Document of The World Bankdocuments.worldbank.org/curated/en/163871468100762123/pdf/ICR… · I....

Document of The World Bank

Report No:ICR0000113

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-36510)

ON A

CREDIT IN THE AMOUNT OF SDR 5.5 MILLION CREDIT

(US$6.76 MILLION EQUIVALENT)

TO

The Republic of Serbia

and

The Republic of Montenegro

(formerly called Serbia and Montenegro)

FOR

Trade and Transport Facilitation in South East Europe Project (TTFSE)

May 10, 2007

Sustainable Development Department South East Europe Country Unit EUROPE AND CENTRAL ASIA

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CURRENCY EQUIVALENTS

(Exchange Rate Effective-April 30, 2007)

Currency Unit = New Serbian Dinar New Serbian Dinar 100 = US$1.68

US$1.00 = 59.68 New Serbian Dinar

FISCAL YEAR

ABBREVIATIONS AND ACRONYMS

BCP Border Crossing Point CAFAO Customs and Fiscal Assistance Office (EU) CAS Country Assistance Strategy DTI Direct Trader Input EDI Electronic Data Interchange ECMT European Conference of Ministers of Transport EU European Union FCA Federal Customs Administration FIATA Federation of International Forwarding Agents FMS Financial Management System FMR Financial Management Report FRY Federal Republic of Yugoslavia IBM Integrated Border Management MCA Montenegro Customs Administration MOF Ministry of Finance MOU Memorandum of Understanding PIT Project Implementation Team QAG Quality Assurance Group RSC Regional Steering Committee SaM Serbia and Montenegro SCA Serbian Customs Administration SCC Serbian Chamber of Commerce SECI Southeast European Cooperative Initiative SEE Southeast Europe SEW Single Electronic Window SCGPRO Serbia and Montenegro PRO Committee SME Small and Medium Enterprises STAT SECI/TTFSE Advisory Team TTFSE Trade and Transport Facilitation in Southeast Europe TSS Transitional Support Strategy VAT Value-Added Tax WCO World Customs Organization YCCI Yugoslav Chamber of Commerce and Industry YUPRO Yugoslav PRO Committee

Vice President: Shigeo Katsu

Country Director: Orsalia Kalantzopoulos Sector Manager: Motoo Konishi

Project Team Leader: Gerald Ollivier ICR Team Leader: Gerald Ollivier

THE REPUBLIC OF SERBIA THE REPUBLIC OF MONTENEGRO

Trade and Transport Facilitation in Southeast Europe Project

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

1. Project Context, Development Objectives and Design............................................... 12. Key Factors Affecting Implementation and Outcomes .............................................. 63. Assessment of Outcomes .......................................................................................... 104. Assessment of Risk to Development Outcome......................................................... 205. Assessment of Bank and Borrower Performance ..................................................... 216. Lessons Learned ....................................................................................................... 257. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 27Annex 1. Project Costs and Financing.......................................................................... 28Annex 2. Outputs by Component ................................................................................. 29Annex 3. Economic and Financial Analysis................................................................. 36Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 38Annex 5. Beneficiary Survey Results ........................................................................... 40Annex 6. Summary of Borrower's ICR and/or Comments on Draft ICR..................... 43Annex 7. Comments of Cofinanciers and Other Partners/Stakeholders....................... 50Annex 8. List of Supporting Documents ...................................................................... 51

MAP IBRD 31815

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A. Basic Information

Country: Serbia Project Name:

Trade & Transport Facilitation in South East Europe Project (TTFSE)

Project ID: P074090 L/C/TF Number(s): IDA-36510 ICR Date: 06/04/2007 ICR Type: Core ICR

Lending Instrument: SIL Borrower: FEDERAL REPUBLIC OF YUGOSLAVIA

Original Total Commitment:

XDR 5.5M Disbursed Amount: XDR 4.9M

Environmental Category: C Implementing Agencies: Montenegro Customs Administration Serbia Customs Administration Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual Date(s)

Concept Review: 09/05/2001 Effectiveness: 01/07/2003 01/07/2003 Appraisal: 12/11/2001 Restructuring(s): Approval: 06/04/2002 Mid-term Review: Closing: 09/30/2006 03/31/2007 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Low or Negligible Bank Performance: Satisfactory Borrower Performance: Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Satisfactory Government: Not Applicable

Quality of Supervision: Satisfactory Implementing Agency/Agencies: Not Applicable

Overall Bank Performance: Satisfactory Overall Borrower

Performance: Satisfactory

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C.3 Quality at Entry and Implementation Performance Indicators Implementation

Performance Indicators QAG Assessments (if any) Rating

Potential Problem Project at any time (Yes/No):

Yes Quality at Entry (QEA):

None

Problem Project at any time (Yes/No):

No Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Satisfactory

D. Sector and Theme Codes

Original Actual Sector Code (as % of total Bank financing) Central government administration 100 100

Theme Code (Primary/Secondary) Administrative and civil service reform Primary Primary Infrastructure services for private sector development Primary Primary Regional integration Primary Primary Trade facilitation and market access Secondary Primary E. Bank Staff

Positions At ICR At Approval Vice President: Shigeo Katsu Johannes F. Linn Country Director: Orsalia Kalantzopoulos Christiaan J. Poortman Sector Manager: Motoo Konishi Eva Molnar Project Team Leader: Gerald Paul Ollivier Gerald Paul Ollivier ICR Team Leader: Gerald Paul Ollivier ICR Primary Author: Liljana Sekerinska F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The Project has two development objectives: (i) to reduce non-tariff costs to trade and transport; and (ii) to reduce smuggling and corruption at border crossings. Revised Project Development Objectives (as approved by original approving authority)

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(a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Revenue collected by Customs staff (US$000)-SCA Value quantitative or Qualitative)

100 250 1358

Date achieved 12/31/2001 12/31/2004 12/31/2006 Comments (incl. % achievement)

Strong trade expansion, VAT introduction and full computerization of the SCA contributed to this strong increase in productivity.

Indicator 2 : Revenue Collected by Customs staff (US$000)-MCA Value quantitative or Qualitative)

282 370 526


Strong trade expansion, VAT introduction and full computerization of the MCA contributed to this strong increase in productivity.

Indicator 3 : Total Customs Cost/Revenue collected SCA (percent) Total Customs Cost/Revenue collected MCA (percent)

Value quantitative or Qualitative)

SCA 4.76 MCA 2.35

SCA 2.1 MCA 1.9 SCA 1.53

MCA 1.74


Strong growth in revenues enabled both the SCA and MCA to exceed the target.

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Pilot Inland Terminal-Import Clearance Time-SCA Pilot Inland Terminal-Import Clearance Time-MCA

Value (quantitative or Qualitative)

Belgrade: 242 Podgorica: 326

Belgrade: 60 Podgorica: 60

Belgrade: 49 minutes Podgorica: 56 minutes(average over first three months of 2007)

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The performance improvement linked to the implementation of new procedures and the rollout of a new information system exceeded expectations.

Indicator 2 : Pilot crossing-Average Entry time-SCA (in minutes) Pilot crossing-Average Entry Time-MCA (in minutes)

Value (quantitative or Qualitative)

SCA:180 MCA:65

SCA:20 MCA: 15 SCA:42

MCA: 26


The reduction in border crossing time has been remarkable, even if it did not fully meet the original target. Most of the remaining time delays relates to activities by other parties than Customs.

G. Ratings of Project Performance in ISRs

No. Date ISR Archived DO IP

Actual Disbursements (USD millions)

1 06/21/2002 Satisfactory Satisfactory 0.00 2 12/18/2002 Satisfactory Satisfactory 0.00 3 06/14/2003 Satisfactory Satisfactory 0.00 4 12/30/2003 Satisfactory Satisfactory 0.54 5 06/28/2004 Satisfactory Satisfactory 0.55 6 12/16/2004 Satisfactory Satisfactory 0.62 7 05/03/2005 Moderately Satisfactory Moderately Satisfactory 1.51 8 01/20/2006 Satisfactory Satisfactory 3.38 9 08/10/2006 Satisfactory Satisfactory 4.06

10 12/22/2006 Satisfactory Satisfactory 6.09 H. Restructuring (if any) Not Applicable

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I. Disbursement Profile

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1. Project Context, Development Objectives and Design

1.1 Context at Appraisal Country Background: Following several years of conflict and the overthrow of the Milosevic regime, the Federal Republic of Yugoslavia (FRY) joined the Bank in May 2001. In February 2002, the Belgrade Agreement set out the general framework for a union between the Republic of Serbia and the Republic of Montenegro. It anticipated that the republics would implement separate, but partly harmonized trade and customs regimes with a view toward eventual integration with the EU. It also allowed for a referendum on continuation of the union after three years of implementation. The Constitutional Charter for the State Union of Serbia and Montenegro, which replaced FRY, was adopted in February 2003. Under that Charter, the FRY was transformed into the State Union of Serbia and Montenegro (SaM). These major constitutional changes called for a flexible program design. Sector Background: The Customs function, as per Article 77 of the 1992 FRY Constitution, was under the jurisdiction of the Federal State. However, Montenegro assumed control over the regulation of Customs and the collection of duties and taxes on its territory and in July 2000, it adopted a Temporary Act on Customs Tariffs, introducing lower tariffs than at the federal level. De facto, the Montenegro Customs Administration (MCA) operated independently and the Federal Customs Administration (FCA) primarily covered the Serbian territory. Informal and active cooperation was maintained between the two administrations, notably regarding the maintenance of the information system in place. The two juxtaposed Customs systems were considered to create opportunities and incentives for corruption and smuggling. Checkpoints were established at the administrative border between the two Republics to address this issue. These checkpoints created an additional bottleneck for internal transit, isolating Montenegro and reducing the competitiveness of transport through the Port of Bar. Performance of both FCA and MCA required significant procedural and operational changes to meet international practice and catch up with progress made in the rest of the region. Their system led to long and inefficient processing at border crossing points and clearance terminals. However, excessive waiting times at border crossings and inland terminals were considered a result not only of Customs performance but also performance by other agencies. Inefficiency derived primarily from Customs legislation, which emphasized the revenue collection role of Customs, and did not allow the selective examination of goods, vehicles and passengers, nor modern concepts such as post-release verifications. Legislation also lacked penal provisions to enable better enforcement through better detection and prosecution of offences. The Customs system lacked human resources management that would encourage ethical behavior and incentive schemes for better performance. The computer system in the FCA, utilized at project preparation, had been introduced in 1995, and was based on a mainframe architecture leading to high maintenance costs (US$1 million annually). Updates of the system were difficult, as the software package was based on an obsolete language (CSP). As such, the system required a complete redefinition. Corruption represented a deep-seated problem for the Customs Administration, which was perceived as one of the most corrupt institutions in FRY. A comprehensive corruption survey carried out in 2001 at the Serbian level indicated that 84 percent of respondents considered that

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there was "much" or "very much" Customs corruption and that 75 percent considered that the majority of Customs officials were involved. At that time, even though the country saw an emergence of a large number of small transport operators and freight forwarding companies, interaction between government agencies and the private sector was very limited, and had no established structure. Following the Government changes in January 2001, both the Federal Government and the Government of Montenegro embarked on the preparation of modernization strategies of the respective Customs Administrations. Both strategies were grounded on a redefined role of Customs from an essentially revenue collection activity to a more global responsibility of ensuring that all goods crossing the border are compliant with the relevant legislation and the introduction of integrated border management. Rationale for Bank Involvement: At the time of project initiation, only very limited support to implement a modernization program or improve border facilities was available to both governments. As such, the Bank involvement through the regional trade and transport facilitation program in Southeast Europe (TTFSE) was exceptionally relevant and timely to support the modernization strategies designed by both administrations and provide targeted technical assistance to ensure that the modernization programs would have a solid impact for traders and transporters at major border and clearance facilities. Also at the time of project development, the Bank had already started the implementation of the regional TTFSE program in all countries bordering with SaM. The regional approach to trade and transport facilitation in the region was considered highly appropriate. Trade promotion and reduction of corruption associated with cross-border trade are trans-boundary issues - by definition - that no one country could effectively handle on its own. Most TTFSE countries (including SaM) provide corridors for long-distance transport, for instance for goods in transit from Turkey and Greece to the EU. TTFSE was also considered a means of promoting reintegration in a region and a facilitation tool for experience exchanges and the best practices adoption. The Bank’s support to the initiated reforms managed to attract US funding to support: technical assistance for pilot sites, support to the creation of new procedures and training, introduction of selectivity and risk analysis, and trade facilitation development enabling distance learning training and seminars via the Yugoslav Chamber of Commerce and Industry (YCCI)/YUPRO Committee to build human capital in road transport and freight forwarding, at a time when this service industry was facing fast transformation. Toward the end of project preparation, the EU, through its CAFAO office, launched the preparation of a sizeable program of technical assistance to support systemic changes at organizational and legal levels aligned with EU requirements. Close interactions took place to ensure that the modernization would be driven by the SCA and MCA with a coordinated support among donors. 1.2 Original Project Development Objectives (PDO) and Key Indicators The Project Development Objectives were:

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

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The project included three broad types of performance measurements, including: (i) a set measuring the impact of the Regional Program (by monitoring the cost and time

required for a standard full truck load shipment on three regional itineraries through user surveys as well as occurrences of 'petty' payments for facilitation);

(ii) a set measuring the overall ratios of efficiency and effectiveness of the MCA and the SCA (trade volume per staff, revenue collected by Customs compared to total Customs cost); and

(iii) a set measuring the performance of all border agencies at pilot sites and their total impact on users.

The indicators for the third set of measurements at pilot sites included:

(i) number of physical or documentary examinations and their effectiveness; (ii) total processing time; (iii) number of vehicles processed within a standard processing time; and (iv) occurrence of corruption.

Indicators on passenger processing were also included for Montenegro. The pilot sites were decided at project appraisal.

For the SCA: inland terminal: Belgrade; border crossings: Batrovci (Croatia), Gradina (Bulgaria), Horgos (Hungary), Presevo (Macedonia).

For the MCA: Debeli Breg (Montenegro-HR) and Podgorica (inland terminal).

The FCA border crossing pilot sites are located on the Pan-European Transport Corridor X and usually faced existing TTFSE pilot sites in neighboring countries. The pilot clearance terminals are the largest terminals in use for clearance respectively in the SCA and the MCA. 1.3 Revised PDO and Key Indicators, and Reasons/Justification The project objectives were not revised. 1.4 Main Beneficiaries The entire trade community including transport operators, importers and exporters, freight forwarders were expected to be the direct beneficiaries of the project since they were seriously impacted by delays, regularly caused by improper knowledge of border requirements. The regional TTFSE website intended to provide access to all the procedures and requirements of border agencies regarding trade and international transport, thereby increasing certainty of the business climate. The distance learning training to service providers was developed toward improving access to knowledge related to trade, transport and logistics. The project was seen to have an indirect impact on the poor by reducing corruption and waiting times at border crossing points. Faster and smoother border crossing both for trucks and passenger transport would remove some of the constraints affecting people commuting frequently through the border or visiting their family in neighboring countries.

