Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. P-3094-RO

FILE COPY

REPORT AND RECOMMENDATION

OF THE

,PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

TO THE

INVESTMENT BANK OF ROMANIA

WITH THE GUARANTEE OF

THE SOCIALIST REPUBLIC OF ROMANIA

FOR A

LAND TRANSPORT PROJECT

June 16, 1981

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

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CURRENCY EQUIVALENTS

Currency Unit: Leu (Plural Lei)

1. Conversion Rate for Traded Goods effective January 1, 1981

Lei 15.00 = US$ 1.00Leu- 1.00 = US$ 0.07

2. Tourist Rate effective February 15, 1981

Lei 11.00 = US$ 1.00Leu 1.00 = US$ 0.09

Fiscal Year

January 1 to December 31

GLOSSARY OF ABBREVIATIONS

(Romanian equivalent, used in legal documents, shown in parenthesis)

CEM - Country Economic MemorandumCFR (DEPCF) Romanian Railways (Departamentul Cailor Ferate)COMECON - Council for Mutual Economic AssistanceDR (DD) - Directorate of Roads (Directia Drumurilor)ER - Economic ReturnIB - Banca de Investitii (Investment Bank of Romania)ICB - International Competitive BiddingMTTc - Ministry of Transport and TelecommunicationsRCC (CCCF) - Railway Construction Central (Centrala de

Constructii Cai Ferate)RDI (IPCF) - Railway Design Institute (Institutul de Proiectari

Cai Ferate)RoDI (IPTANA) - Road Design Institute (Institutul de Proiectari

Transporturi Auto Navale si Aeriene)RTC - Road Transport CentralRWC - Railways Workshops CentralbPC - State Planning Committee

FOR OFFICIAL USE ONLYROMANIA

LAND TRANSPORT PROJECTLoan and Project Summary

Borrower: Banca de Investitii (Investment Bank of Romania (IB))

Guarantor; Socialist Republic of Romania

Beneficiaries: Railway Department and Directorate of Roads of the Ministryof Transport and Telecommunications (MTTc)

Loan Amount: $125 million

Terms: Repayable in 15 years, including a three year grace period,through semi-annual installments. Interest at 9.6 percentper annum.

ProjectDescription: The proposed project seeks to relieve transport bottlenecks

and mounting congestion on some of the most heavilytrafficked railway and road sections in Romania and wouldalso open up some areas which are now isolated for much ofthe year. The project consists of high priority itemsincluded in Romania's 1981-85 railway and highwayInvestment Plans and technical assistance. The railwaycomponents include: (i) construction of 77 km of two newlines together with about 7 km of tunnels, 3 km of bridgesand 2 km of viaducts; (ii) doubling of three line sectionsof approximately 125 km; (iii) electrification of 470 routekm of main lines; (iv) procurement of special steel for thesuperstructure of Cernavoda bridge over the Danube; and (v)procurement of about 330 freigbt cars. The higbwaycomponents include: (i) paving of three two-lane gravelroads (85 km); (ii) widening of one road (6 km) from two tofour lanes; and (iii) construction of a 17 km new roadbetween Fetesti and Cernavoda on the two arms of the Danubeto shorten the distance between Bucharest and Constanta.Technical assitstance comprises a traffic optimization study(150 man-months) and related study visits abroad byRomanian officials as well as other such visits inconnection with improvements in car control and locomotiveutilization and in highway maintenance practices.Provisions have been made for the equivalent of about 30man-months for such visits. Visits to Romania by foreignexperts in connection with the traffic optimization studyare also envisaged. RailTroad users from a wide range ofsectors and income groups would benefit principally fromthe project in the form of reduced travel time, greatersafety,increased comfort and convenience. Transport costsavings will accrue to the economy as a wbole from reducedoperating and maintenance costs and improved utilization oftraction and rolling stock. The project faces no special

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

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risks in the context of Romania's planned economy whichhelps to ensure that traffic forecasts and constructionprograms will be realized.

Cost Estimates: /1 Local Foreign Total----------- US$ Million --------

Railway ComponentNew lines 86.4 39.3 125.7Line doubling 63.6 37.9 101.5Electrification 46.0 84.6 130.6Danube Bridge 75.8 50.3 126.1Freight Cars 6.0 12.2 18.2

Rail Subtotal 277.8 224.3 502.1Highway ComponentRoad paving 25.3 11.6 36.9Road widening 1.7 1.2 2.9New road construction 70.6 17.9 88.5

Highway Subtotal 97.7 30.7 128.4Technical Assistance 0.7 0.3 1.0

Base Cost 376.2 255.3 631.5Physical Contingencies 37.0 24.3 61.3Price Contingencies _23.2 51.1 74.3

TOTAL 436.4 330.7 767.1

Financing: Local Foreign Total---------- US$ Million --------

Railway Internal Funds 186.7 - 186.7State Resources 249.0 206.4 455.4Proposed IBRD Loan 0.7 124.3 125.0

TOTAL 436.4 330.7 767.1

Estimated Disbursements:------------ US$ Million ---------------

IBRD Fiscal Year 1982 1983 1984 1985 1986 1987

Annual 28.2 47.1 34.1 11.6 3.0 1.0Cumulative 28.2 75.3 109.4 121.0 124.0 125.0

Economic Rate of Return: About 20 percent

Appraisal Report: No. 3344a-RO, dated June 15, 1981EMENA Projects Department

1/ Local costs include taxes; Foreign costs do not.

REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRDTO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO

THE BANCA DE INVESTITII (INVESTMENT BANK OF ROMANIA (IB))FOR A LAND TRANSPORT PROJECT

1. I submit the following report and recommendation on a proposed loan

to the Banca de Investitii (IB), with the guarantee of the Socialist Republicof Romania, for the equivalent of USb125 million to help finance a LandTransport Project. The loan would have a term of 15 years, including 3 yearsof grace, with interest at 9.6 percent per annum.

PART I. THE ECONOMY

2. The first basic report on Romania (Report No. 1601-RO, "TheIndustrialization of an Agrarian Economy under Socialist Planning") wascirculated to the Executive Directors on April 20, 1978. An updating CountryEconomic Memorandum (CEM) was circulated to the Executive Directors on August20, 1980 (Report No. 2757-RO). An economic mission visited Romania inMay/June, 1981; its tentative findings are included in this part of thereport. Country social and economic data are given in Annex 1.

A. Long-term Trends and Development Strategy

3. Over the past three decades, Romania has pursued a developmentstrategy designed to industrialize a primarily agrarian economy. The mainteatures of this strategy have been (a) a high rate of investment; (b)development of a broad industrial base, with priority given to heavy industry;(c) development of local natural resources, including the reorganization andmodernization of agriculture; (d) balanced regional distribution of production

and incomes; and (e) training of a skilled labor force. This strategy hasbeen carried out through a system of comprehensive central planning andmanagement, guided by party and government authorities.

4. As a result, Romania's economic development since 1950 has beenimpressive, characterized by a rapid economic growth and considerablestructural change. According to official statistics, national income hasgrown in real terms at an annual average rate of about 9 percent. Per capitaGNP in 1979 is estimated to have been $1,900, according to the Bank Atlasmethodology. Investment has grown at even higher rates than national income,as a result of which the share of gross investment in GNP has risen to about34 percent in 1980. Industry, which grew at 11 percent per annum over1970-1980, has been the driving force of economic growth, receiving around 50percent of investment, most of which has been allocated to the capital goodsindustry. As a result, industry has become the leading sector, accounting in1980 for about 62 percent of national income and for 36 percent of the laborforce, compared with agriculture's 12 percent share of national income and 30

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percent of the labor force. With the transfer of labor from agriculture toindustry, the population has become increasingly urbanized. Standards ofliving have increased substantially, partly because of the growth of personalincomes and partly because of provision through the state budget of expandedand improved education, medical services, housing and social expenditures ofother kinds. Furthermore, Romania's integration into the world economy hasincreased, as the level of trade has grown and its composition altered.

B. Recent Economic Developments

5. During the last Plan period (1976-80), the expansion of the Romanianeconomy has slowed down perceptibly. The average annual rate of nationalincome growth of 7.2 percent was below that of the previous plan period (11.3percent), and growth has been decelerating, falling from 11.2 percent in 1976to 2.8 percent in 1980. These changes reflect the emergence of a number ofinternal and external constraints, notably the pace at which improvements inproductivity and efficiency can be attained; the ability of the economy tobring new capacity into operation as planned; a growing shortage of foreignexchange; and shortfalls in exports.

6. Industry continued to be the leading sector of the economy. However,the growth of industrial production also slowed down from an average of 12percent per annum during 1976 and 1977, to 6.5 percent in 1980. As in thepast, the growth of capital goods exceeded that of consumer goods and thefastest growing subsector was machine-building. Agricultural production grewat a respectable average rate of 6.1 percent during 1976 to 1980, displayinghowever, large annual variations due to changing weather conditions.

7. As elsewhere, energy has become a critical sector for the Romanianeconomy. In the aftermath of the 1973 fuel price increase, an emergencydecree was issued, fostering domestic energy production and imposing cuts andstringent restrictions on industrial energy consumption. These steps werefollowed by further measures in 1977 and 1979, designed to conserve domesticoil and gas resources and expand use of domestic coal and hydropowerresources. Total domestic primary energy production was virtually unchangedbetween 1975 and 1980; increases in production of natural gas, coal andhydroelectric power compensated for a 20% reduction in petroleum production.Primary energy imports (oil, coal and natural gas) increased 2.5 times. This,together with the increased international price of oil, has been the mainreason for the deterioration in the foreign trade balance (see paragraph 10below).

8. During 1976-80 investment fell about 7 percent short of plannedlevels. The shortfalls occurred chiefly in industry where the planned annualgrowth rate of investments of over 20 percent could not be met, partly becauseof the diversion of resources in 1977 to the repair of earthquake damage.Industrial investment, in fact, grew by 10 percent a year--in itself a veryrespectable achievement. The shortfall in investment does not reflectdifficulties in mobilizing sufficient financial resources, but a number ofsupply-related factors, in particular, capacity constraints of design

institutes, shortfalls in the production of construction materials, capacityconstraints in the construction sector, production delays for domesticallyproduced equipment, and more restrictive foreign exchange allocations forimported capital goods.

