The World Bank Serbia Local Infrastructure and Institutional Development Project (P174251) Project Information Document (PID) Appraisal Stage | Date Prepared/Updated: 06-Dec-2021 | Report No: PIDA31923 Oct 21, 2021 Page 1 of 21 The World Bank Serbia Local Infrastructure and Institutional Development Project (P174251) BASIC INFORMATION OPS_TABLE_BASIC_DATA A. Basic Project Data Country Project ID Project Name Parent Project ID (if any) Serbia P174251 Serbia Local Infrastructure and Institutional Development Project Region Estimated Appraisal Date Estimated Board Date Practice Area (Lead) EUROPE AND CENTRAL ASIA 23-Dec-2021 24-Feb-2022 Transport Financing Instrument Borrower(s) Implementing Agency Investment Project Financing Republic of Serbia Ministry of Construction, Transport, and Infrastructure Proposed Development Objective(s) The Project Development Objective is to improve LSGs' capacity to manage sustainable infrastructure and to increase accessibility to economic and social opportunities in climate aware manner. Components Component 1. Climate Smart Mobility Component 2. Strengthening Capacity for Infrastructure Service Delivery Component 3. Project Management and Awareness Raising PROJECT FINANCING DATA (US$, Millions) SUMMARY -NewFin1 Total Project Cost 300.00 Total Financing 300.00 of which IBRD/IDA 100.00 Financing Gap 0.00 DETAILS -NewFinEnh1 World Bank Group Financing International Bank for Reconstruction and Development (IBRD) 100.00 Oct 21, 2021 Page 2 of 21 The World Bank Serbia Local Infrastructure and Institutional Development Project (P174251) Non-World Bank Group Financing Other Sources 200.00 FRANCE: French Agency for Development 200.00 Environmental and Social Risk Classification Moderate Decision The review did authorize the team to appraise and negotiate Other Decision (as needed) B. Introduction and Context Country Context 1. Serbia is an open upper-middle-income economy that aspires to become a member of the European Union (EU) and reach European levels of prosperity. Major fiscal consolidation and other reforms since 2014 have helped to restore macroeconomic stability and pave the way for the decisive response to the COVID-19 pandemic. As a result, the economy contracted only 0.9 percent in 2020 and is projected to grow 6 percent in 2021. At the same time, the country needs a stronger focus on the key constraints to inclusion, sustainability, and resilience. Poverty and inequality levels in Serbia are still significantly higher than in comparator countries, with disadvantaged groups and subnational regions persistently lagging behind the average population. Environmental sustainability concerns have become more prominent, with pressing issues such as air pollution and an extremely carbon-intensive economy. Improvements in government effectiveness and accountability have stagnated in recent years, despite some reform efforts, holding back stronger progress across other areas1. 2. The ongoing global COVID-19 pandemic reveals the need to further build resilience for a range of vulnerable people and institutions in Serbia. The COVID-19 and related containment measures are taking a heavy toll on the Serbian budget as the authorities provided a massive stimulus package to the economy and households totaling around 12.8 percent of GDP. However, the budget deficit expanded significantly – to around 8 percent of GDP in 2020, and 6.9 percent in 2021. Public debt is expected to flatten as of 2021 and stay around 60 percent of GDP. Going forward and supported by the recently approved IMF program (June 2021) fiscal deficits are expected to return to levels similar to those before the pandemic (1-3 percent of GDP) which will ensure a sustainability of the public debt. The economic growth prospects will depend on the length and depth of the crisis caused by the pandemic and the implementation of containment measures. 1 Sources: World Bank. 2020. Serbia Systematic Country Diagnostic: Update Oct 21, 2021 Page 3 of 21 The World Bank Serbia Local Infrastructure and Institutional Development Project (P174251) The World Bank has taken a number of actions to support the Government of Serbia (GoS) in responding to the COVID-19 global pandemic crisis. 3. The European Green Deal will impose significant obligations on Serbia to take steps toward a cleaner, low carbon future because of Serbia’s accession ambitions, and the fact that the EU is the major trading partner. The European Green Deal – a new growth strategy towards modern, climate neutral, resource- efficient and competitive economies – sets ambitious climate action goals, including reduction of GHG emissions by 55% by 2030 and carbon neutrality by 2050. Serbia’s ambitions towards the EU Green Deal and addressing climate change and environmental challenges was endorsed by signing the Sofia Declaration on the Green Agenda for the Western Balkans in November 2020 and the adoption of 58-point action plan for Green Agenda for the Western Balkans for the period until 2030 at EU-Western Balkan Summit in Slovenia on October 6, 2021 as well as number of relevant policies such as the adoption of the Sustainable Urban Development Strategy (SUDS) from June 2019 and its Action Plan in March 2021, adoption of the Law on Climate Change in March 2021, enactment by the Parliament of four new energy related laws in April 2021. 4. Much of the burden for delivering on the green commitments of the Sofia Declaration will fall to Local Self Governments (LSGs) who are already struggle with infrastructure in need of renewal and increasing environmental pollution. Serbia has Europe’s worst per capita record for pollution-related deaths2 (175 per 100,000 inhabitants) and the Environmental Performance Index shows Serbia’s environmental health and ecosystem vitality scoring below most Western Balkans Six (WB6) countries and comparator transition economies of Europe. Serbia’s CO2 emissions per unit of GDP (in PPP terms) are about twice those of the EU average. Energy productivity is low, at one fourth of the EU28 average according to Eurostat data and is highly dependent on fossil fuels. Transport is the second main contributor to GHG emission and significant source of air and noise pollution in cities. This is a sector where emissions are growing the most. At the same time, the country has some of the lowest resource productivity and recycling rates in Europe, with much of municipal waste being disposed in landfills that do not meet sanitary standards while most wastewater is discharged into recipients without treatment. Sectoral and Institutional Context 5. Serbia is organized as a unitary state, with a dominant central government level and is characterized by significant regional inequalities. At the subnational government levels, local self-government units (also known as LSGs) consist of municipalities, cities and the city of Belgrade. The 145 eligible LSGs (117 municipalities, 29 cities and the capital City of Belgrade) have an average population of 48,000, being 37 percent higher than EU average 3. They are grouped in 25 districts, 13 are classed as “lagging regions,â€?4 of which four regions (JablaniÄ?ki, PÄ?injski, TopliÄ?ki and RaÅ¡ki) are among the poorest in Serbia, and in recent 2 https://gahp.net/wp-content/uploads/2019/12/PollutionandHealthMetrics-final-12_18_2019.pdf 3 Law of Territorial Organization of the Republic of Serbia, ("Official Gazette of the Republic of Serbia ", no. 129/2007, 18/2016, 47/2018 and 9/2020. The scope of activities under this Project is limited to investments in the local infrastructure and institutional development of eligible LSGs as defined in the Project Operations and Grant Manual only. 4 Identified as in the EU cohesion policy’s “Lagging Regions Initiativeâ€?, regions are divided into four categories in line with the “Lagging regions initiativeâ€?: (i) leading regions; (ii) “low growthâ€? lagging regions (iii) “low incomeâ€?, conver ging lagging regions and (iv) ‘low income’, diverging lagging regions. Oct 21, 2021 Page 4 of 21 The World Bank Serbia Local Infrastructure and Institutional Development Project (P174251) years their relative poverty has also been worsening5. Most responsibilities are shared between the central government and the LSGs. Regions mostly play a coordinating role with limited functions, but there are efforts of the GoS and the LSGs to create intermunicipal cooperation bodies. The main body lobbying on behalf of the LSGs is the Standing Conferences of Towns and Municipalities (SCTM), which represents their interests and may provide a convening forum for more integrated planning and policy development. 