Document o f The World Bank

Report No: 25657-W

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LEARNING AND INNOVATION CREDIT

IN THE AMOUNT OF SDR2.00 MILLION (US$2.75 MILLION EQUIVALENT

TO

SERBIA AND MONTENEGRO

FOR AN

EMPLOYMENT PROMOTION PROJECT

April 30, 2003

Human Development Sector Unit - ECSHD South East Europe Country Unit Europe and Central Asia Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective as o f April 30,2002)

Currency Unit = Serbian Dinar

U S $ l = 5 7 . 8 9 6 W M L C = US$ 0.017272

FISCAL YEAR January 1 December 31

ABBREVIATIONS AND ACRONYMS

ALMPs - Active Labor Market Programs CAS - Country Assistance Strategy DFID - Department for International Development EPP - Employment Promotion Project EU - European Union GDP - Gross Domestic Product IBRD - Intemational Bank for Reconstruction and Development I L O - International Labor Organization LFS - labor force survey L I C - Learning and Innovative Credit LMB - Labor Market Bureau LRP - Labor Redeployment Program M O L E - Ministry o f Labor and Employment M O U - Memorandum o f Understanding NGO - Non-Governmental Organization OECD - Organization for Economic Cooperation and Development PIMS - Performance Information and Management System P IU - Project Implementation Unit PFSAC - Private and Financial Sector Structural Adjustment Credit SMEs -Small and Medium Sized Enterprises SOE - Socially owned enterprise SOSAC - Social Sector Adjustment Credit TSS - Transitional Support Strategy W D - Yugoslav Dinar

Vice President: Johannes F. Linn

Sector Manager: Michal Rutkowski Country Director: Orsalia Kalantzopoulos

Task Team LeadedTask Manager: Arvo Kuddo

SERBIA AND MONTENEGRO EMPLOYMENT PROMOTION PROJECT

CONTENTS

A . LIL Justification 1 . What i s to be learned (why the piloting)? ............................................................................ 2 . How are the results going to be used (vis a vis CAS objectives and any follow-on

operation)? 3 . Other countries or situations where similar efforts have shown promise ................................

B . Structure of the Pilot 1 . How wil l the learning take place? ...................................................................................... 2 . Outcome-level test to be conducted ................................................................................... 3 . Steps Involved in Implementing the Pilot ............................................................................ 4 . Learning Expectations to be Documented in the Pilot .......................................................... 5 . Triggers for a Follow-on Operation .................................................................................... 6 . Results-based Monitoring and Evaluation Arrangements .....................................................

C . Components and their Implementation Arrangements 1 . Project components .......................................................................................................... 2 . Implementation arrangements ............................................................................................

a Procurement b . Financial Management .................................................................................................. c . Other ...........................................................................................................................

. ................................................................................................................

D . Risks 1 . Social and Environmental R isks ..........................................................................................

a . Safeguard Policies ........................................................................................................ b . Other social r isks ..........................................................................................................

2 . Other Risks ...................................................................................................................... E . Main Loadcredit Conditions

1 . Effectiveness Conditions ................................................................................................... 2 . Other ...............................................................................................................................

F . Readiness for Implementation ............................................................................................. G . Compliance with Bank Policies ........................................................................................... Annexes Annex 1 . Annex 2 . Annex 3 . Annex 4 . Annex 5 . Annex 6 . Annex 7 . Annex 8 . Annex 9 .

Project Des ign Summary ............................................................................................. Project Description ..................................................................................................... Estimated Project Costs .............................................................................................. Financial Management ................................................................................................ Project Processing Schedule ........................................................................................ Procurement and Disbursement Arrangements ............................................................. Documents in the Project File ...................................................................................... Statement o f Loans and Credits ................................................................................... Country at a Glance ....................................................................................................

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SERBIA AND MONTENEGRO Employment Promotion Project

Project Appraisal Document Europe and Central Asia Region

ECSHD

late: April 30,2003 iector Manager: Michal Rutkowsh zountry Director: Orsalia Kalantzopoulos

,ending Instrument: Learning and Innovation Loan

Team Leader: Arvo Kuddo Sector(s): Other social services (100%) Theme(s): Social risk reduction (P), Social risk coping

'roject ID: PO69374 (PI

LW

For LoanslCreditslOthers: Amount (US$m): $2.75

Proposed Terms (IDA): Modified Terms 20 years to maturity; 10 years grace period, with no acceleration clause Grace period (years): 10 Years to maturity: 20

DA ENT FOR INTERNATIONAL

Borrower: SERBIA AND MONTENEGRO Responsible agency: MINISTRY OF LABOR AND EMPLOYMENT, REPUBLIC OF SERBIA Address: Nemanjina St. 22-26 Belgrade, 11 000 Contact Person: Nebojsa Rajkovic Tel: +381 11 361 6602 Fax: +381 11 3617 498 Other Agency(ies): Labor Market Bureau Address: Kralja Milutina 8, Belgrade 11000 Contact Person: Svetozar Krstic Tel: +381 11 324 4612 Fax: +381 11 324 5236 Email: Estimated Disbursements I Bank FY/US$mk

Email: nebojsa.rajkovic@uzzpro.sr.gov.y

I I I I

Cumulative 1 0.25 I 1.00 I 2.00 I 2.75 1 I I I I I I I ~ ~-

Project implementation period: 3 years (2003-2006) Expected effectiveness date: 06/3012003 Expected closing date: 06/30/2006 A S A 0 WII *e" ux/n ?m

A. LIL Justification 1. What i s to be learned (why the piloting)?

The objective o f the Employment Promotion Project (EPP) for Serbia and Montenegro (sub-lent to the Republic o f Serbia) wil l be to improve the efficiency o f labor programs by pi lot ing and testing new approaches and innovative labor redeployment programs and employment services for the unemployed in selected areas w i th a v iew to employment promotion and increased cost-effectiveness o f such programs.

The hypothesis to be tested i s that carefully designed labor redeployment programs (LRPs) and active labor market programs (ALMPs) can be a cost effective tool for reintegrating displaced workers and other j o b seekers into the labor market and mitigating the social costs o f enterprise restructuring. The main mechanism selected to test this hypothesis will be to build the capacity in relevant agencies, primarily in the Republic o f Serbia’s Ministry o f Labor and Employment (MOLE) and Labor Market Bureau (LMB), and to develop the ski l ls , pol icy instruments and procedures necessary to facilitate enterprise restructuring and mitigate the social costs involved. In particular, the project will seek to introduce innovative labor redeployment programs and employment services to the public and private employment agencies, to enhance their capability to deal with and respond to labor market challenges accompanying economic reforms in the country, reduce the short-term negative impact o f labor restructuring o n affected workers and communities, and support efforts to monitor and evaluate the employment and other social impacts o f different p i lo t interventions.

This i s the second stage o f Bank interventions in Serbia o n labor issues. The f i rs t stage involved helping to revise the legal framework. In particular, the approval o f a new Labor L a w in December 2001 is assisting removal o f structural impediments to the containment o f costs in the enterprise sector, removing key legal bottlenecks to the reduction o f overstaffing in enterprises and budgetary institutions, and providing an impetus to growth in employment. This will be assisted w i th another legislative reform which wil l bring the new Serbian L a w o n Employment and Insurance in Case o f Unemployment into l ine with requirements o f a market economy, and will harmonize appropriate employment protection with European Un ion (EU) and International Labor Organization (LO) regulations. The new law, aimed at active labor market programs, i s encouraging j o b creation by the investment in prospective labor market programs, development o f entrepreneurship and small and medium enterprises (SMEs) and creating programs o f re-employment, vocational training and self-employment. Under the new law the pol icy wil l move from passive to active measures in order to stimulate unemployment beneficiaries to become active j o b seekers. The second stage, supported under the proposed project, wil l build on that framework and focuses o n improving inefficient programs.

The labor market pol icy reform program i s needed as Serbia enters an intensive period o f privatization and enterprise restructuring, both in terms o f controlling fiscal impact and in terms o f promoting interventions which are more effective in facilitating retum to work for those la id off. In particular, priori ty reforms supported under the SOSAC agenda, include also reform o f the L a w o n Employment and Insurance in Case o f Unemployment, and the Social Program. This requires also capacity strengthening in the LMB which will be done under the EPP which i s assisting in the design, pi lot ing and evaluating o f new and more cost effective labor market intervention and innovative active programs. A third stage country ‘roll-out’ and institutional strengthening might be considered depending on project results and outcomes.

Serbia i s presently dealing w i th the severe economic consequences o f more than a decade o f economic mismanagement, exacerbated by regional conflicts and sanctions. GDP stands at below one-half o f i t s 1989 level. Economic reform since the end o f 2000 has marked a change in pol icy that has already had a

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number o f positive effects. Economic performance has been solid. Real GDP growth rebounded from the highly negative rates o f 1999 (impact o f the Kosovo conflict) to positive rates o f about 5-6 YO in 2000 and 2001. For 2002, preliminary estimates put growth at about 4 percent. The new government in Serbia adopted an ambitious program o f economic reform, committing i tself to reversing the trends o f the previous decade and integrating the economy with the European Union. In less than two years trade and prices have been liberalized; new fiscal and monetary policies have substantially reduced inflationary pressure and stabilized the exchange rate. Inf lat ion in Serbia fel l f rom 115% in 2000 to 39% in 2001. For 2002, it i s estimated at 14.2%, we l l below the init ial ly projected 20%. Relations with international creditors have been largely normalized. Comprehensive privatization legislation marked a break with dubious schemes o f the past in welcoming foreign investment to participate in the process.

The unemployment rate in Serbia, at 12.2 percent, i s around average by transition economies standards. Unl ike most transition economies, the majori ty o f unemployed (56 percent) are persons without previous labor market experience (mainly youth), rather than workers who lost their job. Only around 7 percent o f the unemployed receive unemployment benefits during their spell o f unemployment. Currently around 75 percent o f the unemployed are estimated to be seeking work for longer than one year, a very high proportion compared with other transition economies.

There i s a large discrepancy between the labor force survey (LFS) and registration data o n unemployment. According to administrative records the number o f registered unemployed i s about twice as high (892,000 in October 2002) as according to the LFS. However, the LFS data are more l ikely to approximate to reality for the usual reasons o f various incentives to register - mainly the availability of pension and health insurance. As a result, a large proportion o f persons registered as unemployed are not genuinely unemployed, i.e. they either have a j o b in the informal sector, or are not actively looking and available for work. On the other hand, the employers must legally not i fy vacancies, and the number o f registered by the LMB vacancies i s quite significant. In 2001, 542,200 vacancies were registered, and during the f irst 10 months o f 2002 - 393,900 vacancies. These are mostly in companies which have very bad working conditions and l o w salaries. However, with respect to short term contracts, each time there i s an extension it i s noti f ied as a new vacancy, leading to serious double counting o f vacancies and j o b placements.

The Government o f Serbia i s increasingly concerned about issues o f mass unemployment (predominantly long term unemployment), large informal labor markets and l o w efficiency o f employment services. Although the informal sector labor market mitigates the unemployment and poverty problem, in the interest o f long term economic development it i s important that unemployment i s absorbed by the growing formal sector, rather than by the informal sector.

In recent years, the Republic o f Serbia has embarked o n a significant enterprise restructuring reform and privatization program. I t i s expected that in the short term the reforms will entail major labor displacement. The restructuring will give rise to large inf lows into unemployment, while due to the underdeveloped new private sector, outflows f rom unemployment will be, in the short- to medium-term, limited. However, publ ic employment services and other agencies are not equipped to mitigate the impact o f group redundancies in addition to dealing with the unemployed in general.