9. Changes in the level and distribution of employment accompanied thegrowth and structural change of production. The total labor force increasedby only 0.4 percent per year during 1976-80, but large intersectoral shifts inthe labor force continued. During the five year period, the agriculturallabor force fell from 36 percent to 30 percent of the total. The outflow fromagriculture, which is determined chiefly by the needs of non-agriculturesectors rather than the ability of agriculture to compensate for the lossthrough mechanization, has led to seasonal labor shortages; recourse has beennecessary to students and other groups to meet short term labor needs. TheGovernment recognizes that the transfer of labor has to slow down to avoidadverse effects on agriculture output, and is thus giving even greateremphasis to increases in labor productivity.

C. External Trade and Foreign Borrowing

10. In foreign trade, developments in the 1976-1980 Plan period have beensubstantially different from and decidedly less favorable than those planned.The five-year plan envisaged growth rates of 13 percent per annum for importsand 18 percent for exports in real terms aiming at a trade surplus which wouldallow the country to repay some of its foreign debt. During 1976 to 1980 Planperiod, in fact, imports increased at an annual average rate of 17 percent andexports of 15 percent in current prices. This resulted in a sharply growingtrade deficit which in 1980 reached $1.6 billion, virtually all of it in theconvertible currency area. On the import side, the deteriorating tradebalance reflects rapidly rising international prices, especially forpetroleum. Export growtb has been unable to keep pace with importrequirements, partly because of less favorable price movements in Romania'sprincipal export markets. The insufficient growth of exports is alsoexplained by the vulnerability of Romanian exports to import demandfluctuations and import policies of the receiving countries, and todifficulties in meeting design and quality standards and establishingmarketing policies essential to extend the foothold in highly competitiveproduct markets.

11. The large trade gap together with rising interest payment has led toa current account deficit in convertible currencies of $2.4 billion by 1980.The deficit has been financed through increased capital inflows, with totalmedium and long-term debts rising from $2.8 billion in 1975 to about US$7.4billion at the end of 1980. Most of the inflows bave been suppliers' creditsand eurocurrency borrowings; Romania has borrowed almost $1.7 billion on theeurocurrency market since 1975. The scale of term borrowing available toRomania has not been sufficient, however, to finance the current accountdeficit fully and the Government had to resort to substantial short-termborrowing between 1977 and 1980. The net inflow of short-term capital wasparticularly large in 1979, $821 million, and by the end of 1980, outstandingshort-term debt had increased to $2.1 billion.

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D. Development Prospects

12. A new Five-Year Plan for 1981-85 is presently under preparation, andis expected to be submitted to the National Assembly for final approval in thenear future. A draft of the plan has recently been approved by the Council ofMinisters and further changes in the broad thrust of the plan are not anticipated.The new plan will give priority to the completion of ongoing projects. Thisis reflected in the new investment law, published in December 1980, whichincludes measures designed to speed up project implementation. Productiongains will mainly come from these projects as they come on stream, and from agenerally higher utilization of existing capacities. Investment is thusplanned to grow at lower rates than production. Overall growth targets are,however, expected to be significantly lower than those of the precedingFive-Year Plan.

13. Special emphasis will be given to narrowing the energy gap throughrapid development of domestic resources and through further savings in energyconsumption. The plan envisages: (i) stabilizing oil production at the levelof 12.5 million tons per year and natural gas at approximately the 1980 level;(ii) more than doubling coal production between 1980 and 1985; (iii)installing additional hydroelectric capacity for 2,500 mw. The implementationof the above program would result in an increase in domestic primary energyproduction of the order of 20% above the 1980 level. It would requiresuccessful implementation of the enhanced recovery program in oil production,some success in oil exploration and a massive mobilization of technical andmanpower resources for coal production. Energy savings are to be achievedmainly by giving more emphasis to less energy intensive investments togetherwith retrofitting and other measures to save energy in existing plants. Inaddition high energy consuming industries such as oil refining and cement mayhave to curtail their output.

14. In the manufacturing sector priorities will shift from basic productssuch as steel or bulk chemicals for which adequate capacities already exist orwill come on stream in the next few years, to more sophisticated goodsincluding electronic equipment, special-purpose machine tools, specialtysteels and other high technology products. Light industry including foodprocessing, will continue to expand. A growing share of industrial productionis planned to be exported. Local industries are expected to manufacture mostof the capital goods required for the investment programs.

15. While industrialization will remain the primary objective of theplan, agriculture will receive greater emphasis than in the past.Mechanization, drainage and higher fertilizer application are seen as theprincipal means to increase crop yields. With an improved feed base,livestock production is also planned to increase. The additional output fromagriculture would be partly exported but would also allow higher consumptionlevels at home.

16. The strategy of the draft plan, which responds well to Romania'seconomic challenges, is also reflected in the sectoral composition of theinvestment program which gives greater emphasis to energy production and less

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to heavy industry than realized in the last plan period. Total real capital

expenditure may not be much higher during 1981-85 than in the previous planperiod. Investments in metallurgy are expected to grow little, and the

machine building sector will actually invest less than during 1976-80 sincesubstantial additions to capacity were initiated during the previous plan.Moderate increases in investment are contemplated for agriculture, transportand housing.

E. Creditworthiness

17. With the large increase in the current account deficit and theassociated increases in external borrowing described in paragraphs 10 and 11above, the debt service payments in convertible currencies (including intereston short-term credits) rose to $1.73 billion in 1980 or the equivalent of 22.7percent of gross convertible exchange earnings. The debt service ratio was20.5 percent in 1979 and 17.4 percent in 1978. To contain future deficits andto keep the service burden manageable, the Government has recently adopted aseries of measures aimed at increasing exports and restraining imports. Themost important one has been the introduction of a new exchange rate mechanismin early 1981 which allows world prices to be reflected more directly to usersof imports and producers of exports. This will provide incentives toeconomize on imported goods, to substitute domestic products for importedones, and to produce for export markets where better prices could beobtained. Romania has just signed a three year stand-by agreement with theIMF which calls for a reduction of the current account deficit to $1.8 billionin 1981 with further reductions in 1982 and 1983. The Fund is prepared tolend up to *1,356 million!l to Romania; part of these funds would be used toconsolidate short-term debts and part to build up the low foreign exchangereserves. Given Romania's strenuous development efforts within the context ofwell articulated plans, these measures and possible future steps aimed atenhancing exports and economizing the use of imported inputs, are likely tosucceed in keeping the country's debt burden within manageable limits, thuspreserving its creditworthiness for medium and long-term borrowing.

PART II. BANK GROUP OPERATIONS IN ROMANIA

18. The proposed loan would bring total Bank commitments to Romania to$1,987.6 million for 31 loans in agriculture, industry, power and transport.Disbursements under the Bank's initial loans were slow during 1975, but thissituation has improved considerably since 1976. Annex II contains a summarystatement of Bank loans to Romania and notes on the execution of ongoingprojects as of May 31, 1981.

19. Foreign exchange, especially in convertible currencies, continues tobe a major constraint. It remains one of the major objectives of Bank lendingto help alleviate the country's shortage of foreign exchange by providing

1/ SDRs 367.5 million per year or a total of SDRs 1,102.5 million; valued at$1.23 = lSDR.

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long-term external capital and by financing projects which will expand foreignexchange earnings or savings. The Bank has also assisted the Government tomobilize cofinancing for appropriate projects. The Bank helped to attractforeign commercial banks to provide $100 million cofinancing in August 1979for the becond Livestock Project for which a Bank loan of $75 million was madein April 1979. Also, syndicated cofinancing loans of $200 million in totalwere concluded for the Mostistea and Calmatui Irrigation and Drainage Projectfor which a Bank loan of $70 million was made in April 1979 and the Third

Livestock Project for which a Bank loan of $85 million was made in January1980. More recently, another $200 million syndicated cofinancing loan fromcommercial banks was concluded in January 1981 for the Danube-Black Sea Canalproject tor which a Bank loan of $100 million was approved in April 1980.Through their contacts and subsequent negotiations with commercial banks, theRomanian authorities now appear convinced of the positive value of cofinancingin the form of financial credits, and have indicated their intention to seeksimilar arrangements for future Bank assisted projects. Bank lending alsoaims at supporting the steps being taken by the Government to introduce newindustrial technologies, to improve the quality of products and productionefficiency, to reduce production costs and to provide for necessary electricpower development. Marketing, especially for export goods, is alsoemphasized. Special attention is given to agriculture where production isstill unnecessarily dependent upon weather and where productivity levels arestill comparatively low.

20. A number of further loans are under consideration, including loansfor irrigation, industry, power, and regional development. The Government hasalso proposed and the Bank is considering lending for a port project and forthe development of additional petroleum resources.

21. In addition to lending, the Bank (through EDI) has assisted Romaniaby conducting training courses on economic and financial evaluation andmethods of analysis in various sectors, including industry and transportation,for 169 Romanian officials in Belgrade in 1973 and in Bucharest annually since1975 in collaboration with a Romanian academic institution. Additionalcourses, including one for agricultural project appraisal, are underdiscussion with the Government. The methodologies taught in these courses arebecoming more widely known in Romania and are expected for some projects tobegin to supplement the methodology normally used by the Romanian planningauthorities.

22. The projects, for which assistance has been committed or is beingconsidered, represent only a small portion of Romania's total need forexternal financing. However, they will provide a substantial net addition tothe inflow of convertible currency, and are helping to set a pattern forobtaining longer-term convertible finance from otber sources. The disburseddebt outstanding to the Bank constituted about 8.5 percent of Romania's totalconvertible currency debt in 1980; the Bank's share in Romania's debt servicepayments in 1980 was 5.1 percent.

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PART III. THE TRANSPORT SECTOR

Transport System and Organization

23. Despite the existence of extensive mountainous areas, Romania has afairly well developed and evenly distributed transport network that providesaccess to all major centers of economic activity. It includes about 11,000route-km of railways, 73,500 km of roads, one major sea port, four maincommercial river ports and a sizeable network of inland waterways andpipelines. The Danube, which is navigable, flows through 1,075 km in Romania,mainly along its southern border. Ninety percent of the foreign trade ishandled through the port of Constanta on the Black Sea. Pipelines have beenthe principal carriers of petroleum and natural gas.

