OFFICIAL DOCUMENTS THE WORLD BANK WORLD BANK GROUP OFFICE Praterstrasse 31/21 IBRD * IDA I WORLDBANKGROUP Vienna, Austria, 1020 June 26, 2018 H.E. Mr. Siniga Mali Minister Ministry of Finance Kneza Miloga 20, Belgrade SERBIA Your Excellency: Re: Republic of Serbia: Competitiveness and Jobs Project (Loan No. 8528-YF) Amendment to the Loan Agreement We refer to the Loan Agreement between the Republic of Serbia (the "Borrower") and the International Bank for Reconstruction and Development (the "Bank"), dated October 7, 2015 (the "Loan Agreement"). We also refer to your letter dated March 16, 2018. We understand the request from the Borrower may be summarized as follows: (i) revise the Project's development objective (PDO) to align with the current priority of the Government; (ii) drop the activities under Part A. I of the Project to avoid duplication of ongoing work and revise the activities under Part A.2 and A.3 of the Project (iii) cancel Part B.2 of the Project and reallocate the proceeds to Part B.1; (iv) the Closing Date of the Project be extended from June 30, 2019 to June 30, 2021; and (v) the Disbursement Linked Indicators (DLIs) be adjusted to reflect the revised implementation schedule and dropped activities for full achievement of the PDO. I am pleased to inform you that the Bank concurs with your request, and proposes to amend the Loan Agreement as follows: I. Article 3.01 (a) and (f) are deleted in its entirety; 2. Article 3.01 (b) is amended to read as follows: "carry out Part A.I of the Project through MoE;" 3. Article 3.01 (c) is amended to read as follows: "carry out Part A.2 of the Project through MoESTD and IF;" 4. Article 3.01 (d) of the Project is amended to read as follows: "carry out Part A.3 of the Project through MoLEVSA and NES;" 5. Article 3.01 (e) of the Project is amended to read as follows: "carry out Part B.1 of the Project through PPS, in coordination with MoE, MoESTD and MoLEVSA; 6. Schedule 1 of the Loan Agreement is hereby amended to read in its entirety as set forth in Annex I to this Amendment Letter; 7. Section I paragraph A.3 of Schedule 2 to the Loan Agreement is hereby amended to read as follows: "In respect of Part A.2.(a) of the Project, the Borrower shall ensure that the Matching Grants Program is implemented in a manner satisfactory to the Bank, and in 1818 H Street NW - Washington, DC 20433 USA H.E. Mr. Sini§a Mali -2- June 26, 2018 accordance with the Matching Grants Manual, the Environmental and Social Management Framework ("ESMF") and any applicable Environmental Management Plan ("EMP") thereunder." 8. Section I paragraph A.4 of Schedule 2 to the Loan Agreement is deleted in its entirety; 9. Section I paragraph C. 1 of Schedule 2 to the Loan Agreement is amended to read as follows: "The Borrower shall carry out Part A.2.(a) of the Project in accordance with a manual (the Matching Grants Manual), satisfactory in form and substance to the Bank, adopted by IF, setting forth the procedures for selecting, appraising, and approving mini and matching grants project proposals, and for supervising implementation of projects financed under Matching Grants Program, which shall describe the basic guiding principles and acceptable procedures which shall, inter alia, include: (a) the eligibility criteria and amounts for the mini and matching grants; and (b) mandatory provisions that: (i) no civil works shall be financed by the mini and matching grants; (ii) that no land acquisition or Involuntary Resettlement shall occur in connection with the provision of any mini and matching grants; (iii) beneficiaries of the mini and matching grants shall not award contracts to their subsidiary or affiliated companies unless there is an established arms-length arrangement; (iv) mini and matching grants will be provided and implemented in accordance with the ESMF and any applicable EMP thereunder; and (v) international peer review and investment committee mechanisms are used for grant selection." 