Currently, owing to budget constraints and high spending on unemployment benefits and related cash payments (pensions and health insurance), expenditures on ALMPs are very l imi ted in Serbia. The programs are broadly targeted, and not necessarily at disadvantaged groups (e.g., groups running a high risk o f long-term unemployment). Most o f the ALMPs are being introduced in an ad hoc fashion as a quick response to perceived problems. In addition, the programs are l ikely to carry a heavy deadweight loss, and thus their net impact and cost-effectiveness appears to be low. Job search assistance, which based on international experience i s one o f the most cost-effective active labor market interventions, i s underdeveloped in Serbia.

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All programs are administered and financed by the LMB and i t s local branches. The LMB has currently 1,693 employees (1,438 permanent employees). One employment advisor o n average handles a roster o f more than 2000 unemployed persons making it one o f the heaviest work loads o f a publ ic employment service anywhere in the region. In the EU client caseloads can be approximately 150400. The Advisers in Serbia spend less than 15 minutes with each new registered client. These figures are a considerable inhibiting factor to the development o f successful ALMPs. The LMB i s constrained in its ability to hire new staff. The EPP would al low the LMB to learn new approaches which should facilitate the provision o f cost-effective ALMPs.

Regarding labor redeployment programs, currently most redundant workers (90-95 percent) in enterprises undergoing privatization and restructuring opt for a generous lump s u m monetary compensation amounting to 10 average wages in the economy o f the Republic o r YUD 6,000 for each year o f employment, since alternatives for participation in active labor programs are limited. For example, a redundant employee can also opt for additional training, which lasts fo r 3 months. In reality training is l imited to what the LMB can currently provide, i.e., basic, specialist o r employer related training much o f which is fo r less than 3 months in duration. Moreover, an experience f rom Romania, Russia and other countries indicates that severance as seed capital failed to result in an appreciable level o f development activity (new businesses were not created). The Social Program - with the current budget o f 5 bi l l ion YUD annually - has n o system for tracking participants. The EPP wou ld encourage dismissed workers towards programs which are l ikely to be more effective for their age and ski l l profile.

The development objective o f this project i s to improve the cost-effectiveness and efficiency o f labor programs in the Republic o f Serbia by:

1. development and implementation o f redeployment measures targeting redundant workers in enterprises undergoing deep restructuring or privatization thus facilitating the rapid return o f workers to productive employment. 2. introduction o f more cost-effective labor market interventions and innovative employment services for the unemployed to assist them in rapidly reentering the labor market. 3. development o f institutional capacity to collect and analyze labor market data in order to improve the effectiveness o f labor market policies and programs.

Activities supported by the EPP wou ld be improved employment services and new programs for the country, which would be tested in 4 p i lo t areas (municipalities), evaluated and then expected to be implemented more broadly. Accordingly, the EPP, as a learning process, wil l support new policies and institutional arrangements for a LW, by building capacity to implement a L R P targeted at workers displaced by privatization, and wi l l enhance ALMPs through pi lot ing and evaluating new and more cost-effective interventions, including job/social counseling, j o b searcwjob club programs, enhanced labor exchange, and placement services, in order to improve both their impact and cost-effectiveness. Additionally Economic Development Planning Studies and Small Business Advisory Services wil l help to address issues related to the demand for labor.

Program evaluation anticipated in the project wil l p lay a critical ro le in informing the allocation o f resources to, and expansion of, programs with the largest impact. In particular, the project i s intended to develop performance information and management system (PIMS) to support cost-effective delivery o f labor market programs. The efficacy o f the labor redeployment program i s to be learned through the monitoring o f changes in the labor market status o f displaced workers. The extent to which different programs tested under the EPP project have contributed to improving j o b prospects o f the displaced workers and the unemployed w i l l be tested through qualitative assessment o f A L M P supported by EPP in pi lot areas. The project w i l l improve operational efficiency and the provision o f improved information

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systems within Labor Market Bureau.

2. H o w are the results going to be used (vis a vis CAS objectives and any follow-on operation)?

Document number: A full Country Assistance Strategy (CAS) covering FY04-06 i s expected to be presented to the Board in the fall o f 2003. In May 2001 a Transitional Support Strategy (TSS) was endorsed by the IBRD and IDA Boards o f Directors which was updated in August 2002. The Transitional Support Strategy Update (TSS) for the Federal Republic o f Yugoslavia (now Serbia and Montenegro) emphasizes the need for the Republic o f Serbia to build capacity in the public sector to promote more cost effective labor redeployment programs, pilot innovative services for the unemployed, and promote a balance between social mitigation, fiscal sustainability and facilitating re-entry to the labor market, using the EPP as a piloting instrument. The EPP would also support efforts to monitor and evaluate the employment and other social impacts o f different interventions.

Date of latest CAS discussion:

The EPP will support the overall Bank program in the country aimed to sustain economic reforms, privatization, and enterprise restructuring. In particular, the activities supported under the Serbia Structural Adjustment Credit (SAC I), were designed, among other issues, to initiate reforms in labor markets. The EPP was also thematically linked to the f i rs t Serbia Private and Financial Sector Structural Adjustment Credit (PFSAC I) which focuses on privatizing and restructuring socially owned enterprises, and to the recently negotiated PFSAC II. In addition, this L I C complements the recently approved Social Sector Adjustment Credit (SOSAC) for Serbia that supports reforms in active and passive programs for the unemployed.

3. Other countries or situations where similar efforts have shown promise.

This i s the f i rs t labor Learning and Innovation Loan project in ECA region. However, in recent years and with the Bank support, similar approaches in reforming active labor market programs have been undertaken in Poland (Employment Promotion and Services Project); Russia (Employment Service and Social Protection Project); Turkey (Employment and Training Project, and Privatization Social Support Project); Albania (Labor Market Development Project), and in several countries in the region with respect to social mitigation o f the impact o f enterprise restructuring and privatization, including in Russia, Hungary, Romania, Macedonia, Croatia and Poland.

The ALMPs, aiming at expediting the redeployment o f labor, thereby reducing the duration o f frictional and structural unemployment, increasing productivity, and reducing expenditures on income support programs, are common in most transition countries. However, evaluation o f the net impact o f ALMPs in some o f the transition countries, such as Hungary, the Czech Republic and Poland, showed mixed results. While some programs can help most groups o f the unemployed, other programs, depending on the labor market situations in particular countries, program design or groups o f the unemployed, showed neutral or even negative outcomes in terms o f placement rates, probability o f employment and career development or enhancement o f wages. These mixed results call for careful testing o f different approaches and programs on a pilot basis with the aim o f improving their design and cost-effectiveness.

A variety o f services are needed to address three conditions commonly experienced by displaced workers who are trying to re-enter the labor market. In case o f frictional unemployment, displaced workers have marketable ski l ls for which there i s a demand, but they need intensive job placement assistance. These services can have a substantial positive impact on re-employment and have a low unit costs. As for structural unemployment, displaced workers often lack skil ls, or their s k i l l s are not in demand, and need some re-skilling to compete and re-enter the labor market. Different types o f retraining, including on-the-job and/or institutional training i s needed in these circumstances that can help re-employment at a

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moderate unit cost per worker. Among the donor supported programs in Serbia, issues related to structural unemployment w i l l be addressed by the European Agency for Reconstruction and the European Training Foundation in their programs. Lack o f demand for labor i s a particular problem in areas o f high unemployment and in mono-enterprise communities where many workers are laid off. Programs include small business consulting assistance, business incubators, and micro-loans. These programs tend to be more expensive than other services, attract a limited number o f participants, but can be quite effective. Developing effective ALMPs i s essentially a learning process, and the EPP i s specifically meant to facilitate and optimize it.

B. Structure of the Pilot 1. H o w wil l learning take place?

The learning w i l l take place through active participation and engagement o f relevant M O L E and LMB staff in designing, implementation and evaluation o f the piloted innovative labor market programs. Relevant staff o f government agencies will be trained to design social plans (labor redeployment programs) for enterprises undergoing privatization and restructuring, and implement them. Also program evaluations on the effectiveness o f active labor market policies w i l l be conducted to determine the impact o f various piloted ALMPs programs. In particular, the performance information and management system w i l l be developed to monitor labor market trends and on the effects o f labor market programs. A tracer survey o f displaced workers will be conducted to monitor their labor market status and the use o f labor redeployment services. This allows to learn about the efficacy o f the labor redeployment program, and to improve the Social Program’s design and effectiveness. Qualitative assessment o f ALMPs in pilot area will be performed, including client satisfaction. In particular, relative performance o f various programs will be assessed, including pre-layoff services, job counseling, job clubs, business incubators tested under EPP, as well as program effects depending on local labor market conditions. Finally, the M O L E and LMB staff will be trained on the principles and methods o f the evaluation o f ALMPs. The pilot will be deemed ready for larger scale implementation if relevant cadres are well trained, operating guidelines and manuals prepared and the positive response o f participants to selected programs o f pilot activities will be documented through various surveys and assessments.

2. Outcome-level test to be conducted

The EPP w i l l introduce relevant labor redeployment programs in pilot enterprises, and w i l l pilot improved and a new set o f active labor market programs, including job search s k i l l training programs, job clubs, special employment programs for vulnerable groups (youth, disabled, and minorities); job and vacancy fairs; employer contact services; small business advisory services; business incubator services; virtual enterprises (or simulation models o f a business enterprise), and local economic development planning studies. Associated participatory techniques through the district labor market offices i s expected to result in adoption o f the programs by a significant number o f enterprises undergoing privatization and restructuring, and local labor bureaus in subsequent years based on the successful experiences o f the early adopters.

The menu o f piloted LRPIALMPs will be tested out under the various economic and social situations and with the participation o f local authorities and other key stakeholders. The pilot areas will be chosen in regions with high unemployment rates and mass redundancies resulting from enterprise restructuring, privatization or closure. In particular, the pilot areas that have been chosen for the project include the following municipalities.

Pilot 1: Pancevo in Vojvodina: A municipality wi th high development potential and future emplovment possibilities.

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Major companies: Two big companies will currently be privatized through restructuring: HIP AZOTARA - chemical industry (1,700 employees); and HIP PETROHEMIJA - chemical industry (3,100 employees) (autonomous pre-privatization restructuring activities). Currently for both o f these companies the total number o f surplus employees i s not known.

Pilot 2: Nix A municipality with many socioeconomic and ethnical problems. poor development potentials and high unemployment.

Major companies: MASINSKA INDUSTRIJA - MIN HOLDING CO - machinery (6,000 employees of which 1,200 are surplus); ELEKTRONSKA INDUSTRIJA - E1 KORPORACIJA - electronics (7,000 employees o f which 2,500 are surplus).

Pilot 3: Kralijevo: A municipalitv with a cluster o f companies due for privatization and restructuring

Major companies: Two big companies w i l l be privatized in Kralijevo through restructuring: MAGNOHROM - fire bricks (5,000 employees o f which 1,800 are surplus). This company i s a uniform company with divisible technology and heterogeneous products. FAJ3RKA VAGONA - rail wagons, etc. (1,600 employees o f which 300 are surplus).

Kralijevo i s also one of the areas o f highest concentration o f intemally displaced persons (IDPs) and refugees in the country. It has been estimated that perhaps forty percent o f the population o f the municipality i s IDPs and refugees.

Pilot 4: Lazarevac: A municipality socially and economically dependent on one big company

Main industry: Mining (open-cut mining); Major company: l2EIK KOLUBARA - to be restructured; 15,000 employees; the total number o f surplus employees i s not known. One o f the towns with the highest average salary in the country.

The EPP envisages that local level partnerships involving key players in the each pilot area w i l l be established under the auspices o f the MOLE, who wi l l be responsible for overall project implementation. The precise composition and size o f local partnerships for the project should be determined by local needs but for purposes o f EPP implementation key stakeholders should consist o f local self-govemment, enterprises undergoing restructuring, local labor market bureau, SME agencies, and other relevant c iv i l society.