24. Responsibility for all transport modes other than aviation andpipelines rests with the Ministry of Transport and Telecommunications (MTTc).Aviation bas a separate Ministry and pipelines are the responsibility of theMinistry of Mines, Petroleum and Geology. MTTc's organization also includesconstruction and maintenance enterprises. The role of officers and staff ofthe Ministry's headquarters is largely limited to planning, coordination,design, administration and budgeting. For construction and actual transportoperations, much authority is delegated to regional units and to centrals!/and the enterprises within them.

Traffic

25. Rail and road are the most important modes of inland transport inRomania. For freight, rail is dominant in terms of ton-km, accounting for 67percent in 1980, though its share is slowly declining, while the share of roadservices at 25 percent has been rising. In terms of tons, bowever, roadservices are dominant (85 percent). Road traffic functions mainly as ashort-haul mover. Danube river transport and pipelines at present account forabout 2 percent and 5 percent of ton-km respectively but the river and canalshare is expected to rise sharply to about 15% when the Danube-Black Seacanal, now under construction,is fully operational. As for passenger traffic,the railways' former dominance passed to roads in the late 1960s and thecurrent rail/road split is about 27/73.

26. Neither the truck fleet nor the highway system is adequate to maketrucking a flexible long-haul alternative to railroads. The limited emphasison road development is best understood within a broad view of Romania'stransport strategy, with industrial development being a key factor in thedevelopment of the transport system. In response to the policy of uniform

1/ The Central is an economic unit subordinate to but separate from aministry, with responsibilities for planning, supervising and coordinatingthe operations of enterprises under its jurisdiction. It is alsoresponsible, through subordinate enterprises, for research, design andforeign trade.

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regional development, large industrial enterprises, which account for morethan 80 percent of gross industrial production, are dispersed countrywide.Distribution of industrial and consumer goods is based on distribution centerswhich have been established in every "judet" (county). While transport fromthose centers within the judet is by road, this pattern of geographicallyconcentrated development of production and consumption centers has favoredrailways because of their ability to handle dense freight traffic flows fromone distribution center to another, wbich are generally well equipped withsidings and handling facilities for bulk traffic. About tbree quarters ofrailway traffic moves from siding to siding. The present high technicalefficiency and quality of service of the railways is anothercontributing factor to their greater use. Furthermore, the Droduction ofconsumer goods and light manufacturing industries, which normally promote thedevelopment of road transport, are less developed. As such industries grow inthe future, dependence on road transport may be expected to increase.

Transport Planning and Policy

27. Planning in the transport sector is an iterative process and followsthe basic approach used for all of Romania's centrally planned economy.Transportation projects included in the Plan originate both at the micro levelthrough the enterprises and county authorities (especially for municipal andlocal roads) and at the macro level through the State Planning Committee(SPC). The demands for transport by the economic enterprises and sectors arereconciled by the SPC with the existing capacities and expansion plans of thetransport enterprises. The latter are determined after a review of allexpansion plans and the setting up of priorities within the allocatedinvestment budget. Review and coordination of new investment proposals arethe responsibility of MTTc, which submits its program to the SPC.

28. In Romania the principal objectives of transport are: efficientprovision of transport services with complementary development of thedifferent modes, lowering of the share of transportation costs in the totalcosts of the economy, and reduction of energy consumption. To these-ends, theauthorities are fostering the use of rail and water transport for long andmedium distance commodity hauls and of road transport for short hauls, thedevelopment of integrated transport facilities (e.g., containers), and the useof common carriers in preference to transport on own account.

29. Energy has become a critical subsector for the Romanian economy.Having started to import oil in 1968, Romania became a net importer of energyby 1977, and in 1979 was expected for the first time to import more crude oilthan was domestically produced. In 1979, rail and road transport consumedabout 2.6 million tons of oil products, accounting for about 14 percent of thetotal domestic consumption of refined oil products. Special measures weretaken in July 1979 to curb fuel consumption, by raising gasoline prices forprivate cars to Lei 7.50 ($0.50) a liter (the second increase in 1979),restricting weekend driving, and reducing the number of taxis and officialcars. Restrictions were also imposed on the movement of trucks, particularly"own transport", while gasoline rations for state, cooperative and publicproperty cars were halved. Diesel fuel previou.ly priced at about Lei 1.7($0.11) per liter for railways and Lei 1.1 ($0.07) per liter for road transport.

enterprises was raised in Janury 1981 to Lei 2.23 ($0.15) per liter for bothmodes. These increases of 36 percent and 114 percent for rail and roadtransport respectively are in keeping with a new policy on pricing regulationsadopted in December 1981 which aim at gradually adjusting domestic prices ofimports nearer to their cost. Even with this upward revision diesel fuelnevertheless remains signiticantly below the international price which bycomparison, in April 198J, was about $0.42 per liter. Although the role ofpublic transport is given preference, the constant overcrowding of buses andtrains is evidence that passenger transport has not received the resources itdeserves. Further, the revenue foregone by the Government due to lower fuelprices to the railways and road transport enterprises is recovered to asubstantial extent in the Romanian system through the benefits (profits) ofthese state-owned enterprises.

Transport Coordination

30. Each user of transport service is required to specify transport needsapproximately a year in advance. Bulk commodities, which account for 70percent of traffic, are subject to an optimization process which linksproducers and consumers so as to minimize transport costs. Producers of othercommodities are linked to specified regions. For each commodity there is acoordinator at the Ministry responsible for production/distribution, whodetermines these linkages, selects the transport mode and informs accordinglythe beneficiaries (producers and consumers) who enter into contracts. Theselection is mandatory, subject, however, to appeal by the transportbeneficiaries. The coordinators select transport modes on the basis of acomputer program which has been prepared by MTTc. The program takes intoaccount tariffs (as a proxy for costs), distance, transit time, and reportedlypackaging costs, damage, energy consumption and transport capacityconstraints. However, it is not clear that the present traffic split isoptimal, because the program does not take into account border pricing, thecost of inventories which is not charged to beneficiaries, and route andservice-specific costs. The proposed project, therefore, includes a study ontraffic optimization, to be completed by the end of 1984, (Loan Agreement,bection 3.04(a)) which would assist the economic development of the transportsector, and is expected to provide a firmer basis for the efficient andeconomic utilization and coordination of transport facilities.

Tariffs and Costs

31. Rail, road and inland water transport tariffs are prepared by MTTcand approved by the State Committee on Prices. Rail freight tariffs had beenl'ad valorem", high valued commodities subsidizing others, until 1974 when acost-based system was introduced. The principal criteria for rail freightrates are wagon type, net loading and length of haul. Basic movement costsper km are calculated for each category on a system-wide average basis,without allowance for difficult terrain or other adverse conditions which areroute specific. A further margin is added to allow for a 15 percent plannedsurplus for the system as a whole. Road tariffs are also cost-based, the maincriteria being truck type, net load and length of haul. However, road usersunlike rail users do not make a direct contribution to the maintenance ofroads which are provided as a public utility.

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Railway Subsector

Organization

32. Under the Romanian system of centralized State control, the railways'headquarters organization is contained within MTTc under collectivemanagement. Of six groups within the Ministry, each headed by a MinisterialAssociate, four are concerned with railways. The first Ministerial Associate(Deputy Minister) is responsible for Railway Operations in the entire countrywhich is divided into nine Regions. A second deals with traction and rollingstock, fixed installations, revenue control, and data processing. A thirdlooks after finance and prices and oversees the Railway Workshops Central.The fourth is concerned witb the Railway Construction Central and the RailwayDesign Institute. The latter two Ministerial Associates also shareresponsibility for the road subsector so that coordination, rather thancompetition, between the two modes appears inherent in the Ministerialstructure and is reinforced by the Council of the Ministry, its higbestdecision-making body. Two otber Ministerial Associates are concerned witbmaritime and river transport and posts and telecommunications. The Counciland its Executive Bureau are chaired by the Minister and include allMinisterial Associates and certain beads of departments and units. TheRailway Department, the controlling body for Romanian Railways (CFR), consistsof the units responsible to the first two Ministerial Associates.

33. The managements of each of the nine Regions are responsible to thefirst Ministerial Associate. A typical region is governed by a Workers'General Assembly meeting annually and a representative Workers' Councilmeeting quarterly to review performance against plan. The Council alsoestablishes five-year development plans within the State framework. TheRegions depend upon the headquarters to provide certain essential services.For example, feasibility studies and detailed engineering for railway worksare carried out by the Railway Design Institute. The Railway ConstructionCentral (RCC), one of the biggest construction units in Romania, executesworks for railways, primary roads, airports and Danube ports and producesconstruction components such as pre-stressed concrete sleepers. The RailwaysWorkshops Central (RWC) has six workshops carrying out periodic maintenanceand major overhaul of traction and rolling stock beyond the capacity ofregional workshops. It also includes separate groups for the manufacture ofparts for repair and modernization of rolling stock and for assembly.

Operations

34. The Romanian railways' average traffic density of 15 million grosstons per route-km, is one of the highest in the world. Its operationalefficiency has been steadily improving and is generally high, comparingtavorably with other European railways. However, problems which need to beclosely monitored are the deterioration in the turn-around time of bogie carsand in the utilization of diesel locomotives. While the former is due todelays at terminals because of traffic growtb and pressure on customers'storage facilities, the latter is largely due to increasing use of electrictraction superseding diesel on the more important routes carrying long

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distance through traffic and also the possibility that traffic planning on thesecondary lines may not be optimal. The authorities are aware of theseproblems and are studying the possibilities of constructing adequate storagefacilities and are testing the application of a recently developedcomputerized car control program in one of the railway regions. To ensurethat over-investment in new cars does not take place, an understanding wasreached with the Government that it would keep the Bank informed about themeasures taken to improve the turn-around time of wagons and factors affectingit and that it would review procurement of new cars in the light of suchimprovements. Similarly, improvements in locomotive utilization may bepossible through the adoption of a computerized system of locomotivescheduling as used in some European railways. Provision for tecbnicalassistance for this is included in the project.

