Serbia – Transport Sector Work - 11 -
Concept Paper
Serbia
Transport Sector Work
Concept Paper
Background
1. Twelve years after the war/embargo and two years after a change in Government, Serbia is at a critical point in deciding how best to address some important transport issues. Other former Yugoslav Republics (FYR) and CEE countries have a several years’ head start in dealing with the same problems, and Serbia can benefit from their experience. The main transport issues are:
· Traffic decline: Although now beginning to recover, road traffic fell to about 50% and rail traffic to about 30% of its pre-war peak, and the composition and direction of traffic changed, due to the war/embargo and economic restructuring. Public transport volumes also declined. There is a need to adapt the transport system to these changes.
· Transit corridor: Yugoslavia was the main transit corridor between Europe and the Middle East prior to the war, earning significant income from this activity. Regaining part of this traffic requires policy reforms and rehabilitation as well as overcoming barriers created by new frontiers. A related issue is that Serbia lost its main deep-water port (Rijeka, now located in Croatia) which has the best land links to Serbia.
· Physical deterioration: While there is sufficient theoretical transport capacity to handle present traffic volumes with few exceptions, the condition of infrastructure and equipment deteriorated sharply due to a shortage of funds and misguided policies. 56% of main roads are in bad or very bad condition. Only one-third of locomotives are available for use, and 130 sections of the rail network require speed restrictions due to their condition.
· Tariff and investment policies: Most transport tariffs and user charges are set at low levels for social reasons, generating little revenue for investments. Decision makers are also still tempted by mega-investments such as low priority motorways, metros or railway electrification schemes. Both of these are leftover ways of thinking from the past. Serbia was making progress at the technical level in doing economic feasibility studies and prioritizing maintenance activities prior to 1990, but transport institutes and agencies have been weakened since then.
· Laws and Regulations: The centrally planned legal and regulatory system is in the process of being revised. New road and railway laws are being drafted. There are two specific concerns: how best to harmonize the system with EU practices, and implementing the new Serbia and Montenegro Constitutional Charter that has shifted to the Republics most responsibilities previously held at the Federal level.
· Excessive State ownership: Except for road freight transport and large construction enterprises, most transport activities remain under State ownership. There have been attempts in the past to establish privately funded motorway concessions and part of public bus transport in Belgrade is subcontracted to the private sector. However, Serbia lacks experience in public/private partnerships and there is little follow through.
· Railway reform: Railways have a comparative advantage for long-haul traffic, e.g. in the former trans-Yugoslav corridor. Railway reform requires political will and a coordinated effort involving legislative changes, staff reductions, reducing uneconomic services, selective investments and training in commercial practices. Serbia is bracketed by countries undergoing these reforms and risks falling behind (programs in Croatia, Macedonia, Bulgaria, and Romania are supported by the World Bank).
· Traffic safety: There are 8.7 traffic fatalities per 10,000 vehicles in Serbia, compared to around 2 fatalities/10,000 vehicles in Western Europe. These fatality rates, which are among the highest in Central and Eastern Europe, are likely to increase as the economy recovers and have significant economic and social consequences.
2. Transport sector work was carried out by the World Bank and the European Commission (EC) as part of the preparation of Breaking with the Past – The Path to Stability and Growth in 2001. However, two important topics were not covered by this sector work, namely motorway policy and urban transport in Belgrade. The proposed sector work will focus on these topics taking into account Bank budget limitations. There is a widely discussed proposal that the Serbian Government seek private financing for major motorway (as well as other infrastructure) investments. However, it knows little about the topic. The Government can benefit from the experience, and can hopefully avoid some of the mistakes made in Croatia, Hungary and other neighboring countries. Belgrade’s urban efficiency is constrained by the poor condition of public transport and its streets. There is a need to define a recovery strategy, which also has implications for social policy and the poor in this large urban area that accounts for about 25% of the population of Serbia[1]. The proposed sector work will support the Bank’s assistance program as defined in the Transitional Support Strategy Update, namely ‘stimulating near-term growth and creating the basis for a sustainable supply response’ and ‘improving governance and building effective institutions’. The motorway investigation also complements the preparation of the Bank’s proposed Transport Rehabilitation Project (FY04).