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Benefits from the reduction in border crossing delays would translate to consumers and producers since the reduced trade and transport costs bring about reduction of the import cost, leading to benefits to consumers and lower input costs required for local manufacturing, with corresponding creation of new jobs. 1.5 Original Components The project consisted of the following components: A1. Modernization of the FCA. Original base cost: US$2.86 million The component included: (i) technical services to coordinate and integrate the various modernization elements and donor contributions, and support to the change process; (ii) technical services to review and revise laws, regulations and guidelines to fulfill Customs functions while facilitating legitimate trade, in cooperation with other agencies; (iii) technical services to support the introduction of a Preventive and Enforcement Service in the FCA; (iv) technical services to prepare and introduce new Customs procedures and documentation, supported by training; (v) technical services to strengthen human resource management; and (vi) equipment to improve the quality and efficiency of checks. In addition to the support from the US Government to fund part of this component, the FCA requested support from the French and British Governments on aspects (ii) and (iv), who had expressed interest in contributing to the TTFSE project. These elements were integrated as part of the European Commission/CAFAO program in the first half of 2002. A2. Modernization of the MCA. Original base cost: US$0.37 million The component supported: (i) Organizational and procedural review and related reforms at border stations and clearance terminals, supported by the necessary legislative and administrative changes; and (ii) introduction of selectivity and targeting in Montenegro. It was expected that the European Commission would provide most of the support for Customs modernization in Montenegro. B1. Support to FCA Information System Improvement. Original base cost: US$4.82 million The component provided consulting services, training and equipment for the information system to establish a fully functional Customs system. Priority was given to the introduction of selectivity, electronic submission of declarations and management of transit. It also provided a basis for the first phase of the Single Electronic Window Initiative. This long-term initiative was envisaged to enable importers, exporters, brokers, banks, insurance, transport and freight forwarding companies to carry out all trade-related interactions with the Federal or Republic administrations through an integrated electronic interface. Its main components were: (i) technical services for business process re-engineering; (ii) technical services for solution specification, software development and system integration; (iii) technical training; (iv) telecommunication network equipment; and (v) hardware and software to migrate to an open platform and support e-documents implementation. B2. Support to MCA Information System Improvement. Original base cost: US$0.76 million The component provided computer and telecommunication hardware to equip and connect the various border crossing points and clearance centers and software development to expand the current system and cover selectivity and transit functions. The equipment was to be used to implement the software solution developed over the past two years for the MCA at a few pilot

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sites at first, followed by a rollout to all Customs points at borders or inland in a second stage, once the software was fully operational. C. Trade Facilitation Development. Original base cost: US$0.50 million The component, funded by a US and Dutch grant, included: (i) provision of short training sessions to road transport operators, forwarders, customs brokers, and traders through the YCCI/YUPRO and local professional associations; (ii) provision of distance learning programs in cooperation with the International Road Transport Union for road transport operators and the international Freight Forwarder Association (FIATA) for freight forwarders; (iii) support to the Public-Private Committee on Trade Facilitation in the formulation of proposals to facilitate trade, building on a public-private dialogue; (iv) participation in the regional TTFSE website to ensure full transparency of procedures and requirements of border agencies as well as travel information; and (v) exchange programs to stimulate experience-sharing on facilitation and border agency reforms. D. Project Implementation. Original base cost: US$0.49 million Included the services required to support the implementation of the project. These included training for procurement and financial management, procurement advisors, external auditors, support in the establishment of a financial management system, and training for the Project Managers and the Project Implementation Team. 1.6 Revised Components The components were not revised.

1.7 Other Significant Changes The project was approved by the Board on June 4, 2002 and was signed on June 14, 2002. Effectiveness was scheduled for July 15, 2002, but delays in the approval of the draft Customs Service Law and in the appointment of auditors led to extensions until January 7, 2003. The initial closing date of September 30, 2006, was extended on two occasions, initially to December 31, 2006 and then until March 31, 2007. Both extensions were requested so as to finalize the activities related to the completion of the Information system, which as a result of the delays at the start of the project could not be timely completed. The project faced some setbacks during 2004, when the US Congress made Serbia ineligible for US funding. Financing of the US-funded Customs Advisors (STAT team) working in Serbia was suspended for a period of six months. During this period, the SCA continued monitoring performance at pilot sites. The Bank discussed with the SCA and CAFAO, the possibility to substitute US support by CAFAO support in three areas: (i) modernization of procedures at TTFSE pilot sites; (ii) definition of practical solutions regarding integrated border management; and (iii) specialized assistance for EU Customs information system. Given that these items were included in the work program of CAFAO and that cooperation between the two programs was effective, this was seen as a natural expansion of their activities. The US team briefed the CAFAO team to that end. Despite this setback, the US advisory team provided highly timely and relevant advice to both Customs administrations as repeatedly mentioned by Customs management.

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The funding suspension also reflected on several activities which had to be cancelled, including: training on internal affairs, enforcement, and communication with drivers/passengers. It also affected the team supporting the project, as it was downsized from three to one advisor. Close cooperation with CAFAO enabled the program of modernization to continue receiving support. There were no other major changes in implementation arrangements over the course of the project.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry Soundness of the Background Analysis Supporting the Project, Lessons Learned Incorporated, and the Rationale for the Bank’s Intervention. The team considered the success and risk factors, appointed by the original TTFSE projects, as well as reasons for delays that could be prevented, and thus acknowledged the importance of full country, government and Customs Administration ownership for successful implementation of Customs modernization. The modernization called for effective relationships with the other border agencies and deep behavioral changes at all levels within the administration. Consequently, the Bank insisted on the nomination of a National Coordinator willing and capable of frequent interaction with all border agencies. The National Coordinator and Republican Coordinator were nominated by appraisal. Local project teams created at pilot sites were empowered to propose procedural modifications as per the performance measurements. Following the Government vision and initiative, the project included the establishment of a single electronic window (SEW) in the FCA and realistically set the goal to only initiate SEW and provide for its piloting. Preparations were made in line with the Recommendation No. 33 of the United Nations Centre for Trade Facilitation and Electronic business (UN/CEFACT). The legal obstacles experienced by the original TTFSE countries in introducing selectivity and targeting were mitigated through the advance preparation of new Customs Codes for the FCA and the MCA that already provided legal ground for selective processing. Both Codes were in an advanced stage of preparation at appraisal, and a condition for effectiveness. Furthermore, implementation experiences showed a slow down resulting from the multiplicity of donor contributions, thereby calling for active donor coordination. In response, the project provided a special advisor to the FCA Director to coordinate all donor assistance and avoid overlaps, particularly with the large parallel EU program. Also, agreement was reached for cooperation with the Chamber of Commerce and Industry/YUPRO Committee. The project design took into consideration the needs highlighted in the FYR of Macedonia Transit Facilitation Project completed in 1998 (ICR# 19408) to: (i) tailor the complexity of the project design to what can be achieved under a single loan; (ii) ensure the capability of implementing agencies; (iii) address issues perceived as real priorities by the borrower; and (iv) maintain flexibility to ease implementation. Assessment of the Project Design. The Transitional Support Strategy (TSS) included TTFSE as one of the priority investment projects since it was considered to have impact on all four major reforms identified in the Economic Recovery and Transition Program. These reforms planned: (i) restoring macroeconomic stability and external balance; (ii) stimulating growth and creating a basis for a sustainable supply response; (iii) improving social well-being of the most vulnerable and building human capital; and (iv) investing in improved governance and effective institutions.

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The project components were in line with the objectives. The approach to the modernization of customs services was based on the sound principles of selective physical inspection, fully automated systems, provision of information to the trade community, and concerns for facilitating the movement of legitimate trade. The team was correct to assess that modernization is a longer reform process which spans beyond project life and accordingly focus on priority interventions which could yield quick, visible and impact-intensive results. Also, the team rightly addressed customs modernization from all aspects: legislative, information technology, equipment, training, and involved the private sector as a relevant actor in the reform process. Since the project covered both the FCA and MCA, the project implementation included two project managers, one in each administration, but using a shared Project Implementation Team, based in the FCA, to cover procurement, credit management and reporting functions. The participation of both administrations was considered a possibility for cooperation strengthening, particularly important for their fight against corruption and efforts to facilitate trade. Adequacy of Government’s Commitment, Stakeholder Involvement, and/or Participatory Processes. The team correctly considered the government commitment key to the success of the customs modernization efforts. At the time of project preparation, the country confirmed its strong will to reform and modernize the Strategies of the Federal and Montenegrin Customs Administration. The FCA and MCA held extensive discussions throughout the process of strategy creation and law drafting, jointly with the Bank. FRY confirmed its support to the region efforts for improved trade and transport facilitation by actively joining the work of the Regional Steering Committee and organized the 2002 Regional Steering Committee meeting. Throughout project preparation, active consultations were held and included exporters, importers, producers, road transport operators and their association, freight forwarders/shippers. Bank staff conducted extensive interviews to identify trade and transport impediments during the preparation of the Economic Recovery and Transition Program. Assessment of Risks and Mitigation Measures. Project risks taken into account were mainly of political nature and implementation capacity nature, and included: (i) risk of the cooperation between FCA and MCA deteriorating; (ii) risk that the Constitution might be amended, making implementation more difficult; (iii) risk of PIT experiencing difficulties in managing project funds according to IDA requirements; and (iv) risk of PIT experiencing difficulties in following IDA procurement rules. Regarding risks (i) and (ii), the project was designed to have components which were independent and implementing arrangements which were viable even in the most drastic political scenarios. The independence of the Republic of Montenegro, since May 2006, was followed by a continuously smooth implementation. As per the risks connected to the PIT capacity, the Bank allowed training of PIT staff during preparation and planned further training possibilities during implementation. At appraisal, the implementing agency prepared the Project Operational Manual so as to established readiness for implementation. It is assessed that even though the Government and the Bank carefully discussed the capacity of the PIT and designed training programs to address shortfalls, additional skills training about Bank procedures, particularly in procurement, financial management, would have enhanced the implementation dynamics, considering that several changes in fiduciary staff took place in 2002-2004.

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2.2 Implementation The project was not restructured; there were no major changes made to the design, and the project was never at risk. There was no mid-term review. Initial implementation was slow for the first two years, beginning with a seven-month delay in effectiveness (explained in section 1.7). Shortly after the project became effective, the SCA Director General and the IT Manager, who had been strong champions behind the modernization program, the project design and components, were replaced. This affected the ownership for the project in Serbia, and little progress was made until mid-2004 when new management took over the SCA. Since then, ownership has been strong and implementation has picked up considerably. Nonetheless the overall schedule was delayed and the SCA IT strategy took longer to implement than originally foreseen. As a result, while a first phase of the SEW preparation was completed during the project, it was not piloted as initially intended. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization M&E Design. Implementation progress was measured against three sets of performance measurements, showing: (i) impact of the regional program, (ii) overall ratios of efficiency and effectiveness of the MCA and FCA, and (iii) performance of the border agencies at pilot sites. These measurements were linked to the achievements of the project outcomes and were projected for the entire implementation period. Indicators relating to the performance of border activities were set and measured according to the standard TTFSE methodology used in the other projects so as to enable comparability and consistency throughout the region. Pilot sites where measurements were carried out were all Pan- European Transport Corridor X and thus were correctly chosen so as to ensure biggest impact as they are trade and transport most intensive. As several sets of measurements took place during the project preparation credible baseline figures and projections were established. Performance targets were set for the period until 2004, when indicator targets for the remaining period were confirmed. These provided a continuous assessment regarding progress and achievement of PDO (the detailed targets and achievements results are available in Tables 1 to 4, in section 3.2). Learning from the experience of the other TTFSE projects, the monitoring also included a Customs survey of users comparing the situation in 2002 and 2006 to obtain quantitative data on the quality of Customs services and the occurrence of corruption. (See Annex 5) M&E Implementation. Indicators were collected regularly, with the assistance of the US Advisory team. Although SCA maintained monitoring performance, the discontinuity of US support in Serbia impacted negatively the project as it happened at a time when major elements of the modernization were taking place. Results were reported in monthly reports and included also insight in relevant activities at the pilot sites and a breakdown underlining the contribution to waiting time of the various stakeholders. M&E Utilization. During project implementation the evolution of indicators was regularly monitored and considered a key indication of bottlenecks at the pilot sites. Pilot site teams analyzed results jointly with the STAT teams in the effort to introduce on the spot solutions for

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trade facilitation. The STAT team provided timely and relevant advice to Customs, and this contribution was praised and considered vital by both Administrations. In addition, the measurement results have provided incentive to local customs authorities to achieve better results as results from pilot sites were regularly presented at the joint pilot sites meetings. The later provided an opportunity for exchange of positive experiences and application of successful activities to all Border Crossing Points (BCP). The experiences of the BCP Presevo (with Macedonia), demonstrated how monitoring and evaluation has been successfully utilized by the local border team to improve border operations. Namely, for the long part of project this BCP had been a poor performer, and based on the M&E the local Customs team designed an Action Plan for the BCP together with the Customs Management and soon managed to reduce processing time by 83 percent and maintain better operation thus turning into one of the lead performers. Sustainability of the M&E Arrangements Beyond the Operation’s Implementation Period (e.g., utilization and strengthening of the existing M&E systems and capacity). Indicators from pilot sites will continue to be collected by SCA and MCA as they have been accepted to represent a valuable managerial tool to monitor performance of customs and service quality. In that sense, the Business Strategy and Plans for the MCA for the period 2006-2007 envisages not only the continuous use of performance measurement but also application of measurements on all border and inland terminal locations. Both administrations possess the necessary capacity and sufficient experience to continue monitoring on their own. It is to be expected that the dynamics of monitoring will be modified to shorter periods of time for measurement, due to the limited financial and personnel resources of the Administrations. Consequently, continuing support of this activity in the auspices of a second Bank project is suggested. 2.4 Safeguard and Fiduciary Compliance The project was rated “C” for environmental assessment purposes because there were no environmental issues in the project. During the life of the project no such issues arose and thus the original rating was justified. Counterpart funding was timely. Financial management was satisfactory and acceptable. The financial management function for the project was adequately staffed by two qualified and experienced specialists. Although the Project Implementation Team lost its previously trained financial management specialist, due to low civil servant salaries, it succeeded to overcome this hurdle through ongoing coordination and assistance from the Bank side and provided proper fulfillment of Bank procedures. Annual audits performed by an independent auditor expressed clean opinion on the project’s financial statements. Since appropriate accounting software was never put in use, and accounting evidence and Financial Management Reports (FMR) were prepared using Excel files, reliability of the reports was considered limited. Later efforts to use a separate accounting system were considered a hindrance to implementation at such an advanced project stage since they would have required extensive testing of the system and training of staff resulting in delays. Despite this,

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Quarterly FMRs were submitted timely and reasonable assurance regarding accuracy of the reports was obtained. Internal controls were in place. Loss of staff in the procurement part of the PIT also burdened the performance of the PIT. The PIT received training and assistance from the WB procurement specialists and the TTL; however, additional training might have augmented capacities to handle the work load more efficiently. Procurement faced difficulties in terms of large load of work, which at several occasions led to delays. However, the commitment of the PIT members and the committed support from the Bank team enabled the function to be carried out in a satisfactory manner and in accordance with World Bank procurement procedures. As implementation progressed, experience in procurement according to Bank rules led to speedier procurement practices. 2.5 Post-completion Operation/Next Phase The SCA expressed its strong interest in continuing cooperation with the Bank upon completion of the TTFSE project. The proposed approach would be to:

(i) extend to all critical border and clearance locations (covering at least 90 percent of freight traffic) the concepts that have been successfully piloted under the TTFSE; and

(ii) further progress in terms of integrated border management, single electronic window,

strengthened integrity, risk management and selectivity (second generation), efficiency of Customs internal affairs and public relations, while upgrading border facilities and equipment (X-ray) based on traffic priorities.