3. Steps involved in conducting the pilot

The project would provide technical assistance, training, materials and equipment that would allow piloting a newhevised menu o f active labor market programs (ALMPs) and LRP o f the following:

e developing an institutional framework for piloted LRP and ALMPs, including operating

building an early relationship with the redundant workers, prior to them being made redundant;

incorporating the planning and training o f a cadre o f LRP and ALMP specialists that w i l l

guidelines and manuals;

the maximum possible information and services to be provided on site in the companies prior to the redundancies becoming active, during the period o f notification;

implement the project in pilot areas. In this way models for piloting LRPs and ALMPs can be properly promoted, targeted, monitored and evaluated. Training resources w i l l be focused on the establishment of

e

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a sustainable training system built on the “Training the Trainer” Model that can be further developed and promulgated by the LMB and MOLE;

providers) to launch enhanced ALMPs and LRPs;

redeployment programs, in order to assess which are most cost effective;

post-layoff services;

to help bodies responsible for labor market pol icy make informed decisions.

that wil l be tested in the Municipal i ty Pi lot areas as a way o f developing effective local solutions to local problems.

0 providing assistance to pi lot local employment offices and other agencies (including private

developing tools to monitor and evaluate implementation o f alternative or complementary labor

developing survey instruments that could be used to assess l ikely demand for pre-layoff and

developing a capacity for employment and labor market pol icy analysis in the MOLE and LMB

developing effective working relations between LMB and Pr ivateNGO Employment Agencies

e

0

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0

Training o f the MOLE and LME3 employees in implementing L R P s and ALMPs and in program evaluation would be a focal point o f the EPP.

4. Learning expectations to be documented in the pilot

8 Economic 3 Technical E Social LX Participation Financial 3 Institutional 2 Environmental d Other

The project wil l (i) build up essential elements o f a pro-active labor market services, and create a capability for longer term strategic management o f the labor market administration; and (ii) develop a more meaningful set o f pre- and post-layoff services. The main beneficiaries wil l be the workers o f enterprises undergoing privatization and restructuring, and the registered unemployed. N e w technologies that would be developed or adapted as part o f the EPP would emerge from the best practices o n implementation o f labor redeployment programs and ALMP in the region, as we l l as in OECD countries.

Practically a l l sub-components have some innovative aspects. Learning and innovation expectations include, but are not l imi ted to the following:

insights into practical implementation of enterprise restructuring and privatization and the local impact o f enterprise reform in Serbia. In particular, assessment and planning instruments to determine the demand for relevant services will be tested.

assessment o f what are a cost-effective means for attaining the expected results. Anticipated results include i) preventing redundant workers f rom becoming unemployed and being registered at PES, o r staying in the roster o f registered unemployed for a long period o f time; ii) proposing altemative options for active labor market services and in shortening the duration o f j o b search; and iii) increasing placement rates for the registered unemployed and improving employment opportunities.

the cost per placement o r job created under the altemative models o f LRPs or ALMPs, as we l l as service integration models developed in participating municipalities to be determined, especially in regards to integration o f activities being provided under Components 1 and 2.

involve private service providers, and efficiency o f their activities wil l also be tested.

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test ways to provide training o f trainers or subcontractors o f particular programs.

assess what are the best administrative and financial modalities for carrying out LWs and selected ALMPs in different labor market situations.

insights on what levels and forms o f community participation are the most optimal, and how to involve key stakeholders in the consultation process.

strengthening o f the institutional framework for labor market policies and employment services, including normative, policy and coordinating functions among the key agencies and stakeholders involved.

5. Triggers for a follow-on operation

The introduction o f new employment services and associated participatory techniques in a selected range o f municipal employment bureaus i s expected to lead to approaches and lessons that can be applied across the country. In the CAS discussions between the Bank and the Government currently ongoing, innovations in the EPP could potentially be applied in another operation. Key trigger points may include, but would not be limited to:

An institutional framework for the implementation o f a l l the components nationwide has been established; different administrative structures for the LRP have been tested and assessed using approaches based on learning-by-doing and taking into account the pace o f enterprise restructuring and local conditions; administrative support materials, instruments and detailed procedures have been prepared. These w i l l include detailed implementation plans for al l products and procedures for local employment offices (manuals, guidelines, etc.), and specifications o f standard equipment and materials needed for specific tasks.

Assessment and planning instruments to determine the demand for redeployment services by redundant workers and for particular A L M P services have been prepared which w i l l provide a budgeting base.

Capacity o f the MOLE, the LMB and local employment services to generate, analyze and use the information for policy formulation and program design, and to help agencies responsible for labor market policy make informed decisions has been enhanced. In particular, the performance information and management system (PIMS) to monitor labor market trends and programs i s in place.

A learning network i s in place to improve efficiency and incorporate an expansion o f the labor exchange function and proactive employment, including “Train the Trainer” staff training materials.

More extensive net impact evaluations or quasi-experimental comparisons o f participants in programs related to Components 1 and 2 have been completed followed by investment in those measures that produced the best results.

Positive feedback from key stakeholders, including participants o f improved labor programs, local authorities, and social partners w i l l provide important input for future policy development.

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6. Results-based Monitoring and Evaluation System

The EPP includes monitoring and evaluation of project impact and outcomes as a separate component. In particular, the project includes the development of institutional capacity to collect and analyze labor market data for policy formulation and program design, including, but not limited to: development of performance information and management system to support cost-effective delivery o f labor market programs; monitoring o f changes in the labor market status o f displaced workers; qualitative assessment o f ALMPs supported by EPP in Pilot Areas; and training o f the staff on the principles o f the evaluation o f ALMPs. (See Annex 2 for details).

C. Project Components and Implementation Arrangements 1. LIL Components

Component 1 involves the “Design of Labor Redeployment Activities”. This component aims to reintegrate displaced workers and other job seekers into the labor market and mitigate the social costs of enterprise restructuring through the development and testing o f new policies, institutional arrangements and labor redeployment programs, including the design and implementation o f enterprise social plans, through the provision o f training, services and goods. In particular, the component aims to provide assistance to persons displaced as a result of restructuring or privatization o f enterprises through labor redeployment services, as part o f the carrying out o f enterprise social plans, including job counseling, financial counseling, job search referral, and sk i l l and entrepreneurial training. Operating guidelines for a LRP will be prepared, and cadres o f LRP specialists trained.

The component will also finance technical assistance to help up to 10 enterprises in pilot areas prepare social plans. The social plans are to be prepared as part o f the Government’s Social Program for enterprises undergoing restructuring and will detail the number o f redundancies expected, the structure o f the affected workers and the proposed mitigation measures. Approval o f enterprise social plans w i l l be done by M O L E in accordance with the government regulations, ‘‘Decision o f the Government of Serbia on the Social Program for Employees who are dismissed during enterprise restructuring and preparation for privatization, bankruptcy and liquidation”. The Government’s Social Program provides for funding from the budget for severance payments for redundant workers. The component w i l l provide funding for labor redeployment services for affected workers as part o f the social plan. Possible services to be financed (to be agreed with MOLE) would include the following: group and individual information sessions, job counseling, career counseling, financial counseling for redundant workers and their families, job search referral and placement assistance, s k i l l and entrepreneurial training. The details and implementation arrangements for labor redeployment services to be financed as part o f the social plans will developed by MOLE, working with the local partnerships and technical assistance during the first phase o f implementation. The allocation for this activity wi l l be subject to a condition o f disbursement until the implementation plan has been developed and agreed with the Bank.

The primary objective o f Component 2 “Piloting reforms in Public Employment Services” wi l l be to design, pilot and evaluate new and cost effective public employment services with the view to assisting the unemployed to rapidly re-enter the labor market, through the provision o f improved employment services, such as job search assistance programs and small business advisory services, as well as the institutional strengthening o f the M O L E and LMB, through the provision o f training, services and goods.

The component w i l l also assist in the design of ALMPs that can be used to screen unemployment benefit recipients, and increase system confidence in the employment status o f claimants. These pilot schemes wi l l need to take account of workers socioeconomic profiles (including age, education, gender, work

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history, skill level) and local labor market needs. The decision o n whether particular services will be provided by the local employment agency, or by an external service provider fol lowing a process of public tendering, will be made by the MOLE or local authorities, as described in the Law on Employment and Insurance in Case o f Unemployment and other relevant acts.

The Component comprises 5 tasks. The objective o f the Improved Employment Services i s to provide enhanced public employment services to workers, who have been displaced by the privatization of SOEs and enterprise restructuring programs, and other j ob seekers, to assist them in rapidly reentering the labor market. I t includes the fol lowing activities: j ob search slul l training programs; j o b clubs; special employment programs for vulnerable groups (youth, disabled, and minorities); vacancy and j o b fairs; and employer contact services. The objective o f the Improved Small Business Assistance Services i s to encourage the unemployed to enter self-employment and assist individuals to start successful businesses. I t includes the fol lowing activities: small business advisory services; business incubator services; and development o f a general framework for local economic potential studies The objective o f the Local Economic Development Planning Studies i s to help communities to develop the local economy and generate new employment by identifying and marketing regional resources and opportunities to potential investors. The Studies will be implemented in each of the EPP pi lot regions by local contractors. The Design and Implementation of Virtual Enterprises (a Practice Firm) aims to improve interactive learning, obtain and develop business skills, and introduce the j o b seekers and students into the day-to-day business l i fe and labor market reality. Staff Development and Management Training in the Ministry of Labor and Employment and the Labor Market Bureau aims to enable MOLE and the LMB develop technical and process management s k i l l s for the effective development of employment pol icy and labor market interventions, and ensure effective implementation o f EPP.

The objective o f Component 3 “Labor market information and evaluation: social impact of restructuring and effects of ALMPs” i s to develop a comprehensive system o f labor market information to assess and evaluate the effects o f labor market programs, through the provision of training, services and goods. This involves building local capacity to generate, analyze and use the information for pol icy formulation and program design.

The Component comprises f ive tasks: (i) Development o f the performance information and management system (PIMS) to monitor labor market trends and programs, and guide program design; (ii) Training o n the principles and methods o f the evaluation of ALMPs; (iii) Monitor ing o f hsplaced workers: the use of labor redeployment services and changes in the labor market status; (iv) Qualitative assessment of ALMP supported by the EPP in four p i lo t areas; (v) Build a Database on Displaced Workers.

Surveys wil l use a targeted sample drawn from unemployment register records at the disposal of the LMB. Survey results will enable determination o f unit costs per placement o f different programs, and assess the relative effectiveness of local LMBs, and eventually in fo rm and guide resource allocation across programs and localities.

I t i s anticipated that the analysis o f the results o f labor market monitoring will be concentrated in 2005 so as to ensure sufficient accumulated experience w i th A L M P s and labor redeployment. If the results confirm that the new employment services were more effective compared to those currently used, it i s expected that the new methods would be expanded and replicated throughout the country. Therefore, the introduction o f a relevant set o f new employment services and associated participatory techniques through the model offices and model municipalities i s expected to result in adoption and replication of the programs countrywide. The EPP will, therefore, a im to support new activities and ALMPs outlined in the new L a w on Employment and Insurance in Case o f Unemployment.

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Component 4 Project Management. This component w i l l provide assistance to the M O L E in the management of the Project through the provision o f services, including the audit of accounts and financial statements, as well as assistance to both the M O L E and LMB in the implementation of the Project through the provision of training, services and goods.

Indicative Component Costs

(US$M)

The PIU will be under the overall supervision o f the MOLE. I t w i l l act as a coordination office for the project including all liaison and reporting with the Bank, adrmnister all procurement issues and financial management responsibilities. The PIU staff w i l l be led by a manager (PIU Director) who would have overall responsibility for the project. He/she w i l l be assisted by a financial specialist wi th responsibility for project finance and accounting, and a procurement specialist who would advise and assist with all procurement procedures and monitor their implementation. The PIU will also have a Component Coordinator for technical work on the components and a support staff member.