35. Availability of electric locomotives is acceptable at about 85percent (1979) in light of their domestic manufacture wbich was begunrelatively recently but should improve to about 90 percent by 1985 wheninitial teething troubles should have been overcome. Confirmation wasobtained during negotiations that procurement of electric locomotives would bereviewed in the light of availability improvements. Due to the very highdensity of traffic, track occupation for maintenance purposes has beeninadequate resulting in arrears of maintenance and severe speed restrictions.For remedying the situation the Borrower has agreed that about 600 km of highpriority track shall be overhauled mostly with 60/65 kg rail and that heavy-dutytrack maintenance machines will be introduced on the railways during theperiod 1981-85 (Loan Agreement, Section 4.01 (b) and (f) and GuaranteeAgreement, Section 2.03.).

Railway Investment Plans

36. The Railway investment plans are prepared as part of the NationalPlan. All investments are subject to careful technical and economicscrutiny. However, economic analysis is made at domestic prices only, and noattempts are made at border pricing. The payback period is heavily reliedupon in the economic and financial analysis. While transport investmentsapproved so far appear broadly satisfactory, a broadening of the investmentanalysis methodology is an objective of the proposed project.

37. The total investment planned for the Railway subsector for the nextPlan period (1981-85) is Lei 36.6 billion ($2.4 billion). Over half the totalinvestment expenditures are for traction and rolling stock (one quarter forreplacements and three-quarters for additional capacity). The proportion ofexpenditures allocated for the remaining items such as line doubling,electrification and new line construction appears reasonable and responsive tothe needs of the Romanian economy. Of the total planned expenditures, about54 percent will be financed from the Railways own funds, about 42 percent fromthe btate Budget and the balance of 4 percent is expected to come from theproposed loan. Capital overhaul of track is charged to operations and is notpart of the railway investment plan. About 3,000 km are to be overhauled withnew rail during 1981-85 including the high priority sectons referred to inparagraph 35.

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The Highways Subsector

Organization and Planning

38. The Directorate of Roads (DR), under MTTc, is responsible for theconstruction and maintenance of the national road network, which comprisessome 14,700 km, or about one-fifth of the country's total network. Theremainder, including district and village roads, is administered by the judetauthorities who receive guidance as needed from the Directorate.

39. For national roads, a five-year plan is formulated on the basis ofimprovements identified by the enterprises, industries, and ministries who usebighway facilities extensively, and is coordinated at the Republic level.Detailed annual plans are prepared one year in advance and their implement-ation is monitored by both the DR in the physical sense, and by the InvestmentBank, the proposed Borrower, which oversees expenditures. The planning ofprovincial and local roads is coordinated at the Republic level and, asneeded, technical advice is obtained from both the DR and the Road DesignInstitute (RoDI), a department of IPTANA, an institute, which is also respon-sible for air and sea transport designs within MTTc. Provincial and localauthorities bear the responsibility for construction and maintenance of localroads and for meeting the planned targets. The DR and the RoDI are alsoresponsible for preparing feasibility studies and the final engineeringdesigns. For national roads, investment projects are executed by MTTc'sRailway Construction Central. Road works are competently supervised by the DRassisted by the RoDI.

The Highway Network and Maintenance

40. Romania has about 73,500 km of roads of which only about 50 percentare paved. The bulk of the network (about 58,700 km) are district andcommunal roads which are administered by the provincial authorities. Ofthese, only about one-third were paved as of the end of 1980. Of the nationalroad network comprising some 14,700 km, about 14,000 km are paved. Demands ofvehicle usage have increased considerably and bave resulted in inadequatecapacity on certain key links in the network. In some cases, lack ofall-weather access to areas not served by other transport modes has been adeterrent to progress and development. In others, poor surface conditions,plus narrow, winding alignments and in many cases excessively steep gradients,bave imposed barsh cost penalties on vehicle usage. Only one road, thatbetween Bucharest and Pitesti (100 km) is built to modern expressway standardswith limited access (dual carriageways separated by central median).

41. The maintenance allocation for national roads is about 60 percent ofthe total expenditures for such roads and is about $5,000 per km, wbichappears high compared with other European countries with similar conditions.Although, to a limited extent, such a high cost reflects the maintenance needsof some of the 'unmodernized' roads where the old light pavements aresubjected now to heavy traffic loads and are distressed, the expenditures alsoinclude some asphalt overlay work which should rightly be a charge to thecapital budget. Maintenance practices are in general labor intensive and

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suffer because labor is in short supply. Many of the routine tasks could beperformed more efficiently and better by machine and it is an objective of thetechnical assistance element of the project that the study visits for key DRpersonnel should include their exposure to latest maintenance practiceselsewbere.

Road Transport

42. The Road Transport Central (RTC) under MTTc is responsible for theoperation and maintenance of the public road transportation fleets for thecarriage of both passengers and freight. All transport users have access toRTC vehicles. RTC's vehicles are normally used in intercity services and animportant objective is to minimize empty hauls. With the help of a network ofagencies which coordinate the requests for transport users and the collectionof goods, dead mileage is kept to a minimum. Road transport is developingrapidly and the vehicle fleet has approximately doubled at an average rate ofnearly 12 percent per annum from about 538,000 vehicles in 1972 to 1,016,000in 1978. Further increases in this rate are expected as the domesticproduction of motor vehicles expands, particularly with the coming intoproduction at end 1981 of a new Citroen plant wbich will add 150,000 units peryear. As a result, traffic forecasts may well be exceeded, especially the 4.7percent yearly growth estimated for passenger traffic, aggravating thecongestion which already exists on key links.

Highway Investments and Financing

43. Roads and road transport accounted for nearly 25 to 35 percent oftotal investments in the transport sector during the seventies and areexpected to maintain this share over the next plan period (1981-85). Roadinvestments (excluding road transport) are planned for about 7,900 million Lei($527 million), about 6 percent above 1976-80 expenditures in real terms. Theexpenses on national roads are financed largely from the State Budget and theexpenses for district and local roads are met from the local budgets. Thesources of income of these budgets are part of the benefits (profits) ofenterprises and a variety of national and local taxes.

Previous Bank Activities in the Sector

44. The proposed project will be the second in the transport sector andfirst for rail/road development. The Bank approved a loan (Ln. 1794-RO) of$100 million equivalent in January 1980 to assist in the construction of a 64km canal from Cernavoda on the Danube to South Constanta-Agigea on the Blackbea, which would provide energy efficient and cost effective transportation,adding a new dimension to inland waterways. The project is well in hand andthe progress of work has generally been satisfactory.

The Borrower

45. The Borrower for the proposed loan would be Banca de Investitii(Investment Bank of Romania (IB)), which is the Government's specializedagency, for financing projects in all sectors of the economy except in

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agriculture (including water resources) and food processing. It has a largetechnical and economic staff at its Headquarters, and brancb officesthroughout the country. The IB's involvement in investment projects commencesin the preparation phase; it appraises all major projects technically andfinancially according to Romanian procedures and, in the case of the proposedproject, has facilitated the economic analysis by the appropriate agencies ofali components according to Bank methodology. MTTc staff wbo bad attendedEDI's transport courses (para. 21) also played an important role in thisexercise.

46. The IB makes recommendations to the Council of State on majorprojects and their financing. All investment funds for an approved projectare channeled through the IB which authorizes payments for work performed inaccordance with the approved plan. It is the IB's responsibility to ensurethat a project is executed according to the financial and technical dataincluded in the final approval and its inspectors supervise projects to ensureprogress according to the approved schedule. The IB will supervise theexecution of the proposed project with the participation of MTTc. Theproceeds of the loan will be passed on to the Railway Department and the RoadDirectorate for the railway and highway components of the proposed project.Responsibility for the technical assistance element will be vested in MTTc.As the Goverment's channel for investment financing in all sectors exceptagriculture, the IB's primary source of funds is the State Budget; theGuarantee Agreement therefore includes assurances that all necessary fundswould be provided by the Guarantor for the implementation and operation of theproposed project.

PART IV. THE PROJECT

47. The project was first discussed by the Bank and the Government inJanuary 1979. Preparation missions visited Romania in March and September1979, followed by pre-appraisal in March 1980. The project was appraised inSeptember/October 1980. Negotiations were held in Washington in May 1981.The Romanian delegation was headed by Mr. Gheorghe Popescu, President of IBand included representatives from IB and MTTc. A staff appraisal reportentitled "Romania, A Land Transport Project" (No. 3344a-RO,dated June 15,1981) is being distributed separately to the Executive Directors. The mainfeatures of the proposed project are summarized in the Loan and Projectbummary and in Annex III. A map showing the railway and highway components ofthe project is attached.

Project Objectives

48. The principal objectives of the Project are: (a) to avoid transportcost increases by providing timely relief of existing traffic congestionthrough road and rail investments and increase in the capacity of transportlinks which are approaching saturation; (b) to provide all-weather access toa development area, which heretofore has been served by only a fair weathertrack, and to provide transport for a new mine; (c) to improve economic

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evaluation of projects; (d) to improve monitoring of the use of the roadnetwork; (e) to assist in improving resource allocation in the transportsector through a study on traffic optimization; and (f) to assist infamiliarizing the railway and highway organizations with recent developmentsand trends in operating, monitoring and maintenance techniques utilizing thelatest technology.

Project Description

49. The proposed project consists of high priority items included inKomania's 1981-85 railway and highway Investment Plans. The railwaycomponents include: (i) construction of two new lines totaling 77 km togetherwith about 7 km of tunnels, about 3 km of bridges and about 2 km of viaducts;(ii) doubling of three line sections of approximately 125 km; (iii)electrification of 470 route-km of main lines; (iv) procurement of specialsteel for the superstructure of the Cernavoda bridge over the Danube; and(v) procurement of about 330 freight cars being the initial requirement foradditional traffic utilizing the new and improved facilities in items(i)-(iv). The highway components include: (a) paving of tbree two-lane gravelroads (85 km); (b) widening of one road (6 km) from two to four lanes in animportant industrial and agricultural area; and (c) construction of a 17 kmnew road between Fetesti and Cernavoda on the two arms of the Danube toshorten the distance between Bucharest and Constanta. Provisions have alsobeen made for technical assistance (paras. 52 and 53).

50. One of the new railway lines to be constructed would link a coalproducing area at Berbesti to the railway network at Babeni. Since this linewill serve a new coal mine which will feed an electrical power station beingconverted to coal, agreement was reached at negotiations that complementarymining and power investments will be made on time (Loan Agreement, Section4.01(c) and Guarantee Agreement, bection 2.03).