A total of 10 crossings have been pre-identified at this stage as requiring investments, although the list of economically justified crossing is likely to be shorter. Construction would take 3 to 4 years. These components could be coordinated by Customs, even though they may benefit various border agencies. The MCA has also projected a continuation of cooperation with the World Bank through the preparation of the Second TTFSE project. As elaborated in the Business Strategy of the MCA, the project should involve all border agencies and address remaining bottlenecks to trade and transport. The ongoing E-government project in Montenegro will also support such activities aimed toward the shortening of time and paper documentation required by administrative procedures and will thus provide additional overview of customs progress in procedures modernization. 3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation The objective was important to Serbia’s and Montenegro’s administration reform and economic development. The project provided timely and appropriate focus on rationalizing and strengthening the SCA and MCA with a view to improve the services and reduce the associated trade and transport impediments. As mentioned in section 1.1, the project was consistent with the Bank TSS for FRY.

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The project supported the goals set in the CAS of 2004, as it made efforts to: (i) ensure more effective functioning of the SCA and MCA; (ii) establish a comprehensive anticorruption system within the two Administrations; (iii) remove barriers related to the clearance of goods; and (iv) support capacity development of the private sector. This was accomplished through: (i) extensive support for the formulation of a proper legal and regulatory framework; (ii) extensive support for enhanced human resource management, and for organizational restructuring; (iii) training; (iv) inspection equipment; and (v) a modern information system, while ensuring that new procedures are duly implemented at border crossing points and clearance facilities. The design of the project, which focused around the modernization of Customs procedures and IT system was a suitable approach as it allowed swift and tangible improvements in customs work and assured the maintaining of results through greater transparency and private sector participation. A key feature of the project was the effort to restructure otherwise inefficient and costly border crossing procedures, which undermined the competitiveness of exports, exacted a cost from businesses, reduced the ability of domestic firms to participate in global production networks and made them less attractive to foreign investment. In addition, the project supported the goal of private sector development, not only by creating a more favorable and transparent environment for trade and transport, but also through boosting the capacity of the private sector to operate in a more intensive trade environment and to cooperate and confer its views/needs to the public sector. 3.2 Achievement of Project Development Objectives The achievement of the development objectives (i) to reduce non-tariff costs to trade and transport; and (ii) to reduce smuggling and corruption at border crossings, is rated satisfactory. It must be noted that the project interventions regarding non-tariff costs were intended to only a portion of those costs, namely those resulting from border and inland clearance procedures for road transport. The SCA and MCA were successfully transformed into more efficient and professional agencies in several directions:

(i) their procedures and organization was modernized (new organizational units were established, simplified procedures introduced, adequate IT system installed),

(ii) this modernization was passed to the operation practices and results at BCPs and inland terminals, and

(iii) the integrity of the customs service was secured by changing the mind set of customs and the other participants in the process (brokers, freight forwarders).

Achievement of Objective (i): To reduce Non-tariff Barriers to Trade. Achievement is rated satisfactory, as shown by the significant reduction of clearance times and import processing times and the sustained implementation of selective examinations. The project contributed successfully to customs reform, which in turn led to improved operating procedures at border crossings and inland terminals, thereby reducing non-tariff barriers. Comparing the seven pilot sites in the first 3 months of 2007 to the same site in 2002, processing times have been reduced by 73 percent on average. In other words, over 44 thousand truck days are saved each year to carry the same trade through those seven pilot sites.

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The key feature of the project’s contribution is the transformation of operating procedures at border crossings and inland terminals. The main reform was the adoption of selectivity of inspections based on risk analysis, as opposed to 100 percent physical inspection of trucks. This transformation of operating procedures was enabled and further strengthened by the installation of the new information technology system. It resulted in the adding of new functionalities such as: (i) direct trader input; (ii) e-submission; (iii) risk analysis; (iv) the introduction of VAT; (v) data exchange with Tax Administration, and partially with neighboring Customs Administration and relevant border agencies; (vi) management information system; and (vii) preparation of the system for the use of the EU TARIC and NCTS systems. This resulted in reduced clearance times without compromising customs revenue collection or security objectives. At the same time, the introduction of electronic submission of declarations additionally cut clearance time, as some of the following advantages were allowed:

one of the biggest bottlenecks in the customs procedure -data input from the declarations in the ISCS- has been eliminated;

this has in turn relieved a large number of customs workers now available to undertake other tasks;

savings in time for clearance are very tangible (from 4 hours down to less than 1 hour); the system created the conditions to introduce simplified customs procedures based on

simplified declarations; and the system established the foundation for the introduction of a single electronic window.

Improving the Clearance Times at the Belgrade Inland Terminal Although a key terminal, the Belgrade Inland Terminal suffered from excessively long clearance times. The initial project activities managed to reduce clearance times, but they still stayed between 150 and 250 minutes up to late 2005. Incorrect submission of declarations by brokers was confirmed to represent one of the main reasons for such operation, therefore making e-submission one of the main priorities of the SCA regarding the terminal. The possibility to submit declarations electronically was very quickly embraced by the private operators, and included 90 percent of shipments soon after the introduction of e-submission. As a result, total clearance time sharply dropped to the range of 42 to 72 minutes in the period December 2005 – December 2006, and the terminal has been consistently achieving the target times since June 2006. (See Chart 1) The savings in time at Belgrade have particularly high impact keeping in mind that the terminal receives 50 thousand vehicles on a yearly basis, and this figure continues to grow.

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Chart 1: Import Clearance Times at the Belgrade Clearance Terminal

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Chart 2: Examination Ra tes and Irregularities Detection at the Belgrade Clearance Terminal

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Operations at the Inland Terminal were further strengthened by the introduction of the Semaphore system, publicly showing the status of processing of declarations in the Terminal hall. The system significantly increased transparency of work of customs officers, and provided insight in the deficiencies of the system, allowing further procedural improvements. More importantly, Semaphore stimulates competition among brokers, thus inciting better performance on their side and reducing the need for Customs-brokers informal interactions. All of this combined results in better performance by both customs and brokers, thereby leading to better services for the end-user.

Throughout the project, performance at BCPs for entry time remained above the set targets, but results strongly improved since the end of 2005. For example, performance at Presevo improved significantly, falling to 21 minutes in March 2007 (having been at 156 minutes in September 2005, 96 minutes in November 2005, and 35 minutes in June 2006), as a direct result of the implementation plan agreed between the SCA and the Bank in November 2005. Selective

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controls were introduced systematically with a reduction in physical examination from 26 percent of shipments to 6 percent on average for border crossing points being monitored, exceeding the target of 20 percent and bringing Serbia closer to common practice in OECD countries (2 to 3 percent). In parallel, the level of detection rose by about one percent during the period at pilot sites, a trend also witnessed at the country level. While the relatively low level of detected irregularities can be attributed in part to more transparent procedures and capacity building among forwarders, it also underlines that the introduction of selectivity and targeting typically takes at least five years to reach maturity, and that the essential first step requires setting up ongoing institutional capacity to continuously upgrade it, as done under this first reform phase. BCPs entry times have been reduced by 64 percent on average despite the sharp increase in traffic Serbian borders have been facing following 2001. The achievements in clearance time’s reduction and selectivity at pilot border crossing points and the inland terminal are shown below in Table 1.

Table 1: Serbia Pilot Site Performance Year 2002 2003 2004 2005 2006 2007

Targ. Act. Targ. Act. Targ. Act. Targ. Act. Targ. Act. Targ. Act.

Pilot Sites Clearance Performance Belgrade Inland Terminal Import Clearance Time (min) N/a N/a 144 190 60 228 60 211 60 58 60 49

Physical Examination (%) N/a N/a 49 48 10 38 10 17 10 9 10 17.1

Irregularities/No. of Examinations (%) N/a N/a 22.18 2.66 9 3.5 9 0 9 12.72 9 3.93

Batrovci Border Crossing Average Border Entry Time (min.) 140 63 68 70 20 62 20 95 20 52.25 20 46

Average Border Exit Time (min.) 28 41 25 38 20 15 20 5 20 4 20 3.5

Truck Examinations (%) 60 28 44 23 20 14 20 5 20 7.3 20 8.9

Irregularities/No. of Examinations (%) 3 0 5.4 0.23 9 0.9 9 0.25 9 2.67 9 3.2

Horgos Border Crossing Average Border Entry Time (min.) 100 145 68 108 20 92 20 59 20 60.5 20 49.3

Average Border Exit Time (min.) 28 11 25 24 20 12 20 6 20 3.8 20 3.3



Gradina Border Crossing Average Border Entry Time (min.) 137 274 68 129 20 125 20 123 20 56 20 50

Average Border Exit Time (min.) 28 17 25 46 20 75 20 142 20 195 20 23



Presevo Border Crossing Average Border Entry Time (min.) 140 110 68 95 20 74 20 135 20 36.91 20 22



Irregularities/No. of Examinations (%) 3 0 5.4 0.4 9 1.63 9 0 9 0 9 0

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The project supported the transformation of the SCA to a modern, efficient and professional national agency, which has established itself as the leader in trade facilitation efforts of the country. SCA has shown a continuous improvement in its performance, shown by the continuously increased collection of revenue and trade processing. The productivity of Customs measured through the total customs cost as a share of the revenue collected increased and this ratio shows a decrease from 3.77 percent in 2000 to 1.53 percent in 2006. Revenue collection in the mentioned period increased almost 22 times. (See Table 2).

Table 2: Performance of the SCA SERBIA 2000 2001 2002 2003 2004 2005 2006

Total Customs Revenue (Thousand USD)

162,950 315,921 566,935 700,860 853,820 2,399,000 3,561,480

Total Customs Cost (Thousand USD)

6,140 15,051 23,210 30,620 32,000 54,620

Total Customs Staff 3,151 3,154 2,904 2,414 2,422 2,340 2,623 Total Customs Salaries (Thousand USD)

4,460 8,616 10,572 12,470 13,477 14,600 23,260

Annual Number of Declarations

417,137 466,985 698,640 782,517 809,633 979,151

Trade Volume (Million USD)

5,634 6,495 7,264 9,396 12,930 13,712 16,710

Revenue Collected/ Customs Staff

51,713 100,165 195,255 290,331 352,526 1,025,214 1,357,789

Total Customs Cost/ Revenue Collected

3.77% 4.76% 0.00% 3.31% 3.59% 1.33% 1.53%

Salaries/Revenue Collected

2.74% 2.73% 1.86% 1.78% 1.58% 0.61% 0.65%

Trade Volume/Staff (USD)

1,788,004 2,059,290 2,501,377 3,892,295 5,338,563 5,859,829 6,370,568

In Montenegro, the project contributed to the reform of operating procedures at border crossings and inland terminals, since it introduced the adoption of selectivity of inspections based on risk analysis, and introduced electronic submission of declarations (by May 2006, over 50 percent of customs declarations were being submitted electronically) and simplified procedures. Table 3 presents the improved clearance times at the Montenegro pilots.

Table 3: Montenegro Pilot Site Performance Year 2002 2003 2004 2005 2006 2007

Targ. Act. Targ. Act. Targ. Act. Targ. Act. Targ. Act. Targ. Act.

Pilot Sites Clearance Performance Podgorica Inland Terminal Import Clearance Time (min) 250 238 180 178 60 204 60 227 60 147 60 56

Physical Examination (%) 80 100 62 47 30 21 30 31 30 30.6 30 24.5

Irregularities/No. of Examinations (%) 8.5 0 8.5 8 8.5 15.6 8.5 18 8.5 5.34 8.5 0

Debeli Breg Border Crossing Average Border Entry Time (min.) 50 47 48 44 20 41 20 31 20 27 20 26.1


Truck Examinations (%) 70 93 58 52 35 33 35 30 35 28 35 28.89

Irregularities/No. of Examinations (%) 8.5 0 8.5 0 8.5 0 8.5 0 8.5 0 8.5 0

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Even though the Podgorica Inland Terminal has not managed to achieve the 60 minute target for import clearance time for a long time, it has been showing drastically improved results since the beginning of 2006. Namely, during year 2006 clearance times were decreased by 72.1 percent, coming down to 81 minutes in December 2006. Having in mind that measurements indicate that 60 percent is spent on submission of documents to customs, 30 percent on payment of duties and only 10 percent on actual customs proceedings, results are expected to improve as electronic submission of documents is used more frequently. A large portion of the improvements in 2006 were exactly a result of the adoption of e-submission by 50 percent of the brokers. Results provided by MCA over the first 3 months of 2007 indicate that the Podgorica Terminal now meets the 60 minute target (the average import clearance time during this period is 56 minutes). At the end of project implementation, the MCA is performing better both in the revenue collection and productivity in operations. Gains in productivity are reflected in the increase in annual number of declarations processed by staff which rose from 137 in 2002 to 480 in 2006. This is attributed to the improved performance of customs officers, following the new procedures, and use of detection equipment, both supported through the project. (See Table 4).