Bank- Yo of % o f financing Bank- Total (US$M) financing

~~ ~ _ _ _ _ _ _

1. Design of Labor Redeployment Activities 2.41 2. Piloting reforms in Public Employment Services 2.03 3. Labor market information and evaluation: social impact 0.40 o f restructuring and effects o f ALMPs 4. Project Management 0.61

Total Project Costs 5.45 Front-end fee 0.00

Total Financing Required 5.45

44.2 1.20 43.6 37.2 1.02 37.1

7.3 0.21 7.6

11.2 0.32 11.6 100.0 2.75 100.0

0.0 0.00 0.0 100.0 2.75 100.0

2. Implementation Arrangements Responsibility for project management and implementation rests with the MOLE. The Ministry w i l l be assisted with the technical aspects o f implementation by a Project Implementation Unit within MOLE. The PIU has been established by a ministerial order and will report to the Minister o f Labor and Employment.

The PIU will be staffed with local consultants (non civ i l servants) and will be financed from the credit proceeds. It w i l l be staffed with the following positions: Director, Component Coordinator, Procurement Officer, Financial Management Officer (Accountant) and an Assistant. Office space for the P IU will be made available by the MOLE/LMB and equipment and operating costs will be financed from the credit.

At the local level o f the pilot sites, there w i l l be a local partnerships established to facilitate the coordination of local stakeholders and oversee implementation o f the activities in the municipalities. These partnerships w i l l include local stakeholders for this project such as local administration, labor market bureau, major employers, trade unions, and nongovernmental organizations involved in labor issues. These committees should meet at least once per quarter and more often as necessary.

The PIU i s responsible for implementation fimctions such as project accounting, procurement, disbursements, consolidation o f quarterly project management reports and budgets. It w i l l be responsible for organizing all tenders under the project and payment o f contracts.

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a. Procurement

Since Procurement activities will be implemented by the MOLE, a procurement capacity assessment was carried out which indicated that procurement staff in the M O L E are dealing with some procurement under the ministry’s budget but may be challenged by having to apply the Bank’s procurement guidelines when hiring consultants and purchasing goods for this project. I t was therefore agreed that the hiring o f a procurement specialist familiar with procurement under Bank financed projects w i l l constitute adequate resources to carry out the few procurement activities foreseen under the EPP.

Consulting services contracts will be awarded under the project, following Bank Consultant Guidelines (January 1997; revised September 1997, January 1999 and May 2002), with two main contracts to be awarded under the Quality-and-Cost-Based Selection (QCBS) method. Miscellaneous office equipment, supplies, printing o f materials shall be procured through international or national shopping, following the Bank Guidelines: Procurement under IBRD Loans and IDA Credits (January 1995, revised up to January 1999), for Goods and Works (threshold IS below USS100,OOO and N S below USS50,OOO). Details o f the proposed procurement arrangements are given in Annexes 6.

b. Financial Management

A review was undertaken in December 2002 (updated in February 2003 and again in April 2003) to determine whether the financial management arrangements for the EPP are acceptable to the IDA.

I t has been concluded that the Project satisfies the IDA’S minimum financial management requirements. The PN’s interim financial management system i s considered capable o f satisfactorily recording all transactions and balances and supporting the preparation o f regular and reliable financial statements. However, to further strengthen financial management within the PIU, an integrated accounting and reporting package will be procured during the early part o f project implementation to replace the interim spreadsheet based system.

Disbursements from the IDA credit wi l l follow the transaction-based method, i.e., the traditional IDA procedures including reimbursements with full documentation, Statements o f Expenditure (SOE), direct payments and special commitments, I t i s not anticipated that the project w i l l migrate to report based disbursement .

c. Other

Project monitoring and supervision. Project implementation will be monitored by the PIU and the MOLE. During negotiations an agreement was reached that the following documents w i l l be prepared by the PIU to facilitate project monitoring:

0 Quarterly Financial Monitoring Reports (FMRs), which should (i) set forth actual sources and applications o f funds for the project, both cumulatively and for the period covered by the report, and (ii) contain an update o f the project cost and procurement plan indicating the progress in project implementation and explaining variances between the actual and previously forecast implementation targets; and (iii) contain a statement o f Special Account

0 Annual project financial statements for each fiscal year (which coincides with the calendar year in Serbia) audited by independent auditors by June 30 o f the next year.

The monitoring o f the project will include regular supervision by the Bank’s Task Team, jointly with

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DFID, which would review the project implementation and exchange views with the P I U Director and the Government officials.

M

M

D. Risks 1. Social and Environmental Risk Social impacts are expected to be positive as a result o f the adoption o f improved employment services which would help redundant workers and j o b seekers to cope with their new status and to reintegrate into the labor market by providing placement services and assisting workers to undertake self-employment, and reduce the short-term negative impact o f labor restructuring o n affected workers and communities.

Design o f employment services w i l l take into account recurrent cost implications. During project preparation, adequate arrangements wil l be defined. Strong Wor ld Bank supervision needed.

For Component 1, there is a r isk that the Government’s Social Program may not have sufficient funds for redundancy payments for a l l enterprises in pi lot areas. The project i s safeguarding against this risk by stipulating that the EPP will support “eligible enterprises”, wh ich are defined as those committed to deep restructuring and approved for support under the Government’s Social Program.

a. Safeguard Policies

N o safeguard policies have been triggered. Environmental Category: C (Not Required)

b. Other Social Risks

The social risks o f undertaking the EPP are low. Although the labor market situation i s already tense and more workers are expected to be made redundant, the EPP intends to build public support for restructuring by signaling to citizens, communities and labor representatives that those responsible for restructuring are tuned to the needs o f affected workers and the unemployed people and that they are ready and willing to assist those that need and want help. Positive benefits are expected to accrue to the Bank’s and UK DFID’s reputation as a result of their involvement in the pi lot project. The potential positive social outcomes are high, and far outweigh the very l o w social risks to the Bank of undertaking the operation.

2. Other (external, reflecting the failure of the assumptions in the fourth column of Annex 1) Risk

From Outputs to Objective Adequate resources for implementation o f Enterprise Social Plans provided in a t imely manner through the budget. Recurrent cost implications o f LRP specialist training and pi loted employment services specialist training can be met f rom the Employment Fund.

From Components to Outputs Timely availability o f Counterpart Funds.

Adherence to agreed training plan and technical assistance schedule.

Risk Rating I Risk Mitigation Measure I

M

M

During project preparation, adequate arrangements wil l be defined with the MOLE and Privatization Agency. During project preparation, adequate arrangements wil l be defined with the MOLE and LMB.

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Technical capacity readily available.

MOLE and LMB management w i l l i ng to experiment with new and innovative employment services. The targeted districts participate in the pi lot program, and relevant employment officers agree to participate in the training and development o f new services. Overall Risk Rating

S

M

M

M I I Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), NI

3uring project preparation, training and other ieeds for capacity building will be defined. :lose consultations with the MOLE and LMB nanagement before and during the project implementation period. Pilot districts selected in close coordination with the districts during project preparation.

legligible or Low Risk)

E. Main Loan Conditions 1. Effectiveness Condition

Enactment by Serbia and Montenegro of a l aw rat i fying the DCA signed between Serbia and Montenegro and IDA.

Enactment by Serbia and Montenegro o f a l aw on borrowing containing the provisions set forth in Section 3.02 o f the DCA;

The Sub-credit Agreement has been executed and a l l conditions to the effectiveness o f such agreement have been fulfilled, and

Submission to IDA o f a legal opinion from Serbia and Montenegro attesting to the validity and binding nature o f the DCA.

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

Condition of Disbursement

The Borrower shall prepare a section for the Operations Manual, satisfactory to the IDA, for the Implementation of Enterprise Social Plans prior to any funds being used from Category 3 of Schedule 1 o f the Development Credit Agreement.

Other

The MOLE of the Republic o f Serbia i s to maintain a satisfactory Financial Management System, including records and accounts, and to prepare financial statements in accordance with accounting standards satisfactory to the Government o f Serbia; the MOLE is to provide audited annual project accounts to the IDA within six months o f each fiscal year (with the audit to be carried out by independent auditors in accordance with International Standards o n Auditing, and TORS satisfactory to the IDA).

F. Readiness for Implementation c 1. a) The engineering design documents for the first year's activities are complete and ready for the

";1 1. b) N o t applicable. start o f project implementation.

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I . 2. The procurement documents for the f i rs t six months' activities are complete and ready for the start o f project implementation; and a framework has been established for agreement on standard bidding documents that wil l be used for ongoing procurement throughout the l i fe o f LIL

_ ~ _ 3. The L IL 's Implementation Plan has been appraised and found to be realistic and o f satisfactory quality.

4. The fol lowing items are lacking and are discussed under loan conditions (Section G):

G. Compliance with Bank Policies 1. This project complies with a l l applicable Bank policies.

0 2. The fol lowing exceptions to Bank policies are recommended for approval. The project complies with a l l other applicable Bank policies.

ger// Country Director Team Leader

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Annex 1: Project Design Summary SERBIA AND MONTENEGRO: Employment Promotion Project

The use o f the reformed employment services would improve reallocation o f labor through the emphasis on more cost-effective j o b search assistance programs.

chy of 0 Sector-related CAS Goal: Create a more efficient labor market in Serbia through building capacity in the public and private sectors, and promote more cost effective labor redeployment programs and innovative services for the unemployed.

Follow-on Development Objective: Improved employment services throughout the country

Project Development 0 bjective: Improve the efficiency o f labor programs by pi lot ing an( testing new approaches and innovative labor redeploymenl programs and employment services fo r the unemployed ir selected areas with a view to employment promotion and increased cost-effectiveness ol such programs.

ector Indicators: ) Progressive improvements t reallocation o f labor.

i) Increase in public support )r the enterprise privatization nd restructuring.

tutcome I Impact idicators: mprovements in access, uality and uti l ization o f mployment services in the irgeted districts.

'acilitate the rapid return o f torkers made redundant to lroductive employment and hus reduce the duration o f tate supported income upport payments.

ncrease in employment lpportunities offered by mployment services and lumber o f small businesses upported.

iector/ country reports: 1 (from Goal to Bank Mission) .abor Force Survey Continued Government

commitment to a sustained program o f economic reform.

jurvey o f the unemployed vho participated in ALMP

Improving the social well-being and employment prospects o f the most vulnerable.

Project reports: (from Objective to Goal)

Project monitor ing and supervision reports; project evaluation (mid-term and final) reports

Labor force survey reports;

Mon i to r ing o f displaced workers;

Survey o f the unemployed who participated in ALMP (qualitative assessment).

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htput from each :omponent: . Design of a Labor Ledeployment Program.

roject reports: I

Leintegrating displaced iorkers and other j o b seekers it0 the labor market and lit igating the social costs of nterprise restructuring lrough the development and :sting o f new policies, istitutional arrangements and ibor redeployment programs, ic luding the design and nplementation o f enterprise ocial plans.

from Outputs to Objective)

,. Piloting reforms in Public Employment Services.

Iesign, pi lot ing and valuation o f new and cost ffective public employment ervices with a v iew o f ssisting the unemployed to apidly re-enter the labor narket.

-he Employment L a w passed .nd enacted effectively.

3utput Indicators:

idequate resources for mplementation o f Enterprise jocial Plans are provided in a ime ly manner through the )udget.

4dministrative structure(s) for xoposed LRP identified. 3perating guidelines for a LRP prepared. Survey instrument(s) ieveloped to assess l ikely iemand for pre-layoff and Dost-layoff services. Pilot labor redeployment 3rogram designed and aperational. Number o f LRP specialists trained. Criteria and approval process for a small "fund facility" to be accessed by firms requiring assistance with design and evaluation o f LRP prepared. Social Plans (LRP) in p i lo t enterprises developed and implemented .

iecurrent cost implications o f ,RP specialist training can be net f rom relevant budgets.