6. Among the main functions of the LSGs6 in Serbia are services delivery, management of existing assets, and implementation of local investments, often through local public service companies owned by the LSGs. The LSGs are established to support local economic development, develop, maintain and manage local roads and other public infrastructure, and provide local services including for waste, water, public transportation, education and health facilities and other services important for local development. In addition, the LSGs are obliged to exercise so called “public responsibilities“, tasks under the competences of the GoS delegated to LSGs through special laws (sectorial laws). In undertaking these functions, the LSGs are guided by regulation around planning, implementation and service delivery, finance and infrastructure network management. While much of the policy and regulation around these areas is in place, the LSGs often lack the capacity and financing to effectively implement them. This means that existing resources are either not used or not used effectively. A key objective of this project will be to build capacity for the more effective execution of existing systems of implementation. 7. Decades of underinvestment and weak management of infrastructure and service provision have left LSGs’ infrastructure in a poor state and contributing significantly to environmental pollution. This has led to deteriorating living conditions in many cities and towns, increased vulnerability and considerable variability in living standards across the country. Local roads, estimated at twice the length of the national road network, need renewal, while the residential sector accounts for the largest share of electricity and heat energy consumption in the economy. Less than 25 percent of the population has access to safe water sanitation services, and collection rates of household waste are low and much of the municipal solid waste deposited in unsanitary landfills. The renewal, upgrade, and greening of ageing infrastructure and public service delivery and improved accessibility to markets, jobs and services are crucial to increase the attractiveness of the cities, towns and lagging regions and to drive economic growth. 8. Local transport infrastructure, which is among the largest expenditure items for LSGs and the main focus for this operation, suffer from poor infrastructure quality and poor road safety performance, rapidly increasing car ownership and declining public transport services. The poor quality of LSG transport infrastructure is considered a major factor preventing people from regularly accessing social and educational services and employment opportunities outside their immediate communities. With an average car age of 17 years and poorly maintained diesel engines, transport is the second biggest contributor to GHG emissions and the third main contributor to overall air pollution levels. In addition, emissions from the transport sector are increasing with forecast vehicle ownership levels increasing by 30 percent to reach 429 cars per 1,000 inhabitants by 2033. According to WHO (2018) the road crash fatalities for 2016 in Serbia are 7.4 per 100000 population, which is 50 percent higher than the EU average, with an estimated cost of 3.1 percent of GDP7 in 2016. The majority of accidents happen on local streets and roads and the Bank has supported Serbia with their Road Safety Strategy which was adopted in 2016. 5 Western Balkans and Croatia Urbanization and Territorial Review (2019) 6 Law on Local Self-Government, "Official Gazette of the Republic of Serbia", no. 129/2007, 83/2014, 101/2016, 47/2018 7 World bank group, global road safety facility, https://www.roadsafetyfacility.org/country/serbia Oct 21, 2021 Page 5 of 21 The World Bank Serbia Local Infrastructure and Institutional Development Project (P174251) 9. Serbia is prone to natural hazards with significant potential impacts on people, infrastructure, and accessibility to affected regions. For example, frequent floods in the country affect up to 200,000 people annually at an estimated cost of $1 billion8 and the floods in May 2014 pushed around 125,000 people into poverty with damage estimated at 2.7 percent of GDP. Much of the burden of addressing the consequences of disaster impacts falls on LSGs. Serbia has already taken initial steps in establishing a more effective institutional framework for disaster risk response but there are only very limited incentives to fully mainstream disaster mitigation activities and climate change adaptation at the local level. The Bank supported development of the methodology for the transport network vulnerability risk assessment at central level but there is no equivalent approach for the local network. With the support of EU, the GoS is currently working on developing standards for local road networks and low volume roads and on usage of recycled material for road construction useful for the project implementation. Addressing disaster risk assessment and climate change adaptation will be a key component for this operation, both in terms of individual investments and technical assistance. 10. To support local economic and urban development, the GoS adopted the Sustainable Urban Development Strategy (SUDS) 9. The SUDS present an integrated package for planning the next stage of the development of Serbia’s cities and municipalities. Its implementation will contribute to Serbia’s EU accession process and harmonization of its urban development policy with the objectives of the EU Urban Agenda and the EU Green Deal. The SUDS is the first step in implementation of the UN Habitat III New Urban Agenda. The SUDS envisages that the Ministry of Construction, Transport and Infrastructure (MCTI), as a responsible body, will establish a special unit for the implementation of the Strategy. Among main weaknesses recognized in Serbian LSGs are (i) insufficient and unstable access to financing, (ii) missing and/or outdated infrastructure, (iii) low accessibility, (iv) lack of participatory approach, (v) legacy and ineffective public utility companies and services, (vi) vulnerability to climate change and air pollution, and (vii) lack of sound asset and investment management frameworks, making wide range of opportunities for improvement of these aspects. The SUDS will be complemented by various local sectoral plans including Sustainable Urban Mobility Plans (SUMPs) which will be an important focus for the proposed operation. The SUMP is a strategic plan overlooking the whole functional urban area and necessary cooperation between different sectors and ensuring a variety of sustainable transport options for the safe, healthy and fluid passage of people and goods. 11. Citizens’ participation in planning infrastructure services is weak in practice although there is a legal obligation for all LSGs in Serbia to organize public debates in the process of budget preparation . The potential of e-Government portal10 is still not fully utilized while partnerships and bottom-up approaches for community engagement are missing. Citizens provide limited input to the investment planning and selection process11. A recent survey suggests that 85 percent of citizens reported not having been consulted or aware of planned infrastructure investments. While most LSGs report practicing a typical top-down approach through (mandatory) public hearings, less than half have developed citizen engagement guides, and most rely on announcements at the municipal bulletin boards. While the regulatory environment for participatory 8 The Global Facility for Disaster Reduction and Recovery (GFDRR), WBG, Europe and Central Asia (ECA) Risk Profiles 9 Sustainable and Integrated Urban Development Strategy of the Republic of Serbia until 2030. 2018. Ministry of Construction, Transport, and Infrastructure of Serbia, http://www.fao.org/faolex/results/details/en/c/LEX-FAOC189515/ 10 E-Government portal is the central government portal for electronic services for all citizens, businesses, and public entities. www.Euprava.gov.rs 11 World Bank Group (2020) Draft Serbia Systematic Country Diagnostic Update (SCD) Oct 21, 2021 Page 6 of 21 The World Bank Serbia Local Infrastructure and Institutional Development Project (P174251) infrastructure investment planning exists12, there is a lack of knowledge, skills, and guidance about available instruments and models of participation in decision making. MCTI is working on establishing the e-Space platform where all planning documents will be linked and published to provide better visibility and information sharing. This operation will employ a strong consultative approach and citizen engagement through participatory strategic planning and enhancement of e-Government portals to reinforce existing policy. 