3. Both the European Investment Bank (EIB) and European Bank for Reconstruction and Development (EBRD) are active in Serbia and Montenegro. A few bilateral organizations also finance studies and technical assistance. Confronting the current crisis requires initiating and supporting market-oriented and socially responsible policies on a sustainable basis, and identifying and supporting the most cost-effective investment programs. The World Bank has a comparative advantage in these areas.
Motorways
4. Serbia has about 495 km of motorways and 171 km of semi-motorways. Serbia’s ‘motorway density’ is about one-third of the Western European average relative to population, on a par with other CEE countries, and much higher, for example, than typical middle-income countries in South America. The Government is considering expanding the motorway network on a public/private partnership (PPP) basis. One of the specific proposals presently under investigation is called the Infrastructure Development Initiative for Serbia (IDIS). Proponents seek to regain transit traffic and prepare to join the EU. They are motivated by the EU’s interest in constructing high standard road and rail corridors through CEE countries, including Corridor 10 which is the former trans-Yugoslav road/rail corridor. Hungary, Croatia and Slovenia, among others, have constructed motorways on a PPP basis, and much can be learned from their experience.
5. Factors which need to be taken into account in this debate are:
· Serbia is highly indebted.
· The existing road network is in poor condition, and the cost of catching up with the rehabilitation/maintenance backlog is around US$ 1.9 billion.
· Existing motorways carried 4-20 thousand vehicles per day (vpd), semi-motorways 6-10 thousand vpd, and trunk roads 1-15 thousand vpd in 1998. 15,000 vpd is a typical minimum level of traffic for construction of a full motorway to be economically justified depending on terrain. There are at best only a few opportunities for economic rehabilitation or construction of motorways in Serbia.
· Toll rates paid by foreigners on existing tolled motorways in Serbia are similar to those paid in neighboring countries whereas domestic users pay only about 15% of these rates at present.
6. There are a number of pitfalls which need to be avoided to expand the motorway network on a PPP basis:
· It is not realistic to expect private partners to pay for a project which is not financially justified, i.e. the Government will pay one way or the other through traffic or revenue guarantees, or a higher construction price.
· Undertaking a project which is not economically justified, even if supported by tolls from an existing motorway, would in all probability divert funds from high priority road maintenance/rehabilitation works.
· Tolls on domestic traffic would need to be raised considerably, and it is not clear how much domestic users will be willing to pay. Although Serbia is not a pre-accession country, EU policy is that tolls for foreign and domestic users be set at the same level. They put considerable pressure on Serbia to conform to this policy, e.g. during their discussions on numbers of transit permits.
· Road works constructed by concessions awarded in neighboring countries frequently have costed around 25% more than conventional works, particularly where a contractor was a member of the consortium and there was little effective competition. There is also a risk of corruption in the absence of competition.
· PPP agreements are complex and require domestic expertise and advice to implement successfully.
· Creating a separate motorway agency, as proposed by IDIS, focuses resources but has the potential disadvantage of diverting staff and demoralizing the existing road agency, reducing funds available for the rest of the main road network, and making road planning more difficult.
7. One approach which has been used in Slovenia and Croatia, is for Parliament to approve a multi-year road expenditure and financing program which (a) addresses the backlog road maintenance/rehabilitation problem, (b) includes some funds for motorway construction on a PPP basis (which are hopefully economically justified), and (c) is financed in significant part by a dedicated increase in the fuel tax.
Urban Transport in Belgrade
8. Bank staff have assisted the Belgrade local government with a public transport study, including writing the terms of reference, reviewing the Consultant’s reports, and chairing the Technical Review Committee. The study was carried out by Consultant SYSTRA with grant financing from France and has been completed. This has produced substantial data and analysis on urban transport.