Table 4: Performance of the MCA MONTENEGRO 2000 2001 2002 2003 2004 2005 2006

Total Customs Revenue (Thousand USD)

72,800 84,777 159,873 235,892 249,854 281,671 262,247

Total Customs Cost (Thousand USD)

1,500 1,990 2,955 3,157 4,798 4,253 4,550

Total Customs Staff 250 300 327 365 464 505 499

Total Customs Salaries (USD)

980,000 1,197,935 1,687,386 2,956,810 3,406,328 3,308,975 3,369,561

Annual Number of Declarations

31,654 31,639 44,822 84,498 121,332 322,357 239,689

Trade Volume (Million USD)

623 802 1,145 1,639 1,794

Revenue Collected/ Customs Staff

291,200 282,592 488,908 646,282 538,479 557,766 525,545

Total Customs Cost/ Revenue Collected

2.06% 2.35% 1.85% 1.34% 1.92% 1.51% 1.74%

Salaries/Revenue Collected

1.35% 1.41% 1.06% 1.25% 1.36% 1.17% 1.28%

Declaration/Staff N/a N/a 137 232 261 638 480

Evidence shows that cooperation and discussion between the Customs Administrations and the business community has been strengthened and this cooperation has an active role in the modernization efforts of the Customs service. The established discussions ensure a direct feedback mechanism from business to Customs. Namely, the Belgrade inland terminal initiated and is maintaining the practice of holding bimonthly meetings with brokers where practices by both sides in the clearance process and results are discussed with the aim to initiate improvements. The SCA signed a Memorandum of Understanding with the Serbian Chamber of Commerce thus confirming the Chamber’s relevance for the public-private dialogue and its position as a knowledgeable and relevant partner for the discussion on border issues, liberalization, and harmonization of procedures. MCA strengthened its cooperation with the private sector by including the private business associations and associations of brokers in the discussion of new regulations and provision of training. In that sense, the MCA organized exams for broker licensing, which improved the

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performance of the brokers, decreased mistakes in declarations and thus reduced time spent during clearance. Commendable success in the training of freight forwarders by the Chamber of Commerce supported through the project led to the FIATA validation of the web-based material for the training of freight forwarders in Serbia. This validation means that the Chamber is now able to train professionals in freight forwarding with content that matches international expectations, and is entitled to issue a FIATA Diploma recognized in most countries by professionals in freight forwarding. Similarly the SCC received accreditation from the International Road Transport Union, to deliver Certificate of Professional Competence for road transport operators, in line with EU regulations. Achievement of Objective (ii): To Reduce Smuggling and Corruption at Border Crossings. The project resulted in reduced smuggling, as it (i) introduced selectivity and risk analysis which allows better detection of irregularities, and (ii) provided new border control equipment for detection by Customs. SCA developed a number of criteria for risk analysis, which showed good results because in 27 percent of examined consignments, irregularities were found. The fully equipped BCPs in Montenegro allow enhanced intra-agency cooperation in the integration of information regarding taxation, security and money laundering. The installed communication network leads to significant savings for communication. These novelties resulted in reduced clearance times without compromising customs revenue collection or security objectives. Due to the space for further improvement of irregularities detections, and particularly their notification, achievements are rated satisfactory. The project achieved its role in the reduction of corruption at border crossings, since it: (i) supported the development of a new legislation framework and customs organizational structure, ensuring effectiveness in corruption fighting; (ii) introduced procedures (electronic submission, selectivity), which combined with the reduction in waiting times, reduced the opportunity for corruption; (iii) established regular dialogue between the private sector and Customs, creating fertile ground to combat corruption; and (iv) increased transparency in operations and allowed access to information, which reduced the opportunities for corruption. Informal payments to Customs however still exist and Customs needs to maintain its efforts to cease these payments. Overall, achievements are considered satisfactory. The wide training activities of the private sector going in parallel to the modernization efforts of the Customs Administrations ensured increased understanding by these mainly small and medium enterprises of the rules and procedures for goods clearance. Improved knowledge of procedures was not only helpful in reducing the number of errors in filling out forms, but also provided a check on unscrupulous officials by making the legal requirements for clearance more transparent, thus helping reduce the opportunities for corruption. Evaluations of the training by the participants confirmed the positive impact of the training by showing that 90 percent of them rated the training as highly relevant and meeting their needs. During 2006, both Customs Administrations carried out corruption surveys (detailed results are available in Annex 5). Results are very encouraging as they show that the image of Serbian Customs has significantly evolved from negative five years ago to more positive today. The majority of Customs service users consider they are being treated by Customs on an equal footing with other companies, that the behavior of Customs is more standardized, and that Customs are fast (efficient) in performing customs procedures. As brokers and traders further improve their awareness of new opportunities, through the improved dissemination efforts and regular meetings

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with Customs, this image should further enhance. It is these facts in conjunction with the decisive move to penalize unethical behavior, while better rewarding staff that ensures the maintenance of efforts to reduce corruption in the service. However, it must be noted, that informal payments to Customs still exist and Customs must maintain its TTFSE initiated efforts to cease these payments. An internal and external public relation campaign has been designed to that end to clearly outline the rights, responsibilities and expectations of Customs and users. Legislative and human resources measures combined with the increased public insight in Customs work resulted in the reduction of corruption instances and opportunities. The MCA open line in the enforcement department, allows citizens to directly phone and report irregularities in the application of Customs procedures and regulations. The Ethics Code of Public Servants and Officials further defined integrity topics of Customs officers. In June 2006, MCA carried out a survey on the level of corruption in the Montenegro Customs Service. The report confirms noticeable improvements in all categories (transparency, equality, standardization of procedures, ability to lodge a complaint, frequency of petty payment). Corruption in Customs is assessed as Low-medium (2.26 out of a 1 to 5 scale). As in the case of the SCA, curbing informal petty payments remains a challenge. Further outcomes by component are presented in Annex 2. 3.3 Efficiency The project had an estimated net present value of US$35 million, based on the methodology used during the project appraisal. Reduction in border processing time was considerable (over 73 percent on average at pilot sites between 2002 and 2007). It started rapidly with the introduction of selective control at the project outset, and traffic turned out to be much higher than anticipated for both Serbia when international traffic through the Pan-European Corridor X resumed and for Montenegro as Montenegrin trade expanded. The economic rate of return was above 50 percent and the net present value much higher than the originally forecasted US$10 million. The total annual savings for users, resulting from reduction in border crossing time at pilot crossings is estimated at US$18 million annually as of 2007. It is worth noting that in line with the overall project objective of facilitating trade, both Serbia and Montenegro experienced solid trade expansion during the project life, which is not considered directly as part of the analysis since it results from many different factors. It is likely that the estimated trade benefit equivalent to 20 percent of transport benefits (US$3.6 million per annum as of 2007) used in the evaluation is an understatement of the actual impact of improved border crossings and clearance facilities. The economic impact of laboratory equipment purchased under the project was not included in this evaluation. The impact of the information system rolled out throughout the territory is not calculated, although it is expected to be significant. The fiscal impact of the project is considered very positive, as a result of improved procedures and information systems for Customs throughout the country, in a manner that also supported the seamless implementation of value added tax collection by Customs on imports. The two Customs administrations increased their tax collections from US$400 million in 2001 to US$3.8 billion in 2006. The overall efficiency indicators also underline major improvement in Customs efficiency over the period with a reduction in Customs cost to revenue collected to about 1.5 to 1.8 percent on par with good performers in the region. Since the Customs Administrations are not revenue earning entities, no financial rate of return were calculated. Part of the increase in revenue collection can be associated to the enhanced processing by Customs, particularly at pilot sites. The calculation of direct fiscal impact was however not possible since many factors played a role

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(trade increase, reduction in tariffs, free trade agreements) and attribution of impact would be highly subjective. 3.4 Justification of Overall Outcome Rating Rating: Satisfactory Based on the discussion and ratings given in Sections 3.1, 3.2, and 3.3, the overall outcome is rated as satisfactory. 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development The entire trade community including transport operators, importers and exporters, freight forwarders were the direct beneficiaries of the projects as they benefited from (i) modernized customs; (ii) proper facilities and information technology; (iii) lower expenses; (iv) more reliable business environment; (v) time savings; and (vi) reduction of corruption. Travelers and tourism benefited as well due to the shortened waiting times and improved travel conditions enabled by the improved facilities and procedures. The regional TTFSE website, funded through a parallel US grant, allowed access to all the procedures and requirements of border agencies regarding trade and international transport, thereby increasing certainty of the business climate. However, as some parts of the website were not timely updated, its impact was limited. The improved transparency also reduced opportunities for illegal payments. The electronic forum under the website empowered the business community in the region and outside by enabling it to voice its opinion on the quality of the border services received and to propose corresponding recommendations to facilitate trade and transport activities. (b) Institutional Change/Strengthening The project resulted in a substantial institutional change and strengthening of the Customs Administrations. In Serbia particularly, the TTFSE project changed the minds and hearts of the Customs workers. The institutional strengthening/change is evident through the following: Procedural Changes in Customs Work. The project was instrumental in the implementation of new concepts at pilot sites stemming from the new Customs Codes, which introduced new procedures such as: selectivity and risk analysis, simplified procedures, direct trader input, electronic submission of declarations, introduction of red/green channels at airports. It further supported the training of customs staff in the use of equipment provided through the project. Modernization of IT System. The project provided for the creation and implementation of a new IT system that enabled the operationalization of the new procedures. In addition, it allowed for the improved communication between BCPs and headquarters and exchange of information between border agencies. In Serbia, the project supported the design and preparation of the first phase implementation of the single electronic window, further creating possibilities for faster and cheaper goods clearance. Human Resources Management in Customs. TTFSE strengthened the management capacity of the Customs Administrations through the introduction of new human resources management organizational structures and introduction of anticorruption systems. Customs Administrations

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have now the tools to better run. As explained in section 3.2, staff productivity improved significantly over the implementation period. The Customs Administration increased their capacity for public relations. Monitoring Performance. A key achievement of the project was the adoption of performance monitoring as a managerial and operational tool of Customs. (c) Other Unintended Outcomes and Impacts No major unintentional impacts or outcomes of the project were noticed. 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops See Annex 5. 4. Assessment of Risk to Development Outcome Rating: Negligible to Low The aim for accelerated integration toward the EU represents a major incentive to sustain the achievements of the project and continue progress on customs reform and improvements in the control of corruption. The implemented reforms are considered an irreversible event as it is unlikely that development outcomes could be jeopardized due to the following:

i) Project Supported Values that are Critical to Fulfilling the Long-term Objective of Achieving Sustainable Growth. Continuous upgrading of the Customs services, procedures, management, and equipment based on a re-engineered budget would enable Customs to cope with trade and traffic growth, technological advance, and continued compatibility with the EU.

ii) Project Outcomes and Goals are Deeply Embedded in the Customs Program. The

project goals are now incorporated into Customs objectives as part of its annual plan, key staff at pilot sites is supportive of the program reforms, and capable of moving forward with support from upper management; and strong commitment from MOF to the program are the main factors which strengthen the sustainability on development outcomes since they have resulted in continued pressure on Customs to continue expansion of program concepts.

iii) High Public Awareness and Interaction between Private Sector and Customs. The

wide publicity given to the achieved results, and the availability of public information, makes it difficult for government to backtrack. The risks are controllable as transparency in Customs operations is ensured through the newly designed procedures and legal framework. Local oversight and private sector participation make all relevant institutions more accountable.

iv) Performance Monitoring. Monitoring using key indicators will be continued beyond

project life, as Customs management is determined to follow-up on performance monitoring. In addition, Customs management is determined to gradually roll out monitoring to all border and Customs inland locations. This suggests that the gains

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under the program will likely be lasting and extended to cover the totality of the Customs crossing points.

v) Inter-agency and Cross-border Cooperation. The approach and culture promoted

through the project are further supported by the EU-funded program on Integrated Border management (IBM).

vi) Second TTFSE Project. The MOF has already initiated activities for the preparation

of the second Trade and Transport Facilitation Program, agreeing with its extended objectives for integrated border management and increasing the role of border agencies.

The Chamber of Commerce indicated that it will likely continue to offer some training courses to be funded primarily by the participants. Regional cooperation is likely to continue, especially among the SECI PRO committees in view of the strong Chamber of Commerce and private sector interest in these fora. Risks that require specific mitigation measures and monitoring for the maintaining of the development objectives are as follows:

i) Coordination among agencies at the national level, which although improving is essential to achieve the two main program objectives. Customs has managed to establish itself as a potential ‘lead’ agency that would take on the responsibility for coordination, however it has to continuously receive high-level government support in order to be able to maintain coordination between the numerous agencies with border competences.

ii) RSC Meetings. It is unclear whether the RSC meetings of the Customs Directors will be continued after the program has ended. The extent to which the RSC will be sustainable depends on country interest and ownership.

5. Assessment of Bank and Borrower Performance (relating to design, implementation and outcome issues) 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory Bank performance during the identification, preparation and appraisal of the project was satisfactory. The project was prepared in an optimal period of six months by a core team of two specialists with a good skill mix (customs specialist, and transport/trade facilitation specialist) with a consistently good working relationship with the Borrower. Such a skills mix ensured that the modernization issues were handled from all relevant aspects, which in turn resulted in a well targeted project for trade and transport facilitation within a broad modernization framework. The team was assisted by three additional specialists, including a procurement specialist, an IT procurement specialist, and a financial management specialist. The extensive collaboration and consultation with all beneficiaries and other affected groups ensured adequate identification of needs, priorities and necessary interventions, and secured strong country ownership from the preparation stage. In addition, the project was prepared in collaboration with the US government, European Commission, and relevant UN agencies.

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The role of the project at the time on inception was critical to maintain the momentum for customs modernization and support the envisaged reforms. The team considered project alternatives to include civil works in the project and cover only the Federal Customs Administration and correctly decided against both of them. Namely, the design stressed the importance and urgent need of support to the modernization of processes, which represent the core of customs improvement. Modernization of border facilities was considered a focus of the other donors, chiefly the activities of the EU. The inclusion of MCA in the project allowed the improvement of customs processes and was further seen as an opportunity to continue cooperation between the administrations, particularly in corruption fighting and trade facilitation efforts. The project rightly pointed out to potential political risks and identified adequate safeguards in the loan agreement and project component design. The team adequately took into consideration the time span between the last WB projects in the country and the TTFSE project and lack of WB procedures experience thereof. In accordance with the Borrower fiduciary capacity assessment, staffing of the PIT was completed at appraisal and necessary training was planned. (b) Quality of Supervision Rating: Satisfactory The ICR considers the Bank's performance during the implementation of the project as satisfactory, having remained flexible and responsive, in the context of major constitutional changes, with strong impact on Customs. Despite the split of the Federal Republic of Yugoslavia into two new countries, the project managed to achieve its objectives through a highly intensified supervision effort and strong leadership from Customs Management in the second half of the project. Aside from regular and formal supervision mission, a full range of tools were used to maintain the momentum:

(i) regular interactions between Task Team Leader and PIT to both prepare and follow up missions;

(ii) formal supervision missions twice every fiscal year; (iii) close interactions between the field-based Project Officer and PIT; (iv) monthly report from US Team on performance at pilot sites; (v) PIT quarterly progress reports; (vi) meeting with the National Coordinator and PIT Manager at Regional Steering

Committee meetings (twice a year); (vii) regular meetings between Bank/Client team with UNCEFACT/Stability

PACT/WCO/UNCTAD/UNECE; (viii) quarterly participation in regional meetings of public private committees for trade

and transport facilitation representing all TTFSE countries; and (ix) frequent conference/video calls to keep track of progress.