12. Serbia’s overall strategy development and policy coordination have seen some progress, but implementation gaps pose challenges. Numerous new strategic documents and action plans have been developed, based on the 2018 Law on the Planning System. These include a new Local Self-Government Strategy, as well as a wide range of environmental and climate-related and sectorial strategies. One of the most important LSG documents is the Local Development Plan (LDP), a long-term development planning document, for a period of at least seven years that determines the three years mid-term plans and resulting mid-term, and annual budgeting processes. Pre-Covid, the national plan for LSGs was to develop and adopt their LDPs by January 202113, articulating priority development goals and providing description of appropriate measures needed for their achievement. A significant challenge for LSGs is going to be ensuring horizontal and vertical compliance of different planning documents and coordination across sectoral boundaries as well as alignment of strategies, action plans, and linking it to the budgeting processes and mobilizing financial resources. 13. As part of the EU accession process, Serbia started improving the links between planning and budgeting, but further efforts are needed. The legislative framework for the main planning documents seems to be well developed in the GoS’ Decree on Capital Projects Management, but there is a gap in rules regarding smaller scale public investments. In addition to planning documents and multiannual budgets, the LSGs are obliged to apply newly defined and more rigorous framework to appraise, select, prioritize and implement capital investment projects with the value above EUR 5 million. Provisions of the GoS’ Decree on Capital Projects Management do not apply to investments under EUR 5 million but includes an obligation of LSGs to establish local databases of capital projects, that must be compatible with the Integrated Capital Projects Database so as to allow interchange of data with the central PIMIS (According to Art 6 of the Decree, currently in the pilot phase). However, relatively low local capacity hinders good coordination among the relevant documents. For successful infrastructure service delivery, it is essential to raise medium-term planning capacities and to strengthen planning and budgeting processes for infrastructure investments and maintenance. There is also a need to create appropriate databases at the local level with mandatory procedures and features given LSG capacities on the one hand, and national requirements on the other hand. 14. The regulatory framework for managing local government finances is relatively well developed, but limited guidance and enforcement of policies are delaying its implementation and quality. LSG financing, budgeting and public finance management are regulated by means of several laws, the most important being the Law on the Budget System, the Law on LSG Financing and the Public Debt Law. The Ministry of Finance (MoF) provides guidelines for preparation of budgets but LSGs have autonomy in terms of expenditures and their 12 Law on State Administration, Law on Local Self-Government, Law on Planning and Construction, and Law on the Planning System 13 The establishment of the new planning system in Serbia has just stared at all levels of government, so development planning documents at the national and provincial level - RS Development Plan, AP Development Plan and RS Investment Plan - are not going to be available in the initial phase of preparation of LSGs Development Plans. Oct 21, 2021 Page 7 of 21 The World Bank Serbia Local Infrastructure and Institutional Development Project (P174251) design, amount and structure. The level of LSG financing has remained below legally prescribed levels, particularly with respect to non-earmarked funds, and the criteria for allocation have not been specified. Generally, allocations have been frozen since 2013, leading to a drop in un-earmarked funds from 0.87 percent in 2013 to 0.65 percent of GDP by 2019. All LSGs use the Single Treasury Account but reporting occurs at an aggregate level, limiting the MoF’s ability to analyze in detail the efficiency of local government finances. Oversight and control of the local government public finance management, transparency and accountability is performed by the State Audit Institution, which audits certain number of LSGs every year, on a sample basis, in line with its capacity. The Project will propose Monitoring and Evaluation (M&E) framework for public investments with special focus on green impact and other measures to strengthen Project Finance Management (PFM) at the local level. 15. LSG revenues in Serbia have increasingly been spent on expenditures related to goods and services rather than on investment, which makes only 16 percent of overall spending. The financing envelope for LSGs is defined by the Law on LSG Financing, which has been amended several times since its first introduction in 2006. In 2011, the share of the wage tax revenues assigned to LSGs increased from 40 percent to 80 percent. The increased resources discouraged LSGs from collecting own-source revenues – property tax revenues posted a real decline of 22 percent. In 2014 legislative changes reduced the share of wage tax revenues assigned to LSGs from 80 percent to 74 percent. As a result of these changes LSGs revenues were 12 percent higher (in real terms) in 2019 compared to 2010, but this did not result in increased investment while total expenditures increased by over 19 percent in the same period, driven by soaring expenditures on goods and services. The share of LSGs spending in total public investment was 40 percent in 2011 but it halved over the next decade. 16. Annual Infrastructure investment is low by EU standards and stands at EUR 450 million (a third of which in Belgrade and Novi Sad) with the majority spent on maintenance and rehabilitation of existing assets, seldom for implementing capital infrastructure investments which is often delegated to the national level. The share of public funds assigned to LSGs (5.9 percent of GDP) is below the EU (9.9 percent of GDP) and OECD (15.9 percent of GDP) averages14. Relatively low LSG public investment in Serbia in comparison with the other CEE countries (equaling 1 percent of GDP, significantly below the EU-27 average of 1.4 percent of GDP and the CEE average of 1.5 percent of GDP) may be, to some extent, explained by the low overall level of LSG public spending, although, as discussed above, LSGs are also allocating limited resources within their budgets to investment. In 2019 average investment spending per LSG was EUR 2.76 million, only 9 LSGs had total public investments above EUR 5 million, while 60 LSGs spent less than EUR 1 million. As a result, LSGs investment in Serbia is low, both as a share of GDP and as a share of total spending, with only 16 percent of LSG expenditure going for investment, and within it, 26 percent being used for transport infrastructure. Low public investment led to deteriorated infrastructure and slow provision of new infrastructure that is needed to support overall development. There is a need to assess current fiscal decentralization framework and identify policies that could support productive spending, potential to increase commercial participation in local infrastructure investments, and how green funds and potential municipal infrastructure fund scheme could lead to more efficient and resourceful spending. 