9. Based on SYSTRA’s preliminary findings, the main short-term urban transport issues are:
· future status of the municipal public transport company (GSP) which is in poor technical and financial condition but which has just received an injection of new and good second-hand vehicles;
· role of private sector providers, including regulatory mode which is presently limited to fare regulation with operators taking both cost and revenue risks;
· fare/subsidy policy which must balance revenue generation with social objectives (poverty reduction);
· how to re-activate the municipal traffic and parking management function.
· how to re-activate and expand the role of the traffic police;
· financing road maintenance; and
· how to reestablish the urban transport institutions which have mostly broken down.
10. The main medium-to-long term urban transport issues are:
· how to raise the quality of public transport services (for in-city travel, the options are (a) an incremental approach to current system improvement, (b) light-rail in major corridors, including selective tunneling to eliminate current bottlenecks, or (c) a "light metro" system; for regional travel, the main question is the potential of suburban rail where the infrastructure is in relatively good condition, but the vehicle fleet is inadequate);
· how much new road development should there be in the city;
· congestion charging, both as a traffic management measure and to generate revenue; and
· institutional development.
11. These issues are not well understood among the responsible agencies, donors and consultants sometimes provide conflicting advice, the authorities are tempted by large investments which are not economically justified (metro), and there is no effective and affordable strategy for recovering from the current crisis. A realistic urban transport strategy is badly needed.
Objective, Audience and Approach
12. The objectives of the proposed sector work are:
· regarding motorways, to highlight the lessons of experience in other countries (especially CEE countries), assess main issues in the Serbian context, and clarify the pro and cons of various options for addressing these issues;
· regarding urban transport in Belgrade, to assess and recommend an effective and affordable strategy for the recovery of urban transport, which would cover public transport, streets and traffic management, and be consistent with available financial means taking social objectives into account.
13. The primary audience for the sector work is Government decision makers, and the secondary audience is Bank staff and management. The Government has agreed to the preparation of this sector work.
14. A motorway consultant would visit Serbia for one week of field work, prepare a report covering his findings and recommendations (including a summary of the experience of neighboring countries), and, following Bank review, hold a workshop for high level Government officials in Belgrade. The Bank staff member who has been assisting the City of Belgrade with the preparation of its public urban transport study would complement the work of SYSTRA by field work in the areas of urban roads and traffic management, and prepare the urban transport report. This report, following Bank review, would be sent to the City of Belgrade for comments, and, should enough funding be available, discussed in a seminar around mid June. Terms of reference for the two studies are attached. Both reports would be summarized in an Executive Summary.
Timetable
15. Concept Review Meeting April 21
Draft Urban Transport Report May 15
Motorway field work May 5-12
Draft motorway Report May 30
Motorway Workshop June 9
Final Report June 27
Task Team and Peer Reviewers
16. Jean-Charles Crochet Program Team leader
Peter Parker Consultant (2 weeks)
Andras Timar Consultant Motorway Specialist (4 weeks)
Slobodan Mitric Principal Urban Transport specialist (3 weeks)
Michel Bellier Peer Reviewer – motorways
Gerhard Menckhoff Peer Reviewer – urban transport
Budget
17. $30,000
Serbia
Transport Sector Work
Terms of Reference for Motorway Component
1. Twelve years after the war/embargo and two years after a change in Government, Serbia is at a critical point in deciding how best to address some important transport issues. Other former Yugoslav Republics (FYR) and CEE countries have a several years head start in dealing with the same problems, and Serbia can benefit from their experience.
2. Serbia has about 495 km of motorways and 171 km of semi-motorways. Serbia’s ‘motorway density’ is about one-third of the Western European average relative to population, on a par with other CEE countries, and much higher, for example, than typical middle-income countries in South America. The Government is considering expanding the motorway network on a public/private partnership (PPP) basis. One of the specific proposals presently under investigation is called the Infrastructure Development Initiative for Serbia (IDIS). Proponents seek to regain transit traffic and prepare to join the EU. They are motivated by the EU’s interest in constructing high standard road and rail corridors through CEE countries, including Corridor 10 which is the former trans-Yugoslav road/rail corridor. Hungary, Croatia and Slovenia, among others, have constructed motorways on a PPP basis, and much can be learned from there experience.