Operating guidelines and manuals for a new menu o f ALMPs prepared. The menu o f ALMP to be developed and tested would include j o b search ski l l training programs; job clubs; special employment programs for vulnerable groups; vacancy and j o b fairs; employer contact services; small business advisory services; business incubator services; local economic development planning studies; virtual enterprises (or simulation models o f a business enterprise); and staff development and management training in the MOLE and LMB. Equipment and materials needed for relevant activities determined. LMB staff training provided tc implement piloted services. N e w programs being launchec in model offices.

Recurrent cost implications o f p i loted employment services

)ecialist training can be met o m the Employment Fund.

roject progress reports;

upervision mission reports; valuation (midterm and final) :ports;

,dministrative and ianagement record keeping ystems;

'roject summary reports.

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I

and management system (PIMS) to monitor labor market trends and programs developed, including: (i) the currently existing PIMS reviewed; (ii) a model PIMS designed which w i l l provide LMB management with information necessary to assess the cost-effectiveness oj various labor market programs, and to guide resource allocation across programs, client groups and regions; (iii) the newlmodified PIMS launched.

Training on the principles and methods o f the evaluation o f active labor market programs (ALMP) conducted, and training materials prepared; (handouts).

A tracer (follow-up) survey of displaced workers designed, implemented and the results o the survey analyzed.

Qualitative assessment o f ALMP in pi lot areas designed and implemented, including a client satisfaction survey; and study's findings presented anc disseminated.

A database on displaced workers i s prepared, includini the number and profile (structure) o f displaced workers; and a sample frame to draw a sample o f displaced workers, which w i l l be used b the survey o f displaced workers.

Labor market information The performance information id evaluation: social ipact o f restructuring and fects of ALMPs

welop a comprehensive stem o f labor market formation to assess and ,ahate the effects o f labor arket programs.

Sub-components: component) I. Design of a Labor US$ 2.4 1 mil l ion

'reject reports:

'IU and Bank monitoring

from Components to htputs) rimely availability o f

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~ Redeployment Program.

The targeted districts participate in the p i lo t program, and relevant employment officers agree to participate in the training and development o f new services.

.ppropriate accountability in se o f project f i nds and 1puts.

2. Piloting reforms in Public Employment Services, including: j o b search ski l l training program; j o b clubs; special programs for vulnerable groups (youth, disabled, and minorities); j o b and vacancy fairs; employer contact services; programs for self-employmenl business incubator services; virtual enterprises (a practice firm); local economic development planning studies; staff development and management training.

3. Labor market information and evaluation: social impac of restructuring and effects o ALMPs 4. Project Management

JS$2.03 m i l l i on

JSS 0.40 m i l l i on

JS$ 0.61 m i l l i on

ports including:

iplementation progress ports (semi-annual); nancial monitoring; isbursement reports; aocurement records; ontracts; udit reports (annual); valuation reports.

Counterpart Funds.

Adherence to agreed training plan and technical assistance schedule.

Technical capacity readily available.

MOLE and LMB management willing to experiment with new and innovative employment services.

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Annex 2: Detailed Project Description SERBIA AND MONTENEGRO: Employment Promotion Project

By Component:

Project Component 1 - US$2.41 million

Design o f Labor Redeployment Activities

The objective o f this component i s to reintegrate displaced workers and other j o b seekers into the labor market and mitigate the social costs o f enterprise restructuring through the development and testing o f new policies, institutional arrangements and labor redeployment programs, including the design and implementation o f enterprise social plans, through the provision o f training, services and goods. Component 1 involves the design, testing, and implementation o f a LRP that wi l l support workers affected by enterprise restructuring and privatization, i s consistent with international best practices, and i s feasible for replication under the conditions existing in Serbia. Pi lot ing o f a LRP will benefit f rom a learning-by-doing approach to ensure that: (i) tracking, monitoring and evaluation results as we l l as social partner feedback are an integral part o f the LRP design and wou ld be used to fine-tune the LRP program; and (ii) different implementation delivery structures would be tested depending upon local capacity, e.g. public employment services; private service providers, NGO’s, local level partnerships. These would be evaluated for effectiveness (quality o f results and cost).

The LRP is responsive to the government’s pace o f enterprise restructuring and targets redundant workers for information and assistance pr ior to leaving the workplace. International experience has shown that pre-layoff services such as, information o n departure options, counseling, screening and referral to other redeployment assistance during the notification period may improve employability and lessen the chances that redundant workers j o i n the ranks o f the long term unemployed.

Summary of Technical Assistance: Technical assistance under the project for this component wil l be provided to MOLE and to LMB, and to participating enterprises and local communities. Firstly, technical assistance will be provided to the MOLE and LMB related to the design and delivery o f the LRP including the identification, testing and assessment o f different administrative structures for the LRP. Secondly, technical assistance will be provided to eligible enterprises in the preparation and testing of Social Plans in 10 selected enterprises in the four p i lo t areas, based o n criteria agreed with MOLE. Technical assistance related to managing labor restructuring wil l also be provided to enterprise managers. Criteria agreed w i th MOLE for enterprise selection fo r the pi lot include:

- the size o f the enterprise and magnitude o f restructuring; - the enterprise i s on the l i s t o f enterprises undergoing restructuring; and - the enterprise demonstrates willingness to participate in the pi lot.

Demonstration o f the willingness to participate will include agreement to provide suitable physical space, operating costs (heating, telephone) and a minimum o f one staff (to be trained under the project) for contributing to the staffing o f a “redundant worker action center” (RWAC).

Technical assistance will be provided to stakeholders at the community level (enterprises, worker representatives, labor market bureaus, local self government). Testing new approaches for overseeing labor redeployment programs and employment services in the project wi l l involve key actors in each o f four pi lot areas to be carried out through the formation o f local partnerships. Local technical assistance

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coordinators provided by the project in each pi lot area and trained by the technical assistance Contractor w i l l support the partnerships. Local partners would include, but not be l imited to the enterprises that are undergoing restructuring, local self-government local labor market bureau, SME agencies, and other relevant c iv i l society. The exact form o f partnership in each area wil l depend upon factors such local capacity, conditions and local needs as wel l as the magnitude o f enterprise restructuring. Local partnerships could be expanded to other key community actors such as trade unions, training and educational institutions, foundations, NGOs, Chambers o f Commerce and other public or private sector associations.

Component Tasks: Design o f a LRP i s comprised o f four inter-related tasks:

- identifying, testing and assessing different administrative structure(s) o f a LRP; - assessment and planning the demand for Labor Redeployment Services; - developing specialized procedures for large-scale redundancies and for delivering redeployment

- involving key stakeholders, and traclung and monitoring o f LRP outcomes. services in four p i lo t sites; and

Task I: Administrative Approaches to LRF’ Delivery. This task will identify, test, and assess different administrative structures that are suitable to the p i lo t site conditions for implementing the LRP. Administrative approaches that could be tested would include but not be l imi ted to:

- a centralized approach with teams o f trained contracted experts or LRP specialists visiting selected enterprises in the pi lot areas; - contracted experts or LRP specialists operating within “redundant worker action center” provided by enterprises undergoing restructuring; - social partner co-operative approach with trained experts setting up working groups consisting o f enterprise management, worker representatives, local govemment, local labor office etc. at the pi lot enterprise level; and - a combination o f the above.

The international technical Contractor wil l prepare and disseminate administrative support materials, instruments and detailed procedures related to this task. Products developed under the project w i l l include a complete Field Implementation Manual with operating guidelines for the LRP, a general framework for a funding faci l i ty for testing social plans by financing labor redeployment measures, guidelines and procedures for operating redundant worker action centers, preparation o f “Train the Trainer” staff training materials o n the component. Related activities will include preparation and organization o f orientation workshop(s) to introduce the LRP to key players, staff training and training o f L R P expert teams in pi lot sites.

Task 2: Determination of the demand for redeployment assistance and estimating related costs. Assessment and planning instruments to determine the demand for redeployment services by redundant workers and operating guidelines wil l be prepared, and cadres o f LRP specialists trained in their use. As part o f this task, the Contractor wil l also prepare costing templates for the LRP in general and specifically for the testing and delivery o f pre-layoff and post-layoff services in the pi lot areas to ensure that resources for LRP delivery are available in a t imely manner.

Task 3: Development of specialized responses to redundancies. As part o f this task, the Contractor w i l l assist in the development o f specialized procedures for large-scale redundancies and in implementing the test delivery o f redeployment services in four pi lot sites. These will include procedures for operating redundant worker action centers and the design o f a framework including implementation guidelines for

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funding for the implementation o f enterprise social plans:

Basic criteria for a LRP funding. The project wil l provide funding, which enterprises or local level partnerships can draw upon to finance labor redeployment services in order to implement the enterprise-level social plans during restructuring and privatization. Local partnerships in the pi lot areas, formed under the auspices o f the MOLE, wil l review and recommend to MOLE labor redeployment services contained in enterprise social plans to be funded under the project. The project will provide a maximum total o f USD 1 mi l l ion for the implementation o f social plans (labor redeployment services) for up to 10 enterprises in four pi lot sites. LRP funding for enterprises i s not intended to relieve financial distress in enterprises and LRP services in pi lot enterprises should be demand driven. Maximum allocations per eligible enterprise w i l l be negotiated with the MOLE.

Redundant Workers Action Centers. Task 3 will also involve the establishment o f one to two “redundant worker action centers”, which wil l be equipped under the project in each o f the four p i lo t areas. The RWACs wil l act as a resource center providing information o n workers’ redeployment options and options related to the Government’s Social Program and wil l assist in test implementation o f enterprise social plans. This will include acting as a worker communication and coordination center for labor redeployment pre-layoff and post-layoff services such as counseling, j ob placement, screening and referral o f workers for further assistance, as we l l as tracking and monitoring o f participating workers. Staffing o f the R W A C will include but not be l imi ted to a minimum o f one staff provided by the enterprise, staff assigned from the local LMB, and local consultants provided and trained by the Contractor. The Contractor wil l provide materials and training for operating RWACs. Although redundant workers in enterprises undergoing restructuring are the primary targets, testing o f pre-layoff and post-layoff redeployment programs may also include a publ ic sector redundancy pilot. The Health Sector in the pi lot area o f Kral i jevo has been identified as a potential test site.

Task 4: Involvement of key stakeholders, monitoring, and tracking outcomes of the LRP. Local level partnerships involving key players previously listed wi l l be established under the auspices o f the MOLE. Local partnerships wil l contribute to project implementation and their involvement will include the following:

- identifying surplus enterprise and community assets (premises and equipment); - identifying and developing economic development plans and initiatives to absorb redundant workers by expanding the local economic base; - reviewing and recommending to MOLE specific labor redeployment measures developed as part o f enterprise social plans to be funded f rom the project; - assisting in identifying local service providers; and overseeing LRP monitoring activities.

Tracking and monitoring o f LRP participants as we l l as feedback f rom pi lot area partnerships will be an integral part o f finalizing the LRP design and in fine-tuning the LRP program before it i s implemented o n a larger scale.

Project Component 2 - US$2.03 million

Piloting reforms in Public Employment Services

The objective o f the component 2 is to design, pi lot and evaluate new and cost effective public employment services w i th the view to assisting the unemployed to rapidly re-enter the labor market,

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through the provision o f improved employment services, such as j ob search assistance programs and small business advisory services, as wel l as the institutional strengthening o f the MOLE and LMB. This objective wil l be accomplished through five tasks:

( i) improved employment services to provide enhanced public employment services to workers, who have been displaced by the privatization o f SOEs and enterprise restructuring programs, and other j o b seekers, to assist them in rapidly reentering the labor market. I t includes the fol lowing activities: j o b search slull training programs; j o b clubs; special employment programs for vulnerable groups (youth, disabled, and minorities); vacancy and j o b fairs; and employer contact services.

(ii) improved small business assistance services to encourage the unemployed to enter self-employment and assist individuals to start successful businesses. It includes the fol lowing activities: small business advisory services; business incubator services; and development o f a general framework for local economic potential studies.