17. Weaknesses in planning, public investment management and public financial management systems, and lack of asset management systems combined with low technical capacities and defragmented institutions 14Network of Associations of Local Authorities of South- East Europe, NALAS (2019) Local Government Finance Indicators in South- East Europe. Statistical Brief Oct 21, 2021 Page 8 of 21 The World Bank Serbia Local Infrastructure and Institutional Development Project (P174251) contribute to underperformance in providing sustainable local infrastructure and enabling economic development at the local level15. Based on the “Infrastructure Project Management at Local Levelâ€? survey16, implemented by the MCTI and the World Bank, the main obstacles in delivering infrastructure service as reported by LSGs are financing, human capacities, infrastructure management practices and defragmented institutions. Other issues reported but with less weight are PFM and strategic planning. The LSGs lack (financial and technical) capacity to prepare, execute, and coordinate numerous strategic planning documents and budgets and effectively manage infrastructure. In terms of human capacities, they reported lack of engineers as main obstacle to better service delivery and defragmented institutions. Efforts are also needed to continue to improve transparency (e. g. the continuation of the Open Data Initiative), procurement, and supervision. According to the same Survey, sectors that are in biggest need for support and reforms at the LSG level are: transport, solid waste management and environmental protection - including historic pollution, climate change mitigation and natural disasters. 18. Only a minority of the 145 LSGs in Serbia can sustain a dedicated local roads department but a focus on simple asset management systems and high quality, citizen informed, designs can enhance the resilience and efficiency of infrastructure delivery. Local roads consist of a mixture of rural roads connecting villages and towns and streets within urban areas and villages. LSGs do not have formal asset management systems and instead rely on committees to prioritize road rehabilitation and maintenance expenditure. While management of small-scale road networks does not require complex asset management methods, simple systems could ensure continuity, transparency, and objectivity in decision making. Resources assigned to the preparation of high-quality designs and tender documentation is also a constraint and can result in weak implementation performance, poor quality of works and/or cost overruns. Designs have to better reflect citizen engagement and impact on safety and more systematically address complementary investments such as in public transport, design of green sidewalks, bicycle lanes, lighting, and other community facilities. Designs also have to address climate vulnerabilities and design for resilience through better drainage, slope and bank protection works and resilient pavements. The project will support the building of a pipeline of projects addressing these features to maximize the social impact, improve resiliency and quality of life in LSGs. 19. A fundamental rethink of transport service delivery at the local level is needed to address the mobility challenges of the future, to decarbonize the sector and reduce its impact on local air quality. Current mobility is focused on cars and road infrastructure, while highly attractive environmentally friendly modes, especially for medium and small-size LSGs, are not systematically considered. LSGs are lacking active mobility infrastructure and these possibilities are often neglected in transport planning, despite their positive impact on the environment and the overall wellbeing of citizens. Where provision has been made for sidewalks and bike lanes they are often occupied by parked cars, there are no safe parking lots for bikes, street lighting is often missing, and driver behavior is risky. Road safety is being addressed by Local Road Safety councils that have a clear funding stream earmarked for road safety interventions and the Republic Local Road Safety Agency has strong capacity to mobilize all stakeholders to work on this issue in a coordinated manner. A key 15 Ministry of Construction, Transport and Infrastructure, 2018, Sustainable and Urban Development Strategy of the Republic of Serbia until 2030. 16 Online survey “Infrastructure Project Management at Local Levelâ€?: https://forms.office.com/Pages/DesignPage.aspx?auth_pvr=OrgId&auth_upn=bdomine%40worldbank.org&lang=en- US&origin=OfficeDotCom&route=Start#FormId=wP6iMWsmZ0y1bieW2PWcNszn7ZIZ0nFMhj49Pp7LX1NUNzhMUjdHUURYUFN VWkw2RFhTSlk0SUpCOS4u Oct 21, 2021 Page 9 of 21 The World Bank Serbia Local Infrastructure and Institutional Development Project (P174251) area of concern is the safety of children, 1000 children were heavily injured in traffic accidents over the past 5 years. LSGs need to renew their infrastructure in a sustainable and green way, by offering priority to public and non-motorized transport while increasing safety, managing use of private car by traffic and parking management approaches and utilization of ICT, along with special emphasis on the specific mobility needs of vulnerable groups. E-Mobility is in its early stages and will be important for the future and the World Bank is currently supporting the government by providing recommendations on its implementation. 20. Local Public Utility Companies (PUCs) have an important role in the provision of infrastructure services, but their operations are not adjusted to the changing citizen needs and technological advancements. According to the data from the Business Registry, the Chamber of Commerce and line ministries, there are 477 local-level PUCs with close to 60 thousand employees in Serbia. Their total annual business revenues amounted to almost EUR 1.9 billion in 2019, with total assets of more than EUR 5.2 billion. Local PUCs are often inefficient and are accumulating debts and liabilities. The total liabilities of local PUCs at the end of the year stood at approximately EUR 1.8 billion, out of which more than EUR 330 million relates to arrears. Fixed assets of local PUCs amount to more than EUR 4.3 billion, while annual depreciation costs amount to more than EUR 170 million. This means that local-level PUCs need to invest in fixed assets more than EUR 170 million every year only to preserve the capital base of their operations, while for further development and improvement of the quality of services, significantly larger investments are needed. The project will also provide support to strengthening SOE’s PFM practices and reporting on performances. 21. Many donors and IFIs are active in the provision of support to LSGs, through investments and capacity building activities, technical assistance in development of planning and technical documentation or improvements of regulatory frameworks. Some of the most prominent projects are: EU funded Municipal Infrastructure Support Program (focused on institutional and regulatory framework for municipal infrastructure services and support for local public utilities reforms) and the EXCHANGE Program; Local Finance and Public Administration Reform Projects funded by the Swiss Government; program on solid waste with EBRD and Agence Française de Dévelopement (AFD), and a multibillion Euro program on wastewater with Chinese bilateral partners. Several other development partners are also active including IFC, UNDP, EIB, KfW/GIZ and USAID in support of local economic development. 22. The GoS has requested the World Bank’s and AFD support to strengthen infrastructure service delivery at the local level with a special focus on improving mobility in a sustainable manner to increase accessibility to economic and social opportunities. This operation will support the scale-up of inclusive, green, and sustainable transport infrastructure service delivery as a means of ensuring green growth and equal wealth distribution across the country. Through its development agency, AFD, France is contributing US$ 200 million in co-financing to the project. This is advantageous in several ways including financial burden-sharing and furthering the agenda of aligning to EU standards especially in urban transport efficiency and climate goals. AFD has been working side by side with the Bank in critical aspects of the design of the operation. 