10. Section IV.B.5 of Schedule 2 to the Loan Agreement is hereby amended to read as follows: -The Closing Date is June 30, 2021"; I1. Section IV, paragraph A.2 of Schedule 2 to the Loan Agreement is hereby amended to read in its entirety as set forth in Annex 2 to this Amendment; 12. Section 1, paragraph 14 of the Appendix is hereby amended to read as follows "14. "Matching Grants Manual" means the set of manuals for the mini and matching grants, collaborative grant scheme, innovation vouchers and other grant programs under the Matching Grants Program, referred to in Section I.C of Schedule 2 to the Loan Agreement, satisfactory to the Bank and adopted by the Innovation Fund." 13. Section 1, paragraph 15 of the Appendix is hereby amended to read as follows: 15. "Matching Grants Program" or "MGP" means the Borrower's grants programs implemented by the Innovation Fund. It includes mini grants and matching grants programs to fund specific proof of concept, prototyping, research and development and technology development projects with commercialization potential in start-ups, micro and small and medium enterprises, incorporated in the Borrower's territory, with majority private sector ownership, all in accordance with the ESMF and the Matching Grants Manual. It also includes collaborative H.E. Siniga Mali -3- June 26, 2018 grants scheme designed to incentivize private-sector companies and public-sector R&D organizations to engage in joint scientific research and development projects, as well as Innovation Vouchers program, all in accordance with the Matching Grants Manual." 14. The table of DLIs set forth in Schedule 4 to the Loan Agreement is hereby amended to read in its entirety as set forth in Annex 3 to this Amendment. Pursuant to your request and consultations with the Bank, the indicators set forth in the attachment to Supplemental Letter No. 2 (Performance and Monitoring Indicators) to the Loan Agreement, dated October 7, 2015, are hereby revised. A revised results framework is attached in the Amended Supplemental Letter No. 2, attached hereto as Annex 4. If you agree with the revisions in said Results Framework and Monitoring, please sign the Supplemental Letter No. 2 and return it to us. All other provisions of the Loan Agreement, except as expressly amended herein, shall remain unchanged and shall continue to be in full force and effect. Please confirm your agreement with the foregoing amendments on behalf of the Republic of Serbia, by signing, dating, and returning to us the enclosed copy of this Amendment Letter. Upon receipt by the Bank of: (i) a countersigned copy of this Amendment Letter; and (ii) the Amended Supplemental Letter No. 2, this Amendment Letter will become effective as of the date of your countersignature. Sincerely, Lada Strelkova Acting Regional Director, Western Balkans Europe and Central Asia Region Annexes: 1. Revised Schedule 1 of the Loan Agreement 2. Revised table in Schedule 2 Section IV paragraph A.2; 3. Revised Schedule 4 (Disbursement Linked Indicators) of the Loan Agreement; and 4. Revised Attachment to Supplemental Letter No. 2 (Performance and Monitoring Indicators); CONFIRMED AND AGREED: REPUBLIC OF SERBIA By: thorized R resentative Name: \_ __ __ Title: /yr 11W1bVCF Date: ',/ 4p H.E. Siniga Mali -4- June 26, 2018 Annex 1 SCHEDULE 1 Project Description The objective of the Project is to improve the effectiveness and coordination of selected public programs to alleviate constraints to competitiveness and job creation, including investment and export promotion, innovation, active labor market programs, and labor intermediation. The Project consists of the following parts: Part A: Implementation of Eligible Expenditures Programs Subject to Results-Based Financing 1. Program for Investment and Export Promotion Supporting implementation of the Borrower's program for investment, export promotion and enterprise development through: (a) developing and adopting a strategic framework and overall action plan for investment and export promotion, including restructuring the MoE investment and export promotion agencies; (b) improving the Borrower's investment and export promotion programs and services; and (c) supplier development. 2. Program for Innovation Supporting implementation of the Borrower's program for innovation through: (a) supporting the operations of the Innovation Fund and its Matching Grants Program, collaborative grant scheme for SMEs and public research institutes, innovation vouchers and other pilot grant programs under the Matching Grants; (b) supporting Technology Transfer Facility ("TTF") service lines at the Innovation Fund; (c) undertaking strategic planning for institutional reform of the public research and development sector; and (d) carrying out institutional reform on Science and establishment of a new Science Fund. 3. Program for Labor Reform Supporting implementation