost benchmarkinformation to other implementing agencies. As a result, unit costs have been brought down andcompetition for works has increased.

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5. Also, the project has delivered repair works in a very cost effective manner: First, the PIU'soverhead costs were low (less than 5 percent) when compared to those of other donor implementingagencies (up to 20 percent); and second, unit costs of works procured by the PIU were among the lowest ofpost-war housing reconstruction works carried out in the Federation of Bosnia and Herzegovina usingexternal donor financing. Finally, the labor creation impact of the project has also been substantial, withan estimated one staff-month of temporary labor created per US$2,000 of civil works, or some 25,000staff-months of labor when accounting for all donor disbursements under the project.

6. Sustainability. The mission discussed in detail the sustainability of the works carried out. Inphysical terms, repair works have been of consistently high quality and will be lasting and sustainable, ascertified by an independent technical audit carried out by SFOR. Adequate apartment buildingmaintenance, especially after the completion of the upcoming housing privatization program, will howeverremain a potential issue - as it has been prior to the war. Only in Sarajevo and Mostar are housingmaintenance and management companies operational, while they remain yet to be established at the otherproject locations.

7. In financial terms, project sustainability is aimed for through two avenues. First, credit agreementshave been prepared between the Federal Ministry and each of the six Cantons where the project hasfinanced works. These agreements which are ready for signature will link the financial obligations ofCantons directly to the terms of the Subsidiary Finance Agreement entered into between the Federation ofBiH and the State of BiH. The agreements will ensure full cost recovery by the Federation budget of thevalue of works financed. Signing of these agreements is expected over the coming weeks, with a deadlineof April 30, 1998. Cantons will generate the funding required through their budgetary revenues and mayenter into subsidiary credit agreements with specific municipalities.

8. Second, project municipalities have committed themselves, in writing through agreements enteredinto with the PIU, to raise rental rates of flats so as to cover the cost of building maintenance and routinerepairs. Much progress has been made in Sarajevo, the main project location, where rents have been raisedfrom 0.06 DM/m2 at the time of Credit negotiations (June 1996) to 0.34 DM/ml at the present time. Theplan is to raise rents further to 1.0 DM/m2 by October 1998 which would bring rents up to pre-war levels.Moreover, rent collection rates in Sarajevo have now reached 60 percent despite the more than fivefoldincrease in rates. Progress in other project municipalities to raise rental charges has been less pronouncedto date.

9. The continued efforts by the Federation Government and IDA to introduce cost recovery on worksfinanced by the IDA Credit (US$15 million equivalent) must be seen in the context of other donorsproviding grant-based assistance in the housing sector (total donor commitments for housing reconstructionof about US$400 million since early 1996) with no cost recovery at all. A notable exception is the newhousing finance facility, financed by the EU and to be implemented by KfW, which will provide mortgage-based loans to private home owners through the banking system. This program is expected to beoperational in the summer of 1998.

10. Operational Plan. The mission discussed activities required in the future, after Credit closing, toassess and ensure the project's continued impact. Given the emergency nature of the project and the natureof the repair investments financed and completed, a formal Operational Plan will not be needed. The mainfuture activity required is to monitor credit repayments by the Cantons to the Federal budget in order toensure cost recovery. This role would either be carried out directly by the Federation Ministry of Finance,or it might be delegated to a local bank acting on behalf of the Federation. The Ministry of PhysicalPlanning and Environment will monitor apartment rents charged on public apartment buildings throughout

- 19-

the Federation of Bosnia and Herzegovina, as part of its regular activities, and evaluate to what extent theserents cover the estimated full cost of building operation and maintenance.

Il. Until the end of 1998, the Housing PIU is expected to continue in its current function asimplementing agency for international donors, given recent new financing commitments by UNHCR andTurkey and, possibly, the European Union. Beyond 1998, the PIU is expected to be eventually integratedinto the Federal sector ministry, possibly dealing, inter alia, with public housing investments and buildingstandards. Some PIU staff are likely to enter the private sector as engineers and project managementconsultants.

12. Final Evaluation Report. As the input of the Borrower into the ICR, the Housing PIU hasprepared its Final Evaluation Report which the mission has reviewed and commented on. The PIU hascommitted to provide the revised report to the World Bank within on week's time.