23. The transition to an environmentally sustainable, low-carbon, and climate-resilient economy is gaining traction in Serbia and needs acceleration in view of regional political commitments and potential economic gains. The Project will apply a holistic approach, where current policies and practices important for overall local infrastructure service delivery will be strengthened through mixture of investments, technical assistance, and capacity building. In terms of investments, the Project will focus on improving mobility in climate aware manner and overall LSGs’ resilience. Both the European Green Deal and the EC Economic Oct 21, 2021 Page 10 of 21 The World Bank Serbia Local Infrastructure and Institutional Development Project (P174251) Investment Plan for the Western Balkans recognize that connectivity is crucial for decarbonization and include mobility as the basis to pursue it. Also, the EU Green Agenda for the Western Balkans identifies mobility as one of the main topics for decarbonization and will support the WB6 countries in transitioning toward more environmentally friendly transport modes and deploying smart mobility solutions. Technical support will focus on equipping the LSGs with road asset management tools and sustainable urban mobility plans and will help rethink the way transport and mobility service is delivered in the LSGs and how safety and resilience is improved. Overall infrastructure service delivery framework will focus on targeted technical assistance and capacity building activities that should guide future policy directions and green investments in the areas of strategic planning, financing, and public financial management. Strong citizen participation and gender considerations will be incorporated across the Project activities. C. Proposed Development Objective(s) Development Objective(s) (From PAD) The Project Development Objective is to improve Local Self Governments’ capacity to manage sustainable infrastructure and to increase access to economic and social opportunities in climate aware manner. Key Results PDO Level Indicators • LSGs with developed annual and multi-annual budgets corresponding to development plans and asset management systems (Number) • LSGs utilizing simple road asset management methods developed under the project (Percentage) • Citizens reporting satisfaction with process of infrastructure service delivery, gender disaggregated (Percentage) • Commercial and social services connected by improved, safe and resilient transport network (Number) • Subprojects supporting climate adaptation and/or mitigation actions (Percentage) Indicators Component 1. Climate Smart Mobility • SUMPs and Action Plans adopted by LSGs (number) • Smart mobility pilots implemented and contractual modalities developed (Yes/No) • LSGs with Road Safety interventions for children identified and budgeted (number of LSGs) • PAs signed between LSGs and central government (number) • Share of investments dedicated to nonmotorized transport (percentage) Indicators Component 2: Strengthening capacity for infrastructure service delivery • LSGs piloted enhanced strategic participatory planning approaches (number) • Roadmap for improved access to financing developed (Yes/No) • Database for public investments at the local level, compatible to central level PIMIS developed (Yes/No) • Increase in number of works contracts finished within planned time (percentage) • Pipeline of Urban development and Municipal infrastructure projects prepared (number) Oct 21, 2021 Page 11 of 21 The World Bank Serbia Local Infrastructure and Institutional Development Project (P174251) • Number of Internships completed, with women making at least 70 percent (number) Indicators Component 3: Project Management and Awareness Raising • Awareness campaigns on greening of infrastructure and sustainable mobility delivered (number) D. Project Description 24. The objective of the project is to improve LSGs capacity to manage sustainable infrastructure and improve access to economic and social opportunities in climate aware manner. The Project will finance a mixture of investment and technical assistance to improve green and inclusive infrastructure service delivery at the local level, including the implementation of the relevant chapters of SUDS. The Project will focus on strengthening capacities and technical approaches to implement existing regulatory, planning, and legal frameworks. Investments will focus on improving integrated mobility infrastructure and overall resilience of LSGs. 25. The Project should open a path for a long-term engagement in support of LSGs in Serbia. It will inform the development of a policy and investment framework that can be strengthened over time, allow the Bank and other development partners to contribute and improve absorption capacity. It is designed to potentially secure resources from other donors and also extend the sectorial coverage above and beyond local roads and mobility. 26. The following principles are followed in the design of the operation: a. Provide investments and technical support for sustainable improvement of local roads and mobility and overall resilience of LSGs. Infrastructure investment will be supported by improved transport asset management and concepts of building back better, safety and resilience, inclusion, natural based design, decarbonization of the economy and creating a cleaner living environment. The Project will support LSGs to improve mobility, accessibility, resilience, and safety and lower emissions, and therefore bring along incremental benefits vs. the business as usual without Project. Detail description of the subproject approval process and rules will be defined in Project Operations and Grant Manual (POGM). b. Decentralize implementation to increase local capacities in a sustainable manner, induce spillover effect, and allow for high absorption of resources. All LSGs will receive financing from the Project, subject to a signed Project Agreement (PA) setting out performance expectations and compliance with the Bank procedures. c. All works will be below the threshold for big works, allowing for usage of national work contracts. The average amount per LSG over 5 years period will be USD 1.9 million. Size of the contracts and type of works will not be limited but will be such that construction works (excluding project preparation, consultation, bidding, etc.) can be finished within one construction season, reducing a risk of not absorbing the resources. Given that the LSGs annual expenditures on infrastructure are EUR 450 million, the amount envisaged under the component will raise infrastructure investments by LSGs by around 8 percent during a 5-year period. An increase will ensure that the LSGs absorption capacity is not overwhelmed. Capacity support will be provided to all LSGs, but the special focus and efforts will be on weakest LSGs. d. The grant amounts will be set in accordance with an agreed formula (based on population, area, development gap, and environmental index). The formula will ensure fair distribution of resources with focus on poorer and more vulnerable LSGs. Equally important, it will determine the known Oct 21, 2021 Page 12 of 21 The World Bank Serbia Local Infrastructure and Institutional Development Project (P174251) amounts of available resources, allowing for LSGs to properly plan and scope proposed investments. Detail description of the formula and parameters will be included in the POGM. e. The project aims at strengthening capacities and implementation of existing country policies by building technical, implementation, planning, and financial management expertise, raising awareness among stakeholders including citizens, and implementing project at decentralized level. The project will follow existing government systems (procurement, FM, planning and execution) where possible. Appropriate resources are assigned to cover both capacity building flows - top down by delivering targeted trainings to experts and decision makers and bottom up by raising awareness among citizens and civil servants. The continuous assessment of performance and consequent adjustment of the capacity building activities will be embedded in their design. 27. To incentivize change, the LSGs will receive grant transfers from the central level for infrastructure investments, and will sign an PA with the GoS, which will include a set of commitments to improve public financial and transport infrastructure management at the local level. The PA will define the accountabilities and commitments of LSGs to improve strategic planning, PFM, and transport infrastructure management. The PA will also specify investment project implementation arrangements and responsibilities, including supervision, safeguards, citizen engagement, etc. The draft PA will be part of the POGM. The financing for infrastructure to be provided by the project will be additional, and not substitute for existing infrastructure spending by LSGs. To this end, the PA will include provision that average annual capital spending from own resources during the project life cannot be lower than the average of the past three years (exempting 2020) plus inflation. 