51. Construction of the railway bridges at Borcea, near Fetesti andCernavoda would shorten by about 60 km the main highway connection inRomania's busiest corridor between Bucharest and Constanta on the Black Sea.Cantilevers have been added to the two bridges to provide four-lane roadcrossings. The project would include the construction of the intervening 17km road between Fetesti and Cernavoda. The Cernavoda-Constanta highway isbeing improved at present, and to ensure that full benefit is obtained fromthe new construction agreement was reached at negotiations that necessaryimprovements will be made on the Bucharest-Fetesti road contemporaneouslywith the construction of the Fetesti-Cernavoda road (Loan Agreement, Section4.01(d) and Guarantee Agreement, Section 2.03).

Technical Assistance

52. The major technical assistance component under the proposed projectis the traffic optimization study. The study will review the existingprocedures for optimizing transport linkages and the modal split, in order tofurther sharpen and refine them, taking into account multiple objectivesincluding energy conservation, inventory control and the relation between

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tariffs and service-specific costs. Terms of reference for the study havebeen discussed with the authorities and are acceptable.

53. The Borrower proposes to have the study undertaken by Romanianconsultants. This is acceptable since Romanian institutes, such as theTechnological Research and Design Institute for Transport, have competentstaff to undertake this study, and their employment would contribute to thedevelopment of Romania's consulting industry. It is therefore proposed toaward the study, which is expected to require about 150 man-months of expertservices, to Romanian consultants, and to finance their services in full fromthe proposed loan at a cost of about $825,000 ($5,500 per man-month).Inclusion of the study in the proposed project and the employment ofconsultants by October 1, 1981, under terms and conditions acceptable to theBank, was agreed at negotiations (Loan Agreement, Section 3.04(b)). It may,however, be desirable to use foreign consultants for specializedmethodological tasks connected with the study, or have Romanian consultantsvisit foreign organizations which are engaged in similar work. Use of foreignconsultants, or visits abroad by Romanians, would be useful also in connectionwith improvements in car control and locomotive utilization and in highwaymaintenance practices. The foreign exchange costs of these visits andconsulting services are estimated at $175,000 (30 man-months at $5,800 perman-month). The foregoing was discussed and confirmed with the Borrwer atnegotiations.

Project Implementation

54. The MTTc will be responsible for implementing the project. Executionof the works included in the railway components will be entrusted under firmcontracts for each sub-project to the Railway Construction Central (RCC)within MTTc. The supervision and acceptance of the work will be by therailway regional staff supported by senior engineers from the Railway DesignInstitute (RDI) as necessary. Both the RCC and RDI are well staffed bycompetent people and, judging from the timely completion of similar railwayfacilities in the past, are well-qualified to execute the project work. TheDirectorate of Roads would be responsible for executing the road works underthe proposed project and with the assistance of the Road Design Institute,would supervise the construction. The project roads will also be constructedby the RCC on the basis of prices, unit rates, and quantities of workdetermined and agreed prior to contract award.

Project Cost and Financing

55. The total cost of the proposed project is estimated at $767.1 millionwith a foreign exchange component of about $330.7 million. These estimatesare based on substantially completed final designs and mid-1981 prices.Physical contingencies have been estimated at 10 percent of the base cost.Price contingencies on foreign exchange costs are based on annual increases of9 percent, 8.5 percent and 7.5 percent, respectively for 1981, 1982, 1983 andlater years. Due to very low inflation under the Romanian system ofadministered prices, price contingencies on local costs have been calculatedat two percent per annum.

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56. The proposed Bank loan of $125 million represents about 16 percent ofthe total project cost and would finance about 38 percent of the estimatedforeign exchange cost and about $0.7 million of local costs for technicalassistance. The loan to the Investment Bank would have a term of 15 years,including three years of grace with interest at 9.6 percent per annum andwould be guaranteed by the Government. The Investment Bank would carry theforeign exchange risk on the Bank loan. The balance of the foreign exchangecost of $206.4 million would be financed by the Government from Stateresources. All local currency funds, except $0.7 million, would be providedfrom domestic sources, $186.7 million equivalent by the Railways throughinternal cash generation and $249 million equivalent by the Government fromthe btate resources. Although cofinancing is not crucial for this project,the Romanians may decide at some time in the future, depending upon financialmarket conditions to seek external cofinancing loans. However, the Governmenthas assured the availability of the full amount of the funds needed for theproject.

Financial Evaluation for Railways

57. The Romanian railways' operating results are generally satisfactory.The target for the railways is to produce for all activities combined abenefit (profit) of about 15 percent. This has been exceeded for the pastfour years, 1977 to 1980, and the return on average net fixed assets in useduring the 1976-80 plan period has been about 5 percent. These results aredue to satisfactory tariffs, high density of traffic, efficient use of capitalassets, and the high productivity per employee. Both working and operatingratios have been satisfactory. The depreciation charges, together withbenefits, generate adequate internal resources which enable the Railways tofinance about half its investments, the other half being met through Stateallocations. The need to revalue fixed assets is recognized in principle butbecause of the low rate of inflation in Romania, such revaluations have takenplace only at the end of 1963 and 1976, and the change in net fixed assetvalues resulting from the latter was negligible.

58. Price increases, particularly for fuel, introduced in January 1981,(para. 29) were met by a freight rate increase of 5.7% and the railways'operating results for the 1981-85 period are expected to continue thesatisfactory position of the past years with improvements projected in boththe operating and working ratios. The overall rate of return on net fixedassets is expected to remain at about 5 percent. The net cash generated bydepreciation and the anticipated operating surpluses should finance more than50 percent of investments.

Audit

59. Agreement was reached at negotiations that the financial statementsof the Investment Bank and the Railway Department and the accounts reflectingthe expenditures made for the project roads will be audited each year by theMinistry of Finance and furnisbed to the Bank within six months of the end ofeach fiscal year (Loan Agreement, Section 6.01(f) and (g)).

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Procurement

60. Procurement will be by International Competitive Bidding (ICB) inaccordance with the Bank's guidelines, on the basis of a list of equipment andmaterials which has been agreed to between the Bank and the Borrower. A fewitems such as remote control equipment for railway electrification and someminor items of highway machinery will be procured through prudent shoppingamongst international suppliers; the total value of such items would notexceed $1.5 million with a limit of $200,000 for individual contracts. Forthe railway component of $94 million the goods to be procured would consist ofrails, steel for concrete sleepers, points and crossings, track fittings,copper contact wire and substation equipment for electrification, cables forsignalling and telecommunication required for new lines and for doubling andelectrification of track, special steel for the Danube Bridge at Cernavoda,telecommunication equipment (including radiotelephone systems) and a limitednumber of freight cars. For the highway component of $30 million, the goodsto be procured under ICB would comprise road construction and maintenanceequipment, bitumen and reinforcing steel. However, the Bank would notdirectly disburse funds against these equipment and materials. Disbursementsequivalent to 75 percent of the foreign exchange costs of the road components,would instead be made against civil works construction. These works would becarried out by RCC which is experienced and familiar with local conditions,methods and regulations. Romanian manufacturers would be allowed a preferenceof 15 percent, or the applicable customs duty, whichever is lower. Almostevery type of equipment required for the project is manufactured in Romaniaand it is expected that Romanian bidders will be successful for all ICB itemswith the exception of bitumen (about $5 million).

Disbursements

61. For railway equipment and materials the loan would be disbursedagainst the full cost of foreign contracts and against the full ex-factorycost of contracts won by Romanian organizations. Disbursements for thehighway components would be at the rate of 25 percent against Statement ofExpenditures for civil works to be submitted at regular intervals by theGovernment. However, it will be a condition of disbursement that nowithdrawals shall be made from the relevant Civil Works Category under theloan until the Bank has received satisfactory evidence from the Governmentthat ICB procurements have been made for highway construction equipment andmaterials in an aggregate amount sufficient to cover anticipated withdrawals.During negotiations, the Borrower's agreement to the foregoing clisbursementarrangements was obtained (Loan Agreement, Schedule 1, para. 4(b)).Disbursement for technical assistance would be at 100 percent of both domesticand foreign costs.

Benefits and Risks

62. The proposed project aims at relieving transport bottlenecks andmounting congestion on some of the most heavily trafficked railway and roadsections in Romania. These lines and road sections connect several largecities and industrial areas and are of critical importance to the country.

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bome of the project roads would also provide direct all-weather paved roadsconnections between several growing commercial centers, and would open upareas which are now isolated for much of the year. The principal directbeneficiaries of the proposed project would be the rail/road users which cometrom a wine range of sectors and income groups. The project will benefit longdistance as well as local traffic. The favorable impact of the project willalso be felt by the rail/road passengers from the higher quality of serviceand travel comfort.

63. Benefits due to the proposed project will result mainly from reducedmaintenance and operating costs, and improved utilization of traction androlling stock. For road sections where traffic congestion is heavy, or wheresubstantial distance saving is involved, the economic analysis takes intoaccount savings in passenger travel time. Savings in transport costs,excluding passenger time savings, account for about 80 percent of the totalbenefits on these heavily congested roads. Benefits due to increased comfort,convenience and safety have not been quantified.

64. Based on the most probable estimates of construction, operating,maintenance, and time costs, and traffic growth, the proposed investmentsproduce economic returns (ERs) ranging from 13-70 percent. All projectrail/road sections would yield first-year benefits of 10 percent or more onthe proposed investment. The weighted average ERs of all civil workscomponents, which account for about 99 percent of total project costs are 20percent tor the project as a whole and 24 and 15 percent, respectively for itsrailways and highways components. These economic returns understate the fulleconomic benefits of the project by excluding reductions in accidents, greaterpassenger comfort and the convenience of travelling on improved railway andhighway facilities. Sensitivity analysis reveals that even under theunfavorable assumptions of 15 percent higher construction costs combined witha 15 percent reduction in users' benefits, the ERs are within the range of10-55 percent for all project sections with an overall weighted economicreturn of 15 percent, which is still acceptable. Benefits could not bequantified for other project elements, namely tecbnical assistance andtraining which are necessary for the project as a whole and whose benefitswill permeate the entire investment plan.

65. The clear economic justifiction for the project and the plannednature of the Romanian economy which helps to ensure that traffic forecastsand construction programs will be realized would indicate that no specialrisks are expected in the execution and implementation of the proposed project.