(iii) local economic development planning studies to help communities to develop the local economy and generate new employment by identifying and marketing regional resources and opportunities to potential investors. The Studies will be implemented in each o f the EPP pi lot regions by local contractors.

(iv) the design and implementation o f virtual enterprises (a Practice Firm) to improve interactive learning, obtain and develop business skills, and introduce the students into the day-to-day business l i fe and labor market reality using a concept o f a practice f indv i r tua l enterprise.

(v) staff development and management training in MOLE and LMB,- to develop technical and process management s lu l l s for the effective development o f employment pol icy and labor market interventions, and ensure effective implementation o f EPP.

The project wil l ensure that selected pi lot municipalities receive additional technical assistance and resources to test new approaches in designing and delivering employment services by both private and public providers. The component wil l be technically managed o n a day-to-day basis by the Labor Market Bureau in cooperation with Local Employment Bureaus and selected service providers.

International technical assistance, based o n a review o f international pol icy experience, will be used for the preparation o f administrative support materials, instruments and detailed procedures based o n the review o f international pol icy experience for each sub-component area. The Contractor will synthesize areas for improvement and best practices for dealing with similar problems and programs in Serbia and assess whether conditions are sufficiently developed in Serbia for adopting services o f similar scope

Detailed implementation plans for a l l products and procedures as we l l as specifications for standard equipment and materials needed for specific tasks related to the three sub-components will be developed. Work plans, procedures, and related staff training materials w i l l be prepared to strengthen adrmnistrative and management capacity in local labor offices to improve efficiency and incorporate an expansion o f the labor exchange function and proactive employment measures. Assistance i s wi l l be provided with the reproduction and distribution o f relevant products and procedures in other areas o f Serbia in accordance w i th implementation plans.

International technical assistance provided wil l includes training o f trainers or subcontractors of particular programs in employment offices in the four al l p i lot areas o n the enhanced employment services. The plan, procedures, and staff training materials for a l l the improved employment services

- 25 -

programs wil l be developed, and training conducted for selected counselors in pi lot areas. Study tours for local LMB staff in pi lot areas w i l l be arranged on topics relevant to the sub-components.

If needed, assistance i s wil l also be provided to local labor offices related to sub-contracting with service providers to deliver respective services fol lowing procedures in the Project Operational Manual as agreed w i th the Bank. The decision on whether this service will be provided by the local employment agency, o r by an external service provider fol lowing a process o f publ ic tendering, w i l l be made by the MOLE or local authorities, as described in the Employment L a w and other relevant acts.

A t least one j o b club, small business advisory services center, business incubator and virtual enterprises center wil l be established in each o f the pi lot municipalities, and at least one vacancy and j o b fair based on the newly designed services during the period o f the international TA contract will be conducted. Additional relevant services centers will be provided by local employment offices during the project implementation period.

The LMB new IT system, containing a client database, wil l provide the potential for client profiling. This wil l enable a l l LMB Offices to prepare accurate profiles o f client groups (for example, the database w i l l te l l them what are the main characteristics o f a person who i s l ikely to be unemployed for over 2 years; what i s the probability that they will be female, over 50; f rom a specific location and so on). This will also enable the LMB to forecast what the l ikely employment chances are for specific people facing redundancy (profiling) in order to better target LW initiatives and ALMPs.

Wi th respect to Task 3 “Local Economic Development Planning Studies”, the activity includes: (i) Preparation o f local economic potential studies according to a pre-prepared framework; (ii) Development o f promotional and information materials o n local economic potential and investment projects; and (iii) Preparation o f orientation and training program, and provision o f training for local authorities in use o f the study.

Service providers will be required to conduct an extensive consultation process to review the social issues and local factors. This process will, inter alia, includes: (i) Creating advisory councils and advisory groups in p i lo t regions; (ii) Conducting town-hall meetings, periodical workshops and round tables. All proposals must be approved by local social partners, who must be involved in the review and dissemination o f the results.

Project Component 3 - US$0.40 million

Labor market information and evaluation: social impact of restructuring and effects of ALMPs

The objective o f Component 3 “Labor market information and evaluation: social impact o f restructuring and effects o f ALMPs” i s to develop i s a comprehensive system o f labor market information to assess and evaluate the effects o f labor market programs. This involves building local capacity to generate, analyze and use the information for pol icy formulation and program design, and to help agencies responsible for labor market pol icy make informed decisions. The Component comprises five Tasks: (i) Development o f the performance information and management system (PIMS) to monitor labor market trends and programs, and guide program design; (ii) Training o n the principles and methods o f the evaluation o f active labor market programs (ALMP); (iii) Monitor ing o f displaced workers: the use o f labor redeployment services and changes in the labor market status; (iv) Qualitative assessment o f ALMP supported by the EPP in the pi lot areas, and (v) building a database o n displaced workers.

Task I: Performance Information and Management System (PIMS). The overall objective o f this

- 2 6 -

Subcomponent i s to develop performance information and management system to support cost-effective delivery o f labor market programs supported by the Employment Law, and for assessing program performance. International technical assistance will be used to assist the LMB with the system development and implementation. The development o f P IMS w i l l include (a) review o f the currently existing PIMS and identifying informational gaps and other weaknesses, (b) design o f a model P IMS which wil l provide LMB management w i th information necessary to assess the cost-effectiveness of various labor market programs, and to guide resource allocation across programs, client groups and regions, and (c) implementation o f the PIMS o n a pi lot basis in two selected sites. An important element o f the PIMS wil l be a special follow-up survey o f program participants to determine their (gross) placement rate

Tusk 2: Training on the Principles of the Evaluation of ALMPs. The objective o f this Subcomponent i s to enhance the capability o f relevant govemment ministries to evaluate the impact o f ALMP and use evaluation results for (re) designing labor market policies and programs. To this end international consultants wil l be hired to carry out a workshop o n ALMP evaluation. The workshop wil l provide the key stakeholders (MOLE, LMB) with key concepts, methods and results o f ALMP evaluation. In particular, the workshop i s planned to cover the fo l lowing issues: (a) objectives o f ALMP evaluation, (b) macroeconomic vs. microeconomic ALMP evaluations, (c) concepts o f deadweight loss, substitution and displacement effects, (d) concepts o f targeting and allocative efficiency, (e) treatment effects, the concept o f a comparison group (gross vs. net impact), (9 program effects and cost-effectiveness (basic elements o f cost-benefit analysis), (g) basic approaches to and methods o f determining the net impact o f A L M P (experimental and quasi-experimental designs, etc.), (h) data collection strategies, (i) interpreting the results o f net impact evaluations (statistical vs. economic significance), 0) examples and lessons f rom o f ALMP evaluation in OECD and transition economies, and f inal ly (k) using evaluation results for improving and re-designing labor market programs.

Tusk 3: Monitoring of Changes in the Labor Market Status of Displaced Workers. The purpose o f the monitoring Subcomponent i s to learn about the efficacy o f the labor redeployment program, and to improve the Social Program’s design and effectiveness. T o this end a special tracer (follow-up) survey o f displaced workers will be designed and implemented. Survey results will al low one to determine changes in the welfare and labor market status o f workers hsplaced due to the enterprise restructuring and privatization, who benefited f rom the Social Program. Specifically, the survey will (a) identify assistance received under the Social Program (e.g. pre- and post-lay o f f services, severance pay), (b) determine the typical pattern o f labor market behavior (e.g. methods and intensity o f j o b search, assessment o f the dif f iculty to find a job, j o b search duration, the current labor force and earnings status) , and f inal ly (c) determine changes in the economic status in the wake o f redundancy (an analysis o f a transition matrix showing aggregate worker f lows across the three labor force states: employment, unemployment and inactivity). Eventually, the study wi l l a im at drawing pol icy implications, which should include (a) identification o f worker groups wh ich are encountering problems in re-integration into the labor market and who are encountering problems in maintaining their economic status, and recommendations for remedial action (e.g. additional labor redeployment and social services), and (b) assessment o f and recommendations concerning the effectiveness o f the benefits and services provided under the Social Program.

- 27 -

Task 4: Qualitative Assessment ofALMP Supported by EPP in Pilot Areas. The key goal o f a LRP and ALMPs i s to improve j o b prospects o f the displaced workers and the unemployed. The objective o f this Subcomponent i s to determine the extent to which different programs tested under the EPP project have contributed to meeting this goal. The eventual purpose i s to improve program design and program mix. The assessment will include: (a) relative performance o f various programs (such as pre-layoff services, j o b counseling, j o b clubs, business incubators) tested under EPP, (b) effects o f different programs on different client groups, and (c) program effects depending o n local labor market conditions (e.g. impact in high unemployment vs. l o w unemployment regions). I t i s envisaged that the assessment wil l be done using the results o f a client satisfaction survey and/or focus groups. Clients (stakeholders) include displaced workers who used the labor redeployment program, the unemployed who participated in ALMP, local employers, local LMB staff, and local govemment/community.

I t i s anticipated that the analysis o f the results o f labor market monitoring wil l be concentrated in 2005 so as to ensure sufficient accumulated experience with ALMPs and labor redeployment programs. If the results confirm that the new employment services and redeployment programs were more effective compared to those currently used, it i s expected that the new methods wou ld be expanded and replicated throughout the country. Therefore, the introduction o f a relevant set o f new employment services and associated participatory techniques through the model offices and model municipalities i s expected to result in adoption and replication of the programs countrywide.

Task 5: Building a database on displaced workers. The objective o f building the database is twofold. First, to determine the number and profi le (structure) o f displaced workers. Second, to provide a sample frame to draw a sample o f displaced workers, wh ich will be used by the survey o f displaced workers (see above). Data wil l be collected mainly f rom companies covered by the Government Social Program. The primary users o f the database wil l be the central LMB in Belgrade and four local Labor Market Bureaus in designated project sites. The database wi l l be used to produce summary reports (tabulations and cross-tabulations) on the numbers o f redundant workers in various break-downs (by company, locality, age, education, occupation, etc.).

The EPP provides for a l l project components additional financing for: a) materialdequipment for implementation o f improved employment services programs developed under this project; b) office equipment and computers for local labor offices in p i lo t areas.

Project Component 4 - US$O.Sl million Project Management

This component wil l provide assistance to the MOLE in the management o f the Project through the provision o f services, including the audit o f accounts and financial statements, as we l l as assistance to both the MOLE and LMB in the implementation o f the Project. I t will finance staff costs, equipment, technical assistance and training in project management, procurement and financial management and incremental operating costs.

- 28 -

Annex 3: Estimated Project Costs SERBIA AND MONTENEGRO: Employment Promotion Project

1.46 0.16 0.19 2.29 0.00 0.09

Piloting Reforms in Public Employment Services Labor Market Monitoring and Evaluation Project Management Total Baseline Cost Physical Contingencies Price Contingencies

1.96 0.40 0.60 5.34 0.00 0.11

0.50 0.24 0.41 3.05 0.00

I 0.02 1

Total Project Costs

Total Financing Required Front-end fee

3.07 2.38 5.45 0.00 0.00

3.07 2.38 5.45

1 Total Project Costs

Front-end fee Total Financing Required

Labor Redeployment Services Training Services Goods Incremental Operating Costs

3.07 2.38 5.45 0.00 0.00

3.07 2.38 5.45

1 .oo 0.54 1.04 0.08 0.41

0.00 0.74 1.16 0.48 0.00

1 .oo 1.28 2.20 0.56 0.41

I Identifiable taxes and duties are 0.95 (US$m) and the total project cost, net o f taxes, i s 4.5 (USSm). Therefore, the project cost sharing ratio i s 61 .I 1

% o f total project cost net o f taxes.