Sufficient budget and staff resources were allocated, and the project was adequately supervised and closely monitored. The Bank’s relationship with the client was cordial and productive. Review teams included specialists in customs, trade facilitation, IT, transport, financial management, and procurement, allowing the adequate handling of all arising issues. Implementation progress was adequately reported, and implementation problems were identified early and addressed proactively. The field-based Project Officer ensured close follow up on such aspects. Performance ratings given in the Project Status Reports (PSRs) were realistic, and sufficient attention was paid to the project’s likely development impact.

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Supervision paid careful attention and made effective use of Monitoring and Evaluation as a tool for management, oversight, and public promotion. Indicators were consistently discussed with the Borrower thereby allowing the planning of procedural/legal/technical improvements to be initiated. Supervision reports were sufficiently detailed and well written and highlighted key issues, with action plans for next steps. Stakeholders expressed unvarying praise for the responsiveness and expertise of World Bank staff and consultants. Working relationships with the second largest co-financing donor, the US State Department, have been effective, although impacted by limitations placed by the US Congress on technical assistance programs to Serbia. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory Based on the Bank performance during lending phase and supervision as discussed in Section 5.1 (a) and (b), Overall Bank Performance is rated as Satisfactory. 5.2 Borrower Performance (a) Government Performance Rating: Satisfactory Government performance is rated satisfactory. During preparation, the borrower showed the necessary level of commitment to the project by initiating and carrying out the initial reform measures. The Federal Government endorsed a comprehensive Modernization Strategy for the FCA and the Montenegro Customs Administration drafted a new Customs Law for Montenegro and prepared a Modernization Strategy. The Government put in place the necessary legislative framework, allowing selectivity, mandating Customs to act as trade facilitators, and introducing electronic submission of declarations. The PIT was sufficiently staffed as per the agreement with the Bank and necessary preparations for implementation were timely undertaken. Both the FCA and the MCA actively participated in the work of the Regional Steering Committee and hosted it on two occasions: June, 2002 and June, 2005. Effectiveness was postponed due to the following reasons: the delays in the finalization of the Customs Law and the delays in the engagement of the financial auditors. The government maintained its reform strategy during project implementation both in the legislation modernization and in the introduction of the new organizational structure of the Customs Administration. However, the departure of the FCA management team, which had defined the project for Serbia, combined with the turnover of PIT staff, significantly impeded the implementation and disbursement of the project during the first two years of implementation. During this period, both legislative and technical modernization in the FCA showed some stagnation with limited engagement by FCA management to address the lack of progress. This resulted in the project becoming a potential problem project at that point. The situation reversed in 2004, when the new management of FCA took a strong lead in the modernization process, accelerated its pace, ensured stronger ownership at all levels and achieved most of the intended objectives.

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(b) Implementing Agency or Agencies Performance Rating: Satisfactory Implementing Agency Montenegro Customs Administration Serbia Customs Administration Changes in the Serbia and Montenegro Constitution and the redefinition of responsibility in the Serbian Customs Administration made the coordination effort more difficult over several months. During this period, the PIT lacked proper project planning, partly reflecting the institutional changes in the initial implementation period. Coordination among all units participating in the project was inadequate and efficient flow of information had to be re-established following the reorganization in the SCA. Serbia Customs Administration The Serbia Customs Administration was strongly committed to achieving the development objectives, although it experienced a management setback at an early stage, which was later resolved, as explained above. The PIT was adequately staffed. Despite the frequent changes in staff members at the beginning of the project, the National Coordinator and the PIT Manager managed to create a PIT with sufficient knowledge and dedication to the project. The PIT was provided sufficient resources to perform well. Financial management of the project was satisfactory with positive audit findings. Reporting was timely and sufficiently detailed. Procurement faced difficulties in load of work, which in combination with the limited experience with Bank operation and language barrier for certain technical issues, at several occasions led to delays. However, the commitment of the PIT members and the committed support from the Bank team enabled the function to be carried out in a satisfactory manner and in accordance with World Bank procurement procedures. The PIT communicated well with the Bank, and other donors, and followed up on agreed next steps and recommendations. In several instances, and particularly for performance indicators, the SCA went beyond initial expectations and developed even more valuable tools to review progress in real time. As the project progressed, the PIT, together with the SCA grew to become the leaders of the trade and transport facilitation efforts in the country, gaining the respect and cooperation from all relevant border agencies and continuously maintaining dialogue with the private sector. Montenegro Customs Administration The MCA Project Implementation Team consisted only of the Project Manager from the MCA, supported by the MCA IT department as all financial, procurement and reporting tasks were performed by the PIT in the SCA, based on the documentation provided by the MCA. Still, the staff at the MCA showed support and actively participated in the implementation of the project. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory Based on the Bank performance during lending phase and supervision as discussed in Section 5.2 (a) and (b), Overall Borrower Performance is rated as Satisfactory.

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6. Lessons Learned

High Level Government Support is Key to Success. Building a tradition of inter-agency communication and information sharing as well as building the mechanisms on which such communication can be based, needs a high-level government commitment and ideally a champion. Such a person/agency needs to be able to direct concerns to the highest levels of management in the ministries responsible for the agencies engaged in border control. This implies knowledge of the national political system and the power to navigate through that system.

Reliance on Champions can Backfire. While modernization champions play a major role in bringing projects to successful closure, as shown by the massive progress since 2004 in Serbia, champions are frequently targeted by outside interests, who would rather avoid the type of change and disruption brought by those champions. It is particularly applicable during politically volatile period as was experienced under this project. The departure of champions impacted the project in two ways: (i) momentum built during project preparation was interrupted early on and took until 2004 to resume; and (ii) initial investments in communication devices were made redundant after the 2004 change in the IT strategy of the SCA, which decided to rely on a different approach to rebuild the communication network.

Interagency Cooperation at Border Cross Points. Trade facilitation is always a multi-sectoral and multi-agency activity. For a project of this type where seven to eight agencies are involved, their active participation and cooperation are essential for successful implementation and achievement of project, objectives and also to ensure sustainability. A cooperative culture should be encouraged and promoted from the top down by the management of regulatory agencies.

Work Culture. A central task in the reform process is the formation of a new work culture. Centrally this means adding the facilitation dimension to the current culture of control and regulations. Senior management in border crossing agencies need to encourage new attitudes and to be trained with the change management skills necessary in order to promote such a new culture.

Commitment of Local Teams at Border Points and Inland Terminals. Government

and implementing agency commitment to the modernization process must pass on to the commitment and ownership of the local teams at the border points and inland terminals, as it ensures active support to the modernization efforts and initiates grass root ideas and activities toward the goal. In addition, delegation of authority to agents at the border crossing is also essential for enabling sustainable change and promoting pragmatic approaches to problem resolution.

Pilot Sites should be Established on Both Sides of the Border. Border crossing points function as complete systems, requiring actions to increase capacity on both sides of the border to operate effectively. The functioning of the Gradina (Serbia) – Kalotina (Bulgaria) border crossing is evidence that lack of progress at the border point for one country where there is no pilot project (Kalotina) or limited capacity negatively affects efficiency at the other side where there is a pilot project (Gradina). While delays still occur at this border crossing and some others, the solution to this problem can only marginally be influenced by Serbia alone at this stage. Two TTFSE II projects in Bulgaria and Macedonia respectively have been recently approved and are expected to increase border processing capacity on the other side of the Serbian border to bring capacity on par and further reduce delays.

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Importance of Ongoing Cooperation between Operational Staff and IT Staff. Modernization of border processes begins with the revision of procedures but necessitates that these procedures are followed by the introduction of new IT solutions for improved communication between traders and agencies, and timely exchange of information between agencies. The cooperation between operational staff and IT staff ensures that operational needs and procedural modernizations will be translated into new IT options.

Parallel Modernization of all Border Agencies. Customs, although the lead agency in

the trade facilitation process, is insufficient, by itself, to ensure the smooth operation at the border site. The multi-sectoral and multi-agency nature of border processes requires that all actors improve their performance so as to ensure proper operation. Parallel modernization efforts by all agencies would ensure that they would be able to keep with the strong pace set by Customs.

The Replication and Scaling up of Lessons Learned in Trade Facilitation to Other Sites. This must always be set within the specific context of the site where the application is to take place, as well as take into account relevant national systems impacting on trade. The application action plan needs to be prepared on a comprehensive basis with the ownership of the various stakeholders that are involved. The economic rate of return for such replication is considerable.

Private Sector Involvement is an Essential Part of Trade Facilitation. Such

involvement enables an adequate analysis of the trade patterns to find the main bottlenecks and identify optimal measures for improvements. Also, it must be ensured that the capacity building and modernization of the private sector is analog to the reforms in Customs, so as to ensure that introduced reforms are applied in private operations.

Bank-related Lessons

Result-oriented Approach. The main characteristic of the project was that it was result

oriented with measurable indicators. This unique quality was a major factor which contributed to the success of the project.

Regional Approach. With a regional approach, it is possible for a project to achieve better results than a stand-alone project. This approach creates peer pressure among the participating countries, which in turn generates competitive spirit and motivation amongst them to perform better.

Other

The Contribution of the US as a Parallel Financier Contributed Significantly to the

Success of the Project. The US State Department Grant was instrumental in improving public-private partnership, especially in light of the Government's reluctance to borrow for technical assistance to the private sector. Likewise, US Customs financed the permanent presence of Customs advisor in Serbia and Montenegro, to help with data collection, monitoring indicators, and improving the risk-management system, assistance which of key importance to improvement.

The Close Cooperation with CAFAO as Another Key Provider of Technical Assistance to Support the Implementation of the Project also Contributed Greatly to the Success of the Project. The difference of approach between the TTFSE project and the CAFAO program proved to be highly complementary providing the SCA and MCA with an appropriate mix of systemic improvement and results on the ground. The positive cooperation spirit

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established early on in project implementation led to a constructive program for both the SCA and MCA. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing Agencies (See Annex 6). The strongly supportive comments raised by both the SCA and MCA illustrate the very close interactions and cooperation that took place under this project. Early challenges in terms of implementation capacity are duly noted. (b) Cofinanciers. (See Annex 7). The supportive comments raised by CAFAO illustrate the close cooperation that took place under this project to enable both the SCA and MCA to achieve their modernization goal. (c) Other Partners and Stakeholders (e.g. NGOs/private sector/civil society) N/A

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Annex 1. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent)

Components Appraisal Estimate (USD millions)

Actual/Latest Estimate (USD

millions)

Percentage of Appraisal

FCA MODERNIZATION 2.86 1.81 63% MCA MODERNIZATION 0.37 0.46 105% SUPPORT TO SCA INFORMATION SYSTEM 4.82 5.96 124%

SUPPORT TO MCA INFORMATION SYSTEM 0.76 1.05 139%

TRADE FACILITATION DEVELOPMENT 0.50 0.50 100%

PROGRAM AND PROJECT IMPLEMENTATION 0.49 0.27 55%

Total Baseline Cost 9.79 10.05 103%

Physical Contingencies 0.66

Price Contingencies 0.53

Total Project Costs 10.98 10.05 92% Note: Donor funds are only estimated since it was not handled through the project financial management system

(b) Financing

Source of Funds

Type of Cofinancing

Appraisal Estimate

(USD millions)

Actual/Latest Estimate

(USD millions)

Percentage

of Appraisal

Borrower 1.08 0.55 51% Donors (estimated): US, CAFAO 3.14 2.10 67% International Development Association (IDA) 6.76 7.40 110%

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Annex 2. Outputs by Component Project Component 1 A-1. Modernization of the SCA The project had a particularly important role in the mind-set change of customs officers, who have shown a continuously improved performance, and grass-root leadership. Anecdotal evidence show that at the advanced stage of the project, monitoring of performance produced peer pressure between BCPs, creating a productive atmosphere that encouraged initiatives on improving interagency cooperation and adapting border procedures to trade and traffic needs. a) Technical Services to Coordinate, and Integrate Modernization Elements, and Donor Contributions Aimed at Supporting Processes Changes. Cancelled b) Technical Services to Review Law, Regulations, and Guidelines to Fulfill Customs Functions, while Facilitating Legitimate Trade, in Cooperation with Other Agencies. This component primarily supported the creation of new Customs legislation in line with EU requirements and strengthened inter-agency cooperation. In cooperation with the CAFAO team, Customs produced the new Customs Code incorporating standards from the EU Blueprints in order to reach EU compatibility. Considering that critical bottlenecks in border processing and clearance pertains as much to other border agencies as they do to Customs, the project supported the enhancement of interagency cooperation. Since the end of 2004, all border issues are discussed by the Government Committee for border crossings, incorporating representatives from the SCA, Border Police, phyto-sanitary agency, veterinary agency, ecology inspection. As such, this Committee has allowed the opportunity for ongoing coordination between all relevant border agencies and national institutions. By 2007, enhancement has been achieved and is evidenced by the following changes in border operation:

(i) January 2006 - SCA assumed radiology examinations from the ecology inspection; (ii) since July 2006, the phyto-sanitary and veterinary inspections have been operating non-

stop at BCP Batrovci; and (iii) agricultural inspection has been operating non-stop at the BCP Horgos.

As necessary, prior to these events, Customs officers increased their material knowledge for inspection through training. Also, they developed skills to handle new equipment as the newly acquired responsibilities required. The SCA produced handbooks explaining in detail the new border procedures, rules of customs work, treatment of clients, standards for control, thereby ensuring the uniform application of procedures, and strengthening the reliability of customs procedure. c) Technical Services to Support the Introduction of a Preventive and Enforcement Service in the Federal Customs Administration (SCA). The Internal Affairs Unit was established in 2004, following the 2003 preparations undertaken with the assistance of CAFAO in the auspices of SCA.