28. The Project goal will be achieved through implementation of the following three components: (i) Climate Smart Mobility; (ii) Strengthening capacity for infrastructure service delivery; and (iii) Project Management and Awareness Raising. Project Costs and Financing 29. The total Project cost of USD 300 million will be jointly co-financed by the IBRD and the AFD, where the IBRD will be providing USD 100 million and the AFD USD 200 million. Co-financing by the World Bank and the AFD is on a pari-passu basis and follows the modalities established under the World Bank–AFD Co- Financing Framework Agreement of 2018.17 This requires a separate Financing Agreement between the AFD and Serbia for the co-finance. The World Bank and the AFD will jointly finance the same contracts under the Project in accordance with agreed financing parameters and supervision of the Project will be conducted by the World Bank under its rules. The disbursement percentages in the IBRD Loan Agreement will reflect the IBRD’s share of the cost. Component 1. Climate Smart Mobility (USD 282 million) 30. The objective of this component is to improve mobility within the LSGs through strengthening system for transport infrastructure service delivery and by supporting transport infrastructure renewal that will 17Co-financing Framework Agreement between Agence Francaise de Developpement and International Bank for Reconstruction and Development and the International Development Association, June 13, 2018. Oct 21, 2021 Page 13 of 21 The World Bank Serbia Local Infrastructure and Institutional Development Project (P174251) increase resilience to natural disaster while reducing emissions of GHGs and local pollutants including PM2.5 and NoX. The component will finance targeted investments, analytics, technical assistance, and tools. Support to improved planning and management will ensure that these investments are inclusive, gender informed, and that infrastructure is managed in a sustainable way over the long term. Each LSG will be eligible for grants for infrastructure investments up to a value determined per predefined formula, but the award of a grant will be subject to compliance with agreed eligibility and compliance criteria. The component will be implemented through (i) Infrastructure renewal; and (ii) Sustainable mobility. Subcomponent 1.1. Investments in Climate Smart Mobility (USD 273.5 million) 31. The objective of this subcomponent is to improve existing transport and associated infrastructure to support climate smart mobility and a move toward safe, green and clean transportations systems. The infrastructure financing will be provided through existing mechanisms for strictly targeted grant transfers from the central government to LSGs. The investments will aim at accelerating the shift to sustainable and smart mobility and establishing green and clean transportations system. The investments will contribute to reducing the environmental footprint of delivering transport services and improving overall LSGs’ resilience to natural hazards. The majority of investments will be in transport infrastructure reconstruction and rehabilitation, within the existing infrastructure perimeters. Minor green field investments will be considered, for example the construction of side-walks, bicycle lanes and dedicated public transport infrastructure where required. The promotion of resilient and inclusive approach and of active mobility and priority for public transport will be central to the project design. 32. The project will finance a range of investments to build climate resilience of the transport network including slope and bank protection, and drainage facilities. Some complementary activities will be considered where necessary to promote greener transport modes such as the greening of public spaces and addressing legacy pollution. Installation of digital infrastructure where applicable will be included and the project will promote the utilization of modern technologies for the recycling of materials in civil works, as per the guidelines that will be defined under ongoing EU IPA program. This sub-component will also finance technical assistance required for the execution of the works including services for design, supervision, technical audit, and road safety audit. Table 1 provides an indicative list of eligible investments. Table 1: Examples of types of investments that will be supported through the operation ✓ Rehabilitation of roads, bridges and streets ✓ Dedicated non-motorized transport infrastructure ✓ Traffic management schemes (traffic (walking and bicycling) including public green calming measures, parking management, spaces and lighting pedestrian access, safety, congestion management, ✓ Measures to improve climate adaptation including street lighting, etc.) slope stabilization, river-bank protection, drainage ✓ Infrastructure for public transport (bus stops, bus works lanes) ✓ Measures to improve environment including but ✓ E-Mobility (charging stations, e-bikes/scooters) not limited to provision of green space (forestation), legacy pollution cleanup Subcomponent 1.2 Sustainable Mobility (USD 8.5 million) Oct 21, 2021 Page 14 of 21 The World Bank Serbia Local Infrastructure and Institutional Development Project (P174251) 33. The objective of this subcomponent is to strengthen LSGs systems to plan, manage, implement, and operate resilient transport networks that promote patterns of climate smart mobility in sustainable manner. This subcomponent will finance technical assistance, capacity building and demonstration pilots in three main areas: i. Improve local road network management and resilience. The output from the work will be a framework for local roads management including guidance on institutional arrangements, policy, standards, maintenance contracting, asset management, resilience and road safety with special focus on safety of children. An easy-to-use Road Asset Management System (RAMS) will be developed and introduced in participating LSGs; ii. Mainstream sustainable and integrated mobility planning; The output will be approximately 40 gender sensitive Sustainable Urban Mobility Plans (SUMPs) with transport management plans for medium and small size LSGs. The activity will streamline a gender sensitive approach in urban planning, design of mobility solutions and public space enhancement as well as in development of recommendations and identification of priority investments. Development of interactive guidelines and training of LSGs staff throughout the project life and knowledge exchange will be integral part under SUMPs activity; iii. Pilot smart mobility solutions through digital technologies. The output will be proposals for smart mobility contractual modalities and up to 5 smart mobility pilots in areas such as optimizing public transport services, intelligent transportation systems, real-time information and infrastructure or service sharing schemes. The pilots will be implemented through call for proposals that will prioritize solutions that could be scaled up across the country. Component 2. Strengthening Capacity for Infrastructure Service Delivery (USD 11.5 million) 34. The objective of this component is to improve the effectiveness and sustainability of infrastructure service delivery at the local level through strengthening LSGs’ capacity to implement improved local planning and PFM processes. The component will finance a mixture of technical assistance and capacity building activities focused on: (i) enhanced strategic participatory planning and identification of pipeline projects; and (ii) strengthened institutions, PFM, and access to financing. Subcomponent 2.1. Enhanced Participatory Planning and Preparation of Pipeline Projects (USD 6.5 million) 35. The objective of this subcomponent is to enhance participatory approaches in local development planning, improve coordination among different development planning documents and sectorial strategies, include climate and resilience considerations into the planning approaches and better integrate them into the capital investment and budget planning process. In addition, the sub-component aims to identify and support the early preparation of urban development and municipal infrastructure projects that go beyond the roads and mobility sector. Specifically, the subcomponent will