- 29 -

Annex 4: Financial Management

Financial Management Assessment Report SERBIA AND MONTENEGRO: Employment Promotion Project

Country Issues

The FRY - Federal Republic o f Yugoslavia was renamed Serbia and Montenegro fol lowing adoption o f the new constitution on February 4, 2003. C F A A report notes that there are a number o f risks on the management o f public funds in the FRY. The r isks to the public funds include: (a) poor public sector financial management in the past, (b) unfinished reforms - the new governments that were elected have commenced a process o f major reform, which looks good as designed, but it i s s t i l l too early to say if the reforms wil l be totally successful, (c) capacity constraints in both the Federal and Republic governments, (d) weak banking sectors, (e) weak audit capacity, (f) poor implementation capacity in l ine ministries, and (g) the lack o f recent Bank implementation experiences within the FRY. Since re-joining the membership of the Wor ld Bank, FRY has been using individual implementation units for each investment project (traditional PIU model), located within the relevant l ine ministries or project beneficiaries, to mitigate some of these risks. This arrangement i s acceptable to the Bank and the Bank has provided training o n financial management and disbursements to the projects’ staff in March 2002.

Strengths and Weaknesses

The strengths that provide a basis for placing reliance o n the project financial management system l i e in the general corporate accounting experience of the Project accountinddisbursement officer and the comprehensive Operations Manual prepared for the Project by a consultant with extensive pr ior Bank experience. Weaknesses include reliance in i t ia l ly o n a spreadsheet based recording system and the lack of experience o f the PIU staff in managing IDA funded projects.

Staffing of the AccountingJFinance Function

The finance function comprises a single disbursement officer/project accountant who reports directly to the P I U Director. The Accountant i s a licensed auditor in Serbia and has prior experience in corporate accounting.

Accounting Policies and Procedures

An Operations Manual (OM), prepared specifically for the project, was approved by the MOLE on April 1 1,2003. The OM details a series o f preventative and detective controls and places a strong emphasis o n the need to maintain an adequate segregation o f duties. I t i s l ikely that at project effectiveness, the PIU w i l l be operating a spreadsheet based accounting system. Such a system lacks many o f the “software” controls common to modern accounting packages and hence reliance is ini t ial ly placed o n manual controls to ensure the accuracy o f financial reporting.

- 30 -

Internal audit

As noted in the CFAA, l ine ministries are subject to internal audit inspections. However, this function i s not conducted systematically and hence the IDA will place n o reliance upon internal audit when determining the extent o f Project level internal controls necessary to give assurance that funds are adequately protected and transactions are accurately reported.

External audit

The PKJ wil l be responsible for ensuring that Project financial statements are audited by an independent auditor acceptable to the IDA, in accordance w i th standards o n auditing that are acceptable to the IDA. It was agreed during negotiations that auditing standards acceptable to the IDA are International Standards on Auditing promulgated by the International Federation o f Accountants (IFAC). I t was agreed during negotiations that auditors acceptable to the IDA are those auditors that have been unconditionally pre-qualified to audit IDA funded projects in SAM. The cost o f the audit w i l l be financed from the proceeds o f the credit.

The fol lowing chart identifies the audit reports that wil l be required to be submitted by the project implementation agency together with the due date for submission.

Audit Report

Project Enti ty

Due Date N/A Within six months o f the end o f each fiscal year and also at the closing o f the uroiect

SOE

Special Account

TORs for the audit o f the Project financial statements (including opinions on Special Account and SOE operations) are appended to the operations manual. The TORs for the audit were confirmed during negotiations

Reporting and Monitoring

It has been agreed that the PKJ wil l prepare financial monitoring reports (FMRs) o n a quarterly basis. The FMRs include:

Project sources and uses o f funds Uses o f funds by project activity Special account statement plus local bank account statement Project progress report Procurement report

The f irst Financial Monitoring Report wil l be furnished to the IDA not later than 45 days after the end o f the f irst calendar quarter after the Effective Date, and wil l cover the period f rom the Effective Date to the end o f the first calendar quarter. The FMR formats have been included in the operations manual.

Within six months o f the end o f each fiscal year and also at the closing o f the project Within six months o f the end o f each fiscal year and also at the closing o f the Droiect

-31 -

Information Systems

Currently, the PTU has a spreadsheet based information system. At effectiveness, project expenditures and cash balances wil l be recorded using excel spreadsheets. However, the PTU i s in the process o f procuring integrated accounting software capable o f automatically generating reports for the IDA, the MOLE and the MOF Debt Monitoring Unit.

Disbursement Arrangements

I t i s expected that the proceeds o f the Credit wil l be disbursed over a period o f three years, which includes six months for the completion o f accounts and the submission o f withdrawal applications. The estimate o f the volume o f counterpart funds required to fully implement the Project i s based on the Standard Disbursement Profi le for Serbia.

Disbursements f rom the IDA credit wil l fo l low the transaction-based method, Le., the traditional Bank procedures including reimbursements with full documentation, Statements o f Expenditure (SOE), direct payments and special commitments.

Supervision Plan

The reports o f the progress o f the project implementation wil l be monitored in detail during supervision missions. FMRs will be reviewed on a regular basis by the Belgrade-based F M S and the results or issues followed up during the supervision missions. Financial audit reports o f the project wil l be reviewed and issues identified and fol lowed up.

When it i s prepared, the F M S wil l review the Operational Manual dealing for the carrying out o f labor redeployment services to ensure that any financial r i sks arising as f rom these activities are adequately mitigated through the imposition o f financial controls.

- 32 -

Annex 5: Project Processing Schedule SERBIA AND MONTENEGRO: Employment Promotion Project

Time taken to prepare the project (months) First Bank mission (identification)

8 7 0710 112002 09120l2002

Appraisal mission departure Negotiations Planned Date of Effectiveness

Prepared by:

The project was prepared as a collaborative effort between MOLE, LMB, DFID and the Bank. A preliminary assessment o f institutional capacity for project implementation and monitoring and evaluation o f the EPP, financed by UK DFID, was conducted in August-September 2002, and an assessment o f pilot municipalities was completed in December 2002. Also the DFID-financed qualitative baseline study on local socio-economic and labor market conditions in four pilot areas i s scheduled to be completed by mid-2003 to explore policy and operational options for EPP in pilot areas to promote employment opportunities and reduce social exclusion. The study will focus on the key characteristics o f the demand for labor and the supply o f labor, and the mechanisms by which employers and workers are brought into contact with each other via the local LMBs, and assessing the means by which EPP can support measures to improve the efficiency and effectiveness o f labor market clearing institutions in the four pilot areas. These preparatory tasks were intended to help the Government o f Serbia, the World Bank and DFID articulate and implement the EPP, and to address the issues and challenges.

0211 812003 0211 812003 02/24/2003 04/16/2003 0313 112003 0613012003

Preparation assistance:

DFID financing o f preparation consultants

Bank staff who worked on the project included:

I Name Arvo Kuddo Jan Rutkowsh Jolanta Hess Kathryn Dahlmeier Yingwei Wu Nadejda Mochinova Marina Petrovic Michael Gascoyne Gennady Pilch Mark Walker Joseph Formoso

SDecial itv Senior Labor Economist, Team Leader Senior Labor Economist Consultant, Labor Redeployment Programs Social Protection Specialist Procurement Specialist Language Program Assistant Operations Officer Senior Financial Management Specialist Senior Counsel Lead Counsel Senior Finance Officer

- 33 -

Annex 6: Procurement and Disbursement Arrangements SERBIA AND MONTENEGRO: Employment Promotion Project

Procurement

1. Organization : Since Procurement activities wil l be implemented by the MOLE, a procurement capacity assessment was carried out which indicated that procurement staff in the MOLE are dealing w i th some procurement under the ministry’s budget but may be challenged by having to apply the Bank’s procurement guidelines when hiring consultants and purchasing goods for this project. It was therefore agreed that the hiring o f a procurement specialist familiar with procurement under Bank financed projects wil l constitute adequate resources to cany out the few procurement activities foreseen under the EPP. Procurement activities wil l be overseen by this procurement specialist who will be responsible to prepare the procurement plans for the EPP (annual plans to be proposed each year by July 31st, beginning 2003), and to carry out the procurement.

2. Consulting services and training: about sixteen consulting services contracts wil l be awarded under the project, fo l lowing Bank Consultant Guidelines (January 1997; revised September 1997, January 1999 and M a y 2002): (a) two main contracts, both awarded under the Quality-and-Cost-Based Selection (QCBS) method; (b) three contracts awarded o n a single source basis to the PIU Director, Procurement Consultant and Financial Management Consultant for the continuity o f the contracts financed by the preparation grants; (c) about ten technical assistance contracts for the design o f economic studies and labor market information and evaluation (selection based o n qualifications); (d) contracts for individual consultants.

The thresholds fo r pr ior review will be $50,000 for f i r m s and $ 25,000 for individuals (few national experts wil l be recruited under the project).

3. The main contract will be awarded to a multidisciplinary consulting firm (Main Consultant) specialized in labor market development. The firm will be engaged to assist the NationaUBranch and local agencies (Ministry o f Labor and Employment and Labor Market Bureau) in their implementation o f the project t o improve the cost effectiveness and efficiency o f labor market programs by pi lot ing and testing new approaches and innovative labor redeployment programs and services for the unemployed in four pi lot sites. The firm will be engaged in two components o f the project. The firm will: a) design a framework labor redeployment program including preparing and testing enterprise labor restructuring plans; and b) pi lot ing reforms in public employment services including program design, dissemination o f program materials, training and launching services in pi lot sites. Another contract tendered under QCBS wil l be awarded to a firm for management training for senior MOLE and LMB staff. This training will focus on f ive key areas: Program and Project Management; Effective Communication Process Management and Team Working Technical Training; and Procurement, Contracting and Out-Sourcing. Training wil l include both in-country seminars and workshops and study tours to other countries. The Terms o f Reference (TOR) will be finalized before negotiations.

4. Goods and technical service: miscellaneous off ice equipment, supplies, materials, and database hardware shall be procured through intemational or national shopping (threshold: I S below $100,000 and N S below $50,000; aggregate: $510,000). Print ing o f materials shall be procured through national shopping, estimated at $55,000 or less.

The thresholds for pr ior review wil l be $100,000 and f irst two contracts for I S and N S respectively.

- 34 -

5. Labor redeployment services will be recommended by the consulting f i rms to be selected under the QCBS procedures. The procurement plan for the enterprise social plans w i l l be developed by MOLE later based on such recommendation at a total aggregate o f US$1.0 million, which wil l be subject to Bank’s approval. Labor redeployment services contracts, estimated to cost less than $200,000 equivalent per contract, or estimated to cost less than $100,000 equivalent per contract in cases where the short list i s comprised entirely o f national consultants, may be procured in accordance with the procedures acceptable to the Bank and based o n the criteria set forth in the Operational Manual.

Estimated

Table A: Procurement Plan (US$ million equivalent)

Procurement ‘ckg No.