PART V. LEGAL INSTRUMENTS AND AUTHORITY

66. The draft Loan Agreement between the Bank and Banca de Investitii,the draft Guarantee Agreement between the Socialist Republic of Romania andthe Bank, and the report of the Committee provided for in Article III, Section4(iii) of the Articles of Agreement are being distributed to the ExecutiveDirectors separately.

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67. Features of the project of special interest are listed in Section IIIof Annex III. A condition of disbursement for the higbway civil works is theprocurement through ICB of construction equipment and materials in an

aggregate amount equivalent to cover anticipated withdrawals (Loan Agreement,bchedule 1, para. 4 (b)).

68. I am satisfied that the proposed loan would comply with the Articles

of Agreement of the Bank.

PART VI. RECOMMENDATIONS

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

Robert S. McNamaraPresident

AttachmentsJune 16, 1981Washington, D.C.

21_AEN 1

TABLE 3A 1 I 5 pesROMANIA - SOCIAL INDICATORS DATA SHEET

RaKANIA RCENRtSCI GROUPS (VEICHTFD AYEWctSLAND AREA (THOUSAND SQ. KM.) M HST RECENT ESTIMATE)'

TOTAL 237.5 H0ST RECENT CCNTRALLY PLANNED INDUSTRIALIZEDACRICULTUtAL 149.6 1960 k 1970 k ESTIMATE ECONCPIES COUNIES

GNP PER CAPITA (US$) .. .. 1900.0 .. 9499.2

ENERGY CONSUHITION PER CAPITA(KILWCRAMS OF COAL EQUIVALENT) 1342.0 3013.0 4042. 0 211.2 7021. 1

POPULATION AND VITAL STATISTICSPOPULATION. MID-YEAR (MILLIONS) 18.4 20.4 21.9URAAN POPULATION (PERCENT OF TOTAL) 34.1 40.8 46. 5 35.5 76.0

POPULATION PROJECTIONSPOPULATION IN YEAR 2000 (MILLIONS) 26.0STATIONARY POPULATION (MILLIONS) 30.0YEAR STATIONARY POPULATION IS REACHED 2090

POPULATION DENSITYPER SQ. DI. 77.0 85.0 92.0 83.6 142.8PER SQ. IOf. AGRICULTURAL LAND 126.0 135.0 146.0 223.0 523.3

POPULATION AGE STRUCTURE (PERCENT)0-14 YRS. 28.2 25.9 25.9 30.8 23.5

15-64 TS. 65.1 65.5 64.1 62.1 65.165 rRS. AND ABOVE 6.7 8.6 10.0 7.1 11.4

POPULATION GRaiTH RATE (PERCENT)TOTAL 1.2 1.0 0. 9 1.4 0. 7URBAN 3.8 . 2. 8 2.5 2. 9 1.3

CRUDE BIRTH RATE (PER THOUSAND) 20.0 20.0 19.0 18.2 13.8CRUDE DEATH RATE (PER THOUSAND) 9.0 10.0 9.0 7.1 9.1GROSS REPRODUCTION RATE 1.2 1.3 1. 2 1. 3 0. 9FAKILY PLANNING

ACCEPTORS. ANNUAL (TROUSANDS)USERS (PERCENT OF MARRIED WOMEN) .. ..

WOOD AND NUTRITIONINDEX OF FOOD PRODUCTION

nER CAPITA (1969-71-100) 89.0 89.0 152.0 186.5 110.8

PER CAPITA SUPPLY OFCALORIES (PERCENT Or

REQUIREMENTS) 108.0 115.0 130.0 113.7 131.6PROTEINS (GRAMS PER DAY) 86.0 90.0 103.0 75.1 98.0

OF WHICH ANIMAL AND PULSE 30.0 34.0 43.0 28. 62.1

CHILD (AGES 1-4) MORTALITY RATE 3.0 2.4 1.0 1.1 0.8

IUALT!LIFE EXPECTANCY AT BIRTR (TEARS) 66.0 68.0 70.0 7.1 73.5INFANT MORTALITY LATE (PERTHOUSAND) 75.7 49.4 31.0 22.4 13.2

ACCESS TO SAFE WATER (PERCENT OFPOPULATION)

TOtAL .. ..

URBAN .. ..

RRAL .. ..U

ACCESS TO EICRETA DtSPOSAL (PERCEDOF POPULATION)

TOTAL .. ..URBAN .. .. . ..RRAL .. .. .

POPULATION PER PHYSICIAN 780.0/c 840.0/d 734.0 2070 62t8POPULATION PER NURSING PERSON 620.07c .. 638.0 240.1 21P.9POPULATION PER HOSPITAL RED

TOTAL 130.0/c 120.0 109.0 96.7 121.2URBAN 50. 0c 50.0 60.0RURAL 620.0/c 770.0 730.0

AEUISSIONS PER BOSPITAL BED .. 23.0 .. 17.0

BOUSINGAVERAGE SIZE OF HOUSEHOLD

TOrAL * 3. 2/OURBAN .. 2. /e .

RURAL .. 3. 4 .

AVERACE NUMBER OP PERSONS PER ROOMtOTAL .. 1. 4L .URBAN .. 1. 3/ .RURAL .. 1. 41e

ACCESS TO ELECTRICITY (PERCENTOF IDELIINGS)

TOTAL .. 49.01 .URBAN * 66.02RURAL .. 27.0 .

- 22 ANNEX 1Page 2 of 5 pages

TABLE 3AROKANIA - SOCIAL INDICATORS DATA SNEET

RQlANIA REFERENCE GROUPS (UEIGHTED AVER4CES- MOST RECENT ESTIMATE)

MOST RECENT CENTRALLY PLANNED INDUSTRIALIZED1960 h 1970 /b ESTIMATE h ECONOMIES COUNTRIES

EDUCAT IONADJUSTED ENROLLMENT RATIOS

PR DiARY: TOTAL 98.0 113. 0 102. 0 118.7 100.1MALE 101. 0 112.0 102.0 117.5 102.2FEMALE 95. 0 114. 0 101. 0 120.0 102.3

SECONDARY: TOTAL 24.0 45.0 77.0 100.2 87. 1MALE 27.0 51.0 81. 0 101.9 84.4FEMALE 22.0 38.0 73.0 97.8 84.3

VOCATIONAL DSL. (t OF SECODARlY) 54.0 58.0 70.0 47.4 19.0

PUPIL-TEACHER RATIOPRINARY 25.0 21.0 21.0 16.2 21. 3SECONDARY 16.0 18.0 19.0 13.0 16.4

ADULT LITERACY RATE (PERCENT) . .. 98.0 . 98. 9

CONSUMPTIONPASSENGER CARS PER THOUSAND

POPULATION . 2.2 .. .3jRADIO RECEIVERS PER THOUSAND

POPULATION 120.0 152.0 146.0 403.5 932.9TV RECEIVERS PER THOUSAND

POPULATION 3.0 73.0 139.0 200.5 15L. 1NEWSPAPER ("DAILY GENERALINTEREST") CIRCULATION PERTHOUSAND POPULATION 147.0 . 169. 0 129.0 354.3 327.4CINEFA ANNUAL ATTENDANCE PER CAPITA 9.0 9.6 B.7 14.4 1.3

LABOR FORCETOTAL LABOR FORCE (THOUSANDS) 105C0.5 11:6.:? 120!.e*

FEMALE (PERCENT) [1L.9 tl.5 tt.o 40.7 36.1AGRICULTURE (PERCENT) 65.3 [9.1 2.5 50.2 7. 6INDUSTRY (PERCENT) 15.1 23.1 33.-5 30.8 38. a

PARTICIPATION IRATE (PERCENT)TOTAL 57.1 56.0 55.9 47.3 44.6MALE 64.5 63.3 62. 8 57.1 58. 1FEMALE 50.1 49.0 49.1 37.0 31.7

ECONOMIC DEPENDENCY RATIO 0. 7 0. 7 0. 7 0. 7 0.8

INCOME DISTRIBUTIONPERCENT OP PRIVATE INCOMERECEIVED BY

HIGHEST 5 PERCENT OF HOUSEHOLDS .. ..HICGEST 20 PERCENT OF HOUSEHOLDS .. ..IDWEST 20 PERCENT OF HOUSEHOLDS .. ..LOWEST 40 PERCENT OF HOUSEHOLDS .. ..

POVERTY TARGET GROUPSESTIMATED ABSOLUTE POVERTY INCOMELEVEL (US$ PER CAPITA)

URBAN .. ..RURAL .. ..

ESTIMATED RELATIVE POVERTY INCOMELEVEL (US$ PER CAPITA)

URBAN .. .. 394.0RURAL .. .. 394.0

ESTIMATED POPULATION BELOW ABSOLUTEPOVERTY INCOME LEVEL (PERCENT)

UPBAN .. ..RURAL .. ..

Not availableNot applicable.

NOTES

k The group averages for each Indicator are populatlon-weighted arithmetic means. Coverage of countriesamorg the ifldicatore depends on availability of data and iS not uniform.

L Unless otherwise noted. data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969and 1971; and for Most Recent Estimate, between 1974 and 1978.

/c 1962; 2d WHO estimates; /e 1966.

Most recent estimate of GNP per capita is for 1979, all other data are as of April, 1980.