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“Train the Trainer” seminars were held in order to equip the new Educational Training Center of the SCA with Customs staff which will further train the remaining staff. The Internal Affairs Unit compiled an integrity test to be taken yearly by all customs officers already employed. In addition, disciplinary procedures have been elaborated to officers so as to ensure clear understanding of the rules. The Internal Affairs Unit introduced the “Fact Finders” team with the Support of US Customs, consisted of mid level management officers and representatives from the Internal Affairs Unit to follow corruption cases. Staff for the “Fact Finders” was trained through the project and they will be put in operation during 2007. d) Technical Services to Introduce New Customs Procedures, Supported by Training. The project initially supported (through expertise assistance and study trips) the work of the Working Group established to develop the concept of risk analysis and risk assessment. Selectivity in customs control was introduced in the Customs Code of July 2003, following which the first pilot customs houses were established and training for customs officers initiated. The introduction of selectivity was also followed by the establishment of the new Risk Analysis Unit. In 2004, the new Risk Analysis Operation Center started to function. This center processes field information and communicates it to the Risk Analysis Unit in order for them to prepare selectivity criteria. e) Technical Services to Strengthen Human Resource Management. This component supported the introduction of an anti-corruption strategy in the SCA and establishment of a staff management system to support the realization of the strategy. The SCA strengthened its internal control mechanisms and introduced training for staff. The image of Customs has significantly evolved from negative five years ago to more positive today, as confirmed by the Customs survey. The majority of Customs service users consider they are being treated by Customs on an equal footing with other companies, that the behavior of Customs is more standardized, and that Customs are fast (efficient) in performing customs procedures. As brokers and traders further improve their awareness of new opportunities, through the improved dissemination efforts and regular meetings with Customs, this image should further enhance. It is these facts in conjunction with the decisive move to penalize unethical behavior, while better rewarding staff that ensures the maintenance of efforts to reduce corruption in the service. The MEDIA GALLUP survey of over 400 companies interacting with Customs in Serbia, as part of the performance monitoring framework developed for the project, with particular focus on the incidence of corruption in Customs confirmed this improvement. [See Annex 5] The full report was made available to Customs. Based on the findings of the survey SCA prepared: (i) internal campaign within the SCA (called ‘Integrity first’), to be followed by a (ii) public campaign. The principal goal of the campaigns was to clearly reiterate both internally and externally that petty payments to accelerate the process are illegal and would no longer be permitted. The internal campaign produced a series of activities (Director’s address to all customs staff, ID cards and new Customs gazette) telling the story of customs modernization, results achieved and reconfirming the SCA’s aim to professional attitude, integrity at work and results-drive. The public campaign presented the achievements of customs during the project, particularly in fighting corruption. A substantial part of the campaign targeted freight forwards and brokers, informing them about their professional responsibilities’ but also clearly and explicitly informing them that petty corruption is not permitted and will not speed up processing.

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f) Equipment to Improve Quality and Efficiency of Checks. Pilot sites were equipped with surveillance and inspection equipment (forklifts, portable and fixed scales, and mobile lights). Project Component 2 A-2. Modernization of the MCA 1. Procedure Modernization a) Organizational and Procedural Review and Related Reforms at Border Stations and Clearance Terminals, Supported by Necessary Legislative and Administrative Changes. A new Customs Law and Law of Customs Service were adopted in accordance with the relevant European Union legislation and with cooperation of experts of CAFAO. For the purpose of establishing the adequate organizational structure in September 2002, the MCA adopted a Rule book of the organization and systematization of jobs within customs service, and it established a Department for control together with Departments for suppression of smuggling, customs investigation, and work on investigation. Also, internal control was introduced with the establishment of the Department for Interior Control directly responsible to the Director General of Customs. In February 2006, MCA adopted the National Strategy for IBM. Aiming to improve the public relations of Customs, MCA appointed a public relations officer and trained the officer through the project. In June 2006, MCA published a Guide for access to MCA information, published on the MCA website and its notice board. The modernization of the MCA has included the reduction of corruption, which is a result from the following activities: (i) setting up an Internal Affairs Unit; (ii) penalizing unethical behavior; (iii) educating the Customs officers and the public about the responsibilities of Customs; (iv) introducing faster procedures; and (v) increasing transparency of work and access to Customs information by the private sector (through the MCA published Guide for the access to the MCA information, posted on the website and its notice board), (vi) introducing the “open line” to report unethical behavior by customs. Working jointly with the SECI/TTFSE advisor, in January 2005, the MCA introduced an open line in the enforcement department, allowing citizens to directly phone and report irregularities in the application of Customs procedures and regulations. The Ethics Code of Public Servants and Officials further defined integrity topics of Customs officers. In June 2006, MCA carried out a survey on the level of corruption in the Montenegro Customs Service. [See Annex 5] The full report was made available to Customs. Customs officers were trained in control, customs security and anti-smuggling. MCA designed a Rulebook on frame, contents, the way of presentation and filling the customs declaration and summary application. In cooperation with the Ministry of Tourism, MCA designed an Action plan for the preparation of the 2005 Tourist season and in its frame it organized English language courses for customs officials. The project supported the enhancement of interagency cooperation which has shown an improvement tendency. The MCA succeeded in ensuring that the commercial banks operating at the BCPs prolong their working hours until 7pm and start operating on Saturdays as well. This change has impacted the flow of traffic at the border as it introduced greater flexibility for traders and alleviated the pressure on the BCP during short periods of the day.

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b) Introduction of Selectivity and Targeting in Montenegro. The MCA established a Sector for Control and Customs Services, in whose auspices, the Sector for Risk Analysis System was established. Employees of the sector were trained on risk analysis and selectivity. The Risk Strategic Committee, Selectivity and Targeting Teams have been set up and the Risk Manager has been appointed. The system rollout took place in late March 2007, as part of the rollout of the upgraded Customs software application. The risk analysis system, supported by the project procured servers for risk analysis, and enables the analyzing of risk profiles, their re-evaluation based on field reports, and risk profile adequate re-adjustment. Podgorica has been successful in using the risk analysis criteria and constantly detects irregularities, which have sometimes exceeded the set targets. Project Component 3 B-1. Support to the SCA Information System Improvement 1. Consulting Services. The SCA established a Working Committee to prepare and propose new technology within the new Customs procedures, which would serve as a base for further upgrade of the present IT System. By the end of 2004, an IT Development Strategy was confirmed and adopted by the Ministry of finance. The strategy incorporated prior consultation with UNCTAD and CAFAO. The SCA management and the Risk Analysis Unit have encouraged customs offices to start to develop regional criteria for risk analysis, which would be better adjusted to the needs of specific regions, and fight against irregularities more efficiently. Such cooperation with the local customs officers gives ground for better risk criteria and detection results. SEW. The project supported the realization of SCA’s initiative to create a single electronic window environment in the clearance procedure. An intergovernmental project team was formed to identify the pilot sites (one border crossing and one inland terminal) and goods subject to the SEW and to monitor the implementation of the pilot project. The PIT consisted of representatives of Serbian Customs, the MOF, the Ministry of Agriculture - the phyto-sanitary and veterinarian inspection agencies and the outside consultants, contracted by the MOF. Prior to this, the project also supported the production of a feasibility study on possible implementation of SEW concept in Serbia. Customs has now received the support of the remaining agencies participating in the border process as they have expressed interest to undertake all necessary measures from their side for the realization of this project. The risk analyses model was put in use. In 2005, electronic submission of customs declaration was implemented at all customs points. Direct trader input (DTI) which enables the submission of Customs documents straight into the SCA system was introduced. The project supported the definition of functions for the DTI module. Following, the data base, system and application were created. 2. Hardware The project purchased and delivered to SCA new IBM servers AS/400 and PC servers, workstations, printers, standard software, DBMS, and provided technical training for their use. Also the necessary equipment (hardware) for SEW implementation was purchased. Equipment for verification and clearance of legitimate traffic (busters, pagers, illuminating devices, mirrors); forklifts; mobile weighting devices were delivered.

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Communications and Processing Infrastructure including LAN technologies, WAN technologies, and security technologies were provided and staff was trained to use these technologies. Project Component 4 B-2. Support to the MCA Information System Improvement 1. Hardware The upgraded information system enabled the introduction of electronic submission of declarations (DTI) and better connection with Banks. The developed web-based interface for the MCA transit system opens it up for electronic submission of transit declarations. Also this ICT platform ensured system reliability, network connectivity, and enabled enhanced broker notification, TARIC implementation, inward/outward procedure enhancements, and advanced passenger information. The fully equipped BCPs allow enhanced intra-agency cooperation in the integration of information regarding taxation, security and money laundering. The installed communication network leads to significant savings for communication. All major BCPs were equipped with work stations connected with the MCA headquarters through telecom networks. Mid 2005, electronic submission of declarations was introduced. MCA introduced a new information system and enhanced its communication network, as twenty BCPs installed 2Mb connections. This network capacity supports remote video surveillance and Voice over Internet Protocol (Vo/IP). MCA was provided with a new server, storage and communication technologies were installed in its central system room. 2. Software Seventy risk profiles have been developed and input into the risk management system. As experience is gained, the risk profiles will be fine tuned, or dropped if not productive. Further risk profiles will be developed on the basis of detection or exemptions (e.g., under an export promotion scheme). The risk management system provides the ability to test run a risk profile against historical data before going live to ensure the “hits” occur at a reasonable rate. It also provides analytic and statistical reporting functions. Guidance materials and a manual for the Intelligence Department (Headquarters and field staff) to manage the risk profiles were also produced. Project Component 5 C. Trade Facilitation Development 1. Strengthening of Private-Public Partnership. This component supported the activities of the SCGPRO Committee which met the main stakeholders from the private sector, Chambers of Commerce, and the public sector, MOF and SCA. SCGPRO established strong membership, offering a forum for private and public representatives to discuss border issues, liberalization, and harmonization of procedures, in partnership with other PRO Committees in the region. A permanent joint body with representatives of transporters and Customs was established.

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Evidence shows that cooperation and discussion between the SCA and the business community has been strengthened and this cooperation has an active role in the modernization efforts of the Customs service. The established discussions ensure a direct feedback mechanism from business to Customs. Namely, the Belgrade inland terminal initiated and is maintaining the practice of holding bimonthly meetings with brokers where practices by both sides in the clearance process and results are discussed with the aim to initiate improvements. SCGPRO organized 10 seminars in cities across Serbia and Montenegro, with over 650 participants, including representatives of the public sector to discuss possibilities for PPP on the development of facilities on Corridor X. Also, it issued a guidebook “Public Private Partnership - Travel Plazas on the Corridor 10”, in the national language consisting of the materials which had been developed during the seminars. The seminars were free of charge and every participant got a PPP Manuel, the brochures of PPP Project and of the SCGPRO Activates, the CD with the all presentations on the seminars, and on the end, each of them got the Certificate of taking a part in the seminar. This project was financed by the Bureau of Educational and Cultural Affairs of the U.S. State Department, trough the Embassy of USA, in Belgrade. Public Outreach. SCGPRO printed several brochures, posters, informing about the activities of SCGPRO and informing about the TTFSE website. Also, it published articles in newspapers discussing trade and transport issues and providing updates on the activities of the Committee. SCGPRO issued a book International Trade-Rules of Origin, on national language. Regional Cooperation. SCGPRO actively participated in the meetings of the PRO Committees of SEE to discuss trade facilitation issues. In addition, the Committees organized a bilateral meeting with the MAKPRO regarding the BCP Presevo - Tabanovce, bringing together representatives of both customs agencies, presidents of two Chambers and private sector and signed a protocol for cooperation. TTFSE Website. The Chamber of Commerce signed a Memorandum of Understanding for continuous providing of information needed for the realization of the website www.ttfse.org with all relevant agencies and ministries. The website offered information on procedural/document requirements on the border agencies in Southeast Europe. It showed variations in the provision of relevant information to the business community. The deficiencies faced in the information uploading process restrained the website from achieving its full impact. 2. Improvement of the Performance of Trade Facilitation Agents. The Serbian Chamber of Commerce marked commendable success in its training of freight forwarders program supported through the project as its web-based material for the training of freight forwarders in Serbia in accordance with the Study Guidelines prepared by FIATA was successfully validated at the FIATA World Congress in Shanghai, hold in September 2006. This validation means that it is now able to train professionals in freight forwarding with content that matches international expectations, and is entitled to issue a FIATA Diploma recognized in most countries by professionals in freight forwarding. Similarly the SCC received accreditation from the International Road Transport Union, to deliver Certificate of Professional Competence for road transport operators, in line with EU regulations. The Course spans over 355 hours. The 16 individuals that completed the course during the pilot phase included 4 women. The majority was aged between 30 and 39 year old and had professional experience in freight forwarding. They particularly valued the opportunity to be independent in their learning, to ensure that it would fit their busy schedule.

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Seminars. The Pro-Committee successfully organized seminars on topics such as: (i) trade and transport documents; (ii) insurance; (iii) Incoterms, commercial documentation, and methods of payment; (iv) International electronically paying; (v) Customs procedures (EU) and electronically related documents; and (vi) business ethics,

thus organizing 36 seminars in 23 different cities and reached out to a total of 1208 participants (Foreign trade companies, Producers (importers, exporters), Forwarders (Customs agents), Road transporters, Banks, Transport agents) in Serbia and Montenegro since project start. Participants were given the opportunity to experience theoretical as well as practical or hands-on training, which was helpful in reducing the number of errors in filling out forms, which was an important source of clearance delays at the border. It also provided a check on unscrupulous officials by making the legal requirements for clearance more transparent, thus helping to reduce the opportunities for corruption. Evaluations of the training by the participants confirmed the positive impact of the training by showing that 90 percent of them rated the training as highly relevant and meeting their needs. The SCGPRO and NO ICC jointly organized the workshop "Electronic transport documents and pre-arrangement of documents for export and import", in the Serbian Chamber of Commerce. The workshop informed the attendees about the new system of doing business in the sphere of electronic international trade and transport, which would lead to faster, and more efficient trade transactions, customs formalities and international transport.