Agreed Next Steps

(1) PIU Housing to provide the Final Evaluation Report(2) Bank to prepare the draft ICR(3) Federation of BiH and cofinancing partners to comment on the draft ICR(4) World Bank to finalize the ICR(5) PIU to withdraw remaining IDA Credit balance and expense all funds(6) WB to close the IDA Credit




APPENDIX B

BORROWER CONTRIBUTION TO THE ICR

Prepared by the

Project Implementation Unit (PIU Housing)of the Ministry of Physical Planning and Environment

of the Federation of Bosnia and Herzegovina

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FINAL EVALUATION REPORT

ON IMPLEMENTATION OF THEEMERGENCY HOUSING REPAIR PROJECTOF THE HOUSING STOCK OF THE FEDERATION OF B&H

WORLD BANK CREDIT No. 2902-BA, ITALIAN GRANT TF No. 024082-BA

PART I - INTRODUCTION

A. Background

Pre-war population of B&H was 4.4 million mostly settled in the country side and smaller towns and only18% lived in urban areas. This population was accommodated in 1,295 million housing units - privatehouses or apartments with approximately the same number of households. The four years of war had adisastrous effect on the state of housing destruction of which has caused significant movements of thepopulation. Overall damage on housing in the Federation is estimated at USD 4 billion and repairs willhave to be done for several years. Priority programs therefore had to be focused on lightly damaged unitssince by repairing these the best impact could have been achieved in a very short time and a lot wasachieved in the sense of return and reconstruction of communities.

Housing reconstruction strategy:The report on emergency reconstruction of B&H prepared by the World Bank and the EU for the donorcommunity required USD 600 million for housing reconstruction over a period of three to four years. Thisprogram was started in towns and settlements which were most heavily damaged and was focused onlightly damaged buildings through which the fastest impact in accommodating people could be achieved.During the second stage of the housing reconstruction, the focus will be on more heavily damaged buildingswhich in fact need reconstruction rather than repair, and further benefits - in addition to reconstruction -will result from employment generation which will enable revival of communities.

Emergency housing repair programs:Need to immediately start with repair of lightly damaged buildings initiated many donor activities.Coordination of the work was carried out by IMG. At first, activities were based on the supply ofconstruction materials anid, later on, labor costs were also included. All donor activities were grant-based,and programs focused on repair of private housing units. Donors committed to act quickly on privatehousing repair were highly appreciated and provided the following results in the field:

* effectiveness* quick start of the program, and* accommodation of most vulnerable categories in accordance with the following criteria:

single headed families; invalids, former soldiers; and poor and refugees.

Despite the actual situation cost recovery schemes had to be introduced quickly, and most suitable for theirintroduction was the public housing sector

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B. Strategy and response of the World Bank

On April 1, 1996 B&H met all conditions for membership in the World Bank, IDA and IFC, retroactivelyfrom February 25, 1993. At the Donor's meeting in December 1995, only seven days before the DaytonPeace Agreement was signed, donors have promised USD 600 million for emergency activities for thereconstruction of B&H. The second donor conference took place in April 1996 and donors were requestedto provide additional USD 1.2 billion for financing of reconstruction programs during 1996. The Bankcontinued to support implementation of emergency repair programs and assistance was extended to supportthe initial stages of Government macroeconomic and institutional transformation. In the reconstructionarea, the Bank focused on creation of employment opportunities and housing, both being very important forreintegration of demobilized soldiers and return of refugees, as well as on continuos support toinfrastructure repair and demining.

C. Emergency housing repair project

The main objective of this project was to support the Govemment of Bosnia and Herzegovina in:* Emergency housing repair in both the private and public sectors; and- Through cost recovery to contribute to achieve sustainable repairs and development in the housing

sector.More specific objectives were:* To assist in the repair of common elements and protect apartment buildings from further damage;- To implement a Pilot Project in four towns in order to test Government's approach to repair of both

public and private units; and* To build up the capacity of the project implementation unit.

The project was small compared to needs in the housing sector but was introduced with an effort to addressthe needs as quickly as possible. The project reflected the following:

The Pilot Project financed by the Dutch Trust Fund (DTF) began in May 1996 and was financed with USD2 million from the DTF and a USD 2 million advance from IDA, and the purpose was to complete as manyrepairs during the 1996 construction season as possible. Several other donors such as the EU, UNHCRand USAID and also some European countries on a bilateral basis have significantly supported repairs ofprivate housing. The EU demonstrated its intention of taking the leading role in defining the framework forthese programs. This subject project focused on repair of public sector housing in order to supplement thework of other donors.

Description of the project:

Project consisted of:* Pilot Project financed by Dutch Trust Fund (DTF) covering both private and public sector housing.* Emergency public housing repairs - repair of common area elements in apartment buildings.* Institutional and technical assistance and operating costs of the PIU, for project preparation,

management and supervision of project execution.

Part I - Pilot Project

Designed to test the approach of the authorities to the project and the implementation procedures for repairsof private and public owned units. It was decided that it would include:

- 23 -

* Private houses in Gomji Vakuf, Vitez and Olovo. The maximum amount for reconstruction per unitwas USD 5,000 for providing minimum living conditions. Repairs were for roofs and forweatherproofing including repairs of the bathroom, heating and electrical installations. Eligiblebeneficiaries were owners which were either living in these houses or would return to them, and theirnames had to provided by the local office for refugees and displaced.