Jenuwry 28, 1981

23 ~~~~~ANNE 1Page 3 of 5 pages

DSPtPTl0BfI OF SOCIAL INDICATORS

Wates Although tha data .rc dres frn ars gasrlyldged ite mZt .thortoatv.r and reIa.bl.. It httud .10 6. n-td that they Ray set ha tfct

theta., u-flt eo h resat.gio. niaeted. n hrcst.cren eo itrts ewe co ie..

af gsa sdttatr stat., aeon the taotry Td reidale grtoupa.: .i tl d,:h,-h- -

tAM ARA (hancedeq.i P001t tn pr tnstt.n- PltuaitaMatot4... nmof a_ptaitc.gIosfTott hl Toa ufaeae opitg adae n nadotn. tth.us-tll ed . 5 totIdCel dhota utorlt ed

fortirs patre.mrtad ktothcn grd..a orto le f.11-s 1977 dat.T a Ia. -01 lo-~1o i~Jo un .r.tca .n... ..deaaan ua.

by ut eao oe t veclfl taah _benn nnling pnhni-paly auctodloUltOT MM'StSPTtOtS PEt CA_ITA A- dtulcaoptta onrlleat ol cr r o ¶nci.tird. tihrspItut.I. hn -o.r tc1ada O..lth and taicet

ao-d 6la ptolo.aTua Ic ca1d hdr-,nuler odaat-nroa else- retr o ama tyoatdby aphyeot (hot hy a sadical ...ei.tat.

tetItiyl In kilIugr of tct reyotoa1ot pes capital 19hO. 1970. on 1970 t 1de . idftt. -no) albote npttn-otaalned prelid Ad-,. 11,,i-d aTaeZ of sndtoal iael'tlttea T . L. Praateta puspo_a uh haupt-

0t. LooasO. prioctral ..n.a at1 d apetialtoed h-pittal.. Aed ruralPOPUL.ATION AND VITAL. STATItTICS OP,II 1T . dr1-

Totat P ttlao i-n Mld-Tau tol lon1 A. ot Jly I; lh.1970. atd 19708 0: e . ... t i bad"- Tu tItrofonesaeioo i.hr

dIiffr-TIe Iicll-e at urban Ir--- eaT afft oasprbilltry of deta HOUSING

Parelatton Prolattlote ~~~~~~AhAtoucabld'!;naisth of. amrau of tndtnldAae afotheta lilnin quartr.TPaola1 o in Oat20 - Curet poulaloPI,eron t h .ad on100 cd rhatr salt al. A.. boorden lodger to -0ty 000 ha i.t1oded 10

t0t01 popuatta- hy,usa -IO sea -d their sotala adfaro1ttity I~~* tehueodfr tteta upat

Inc litfeaatao at hlrnhtoeroato 00th coutc P pe c1t. pita b-ov ~~ forocale nou..st .ad r... gloa etetiiolenl. olfaoe ttatpataty oaltlt at7. er. The par.- daatling., r.psopaitoJl. DueI toe 'taato-eton erooe a

friIya th.I. o oto lee alyatftlcplotg eiotne. dtdat 05. reIt tatn ft dhallIasI oftoal. uoht. adsuo

adTarillt ril trpaeti Tpurae. oftotal. arbat. .ad r-ra d-uliog. T-P..tilveY.

she birth rate I. equal to thedearh aTeI, and ale the georoooaa- tClTIO"

the ralaoaat leve at uIfotrpaoTtort,aeeahgntsan Pnr col- tonal. saic nod feeaie - Ira1..total. aol.adtlat -notpl.... itself -oatly. The atatLoTar -poyltoeaOennlno falor ttepIayl la pntALntaeoftweetl

aet -ttad ao the b.als of oh. projectedtaetcete ftopptta Prler tIohoofl-ag poa hltog oaoc-ly I -tuneAIAnoaedf 4le ahe year 2000. Cad the nets at d-olo of t-tility nut. to replace-..b. j.. _df: h i d.i. .

Ter ete.lnory .. I-nuano te -eahad - The.vrwa eatar -oPo'latln catn url i hl o abo- the ftfieia1 echol aCt.

D... io eoity oduoeniio require at l. s . e.. yers f aPPiTed_pldr ot tio oPer so 4o id-Yoar PoPalatioo Par esuae hilomt.t 110I eoaOD f po-ido.gera. to 1iru. or tneeher tre 11c totrAttog te puPib

tatal atta. atoely=-11 of 12 Ca 17 y-an of a.e; creyodnoaAuae n ge-11Yt

Ai.ly. Vt.Tt Chial not0t1oen---.)r(15- Iof. s21Acnndar'v - hoalanul -latttood

00 year.). an d rettrad (65 yea. aoM Pai .T.-atensaCe of edyerP- d.tnlyone dePrnciofeutry tatt10.latIo;1960. 1970j.-an 1970 data. Puu-tathe, rt.ta: -oLIM,y and .. ad. - Total -idanta strolld I.

Petaeto Iosa Rat (proti-t - total - daaa grewh nasea of t-tol ' pilacry aed ..a..odar lenol divIde fy nowhere of -anb-r 1e the,ei aplttoa for tOhI-A. 1900-70. Id 1970-79. .a-.,-rondglaot

Pan uatlo Smooth ptat fvr-oot -lb.n- dA,a,- growh ref. e f e.rha Pn90_ AdetIt.reroty rate ToavCeL)-Lieaeaoe chtorad nIiatt-.a far 1950-60. b9At-TI. ae 1970-78 aapreTneCe1 a:t ttlealfouata gd byne vr

.W.d 11trth gun1 0 lia thoucand) - Ao,,a1a ilne birtha p"r Cheaceod of mid-yeaapltiao 1900. 1970. ad1970 d.ts. C000tFITftO

Crde D.ath Oats (pe- Th-... dl - annualdeathe per thonuad o md-aa yaeatrCare leer thou.a. ioulttn - aeogr ae r umapneota;1960,.1970. and 1975 data, gat tatglee,It- aaopnaal atde nulue. hearee. drotgaooTlo_ gt. - Al.rag -abratdohe.ewonstlea to. Ill litr. nhel.

hrerartadatiepro fea aaitt iet cg.-Io f... fa- -dio eeot ntto.a sual Allype. of .... ln... fo redt.tIlltt.rat..;-eouy f1loeY-ya areagc ndg Ia 1900. 1970. o 1977. hauaengarlpahftp,rtaou. fpplto;elae o

efhlo-onoo deve ..do auPi... f octitou fanlp plattna Progra. ... i. eff.- ; data forrTn yersmy -o ha toepav-bletn. mooPauln PI.nJita-t'tera (Posoctof ot ,Tielod et __eetage of eoTlr,d oonraablge l ZIg

dieea thild-hburIa age (I5-A4y4 ra oh. baehth-to-t-a devi... ta ITYlcleele foao eualt TV -i-lan tar b.Radgot t

POOC AND OUTOITIOft It~~~1 oouttrls od Ia year..a lire, atala f TV ton o. Ito fto.WOOD AND NMITION ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ MeaaotCiruaio"e tht eet eou Sitol -Shn the -vnae1 loaa

la.o at toad Pnnduotlos eatCpoict 19~9-7d1!1001 - dsAa of per teOlt -- uo 071st of daiygerl.H,etecypr. a odC pnaio prdolna L odoalte.Pootioa anldt edad fend an 1litaion denoted pinrlyt rnc.rdia oca oe I .coie

Ist on iotedar"ya- buei. Coadlol.e canr - lat goode (s.g. a-sartan to he "deity iTt a1ppuar at .e.. four 010. a do.I -ted of eug:rl frhL er edLblo sod -- i otlot e. tot rff- aod CIIn- -oo-I Atil nd-ao or Ceol Yn -Ta-Cued o .the ..he oftaa ons ealded4. ASgreetra pT.d.otto of .. chooot I. haeed 00 tiok.te .old doria..~ the,s.lataigeoleens drIv-lu oL-etotlaal ..a.g pradel- p Is SMgho; 19061-frI. 1970, and I7 data. Cd eahil -ite..

Peroait euel o oarrseir..It f _irnlretlto) - Computed franenerg qitlve1at of -a fond auppliaavat1lahla Ia ot.oTry P.i tepta R tatcEPen day. Anetlahle a-ppiaccaare d-ietl at-dottOn laperre tact Tona Labor Port (,h.... )- unmoet ote eec. olenpatte n hag t etah.k 0.t euppllae mate. talmal fend,Rceade. asdfre aduepa but- seoldlg ...ai.e. ...d..ne. etC.qsalta ad -I od prcala"o oeeO tttoto eur- ocotoei a oattstaasanrnoaIe; 1000. 1970ca

aen.era t.mtd hy PAl) bt.. o hytlota teda ton -IO 0001- tO. data.lily cod health oaoderlig -1tr-aaTal t~rasurerr. hody nalghta. .C5 P.....arenf tl fa tosonP_retC fttllAtdr.

adendiAtrilbtiot of p.poIlinton ad allosio 10 pet-o tot -- at F5dtolualuonl- Ldea I.ont In farmloC fo....tty. hantleg .06heriaheld level,; I190-61. 1970. and 1977 due. fiebhag a. porlettag of toCc lahar fto... 1960. 1970 an 1090 dat.

Pa Arta PI I-tof te (apace oPr dAvl - Prt.la -onon at ret .. Pita Ind..try (-rerot) - Lahor f-na. IA iag - -t ti-tt ,f taCo! aterieS~tat pply of food per dey. Hat aupply of food Is dafined onb- uhv. _t and aactrlotity. -ste.0 We on por..toaf tatbS loho fatosl 1900.qureeta for all osatrse .atbhllehd hy USDA PT-id. for eit.i- 1970 ea 1978 data.

aleseae f 60 ia_ ef tota prlteL per day and 20 g-e of ani-a P.torta an erdt ttl ae n fe-ale - rtlolpatle epuls piteID,.(o ohlh 10 grea e.euId he atleo prten meaaad otlvlty ..... .oapo .. a. Iota, alte, ad`famla 1,lohrtr.o

soaaa -ae Ohuo thoac at 75 gsn of total PToat.l and 23 gram of ,- A.anhea.i prseta at enetarag ta thew p-d,pr-ped by P0A0i Ia he Third peTatteg at tdtolt,fma~t. n ul ouaino lsgsopole

Wo'Id odtrol190L1-AS,1970 and 1977' daeT90h90,nd17 ae Meor leppttaia eo alotP-rcpt c- utein -0P'1 trI atea cod oulee -proe yly of food ds- a fneasrueturi nttepplta. n osam oed e at

cOoed Irs toaaar ala to _ Te erda;IA-65. 1070 aol 1977 data. Z-ooml D.P.nden-v RaTio- taatpoItaat- nader 15 ead65 .0aoChild fagn 1-Al fotlty Ito tePIr tho,aaandl - A ..aal death, perih thuad a n tha total labor ore

Ig, group.I-f tar. ito,of4ldrn In thie age gr.op; for cot detelipt mo-tnlaa dta dsl-d f-ra life tablee; 1960. 1970 and 1977 data. IeCOnrE olSotTyiroN

P...rag o Prvte oo tht e ahae l - gacettd by lht

1~~1111th T. A-n. ~~~~ f -. f ILo hesacboldabo1tant MrtalIty Rate (st fthoue.. . - deal dutha of toftat and.r on y-. poolry TASGET GROUIOS

of age per thou...od Ille birth.. lattete~d AheolaTa Pu-Tro, eana Lanel (0551 P-n toelt:j - erbo an roat-Attlee to late Aeta irerotot of ooltal-tt l. b-,alrrl-0, Aslt oet tom eth hitcm Ianol aler iothamofn

=ooher a p.oplo ttl urbeo. an toa) _0h o ola act.., to nt ontitetaly dqot ottl plan -- taott1 o-fod requIremet. I. oateTe ury(oldetetd ufeoforonutotdbturnetad afrdh.ataeoha oe to rtetdbn(esa pnna edeoiayael)a. tteaa rttv Pvr', led (SOorte tlb ranadrua

fou-tai or osadpuibaedsstreta Otut I rantdt haune 0 ha yareao tomTf h eioy CrAe, ete I.dervedtea Oh rrtni:Tdard. hats b ti -(anhs ce.o t Ie hoaa ft rur aou cool oI-1 d..nrth o Otsbrr U.nt ofho.