36

Annex 3. Economic and Financial Analysis The project had an estimated net present value of US$35 million, based on the methodology used during the project appraisal. Reduction in border processing time was considerable (over 73 percent on average at pilot sites). It started rapidly with the introduction of selective control at the project outset, and traffic turned out to be much higher than anticipated for both Serbia when international traffic through the Pan-European Corridor X resumed and for Montenegro as Montenegrin trade expanded. The economic rate of return was above 50 percent and the net present value much higher than the originally forecasted US$10 million. The total annual savings for users, resulting from reduction in border crossing time at pilot crossings is estimated at US$18 million annually as of 2007. It is worth noting that in line with the overall project objective of facilitating trade, both Serbia and Montenegro experienced solid trade expansion during the project life, which is not considered directly as part of the analysis since it results from many different factors. It is likely that the estimated trade benefit equivalent to 20 percent of transport benefits (US$3.6 million per annum as of 2007) used in the evaluation is an understatement of the actual impact of improved border crossings and clearance facilities. The economic impact of laboratory equipment purchased under the project was not included in this evaluation. The impact of the information system rolled out throughout the territory is not calculated, although it is expected to be significant. Costs The project costs were slightly higher than what had been originally anticipated in the Project Appraisal Document (+US$0.4 million), primarily due to exchange rate fluctuations. The total project cost was increased to US$9.9 million versus a US$9.5 million original cost estimate. Costs were spread over five years instead of three as originally foreseen, reflecting delays in upgrading the Customs information systems. For donor funded project costs, the original estimates were kept, spread over the life of the project. Other costs are based on the disbursement information in the Bank project portal since the project funded all costs except the amount equivalent to taxes. Project Benefits The project expected two types of benefits: (i) lower transport costs due to the diminution of waiting times at border crossings and inland terminals; and (ii) economic benefits of trade expansion resulting from the project. Trade and Transport Cost Reductions. The savings on transport costs at the pilot border crossings and the inland terminal where performance was measured under the project are estimated at US$18 million by 2007 versus US$8 million at appraisal. Delays at border crossings and inland terminals (see Table 1 and 3) have been substantially reduced with an estimated 73 percent processing time reduction on average for the seven pilot sites. These benefits were significantly higher than projections made in the project appraisal document, primarily because traffic for and through Serbia and at the Podgorica terminal in Montenegro grew much faster than the estimated 6 percent forecast at appraisal. Initial benefits appeared early on with the adoption of selective processing (a condition of effectiveness), although the largest increase in benefits really materialized in 2006, as the impact of the new information systems in Serbia and Montenegro started to be felt throughout each country. The daily cost of trucks (US$350 for 24 hours) did not evolve significantly in the region due to intense competitive pressures (see

37

Progress report 2004 and ICRs for other six TTFSE projects) and remained in line with the appraisal estimate. Economic Impact of Increased Trade. The link between trade facilitation, trade expansion, and Customs revenue collection clearly exist but is difficult to quantify, due to the multiplicity of other factors influencing the macro-economic development and trade of the TTFSE countries. Company competitiveness, in particular their ability to deliver reliably their inputs in international supply chain, depends nonetheless on their capacity to assess border transaction cost (direct and time cost) with a fair degree of certainty. Since 2001, Serbia and Montenegro, and other countries involved in the TTFSE program enjoyed strong growth of their trade volumes. For Serbia, trade increased from US$6.5 billion (2001) to US$16.7 billion (2006). In the meantime, Serbian Customs collected revenues increased from US$316 million to US$3.56 billion. For Montenegro, trade increased from US$623 million (2000) to US$1.8 billion (2006). In the meantime, Montenegro Customs collected revenues increased from US$84 million (2001) to US$262 million (2006. These macro performances are not directly attributable to the TTFSE project, but rather reflect deep industrial and economic changes witnessed in both countries, as well as a broad range of technical assistance programs, such as the TTFSE project and European Commission supported-CAFAO program. For the purpose of the economic rate of return calculation a very conservative 20 percent of additional transport benefits linked to increased trade was added, or about US$3.6 million per annum, as per the approach used during appraisal. The 20 percent coefficient is based on broader research (Venables) available at time of appraisal and considered appropriate by peer reviewers. Recent research in this field (Trading on Time – January 26, 2006 – WB) indicates that, on average, one day of delay reduces trade by at least 1 percent. Considering Serbia and Montenegro trade of US$18.5 billion, a reduction of 1 day could translate into U$185 million of additional trade. Considering the significant reduction in border crossing and clearance time, the consequent trade increase and the trade gain economic benefit linked to shorter time and improved market access are likely to have been significant, albeit difficult to quantify. Accordingly, the ICR economic evaluation retained the appraisal assumption instead.

38

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team Members

Names Title Unit Responsibility/ Specialty

Lending Gerald Ollivier Task Team Leader ECSSD Task Team Leader

Michel Audigé Program Team Leader ECSSD Program Team Leader

Michel Zarnoviecki Senior Customs Specialist ECSSD Customs Specialist Graham Smith Lead Transport Specialist SASE1 Transport Specialist

Irina Luca Lead Procurement Specialist AFTPC Procurement Specialist

Bogdan Constantinescu Financial Management Specialist ECSPS Financial Management Specialist

Joseph Paul Formoso Senior Disbursement Specialist LOAG1 Disbursement Specialist

Gennady Pilch Senior Counsel LEGEC Legal Counsel Kenneth Gwilliam Peer Reviewer James Walsh Peer Reviewer (IMF)Marie Laygo Program Assistant ECSSD Program Assistant

Supervision/ICR

Gerald Ollivier Sr. Transport Specialist ECSSD Task Team Leader

Miroslav Frick Operations Analyst ECSSD Operations Analyst/Project Officer

Michael Gascoyne Senior Resource Management Officer CSRRM Resource Management Officer

Plamen Stoyanov Kirov Procurement Specialist ECSPS Procurement Specialist

Devesh Chandra Mishra Senior Procurement Specialist ECSPS Procurement Specialist

Craig R. Neal Senior Public Sector Specialist ECSPE Information Systems

Ireneusz Smolewski Senior Procurement Specialist ECSPS IT Procurement Specialist

Vladimir Skendrovic Consultant ECSSD Implementation Specialist

Liljana Sekerinska Consultant ECSSD ICR Author Marie Laygo Program Assistant ECSSD Program Assistant

39

(b) Staff Time and Cost Staff Time and Cost (Bank Budget Only)

Stage of Project Cycle No. of Staff Weeks USD Thousands (including

travel and consultant costs)Lending

FY01 4 17.32 FY02 34 164.12 FY03 0.00 FY04 2 0.98 FY05 0.09 FY06 0.00 FY07 0.00

Total: 40 182.51 Supervision/ICR

FY01 0.00 FY02 0.00 FY03 16 80.68 FY04 13 78.11 FY05 17 68.20 FY06 19 75.20 FY07 10 43.49

Total: 75 345.68

40

Annex 5. Beneficiary Survey Results During 2006, the SCA contracted the agency MEDIA GALLUP to perform a structured survey of over 400 companies interacting with Customs in Serbia, as part of the performance monitoring framework developed for the project, with particular focus on the incidence of corruption in Customs. The survey explored perceptions and experience with Custom control, treatment, services, and border officers, and compared the situation in 2006 with year 2002 (start of project implementation), while focusing on: equality and stability of treatment; perceptions of process and procedure of customs services; perceptions of process and procedure of other border services; awareness and problems related to laws and regulations; procedure problems; logistical problems; and existence and nature of informal payments. The full report was made available to Customs. The survey involved transport companies, freight forwarders and traders mostly of small to mid size (below 200 staff), with about 30 trucks on average crossing the borders per month. Results are very encouraging as they show that Serbian Customs made very visible progress since 2002, based on these results. All categories (transparency, equality, standardization of procedures, ability to lodge a complaint, frequency of petty payment) improved markedly. The survey shows that companies consider there is equality in treatment between different companies, and that procedures with shipments are more standardized than in 2002. Also, they consider themselves better informed about the procedures - 90 percent stated they are familiar with their rights and obligations. A high 70 percent see improvements in this aspect compared to 2002.

Topic

Percentage of Respondents Who Agree or Mostly Agree in 2006

Percentage Who Saw Improvement Compared

to 2002 Serbia Fair Treatment 81 30 Standard Processing 80 75 Transparency of Requirements

92 73

Efficiency 67 47 Aside from those who saw improvements, others considered the situation was mostly similar. Very few surveyed individuals indicated that there had been a worsening in these four parameters.

Customs is pointed out as the most improved border agency among border agencies (5 in total) in the 2002-2006 period (32 percent).

The survey was also closely focused on the incidence of corruption (of administrative nature). Corruption in Customs is assessed as Medium (2.89) in Serbia by respondents. In Serbia, 78 percent stated that they paid no bribe (53 percent) or had to pay rarely (25 percent) in 2006 in order for their shipment to cross the border or to be cleared. In terms of frequency, payments are far less frequent than in 2002 as shown on the graph below (for the part of the sample who indicated they paid bribes in 2006). Bribing is perceived a little harder for 31 percent of respondents compared with 2002. Forty-two percent of respondents indicated that their last informal payment took place in 2006. In the majority of cases (54 percent), the monthly frequency does not go above 5 times (most frequently 1-2 times).

41

At the same time they recognize that informal payments are happening less frequently than in 2002. The average payment is 32 euros, similar to the value in 2002. This information is also confirmed by other data and statistical analysis, which also informs that values given have remained similar in the 2002-2006 period (about 30 euros, never exceeding 50 euros). By considering the usual average value for informal payment and the goods, the survey concludes that informal payments are usually “small gifts”, either in money, either in cigarettes or drink. The main stated reason for bribing or providing a gift to officers is to accelerate processing (62 percent of respondents who gave a bribe). This data indicates that for some company representatives processing is not fast enough, and that they are ready to do what ever is possible to speed it up.

Compared with 2002, in 2006, do you have to give gifts or bribes more frequently to Customs

officers when your shipments cross the border or are cleared? BASE: 128-THOSE WHO HAD

EXPERIENCE WITH BIBERY IN 2006

DK/NA1%

Far more2%More

2%

No6% Far less

17%

Less34%

The same38%

In June 2006, MCA carried out a survey on the level of corruption in the Montenegro Customs Service. All categories (transparency, equality, standardization of procedures, ability to lodge a complaint, frequency of petty payment) improved markedly. Respondents confirmed in a high majority (92 percent) that they were or were mostly treated on an equal footing with other companies by Customs in 2006. Compared with 2002, three-fifths of company representatives said that Customs treated them on the same equal footing. They believe to be aware of their rights and obligations toward Customs (88 percent of cases), and compared to 2002, 81 percent of them said they are more familiar now. More than half of the respondents (54 percent) said that in 2006, Customs were faster in performing customs procedures than in 2002. In 71 percent of cases, respondents said that the Customs was efficient in performing customs procedure in 2006. Every third interviewed company representative answered that the Customs had improved their work since 2002.

Topic

Percentage of Respondents Who Agree or Mostly

Agree in 2006

Percentage Who Saw Improvement Compared

to 2002 Montenegro Fair Treatment 92 36 Standard Processing 93 90 Transparency of Requirements 88 81 Efficiency 71 54

42

Aside from those who saw improvements, others considered the situation was mostly similar. Very few surveyed individuals indicated that there had been a worsening in these four parameters. Among border agencies (5 in total), Customs came out as the agency that improved the most. The survey was also closely focused on the incidence of corruption (of administrative nature). In Montenegro, 91 percent of respondents stated that they paid no bribe (77 percent) or had to pay rarely (14 percent) in 2006 in order for their shipment to cross the border or to be cleared. Asked whether compared with 2002, in 2006, respondants have to give gifts or bribes more frequently to Customs officers only 14.3 percent considered the situation unchanged, and 4, 5 percent claimed it had worsened.

1.3%

3.2%

14.3%

2.6%

1.3%

77.3%No

Far less

Less

The same

More

Far more

In terms of value in Montenegro payments tend to show an increase. The main stated reason for bribing or providing a gift to officers is to accelerate processing (69 percent of respondents who gave a bribe). Bribing difficulty is perceived as similar to 2002. Twenty-two percent of respondents indicated that their last informal payment took place in 2006. In the vast majority of cases (54 percent), the monthly frequency does not go above 5 times (most frequently 1-2 times).

43

Annex 6. Summary of Borrower's ICR and/or Comments on Draft ICR A. The Republic of Serbia (Prepared by the SCA Project Implementation Unit) 1. Project Objectives The Trade and Transport Facilitation in Southeast Europe Project, for the Federal Republic of Yugoslavia which forms a part of a regional program, had two development objectives:

a) to reduce non-tariff costs to trade and transport, and b) to reduce smuggling and corruption at border crossings.

This report will comprise only indicators achieved and comments for Serbian Customs Administration. Measures through which it was planned to achieve these objectives were:

• Supporting Customs modernization, • Improving the Customs information system, • Creating a Single Electronic Window for trade at the federal level under the leadership of

the Federal Customs Administration (SCA), • Strengthening mechanisms of interaction and cooperation among border control agencies

and with the trading community, • Disseminating information and providing training to the trading community (private

sector), • Providing equipment to improve enforcement, and • Implementing, at pilot sites, an integrated set of new Customs procedures, information

technology, human resource management techniques, and cooperation mechanisms for border agencies, including shared access to information and intelligence systems, and training for interagency awareness.

Measures and development objectives of the Project were extremely relevant and important not only for Serbian customs but for the state an economy as a whole. Earlier, the Republic Serbia was under sanctions for 4 years and after that trade relations were not established with foreign market and international financial organizations did not want to cooperate whit our state. After the fall of Milosevic`s regime in October 2000 the recovery of our country started. The World Bank was the first one who approached the SCA and offered help and assistance in customs modernization and economic recovery through participation in original TTFSE program. 2. Suitability of Project Design The project was designed on customs modernization – modernization of customs administration, customs procedures, implementation of new concepts and capacities, to improve private-public partnership and to and its procedures, on strengthen regional cooperation. The project consisted of the following four components: a) Modernization of the SCA, including technical assistance in preparation of laws, bylaws and administrative regulations, introducing some new customs procedures, assisting in the SCA reform, monitoring operations at five pilot sites and provide training in different areas.

44

b) Support to SCA Information System Improvement, through introduction of new architecture, open platforms, modern program languages and necessary training. Note: Project and Credit Agreement anticipated customs IT system that was sketched at the beginning in one way, using PC platform as a base. After changing the Director General of the FCA at that time, the management of the IT Division was changed completely and also the whole concept of the IT system. This caused, among other things, big delay in project implementation. c) Trade Facilitation Development (US Grant Funding Sought for this Component), including providing information for original TTFSE web site. d) Program and Project Implementation with operating costs for travel, translations and PIT support. The project design was suitable to meet the objectives and pushed forward the SCA in customs modernization. However, a few performance targets could not be met, because of the lack of experience of the SCA during negotiating Project and Credit agreement, which made the identification of proper targets quite complex. This specially refers to the category of discovered discrepancies and the target 4-12%. Monthly measurements showed improvement at these pilot sites, especially related to the reducing of times of delay, except on the BCP Gradina where exit times of delays often exceeded 12 hours even reaching 24 hours sometimes for reasons outside Serbian control that the World Bank was informed about. Having in mind situation at the beginning of the project the SCA made great improvement with the assistance of the STAT team and the World Bank’s experts – best results achieved at the BCP Presevo in reducing average entry time to 22 minutes. The initial project closing date of September 30th 2006 was extended until March 31st 2007 due to the need of finishing some procurement procedures and launching some new ones. This project extension did not caused any changes in project design. 3. Suitability of Implementation Arrangements Implementation arrangements were suitable for Project implementation. All components were implemented by the SCA, except trade facilitation development component, which was implemented together with the PRO Committee of the Serbian Chamber of Commerce. Component on Institutional Reform on Customs Procedures was implemented with the assistance and technical support to the SCA by the STAT team and CAFAO ream. The World Bank prepared the Project Implementation Plan for the TTFSE PIT in respect of procurement procedures and financial management as well as organization and functionalities of units within the PIT. The PIT applied all the procedures from the PIP in the prescribed way and the KPMG Company had not had any remark in respect of the procedures from this two areas. Financial Management Unit was established in the SCA, and it was responsible for financial disbursement under the TTFSE project.