finance technical assistance and capacity building in three main areas: (i) Improve Participatory Local Development Planning in Pilot LSGs. The activities will support the development of critical planning documents and linking them to corresponding capital investment and budget planning processes. The focus will be on reducing defragmentation of multiple plans and incorporating climate and resilience considerations into the planning documents. The specific planning documents to be supported will be based on an initial assessment of the planning status and Oct 21, 2021 Page 15 of 21 The World Bank Serbia Local Infrastructure and Institutional Development Project (P174251) capacity in a selected pilot LSGs. The improved planning will strengthen linkage between broad development plans and asset management systems and annual and multiannual budgets and will also enhance the budgeting of individual infrastructure project. Supporting the quality of infrastructure budgeting will strengthen programmatic budgeting practices. Specific emphasis will be given to ensuring improved citizen engagement, including from women and vulnerable groups to mainstream participatory approaches. The development of manuals and templates would also be supported so that lessons learned can be applied beyond the pilot LSGs. The activity will include extension of E- Government portal with the feature of informing the users on the planned infrastructure investments and planned consultations as well as to annually collect citizen opinion on main infrastructure priorities in their LSG. (ii) Identification and Preparation of Pipeline Projects in Pilot LSGs. The activities will focus on the identification and early project preparation activities for the future urban development and municipal infrastructure investment projects that that go beyond the roads and mobility sector. The activities will be based on the improved participatory planning approaches piloted under activity 2.1(i). Specific technical assistance would be provided for preparation (pre-feasibility, feasibility etc.) to ensure readiness of investments. Subcomponent 2.2. Strengthened infrastructure service delivery enablers (USD 5 million) 36. The objective of this subcomponent is to promote sustainability and long-run improvements of the infrastructure service delivery by improving technical capacities and tools for infrastructure service delivery and PFM and by proposing set of recommendations for enhancement of institutional arrangements and access to financing. It will equip the LSGs with capacities and tools to perform their infrastructure related functions in a sustainable and climate aware manner and will propose set of recommendations for further policy and institutional enhancements. The support being provided under this sub-component will be especially critical for smaller and poorer LSGs where funding and experience with managing public investments has been lower, while it will seek to address capacity constraints and the need for institutional strengthening across LSGs. The subcomponent will be implemented through set of analytical work, technical assistance, and development of tools, in particular: (i) Improving access to financing. The output will be assessment the current local infrastructure financing framework and recommendations to improve the LSGs’ ability to raise private capital for infrastructure investments, potentials of green funds, and perspective of the municipal fund scheme; (ii) Strengthening institutions and human capacities. The outputs will be a review of the currently fragmented institutions and human capital and recommendations for consolidated approaches and process simplification – including ‘fit for purpose’ digitization - to enable existing staff to work efficiently and meet national and local requirements, as well as to develop prioritized approaches to staff expansion and training. Introduction of young workforce to the sector will be supported through 40 paid three to six months internships placed at PIU, MCTI and LSGs. Out of these at least 28 (70 percent) will be for women. Public Investment Management System (PIMS) Database and Project Management tool will be delivered that each LSG will be able to use to plan and manage infrastructure contracts. (iii) Enhancing capacities for climate aware infrastructure service delivery. The output will capacity building and implementation support in a number of areas with special focus on efficiency, transparency and green procurement; PFM/PIM with a special focus on monitoring and reporting Oct 21, 2021 Page 16 of 21 The World Bank Serbia Local Infrastructure and Institutional Development Project (P174251) on green impacts and SOEs performance and transparency and inclusion of citizen feedback; contract management; and social and environmental management. It will also support inter municipal cooperation and knowledge exchange on sustainable LSG development. Component 3: Project Management and Awareness Raising (USD 6.5 million) 37. The objective of this component is to establish institutional set up that will enable successful implementation of the project and raise awareness about importance of green transition and sustainable mobility. The subcomponent will support the establishment and maintenance of the strong PIU and strengthening of Centralized Fiduciary Unit (CFU). The PIU will be responsible for overall management of the Project and will provide day-to-day project management support to the LSGs to ensure transparency and accountability of the Project’s interventions and results. Expenses that may be financed by this activity include the PIU and the CFU staff positions, operating costs, office equipment, dedicated web page and supervision platform, awareness raising campaigns, communication strategy, and the PIU training. To facilitate online . supervision the georeferenced platform will be introduced. . Legal Operational Policies Triggered? Projects on International Waterways OP 7.50 Yes Projects in Disputed Areas OP 7.60 No Summary of Assessment of Environmental and Social Risks and Impacts . 38. The project will have long-term positive impacts, given its aimed green and sustainable footprint, but there is a number of potential short-term risks that need to be considered, mostly related to infrastructure investments under Component 1. The scope and exact locations of these interventions are yet to be determined, but all works are envisaged to be carried out within the scope of existing infrastructural facilities. In this regard, the potential environmental risks that could be identified are (i) impacts on ground and surface water, soil and air contamination (dust and noise); (ii) occupational health and safety (OHS) and access to work sites; (iii) improper waste management. To mitigate these risks the Environmental and Social Management Framework (ESMF) is prepared, as the guiding instrument in addressing and mitigating community, environmental, and OHS risks in Project implementation. Components 2 and 3 should have no significant environmental impacts as they are focusing on strengthening policies and practices and project management and capacity building. The ESMF includes, inter alia, gaps and responsibilities for ESF implementation and mitigation measures, a methodology for environmental and social risks and impact screening, as well as a list of non-eligible activities. The ESMF also sets forth a screening mechanism to ensure no substantial or high-risk activities are financed under the Project. The ESMF also includes provisions for the avoidance of any sensitive environments or protected areas, guidance for pollution prevention, waste management, and environmentally sound resource use under ESS3, and any guidance on cultural heritage or chance finds as stipulated under ESS8. The ESMF includes Labor-Management Procedures (LMP) and sections on Environment Health and Safety (EHS) which will set out the way OHS will be managed in accordance with the requirements of national law and ESS2. Oct 21, 2021 Page 17 of 21 The World Bank Serbia Local Infrastructure and Institutional Development Project (P174251) The site-specific ESMPs, as stipulated under the ESMF, will include provisions on traffic management, and other components on community safety in line with ESS4. Furthermore, a POGM will be prepared in order to provide in a more detailed manner a list of eligible activities, selection process, and tools for environmental screening in line with the