* Public apartment buildings in Sarajevo, 10 buildings containing 150 apartments, with a maximumamount per unit of USD 2,000 to US$2,500.

During the implementation of the Pilot Project, the PIU Housing should be established. which wouldcontinue to work on the implementation of major housing reconstruction projects in Federation of B&H.

Part 2 - Emergency housing repair project

Approximately 190,000 housing units in the Federation are within public sector housing. More than half ofhousing in towns is public, and only in Sarajevo there are approximately 80,000 public housing units or56% of which 48,600 were damaged during the war and 2,748 were completely destroyed. Emergencyhousing repairs for apartment buildings include repairs of roofs, external walls, staircases and damagedinstallations in buildings in Sarajevo, Mostar, Kupres, Olovo and Gorazde which will be selected inaccordance with criteria given in Annex A of the Technical Annex of the subject project. Between USD2,000 and USD 2,500 could be spent per apartment. The project would be weatherproof the building andmake apartments habitable and also prevent further damage to the building.

Part 3 - Technical and institutional assistance

Institutional assistance was envisaged for the PIU Housing established within the Ministry of PhysicalPlanning and Environment, consisting of providing office space, vehicles, equipment and coveringoperating costs. PIU Housing and selected municipalities were to employ local housing management andmaintenance enterprises (HMMEs) or other independent consultants to provide assistance with damageassessment, preparation of technical documents and supervision during execution of works. ApproximatelyUSD 1.8 million was required for support of the project, of which USD 0,5 million was to be provided byDTF, USD 0.7 million by GTZ and USD 0.6 million by IDA for design and supervision.

Project costs and financing plan

The total budget for all costs related to the project was USD 50 million. There was no provision forcontingencies due to the nature of the project. Original project costs are given in the following table:

1. Pilot Project - works 1,33 million USD2. Emergency repairs 46,87 million USD*3. Institutional and technical assistance 1.80 million USD

Of which: Consulting services 0,65 million USDEquipment 0,20 million USDAdditional operating costs 0,95 million USD

TOTAL COST 50.00 million USD

* World Bank provided USD 15 million equivalent.

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PART II - EXECUTION OF THE PROJECT

Given the set objectives, the agreed implementation procedures, and the engagement of different donors, itcan be concluded that the Project was successfully executed, including some specific aspects of successsuch as joint donor financing which were not set out in detail in the project description. This especiallyrefers to the reconstruction of heavily damaged apartment buildings by joining respectively funding of theEU and UNHCR with World Bank funding, using World Bank funding to leverage funding of other donors.Details related to various donors and projects are described in the "Evaluation of performance of donors"section below.

Apart from the Pilot project financed by the Dutch Government (DTF) and Emergency Housing Repaircomponent financed through the IDA credit, significant contributions to housing repair activities throughthe PIU were given by the EU, Government of the Republic of Italy, UJNHCR. Of particular significancewas the contribution of the Kingdom of Saudi Arabia for private housing repairs.

Financing of the operations of the PIU Housing, office equipment and costs of preparation of technicaldocuments, as originally envisaged, was provided by the Dutch Govenmment (DTF), German Government(GTZ), IDA and other donors. The attached table shows contributions of all donors to housing repairs inFederation of Bosnia and Herzegovina chamneled through the PIU under this project, and amounts andlocations of sub-projects.

Particular attention should be paid to the following aspects:

1. Total investment in housing repairs implemented by the PIU Housing is 83.8 million DM or USD50.18 million which exceeds originally envisaged USD 50 million.

2. With this amount 2,837 private houses and 776 apartment buildings with 19,510 apartments wererepaired.

3. Investment in private and public sector housing was well balanced. Private housing 38,849,854.48DM and public housing 41,196,318.62 DM.

4. The average amount for repair of private houses was 13,522.40 DM or USD 7,954.00 and for repairof apartment 2,111.50 DM or USD 1,242.00. The amount per unit was different in different donorprograms depending on the objectives set by the donor.

5. Costs of institutional support for the PIU and engineering consultants were as follows: PIU Housingcosts were 1,108,849.07 DM and costs of local consultants were 2,645,683 DM.

1. ASSESSMENT OF THE P ROJECT

Suitability of project's objectives

The project's objectives mentioned in the introduction of this report as they were given by the World Bankhousing repair project were well set, especially related to urgently addressing needs of the population andvulnerable categories.

Cost recovery as a contribution to sustainable reconstruction and development in housing sector is a soundgoal and is in that sense introduced into the project by the World Bank. This goal caused some degree ofconfusion from the very beginning of the project since there were problems with the collection of (already)low rents (collection rates in 1996 were below 50%); increasing rents to market level is still out of the

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question in present social conditions. In any case, the fact that authorities, either cantonal or municipal,have signed specific agreements on cost recovery with the PIU speaks for itself, since not even housingprivatization will completely resolve this issue.