Dec-03

Jun-05

Dec-03

N ~ v - 0 3

Dec-03

Oct-03

Oct-03

Sept-03

Oct-03

Dec-04

Oct-03

Oct-03

July-03

Feb-04

July-03

1

2

3

4

5

6

7

8

9

10

I 1

12

13

14

15

’~1-05

lul-05

?eb-04

Feb-04

May-05

May-05

May-05

Jun-04

Jun-05

May-05

NOV-04

NOV-03

Aug-03

Jul-05

Oct-03

~

ComponentlDesc. of Services/Goods

Design o f a Labor Reployment Program and Pilot reforms in Public Employment Services Printing o f Manuals

Office equipment and supplies (three packages) TA for design o f economic studies (one to four packages) Management Training

Training and Monitoring for Virtual Enterprises

Performance Information &Management System Training on Evaluation o f ALMP (two packages in cluding Training Workshop Logistics) Tracer Survey o f Displaced Workers Assessment o f ALMP

Database on Displaced Workers lardware for Database

’IU office equipment

4udit

software for FM

Total

(1.71)

0.05 (0.05) 0.45

(0.26) 0.08

(0.06) 0.70 (0.56) 0.06

(0.05)

0.09 (0.08) 0.06

(0.06)

0.05 (0.05) 0.05

(0.04) 0.05

(0.04) 0.05

(0.05) 0.10

(0.09) 0.08

(0.07)

0.02

+ Method’

10.02) $3.58 I

hg-03

vlay-05

‘JOv-03

3ct-03

4~g-03

4ug-03

Aug-03

Aug-03

Aug-03

NOV-04

Aug-03

Sep-03

June-03

Dec-03

June-03

Indicative Completion/

Delivery Date3

- 35 -

$3.24

’ Figures in parenthesis are the amounts to be financed by the I D A and DFID by 55% and 35% respectively I Al l costs include contingencies

2’ RFP - Request for Proposals, ITB - Invitation to Bid, ICB - Intemational Competitive Bidding, QCBS - Quality- and Cost-Based Selection, LCS - Least-Cost Selection, CQ - Selection Based on Consultants’ Qualifications

31 End o f contact may not exceed loadcredit board date

- 36 -

Disbursement

Services 0.50 61 %

Table B: Allocation of Credit Proceeds

39 % 0.31 1

61Y"

Incremental

I 1 0.60 1 Training I 0.60 1 61% Services I 0.96 61 %

0.37 1 39% 0.61 I 39%

39% 39%

~ 39% 61 % 61% j 2 39% - 61 % I

I 0.96 1 7 - 7

I 0.20

0.37

I

0.61 0.20

~-

Incremental

Unallocated 0.19

, Operating Costs 1 - 0.20 0.13

I I 61 % 1 0.13 I 39%

0.13 I 0.13 1.75

Use o f statements of expenditures (SOEs):

Some o f the proceeds o f the Credit are expected to be disbursed on the basis o f Statement o f Expenditures (SOEs) as follows: (a) goods costing less than $100,000 equivalent per contract (with the exception o f the f i rs t two contracts); (b) training and services for (i) individuals costing less than $25,000 each; and (ii) firms costing less than S50,OOO each; (c) labor redeployment services under Part A.2 o f the Project under contracts cost ing less than $50,000 equivalent each; (d) incremental operating costs, a l l under such terms and conditions as the Association shall specify by notice to the Borrower. Disbursements against such goods and services exceeding the above limits wil l be made against full documentation and respective procurement guidelines. Related documentation in support of SOEs will no t be submitted to the Association, but wil l be retained by the MOLE for at least one year after receipt by the Bank o f the audit report for the year in which the last disbursement i s made. This documentation wi l l be made available for review by the auditors and supervision missions. If ineligible expenditures, including those not just i f ied by the evidence furnished, are financed from the Special Account, the Bank will have the right to withhold further deposits into the Special Account. The Bank may exercise this right until the Borrower has (a) refunded the amounts involved, o r (b) submitted evidence o f other eligible expenditures that can be used to offset the ineligible amounts, if the Bank agrees.

Special Account:

T o facilitate timely project implementation, MOLE will establish, maintain and operate, under conditions acceptable to the Association, a Special Account in a commercial bank acceptable to the Bank. An init ial authorized allocation o f Euro70,OOO w i l l be established until the disbursements o f the Credit equal $250,000 (SDRI 80,000). The authorized allocation will be Euro140,OOO. The minimum amount o f each application should be 20% o f the authorized allocation. Replenishment applications should be submitted every month, and must include bank statements, as we l l as other appropriate supporting documents.

- 37 -

Annex 7: Documents in the Project File* SERBIA AND MONTENEGRO: Employment Promotion Project

A. Project Implementation Plan

Operations Manual

B. Bank Staff Assessments

Procurement Capacity Assessment

C. Other

*Including electronic files

- 38 -

Annex 8: Statement of Loans and Credits SERBIA AND MONTENEGRO: Employment Promotion Project

16-Apr-2003 Difference between expected

and actual disbursements' On'ginal Amount in US$ Millions

Project ID FY Purpose IBRD IDA SF Cancel Undisb Ong Frm Rev'd PO77732 2003 PRIV a REST OF BANKSIENTPRS TA 000 1100 0 00 000 1120 000 000 PO77473

PO76764

PO74464

PO74090

PO74124 PO75189

PO74618

PO74136

PO74127

PO74145

2003 EMG POWER LIC (MONTENEGRO)

2003 SAC (MONTENEGRO)

2003 EXP FIN FAC

2002 TRADE a TRANSPORT FACILITATION IN SEE 2002 SOCASST 2002 EDUC IMPRVMT

2002 MONTENEGRO ENV INFRA

2002 EMG ELEC POWER RECN

2001 FIN SEC DEVT TA GRANT

2001 PRlV SECT DEVT TA

0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00

5.00 0.00 15.00 0.00 11.50 0.00 6.76 0.00 0.00 10.00

10.00 0.00 0.00 2.00 0.00 6.00 0.00 6.00 0.00 6.00

0.00 5.21 0.00 0.00 0.00 8.08 1.38 0.00

0.00 12.44 10.90 0.00

0.00 7.48 0.28 0.00 0.00 0.60 0.60 0.00 0.00 10.18 0.65 0.00 0.00 1.71 -0.29 0.00

0.00 3.05 3.05 0.31

0.00 2.56 2.06 0.00 0.00 2.43 1.93 0.00

~~ ~ ~~~~

Total 000 5926 30 00 000 6494 2056 0 31

Active Proiects Last PSR

Supervision Rating

Fiscal Year Development Implementation Obiectives Prowess Project ID Project Name

PO751 89 EDUC IMPRVMT S S 2002 PO74136 PO77473 PO74484 PO74127 PO7461 8 PO77732 PO74145 PO76764 PO741 24 PO74090 Overall Result

EMG ELEC POWER RECN S EMG POWER LIC (MONTES EXP FIN FAC S FIN SEC DEVT TA GRANT S MONTENEGRO ENV INFR S PRlV & REST OF BANKS/E# PRlV SECT DEVT TA S SAC (MONTENEGRO) S SOC ASST S TRADE & TRANSPORT FA S

S S S S S # S S S S

2002 2003 2003 2001 2002 2003 2001 2003 2002 2002

- 39 -

Annex 10: Country At a Glance Serbia and Montenegro (SAM)

POVERTY and SOCIAL

2001 Population, mid-year (millions) GNP per capita (Atlas method, US$) I/ GNP (Atlas method, US$ billions) I/

Average annual growth, 1995-01

Population (%) Labor force (%)

Most recent estimate (latest year available, 1995-01)

Poverty (% of population below national povedy line) Urban population (% oftotalpopulation) Life expectancy at birth (years) infant mortality (per 1,000 live births) Chiid malnutrition (% of children under 5) Access to an improved water source Illiteracy (% of population age 75+) Gross primary enrollment

(% ofpopulation)

(% of school-age population) Male Female

KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1981

GDP (US$ billions) Gross domestic investmenVGDP Exports of goods and ServiceslGDP Gross domestic savings/GDP Gross national savings/GDP

Current account balance/GDP interest payments/GDP 2/ Total debVGDP Total debt service/exports 2/ Present value of debtlGDP Present value of debtlexports

1981-91 1991-01 (average annual growth) GDP GDP per capita Exports of goods and services 31

S A M

10.6 990 10.5

0.1 0.5

10 52 72 13 2

69 69 70

1991

2000

5.0 4.9

18.6

Europe iL Central

Asia

475 1,960

930

0.1 0.6

63 69 20

90 3

102 103 101

2000

8.6 14.2 29.6 -2.7 10.3

-3.9 0.5

132.6 2.3

2001

5.5 5.4 7.7

Lower- middle- income

2,164 1,240 2,677

1 .o 1.2

46 69 33 11 80 15

107 107 107

2001

11.6 13.6 23.7 -7.2 9 1

-4.6 0.6

101.4 3.9

2001-05

4.5 4.2

15.5

I Development diamond'

Life expectancy

-

GNI Gross

capita \ \/' enrollment per primary

i

Access to improved water sourw

-Serbia and Montenegro (SAM)

Economic ratios'

Trade I

-

Indebtedness

-Serbia and Montenegro (SAM) Lower-middle-income group

STRUCTURE of the ECONOMY

(% ofGDP) Agriculture industry

Services

Private consumption General government consumption Imports of goods and Services

Manufacturing

(average annual growth) Agriculture Industry

Services

Private consumption General government consumption Gross domestic investment Imports of goods and services 3/

Manufacturing

1981 1989

.. 10.1

.. 43.1

46 8

1981-91 1991-01

2000 2001

17.6 37.6

44.8

85.3 89.8 17.4 17.4 46.5 44.6

2000 2001

-20.0 25.0 10.9 0.0

19.3 14.0 -24.5 6.1 17.0 9.2 13.1 28.8

1 Growth of investment and GDP (%) 1

~O

-20 1-40 -

I i Growth of exports and imports (K) 40

20 0

-20

1-40

- Exports -+- Imports I Note 2001 data are preliminary estimates

'The diamonds show four key indicators in the country (in bold) compared with its income-group average If data are missing. the diamond will be incomolete

11 SAM est male for 2000 excluaes ~(OSOVO ana is Caicdlateo Lsmg tne mar6et exch rate 21 On a cash oasm 3/ In aoliar terms

40

Serbia and Montenegro (SAM)

PRICES and GOVERNMENT FINANCE

Domestic prices (56 change) Consumer prices Implicit GDP deflator

Government finance (% of GDP, indudes current grants) Current revenue 4/ Current budget baiance Overall surplusideficit

TRADE

(US$ millions) Total exports (fob)

Food Other fuel Manufactures

Total imports (fob) 5/ Food Fuel and energy Capital goods

Export price index (1995=100) Import price index (1995=100) Terms of trade (1995=700)

BALANCE of PAYMENTS

(US$ millions) Exports of goods and services Imports of goods and services Resource balance

Net income Net current transfers

Current account balance

Financing i tem (net) Changes in net reserves 61

Memo: Reserves including gold (US$ millions) Conversion rate (DEC, iocaVUS$)

EXTERNAL DEBT and RESOURCE FLOWS

(US$ millions) Total debt outstanding and disbursed

IBRD 7/ IDA

Total debt service IBRD IDA

Composition of net resource flows Official grants Officiai creditors Private creditors Foreign direct investment Portfolio equity

World Bank program Commitments Disbursements Principal repayments Net flows Interest payments Net transfers

1981

1981

1981

1981

1991

1991

1991

1991

2000

71.8 76.8

37.5 3.0

-0.2

2000

1,923

3,711

2000

2.547 4,004

-1,457

-1 1,119

-339

566 -227

516 44.4

2000

11,407 1,812

0

56 0 0

271 377

49 25

0

0 0 0 0 0 0

2001

91.1 91.7

39.6 1 .o

-0.6

2001

2,003 297

50 694

4.838 552

1,032 1,012

2001

2,743 5,160

-2.41 7

-26 1 ,91 5

-528

1,051 -523

1,169 66.7

2001

11,741 1,840

0

107 0 0

591 333 202 165

0

0 0 0 0 0 0

1 Inflation (%) 1

s 6 9 7 9 8 g s w - GDP deflator & CPI

Export and import levels (US$ mill.)

/6OW - 5 000 l1 OW

3000

2 000

,I ow l o 1 - 9 5 96 97 98 53 W 01

EExwns lmwns

1 Current account balance to GDP (%) 1

Composition of 2001 debt (US$ mill.)

A led0 G‘ 1.026

A . IBRD E -Bilateral B - IDA D - Other multilateral F - Plivate C-IMF G -Short-term

Development Economics 3/11 /03

4/ Includes current grants. 5/ Breakdown is preliminary WB staff estimate. 6/ Excludes IMF net repurchases. 7/ Includes interest arrears and penalty interest.

41