provisions of the ESMF. 39. Given the nation-wide scope and multisectoral character of the Project, the community engagement process will be two dimensional: (I) Presentation of Project and sector and sub-project selection and (ii) sub-project-specific community engagement. The first dimension of community engagement will focus on informing the public about the Project, Project objective, eligibility criteria for grants, etc. Once the sub- project is selected, the second dimension of engagement will present to the public the site specific impacts, opportunities, and challenges of the sub-project. In order to ensure timely and precise stakeholder identification a Project level Stakeholder Engagement Plan (SEP), acceptable to the Bank is developed. Considering the nature of the project, it can be presumed that the interventions will not cause large land take impacts. Mostly, small scale impacts for spot widening in urban areas are expected. Furthermore, minor impacts on livelihood are possible (e.g. relocation of kiosks or formal or informal stands). Resettlement resulting from Project activities is not expected. In order to address the aforementioned risks, the borrower prepared Resettlement Policy Framework (RPF) to establish resettlement principles, organizational arrangements, and design criteria to be applied to subprojects, and to mitigate potential resettlement impacts. Moreover, the RPF sets out guidance for a detailed Social Analysis and screening procedure to assess the potential scale and scope of the loss of private assets and determine the potential relevance of the ESS5 for each selected sub-project. 40. The draft RPF together with draft ESMF, Environmental and Social Commitment Plan (ESCP), SEP, and LMP, satisfactory to the Bank were prepared, disclosed, and consulted ahead of Project Appraisal. Starting from November 18, 2021, the MCTI disclosed the draft ESMF, ESCP, RPF, SEP and LMP documents on MCTI web site and announced invitation for Public Consultations for the public, entities and organizations interested in subject documents prepared for LIID Project. Same announcement was published in the daily newspaper with national coverage “Politikaâ€? on November 18, 2021. Public and other interested parties and organizations were invited to participate in process of public consultation. The consultation process finished on December 3, 2021. Note: To view the Environmental and Social Risks and Impacts, please refer to the Appraisal Stage ESRS Document. Please delete this note when finalizing the document. E. Implementation Institutional and Implementation Arrangements 41. The Project will be managed by the PIU18 housed at MCTI. The already existent PIU will be extended with the team to implement the Project. The PIU will be responsible for the overall management of the Project 18The PIU in MCTI is currently managing implementation of World Bank projects including the Western Balkan Trade and Transport Facilitation MPA and Railway Modernization Project MPA. Oct 21, 2021 Page 18 of 21 The World Bank Serbia Local Infrastructure and Institutional Development Project (P174251) and will support the LSGs in the selection, preparation, supervision, and management of investments. Fiduciary issues will be managed by the CFU. The CFU will be responsible for financial management; review and approval of procurement documents including bid evaluation reports; and capacity building support to the LSGs on fiduciary issues. The PIU will be strengthened with the appropriate managerial and technical capacity to enable it to carry out the implementation of the Project and the CFU will be strengthened with a minimum of two additional procurement specialists. The Project implementation arrangements will be set out in the POGM including the division of responsibilities between the PIU, CFU and the LSGs. An PA will be a part of the POGM and will define obligations of the LSGs related to project planning and budgeting, transparency in procurement, preparation of sub-project(s), data delivery, open data platforms, supervision of works, improved planning documents, etc. 42. Infrastructure investments will be implemented in decentralized manner through the LSGs. The objective is to build the capacity of LSGs in public investment and infrastructure management. To this end, the LSGs will be responsible for the implementation of sub-projects including project prioritization, preparation, procurement, safeguards, supervision, monitoring and reporting and on-going management of infrastructure. Each beneficiary LSG will sign a Project Agreement with the MCTI where general mutual responsibilities and obligations under the Project will be defined. For each approved investment project, separate Project Contract will be signed between MCTI and LSG. Each LSG will assign dedicated person to be responsible for communication with the PIU and overall management of LSG participation in the project. The LSGs will be responsible for sub-project design and supervision as per the national law, while relevant safeguard documents will be prepared through PIU. During implementation the LSGs will transfer the worksite to contractor subject to necessary safeguards documents, regularly monitor the progress of works, and alert the PIU of any omissions to the initial designs and safeguard frameworks. Any expropriation will be done as per the Resettlement Policy Framework under the project and corresponding Resettlement Action Plans (RAP). The LSGs will be able to use project proceeds to cover the costs of sub-project preparation and supervision. 43. The PIU and CFU will be responsible for building the capacity of LSGs to enable them to undertake these activities affectively. The PIU/CFU will provide template documents such as for procurement, reporting and safeguards as per the Bank policies. The LSGs will be expected to participate in technical assistance and capacity building activities and ensuring the tools introduced through the project are utilized at the local level. The LSGs will regularly update information about the project on their relevant communication boards and websites. 44. A Project Steering Committee will be established within MCTI to coordinate support for the improvement of local infrastructure service delivery and implementation of SUDS. The Steering Committee will be chaired by the MCTI with members including the MoF, Ministry of Environmental Protection, Ministry of Public Administration and Local Self-Government, SCTM, and on ad hoc basis representatives of Local Self Governments. 45. The AFD would follow the World Bank Financial Management and procurement operational guidelines as well as the Environmental and Social Framework. The collaboration between the World Bank FM team and Oct 21, 2021 Page 19 of 21 The World Bank Serbia Local Infrastructure and Institutional Development Project (P174251) the AFD would be as follows: (a) the World Bank FM team would review all annual audited project financial statements and quarterly un-audited interim financial reports provided by the Implementing agency; (b) the World Bank FM team will follow up with the implementing agency on these reviews, including monitoring and consultation on the implementation of recommendations in the auditors’ reports; (c) the World Bank FM team would serve as the focal point for AFD vis-a-vis the implementing agency in all matters related to FM under the Project. From the Disbursement perspective, the World Bank would: (a) review each withdrawal application furnished by the implementing agency to verify that the amount requested is eligible for financing under the AFD’s Financing Agreement; and (b) notify AFD that the withdrawal application is in proper order, and that it has determined that the amount requested is eligible for financing under the AFD Financing. . CONTACT POINT World Bank Svetlana Vukanovic Senior Transport Specialist Axel E. N. Baeumler Senior Infrastructure Economist Borrower/Client/Recipient Republic of Serbia Implementing Agencies Ministry of Construction, Transport, and Infrastructure Djordje Milic Assistant Minister djordje.milic@mcti.gov.rs Oct 21, 2021 Page 20 of 21 The World Bank Serbia Local Infrastructure and Institutional Development Project (P174251) FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects APPROVAL Svetlana Vukanovic Task Team Leader(s): Axel E. N. Baeumler Approved By Practice Manager/Manager: Country Director: Nicola Pontara 07-Dec-2021 Oct 21, 2021 Page 21 of 21