The approach of the authorities to the repair of private and public sector housing was tested through thePilot project and has shown that the authorities have accepted the main criteria for selection of both houseowners and tenants. Since most of the World Bank funding was disbursed for repair of apartmentbuildings in urban areas, the authorities have sought to propose buildings of highest priority and with asmany families in them as possible. It is obvious from the Pilot project that for private houses theauthorities have proposed the most vulnerable population categories, war victims and social cases.

Regarding the objective to establish and strengthen project implementation capacities, we believe thisobjective was well set and it has been achieved. PIU Housing was established with the assistance of theWorld Bank and financed by GTZ and DTF, including the technical assistance of the representative of theWorld Bank who in 1996 and during the first half of 1997 gave suggestions and took part in workssupervision and especially in getting other donors involved in the program. Bearing in mind the fact thatthe financing plan envisaged USD 30.8 million in cofinancing we mostly achieved this objective.

Adequacy of the project design and components

There was a reason why in the beginning it was mentioned that HMMEs or experienced local consultantsshould prepare technical documents. In larger towns where HMMEs were established with their technicaldepartments it was easy to clarify the criteria and acquire adequate documents, but in smaller towns and inrural areas the PIU had to instruct newly established teams for reconstruction on the required level oftechnical documents necessary for efficient repairs up to clearly defined standards and within set fundinglimits. The main problem to all our consultants was adjusting technical and social criteria. Most oftenmunicipal departments being under pressure from vulnerable categories ignored technical criteria forselection of buildings and repairs (such as the degree of damage) and established lists of priorities whichwere sometimes difficult to follow since they required a significant increase of funding which was notpossible. These cases required alternatives which caused extended preparation time.

Preparation of technical documents depended on repair standards requested by the respective donor,although these were in most cases similar for all donors. However, even if bills of quantities were preparedhighly accurately, at times the local consultant was not able to fully envisage the scope and quantity ofworks due to difficult site access or due to exclusion of internal works which were not executed in order toallow for more essential structural repairs or for external works. An example for this are buildingsrepaired with joint funding of the World Bank and the EU, where on several buildings due to vandalismbetween the completion of technical documents and the start of works contractors had to wait for severalmonths until additional necessary works were approved by the donor.

Overall quality and speed of project implementation

Quality of implementation varied between donor programs and regions. It depended on several aspects:capability of the local consultant and PIU presence in the field controlling both contractor and consultant.Since selection criteria and repair standards in the reconstruction process were clearly set by each donor,the PIU Housing insisted that these were reflected in the reconstruction documents prepared by the PIUconsultants.

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General and technical conditions which form part of each project oblige the contractor to install materials,products and equipment of standard quality. Practice has shown that standard quality can easily bemisinterpreted and that often quality certificates were issued by the manufacturer not enabling the PIU toverify them. They were not issued by an authorized institution or laboratory but they were provided bytraders. In order to avoid different interpretations of standards and criteria, the PIU clearly defined thegeneral and technical conditions for all types of work and produced unifying bills of quantities for repairsof housing units, which were introduced in February 1997 in a seminar held for local consultants andcontractors, and standard technical conditions were given to each consultant to ensure that the same criteriawere followed.

Speed of project implementation, starting with the identification of works to the completion, was on average12 weeks (3 months) for works on most of the programs implemented by the PIU. For works executed onheavily damaged buildings and when investments were higher compared to those of the World Bank, e.g.when funding was joined to include reconstruction of the units or create space for new units such as inGorazde, those works required between 20 and 24 weeks (6 months). In some areas where private houseswere scattered in distant villages with difficult access, there were extended deadlines. In general, speed ofimplementation was satisfactory given the available building materials, applied teclnology, and conditionsof works at the technological minimum.

Experience gained during project implementation

Criteria for damage assessment were established by the Federation Ministry of Physical Planning andEnvironment during the war. Assessment of damage on the basis of these criteria was the obligation ofmunicipal war damage commissions, but only in few cases these data could be used since they was notprepared in a proper manner or by experts acceptable expertise. At the start of the project, the PIU had torely on these data, and as a result, implementation was delayed since additional damage assessments has tobe carried out by PIU consultants. One of the major experiences from the project is that assessments byexperts need to be carried out on many more uniits than required in the program.

Despite improvements in unifying technical conditions and criteria, it was not always possible to preciselydefine quantities that would no

Documents

World Bank Document · EMERGENCY HOUSING REPAIR PROJECT (CREDIT NO. 2902-BA) Preface This is the Implementation Completion Report (ICR) for the Emergency Housing Repair Project in