45

Procurement Unit was established in the SCA and was responsible for preparation of all tender documentation and whole procurement process. The SCA IT system improvements was built on the basis of the IT Development Strategy, which was produced with the outside assistance and adopted by the SCA Management, the Ministry of finance and the World Bank. After adopting IT Development Strategy the foundation, upgrade of the customs IT system started to be built. The Ministry of Finance provided its support for its improvement. Improvement of border crossings component has been done together with the State Directorate for construction and the State Directorate for State Property. 4. Project Implementation Project implementation experienced different situations during its rolling out. It ranged from total support under the first and present management to total ignorance under the second management. It reflected mostly on IT improvement because the managers of the IT Division acted in the same way as their respective Directors General. Project implementation was mostly carried out by the PIT, foreign advisory teams (again mostly STAT) and local pilot teams in the field. Serbian Chamber’s PRO Committee was also of the highest assistance. Project implementation commenced as originally planned and a number of activities have proceeded within the original timeframe. Again, different periods showed different stages of development. In Serbian customs case, the World Bank, the Task team was pushing us in the right direction all the time. On the other hand, some activities started with some delay, mainly due to the fact that some documentation, meaning technical specifications for equipment couldn’t be produced in time and correctly due to the lack of knowledge and experience of the PIT and local procurement unit. The Bank was responsive and flexible in making any additional adjustments, in assisting and supporting the PIT in reaching accepted obligations. 5. Project Cost and Financing The total final cost of the project is higher in US$ than the original estimate. The difference is mainly in currency amounts due to currency fluctuations in the years of project implementation. 6. Project Benefits The main beneficiaries of the project are Ministry of Finance, SCA, border agencies, Serbian Chamber of Commerce and economic operators. Performance indicators showed that project resulted with positive achievements in reduction of waiting time at pilot sites, as a result of introducing selectivity and risk analysis criteria and better interagency cooperation. The project contributed to the better cooperation between customs administrations in this region and reduced smuggling. Also, the main result was the change of mindset of the customs officers at the field at pilot sites and in some units in the Headquarters.

46

Through the project, web site, which provides information about requirements of border agencies, was introduced. Improved IT system of Customs Directorate enabled networking of all customs locations and modernized its equipment. 7. Borrower’s Performance The Borrower’s and implementing agency’s performance was satisfactory until June 2003 and after March 2004, and specially after phone conference in October 2005 (when the World Bank demanded improvement of performances of pilot sites Terminal Belgrade and BCP Presevo – now pilot sites with best performances). 8. Bank’s Performance Bank’s performance has been highly satisfactory both in the preparatory phase and in project implementation. The Bank’s team has established a very effective relationship with the Borrower and its implementing agency. Supervision and procurement review were performed in a timely manner, providing advice and assistance to the Borrower and PIU whenever needed. 9. Lessons Learned and Recommendations

• Tough situations require the definition of joint solution through common efforts from the PIT, customs management and the World Bank.

• The WB Country office should maintain closer contacts with the borrower during project implementation.

• The WB training courses in procurement, disbursement and financial management are always useful.

• The WB flexibility, as it was in our case, removes jeopardy during project implementation.

• Financial unit within the PIT should be decreased to the person responsible for financial affairs (disbursement, accountant, financial management).

• Procurement unit should consist of at least two persons because of the number of actions that must be taken in respect of the WB procurement rules.

B. The Republic of Montenegro (Prepared by the MCA Project Implementation Unit)

1. Introduction:

TTFSE is a regional project joined by the former Federal Republic of Yugoslavia in November 2001 on the Fifth meeting of the Regional Steering Committee RSC. Having in mind the strategic decision of the Republic of Montenegro to develop tourism and tourist economy, the Customs joined this Project, among other things, in order to facilitate and accelerate the transportation over the border crossings. Since the Montenegrin Customs Administration took over the administration work in the customs system area by the Decree on the Amendments to the Decree on Organization and Functioning of Public Administration (Official Gazette RM 31/99), both Montenegrin and Serbian Customs have been included in the program.

47

The divergence between the formal state status (Federal/Republic) and the actual situation – two independent customs services, as well as the uniform approach of the World Bank to both services in line with their formal status, initially created difficulties and led to initial delays in the project realization, particularly during 2002 and 2003. For example, the date of effectiveness for the development credit was extended to allow conditions of effectiveness to be met by the Federal level, even though the Montenegrin Customs Administration had already satisfied all the requirements for credit effectiveness.

Establishing a single Project Implementation Team with four members out of five being from Serbian Customs Administration has also greatly slowed down the project realization, due to difficulties of communication and tensions at times.

Since the establishment of the State Union of Serbia and Montenegro and later on, the two independent states, this situation has changed in a way that the Montenegrin Customs took over almost all the work of the Project Implementation Team from its competence in direct communication with the World Bank Office in Belgrade.

2. Project Objectives:

The Trade and Transport Facilitation in Southeast Europe Project had two main development objectives:

a) the reduction of the non-tariff costs of trade and transport b) the reduction of smuggling and corruption at the border crossings

The realization of these objectives was planned through the provision of the following measures:

a) Support to the Customs modernization through technical assistance in the

development of internal control service, customs officials’ integrity and reduction of customs officials’ corruption;

b) Improvement of the Customs information system through the procurement of server,

communication and desktop computer equipment, as well as through upgrading the existing application solution with the risk management system;

c) Strengthening the border interagency cooperation mechanisms by signing the

Memorandum of Understanding and development of Integrated Border Management Strategy;

d) Strengthening of cooperation mechanisms between the Customs and the business

environment through the technical assistance in the development of public relations activities and improving the public reputation of the Customs;

e) Directing and accelerating the transportation at border crossings and inland terminals

through organizational and procedural measures and improvement of working conditions with the necessary equipment;

f) Facilitating the passenger circulation at the border crossings in order to improve the

quality of tourist service.

48

In order to monitor the project realization the two pilot sites were determined: the border crossing toward the Republic of Croatia – Debeli Breg and an inland terminal in Podgorica.

The parameters for performance measurement at the pilot sites were determined in order to show:

Time and the amount of costs needed per shipment;

Efficiency and effectiveness of Customs according to the trade volume, collected

revenue and total costs according to the number of employees;

Performance of all border authorities at one border crossing, i.e. pilot site. Indicators at the pilot sites included:

a) Number of physical or document inspections and their efficiency; b) Total time needed to process a shipment; c) Total number of processed vehicles in standard time; d) Observed corruption.

3. Project Implementation: All the Project components were implemented by the Montenegrin Customs Administration except for the component of developing the trade facilitation, the realization of which was under the competence of the Yugoslav Chamber of Commerce.

The realization of the Customs modernization through the development of a special internal control unit, development of customs officials’ integrity, anti-corruption fight and development of public relations activities was performed with the support of the SECI team which provided technical assistance to the Montenegrin Customs Administration.

The customs information system improvement, i.e. the procurement of computer equipment and software solutions, as well as the procurement of other necessary equipment, was performed by the Customs Administration through the application of transparent public procurement methods laid down by the World Bank Procurement Guide in accordance with the prescribed procedure.

The implementation of certain project activities went relatively according to the plan. Certain falling behind schedule was, as mentioned, the result of the uniform approach to its realization even though there were two completely, formally and essentially, separate Customs. That resulted in the postponed beginning of the customs and tax reform implementation. The absence of a separate Project Implementation Team in the Montenegrin Customs Administration, as well as the absence of the necessary training for the customs officials included in the Project also affected the slowing down of its realization. Besides, the implementation dynamics depended in some cases on the appropriate decisions made on the state level.

In all the cases the Bank was very responsive and flexible when needed and greatly supported the Montenegrin Customs Administration in preparing the necessary documentation and applying the prescribed procedures.

49

The World Bank team established a very successful cooperation with the Montenegrin Customs Administration and customs officials engaged in the Project realization by performing the timely supervision and document revision, giving advice and providing the necessary help.

4. Funds Spent:

Total available funding exceeded the initially projected one as a result of the exchange rate variation in the years of the Project realization.

5. Project Results and Benefits:

At the end of this Project the Customs information system covers 100 percent of the customs terminals for freight traffic and around 70 percent of passenger border crossings.

Almost 75 percent of the total number of the submitted customs documents was submitted electronically.

The risk analysis system was implemented and it is functioning successfully.

Introduction of the risk management system, better cooperation of the border authorities and organizational and procedural measures resulted in a significant reduction in time needed to process a shipment, simultaneously causing the reduction of the non-tariff costs of the economy.

The Project also contributed to a better cooperation of the customs services in the region in eradicating smuggling and cross-border criminal activities.

The installed equipment and improved working conditions at the border crossings, apart from speeding the traffic, also influenced better performance of the physical freight inspection and significantly facilitated the passenger circulation.

In the Customs Corruption Survey performed in 2006, the Customs got the mark- intermediately lower corruption level, and its work was evaluated as significantly improved compared to 2002.

There is increased work efficiency of the Montenegrin Customs Administration and in that way, a greatly increased revenue collection.

Therefore, apart from the Customs Administration of Montenegro, the benefits of the project exist also for the Ministry of Finance of the Republic of Montenegro, other border authorities and first of all, the business community.

50

Annex 7. Comments of Cofinanciers and Other Partners/Stakeholders From CAFAO The Customs and Fiscal Assistance Office (CAFAO) is a programme funded by the European Commission (EC) with a view to assist in the capacity building process of the Customs and Tax Administration of countries in the Balkan Region, and it currently has offices in Bosnia, Kosovo, Macedonia, Montenegro and Serbia. CAFAO has been active in the Region since 1996 and it started its work in Serbia in 2002, assisting the Serbian Customs and Tax Administration in areas including Legislation and Procedures, Trade Facilitation, Audit, Human Resource Management, Training, Enforcement, VAT, Excise and others. From the very beginning CAFAO Serbia has strived to establish a close cooperation with a number of International Agencies coordinating assistance projects in Serbia, including the World Bank, whose representatives are still kept apprised of all relevant CAFAO activities through regular GTZ/World Bank Donor Coordination Meetings. One of the main areas in which CAFAO had an opportunity to cooperate closely with the World Bank is the Trade and Transport Facilitation in Eastern Europe (TTFSE) programme, launched in 2001, whose goals coincided with those of a number of CAFAO sub-projects, primarily trade facilitation, integrated border management, and risk analysis. The introduction of targetted physical examinations of goods at Border Crossing Points and Risk Analysis systems based on principles of selectivity, supported by both the TTFSE and CAFAO programs, significantly reduced clearance times at all BCPs, which was demonstrated by the results measured at the TTFSE Pilot Sites. CAFAO also welcomed the World Bank request to accept responsibility for a number of areas previously covered by the US Advisory Team for the TTFSE Project, including the modernisation of procedures at TTFSE Pilot Sites, IBM assistance, and IT assistance. CAFAO also gave its full support to the SCA in bringing EU experience in Customs information systems and utilising in an optimal way the loan approved by the World Bank for the modernisation of the SCA IT System, which allowed the SCA to bring major improvements to its IT and Communications infrastructure, including the replacement of all of the old AS/400 servers that were supporting its IT Network with brand new ones, cutting their number down from 120 to 60 (approx). The procurement of modern IT equipment funded from the World Bank loan enabled the CAS IT Sector to finally achieve 100 percent network coverage of its Customs Territory, by including all CAS Customs Posts and BCPs into the IT System.

51

Annex 8. List of Supporting Documents 1. Aide-Memoires, Back-to-Office-Reports, and Project Status Reports 2. Quarterly Reports prepared by Borrower 3. STAT Monthly Reports 4. Corruption Survey in the Republic of Serbia 5. Corruption Survey in the Republic of Montenegro 6. Feasibility Study SEW 7. Business Strategy and Plans for the MCA for the period 2006-2007 8. Joint Portfolio Review Serbia and Montenegro, March 2006, ECSPS/ECCU4 9. Project Appraisal Document for the Federal Republic of Yugoslavia for the TTFSE, dated

May 07, 2002 (Report No. 23888-YU)

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Dobrich

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Constanta

SofiaPernik

Drobeta-Turnu

Severin

Cluj-Napoca

Baia Mare

Satu Mare

Rome

Lecce

Bari

Taranto

Foggia

Naples

Pescara

Tern

Skopje

Prilep

Bitola

Trikala Larisa

Thessaloniki

Balikesir

Bursa

Golcük

KadiköyIstanbul

Sakarya

Edirne

Graz

Villach

Maribor

Iasi

Tetovo

Gostivar

OhridStruga

CotseDelchev

Chisinauˇ

Podgorica

15° 20° 25° 30°

15° 20° 25° 30°

45°

40°

45°

40°

B l a c k S e a

Ad

r i at i c

S e a

MediterraneanSea

M

OL

DO

VA

A U S T R I A

SLOVENIA

H U N G A R Y

I T A L Y

G R E E C E

T U R K E Y

U K R A I N E

SANMARINO

CROATIA

BOSNIA AND

HERZEGOVINA

R O M A N I A

B U L G A R I A

FYRMACEDONIA

ALBANIA

SERBIA

MONTE-NEGRO

D

D

D

C

C

C

C

C

C

C

C C

Durres

Debeli Breg

Gradiska

Gunja

Jankomir

Macelj

MaljevacSamac

SlavonskiBrod

Zupanja

DeveBair

Kafasan

KumanovoTabanovce

Presevo

Bacau

Constanta

Giurgiu

Gradina

Siret

Morina

QafeThane

Tirana

Doljani

GoricaGrude

Izacic

Kamensko

OrasjeBanjaLuka

BosanskaGradiska

NoviGrad

Raca

Batrovci

BourgasPlovdiv

Gyueshevo

KapitanAndreevo

Kulata

Rousse

Vidin

Horgos

W

W W W

W

W

W

W

W

C

W

Cahul

Leuseni

Palanca

Chisinauˇ

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

0 50 100 150 200

KILOMETERS

SOUTHEAST EUROPE REGION

TRADE AND TRANSPORTFACILITATION IN SOUTHEAST

EUROPE PROJECT

PROJECT*:

INFRASTRUCTURE PROJECT

DESIGN PROJECT

PILOT BORDER STATIONS

PILOT INLAND TERMINALS

COMBINED PILOT AND INFRASTRUCTURE

PAN EUROPEAN TRANSPORT CORRIDORS

MAJOR ROADS

MAJOR RAILROADS

MAIN CITIES

NATIONAL CAPITALS

INTERNATIONAL BOUNDARIES

*Subject to change as other projects are finalized.

D

C

IBRD 31815R1

MAY 2007

W

II

W

V

V IVX

IX

IVIV

VII

IX

VIII

IV

X

X

X

V

VIII

X

XIV

IV

Document of The World Bankdocuments.worldbank.org/curated/en/163871468100762123/pdf/ICR… · I....

Documents

Transcript of Document of The World Bankdocuments.worldbank.org/curated/en/163871468100762123/pdf/ICR… · I....