0In anbnd ft.-h.. -

rese.bl.c',oo. I teytht h hoso y o oaor i nebo.I, d et' ld 4

a 0 t Boots..uoI'oat...yoe odt(crcoi una

Olt-do.. .ocoot,iosaato -.cratedroal) oho ."eeiueao.

roral-voehoc.,yy,oelnfnotcl..nl.sn toltutal s.roej'..oeocn-ta ti..dipsaf epecongho-.ei rystu .ooadet b. Eatrb- lIth e- Ctfet t Gt0.b1 Ott9Ona0toedP ea. tootd -1. .h... 1ts tio o lpte.to rntoltetetg adanl n rJcio soo

- 24 -

ANNRX IPage 4 of 5 pages

ECONOMIC INDICATORS

GROSS NATTONAL PRODUCT IN 1980Average Annual Crovtb (2)

UStMln. S 1971-75 1976-80 1978 1979 1980

CNP at Market Prices 41,350 100.0 11.31/ 7.21! 7.61/ 6.21/ 2.81/Cross Investment 14,130 34.2 11.2 10.9 16.0 4.1 3.1Gross National Saving 11,710 28.3 . .Current Account Balance -2,420 -5.9Export of Goods, NFS 12,087 29.2 23.62/ 15.52/ 6.22/ 18.02/ 25.81/Import of Goods, NFS 13,730 33.2 22.3'/ 17.32/ 16.51/ 20.12/ 20.91/

OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1980

Net Value Added _/ Labor Force N.V.A. Per WorkerU54 mln. HMln. 2 US. _

Agriculture 3,930 11.6 3.05 29.5 1,289 39.5Industry 20,800 61.5 , 3.68 35.5 5,554 170.1Construction 3,200 9.5 o.86 8.3 3,730 114.2Others 5,870 17.4 2.77 26.7 2,123 65.0

Total/Average 33,800 100.0 10.35 100.0 3,266 100.0

GOVERNMENT FINANCE(in billions of lei)

1976 1977 1978 1974 1980

Total Revenue 254.5 282.0 300.8 339.3 298.0Current Expenditures 180.4 196.5 198.9 224.7 203.6Current Surplus 74.1 85.5 101.9 114.6 94.4Investment Expenditure 69.7 83.9 100.4 112.9 93.1Overall Surplus 4.4 1.6 1.5 1.7 1.3

MONEY, CREDIT AND PRICES

1976 1977 1978 1979 1980

Money Supply (billions of lei, end of year) 85.6 87.6 110.6Bank credit to enterprises (billions of lei, end of year) . 386.0 405.0 428.0Retail Prices (1975 = 100) 100.6 101.2 102.8 105.0 106.6

I/ National income

2/ In current prices

3/ National income (SMP methodology), excluding output of the non-productive sector.

FMIDDJune 9, 1981

-25-

ANNUY Ilaxg 5 of 5 pages

BALANCE OF PAYMENTS

(uS$mlUbon) 197M 1977 1978 1979 1980

}tE-C14AM0ITZ EXPORTS. 1980

US$ 6ln 2

Ixports of Goods, IIJ 6,642 7,357 8,728 10,133 12,087 Capital Goods 2,836 25

Imports of Goods, SF5 -6.540 -7,529 -9,319 -11,428 -13.730 Consumer Goods 1,737 16Resource Cap 102 -172 -591 -1,295 -1,643 Foodstuffs 908 8

Interest Payments (net) -118 -132 -168 -358 -777 Intermediate Goods 3,251 29

Balance of Current Account -16 -304 -759 -1,653 -2,420 Raw Materiels 2,477 22Industrial (2,006) (18)

MLT Borrowing 4ricultural (471) (4)Disbursements 712 861 1,174 2,065 2,805 11,209 100

Aortization -502 -562 -586 -809 -t51'42t 210 299 588 1,256 1954 EXTERNAL DEBT, Dec. 31, 1980

US>I 11MLS Lending, net -392 -358 -346 -309 -181 Total ItLS 7,574

of whicb convertible 7.433

Short-term Borrowirg, net 124 256 487 821 449 Total ST 2,145of which convertible 2,124

Other Capital 1' 97 -199 150 34 4DDEN?T SERVICE RATXO. 1980 S

Clange of Reserves -23 306 -120 -149 , 202- increase) All Currencies, gross2/ 14.1

All Currencies, netly 11.8

Grocs Reserves 562 256 - 376 525 323 Convertible Currencies, gross4/ 22.7

(and of year) SIRD LENDING, April 30, 1981' US$Mln

Oil and Products 1976 1977 1978 1979 1980Exports 735 688 746 1.744 1,871 Outstanding and disbursed 868.5Iports 717 875 1,219 2.051 3,818 Undisbursed 773.1

Outstanding and undisbureed 1,641.6

/ Including errors and omissions.2/ Debt service payments for credits received only.

3/ met of debt service payment receipts for credits eztend .

4/ Debt service payments included in coavertible currencies as apercentege of export receipts in convertible currency.

5S Includes only effective loams.

EMl1an 9, 1981

- 26 -

ANNEX IIPage 1 of 7 pages

STATUS OF BANK GROUP OPERATIONS IN ROMANIAStatement of Bank Loans(As of May 31, 1981)

US $ MillionLoan Fiscal Amount (less cancellations)Number Year Borrower Purpose Bank TW IDA Undisbursed

Nine loans fully disbursed 428.1 -1242-RO 1976 Investment Bank Hydropower 50.0 7.41368-RO 1977 BAFI/a Irrigation 60.0 5.21436-RO 1977 Investment Bank Bearings 38.0 4.91448-RO 1977 Investment Bank Polyester 50.0 7.51479-RO 1978 BAFI Agricultural Credit 71.0 17.91509-RO 1978 BAFI Irrigation 40.5 11.81536-RO 1978 Investment Bank Tire 85.0 43.91581-RO 1978 Investment Bank Post Earthquake 60.0 21.71634-RO 1979 Investment Bank Chemicals 40.0 12.21651-RO 1979 Investment Bank Pipe 40.0 38.61652-RO 1979 Investment Bank Thermal Power 70.0 44.61669-RO 1979 BAFI Livestock 75.0 34.01670-RO 1979 BAFI Irrigation 70.0 49.81764-RO 1980 BAFI Livestock 85.0 63.21794-RO 1980 Investment Bank Canal 100.0 44.71795-RO 1980 BAFI Irrigation 90.0 85.91876-RO 1980 BAFI Orchards 50.0 48.81936-RO 1981 Investment Bank Power IV 125.0 125.01937-RO 1981 BAFI Livestock 80.0 80.01938-RO 1981 BAFI Irrigation 75.0c/ 75.0

Total 1,7 82.6d/ 822.1of which has been paid 39.6

Total now outstanding 1,743.0

Amount sold 19.8of which repaid 17.2 2.6

Total now held by Bankb/ 1,740.4

Total undisbursed 822.1

a/ Bank for Agriculture and Food Industry.b/ Excluding exchange adjustments.c/ Not yet effective.d/ In addition, a $80 million loan for the Caracal-Titu Irrigation project

was approved by the Executive Directors on April 23, 1981.

- 27 -

Annex IIPage 2 of 7 pages

PROJECTS IN EXECUTION!/

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

After initial delays due to changes in site and project scope, anddelays in design and construction, most plant units have been commissionedduring 1978/79 except for the urea plant. The urea plant which was delayeddue to slow delivery of local equipment is now in the commissioning andtesting phase. The loan is fully disbursed and closed.

Ln. No. 1027 Otelinox Special Steel Project; US$70 Million Loan of July10, 1974; Date of Effectiveness; April 3, 1975; ClosingDate: December 31, 1979

Execution of the project was delayed about one year, primarilybecause of the complexity of two large bid packages, the Romanians' lack offamiliarity with international competitive bidding procedures under the Bank'sGuidelines, and lack of interest and competition among suppliers. More recentdelays have been caused by late delivery and quality problems with Romanianmanufactured equipment. The cold mill was commissioned in July 1979 andconstruction on the bar mill is progressing somewhat behind contractedschedules with commissioning expected in February 1981. Total project costsare expected to be essentially equal to appraisal estimates. The project isexpected to be fully completed in the latter part of 1981. The loan is nowfully disbursed and closed.

Ln. No. 1028 Turceni Thermal Power Project; US$60 Million Loan of July10, 1974; Date of Effectiveness: November 6, 1974; ClosingDate: June 30, 1979

Delays in construction due to late delivery of equipment and skilledlabor shortages and redesign of some elements found necessary will result in adelay in commissioning of generating units. Two of the units have beencommissioned and the remaining two are expected to be commissioned in firsthalf of 1982. Operating staff is being trained. The loan is now fullydisbursed and closed.

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

- 28 -

ANNEX IIPage 3 of 7 pages

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

Due to shortage of manpower, tunneling works have been delayed whichis hoped to be partially recovered by a modern large surface boring machine.Project completion will remain over one year behind schedule. Civil works forthe dam and underground power station are well underway but also delayed by asimilar period. One Hundred percent of the loan amount has been committed and85 percent has been disbursed.

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

Construction of pumping stations, canals, and other project works isprogressing satisfactorily. The area irrigated in 1980 reached 34,000 ha