of the Borrower's program for labor reform through: H.E. Siniga Mali -5- June 26, 2018 (a) enhancing the effectiveness of the NES labor intermediation services for employers and the unemployed; (b) improving the effectiveness of the Borrower's active labor market programs; and (c) facilitating the transition of social assistance beneficiaries into formal jobs. Part B. Project Management and Technical Assistance 1. Supporting management and implementation of Parts A.1, A.2 and A.3 of the Project through the carrying out of technical assistance activities relating to implementation, through the provision of goods, consultants' services, non- consulting services, Training and Operating Costs. H.E. Siniga Mali -6- June 26, 2018 Annex 2 Revised table in Schedule 2 Section IV paragraph A.2 Amount of the Loan Allocated Percentage of Expenditures to Catezory (expressed in EUR) be financed (1) EEPs under Part A of 84,625,000 100% up to the amount of the Loan allocated for each DLI as set out in Schedule 4 to this Agreement. (2) Goods, non-consulting 4,600,265.41 100% services, consultants' services, Training and Operating Costs for Part B of the Project (3) Consultants' 50,984.59 100% services for Part B.2 of the Project (no longer applicable) (4) Front-end Fee 223,750 Amount payable pursuant to Section 2.03 of this Agreement in accordance with Section 2.07(b) of the General Conditions TOTAL AMOUNT 89,500,000 H.E. Siniga Mali -7- June 26, 2018 Annex 3 Revised Schedule 4 Disbursement Linked Indicators DLI 1: Policy Inter-ministerial PPMC WG PPMC WG planning, Competitiveness publishes on the PPS publishes on the PPS monitoring, and and Jobs PPMC website one semi- website one semi- coordination Working Group annual progress annual progress ("PPMC") ("PPMC WG") report and one report and one system piloted formally created annual performance annual performance by the report of the PPMC report of the PPMC Participating system with inputs system with inputs Institutions from each from each Participating Participating Each Participating Institution. Institution. Institution adopts institution- specific mandates and reporting lines for participation in PPMC system. Amount of the (Euro 895,000) (Euro 895,000) (Euro 895,000) (Euro 2,685,000) Loan Allocated I DLI 2: MoE Strategic framework Strategic framework Sectoral policies and Serbia Development Serbia investment and and overall action and overall action sector-specific Agency's Action Development export plan for investment plan for investment implementation Plan for year 2019 Agency's Action promotion and export and export plans adopted for reflects sector- Plan for year 2020 programs promotion ("Action promotion ("Action target sectors specific reflects sector- restructured Plan" prepared and Plan") prepared and identified in the implementation specific adopted by the MoE. adopted by the MoE. strategic framework. plans and improved implementation programs for plans and enterprise improved H.E. Siniga Mali -8- June 26, 2018 )LI Retroactive/2015 2016 2017 2018 2019 2020 Total Sectoral policies and Number of Number of development, and is programs for sector-specific investment leads investment leads implemented, enterprise implementation generated increased generated increased monitored, and development, and plans adopted for by at least 10 percent by at least 10 percent updated. is implemented, target sectors from previous year. from previous year. monitored, and identified in the updated. strategic framework Amount of the (Euro 5,845,000) (Euro 6,685,000) (Euro 3,580,000) (Euro 3,580,000) (Euro 19,690,000) Loan Allocated 1 1___1__ DLI 3: At least Euro 0.72 At least Euro 0.72 At least Euro 0.72 At least Euro 0.72 At least Euro 0.72 Enterprise million allocated for million allocated for million allocated for million allocated for million allocated innovation IF's 2016 IF's 2017 IF's 2018 IF's 2019 for IF's 2020 supported via operational budget. operational budget. operational budget. operational budget. operational the Innovation budget. Fund ("IF") At least Euro 2.7 At least Euro 2.7 At least Euro 4 At least Euro 4 Matching million allocated to million allocated to million allocated to million allocated to At least Euro 4 Grants MGP in the MGP in the MGP and other MGP and other million allocated Program Borrower's 2016 Borrower's 2017 financing programs financing programs to MGP and other ("MGP") budget for IF. At budget for IF. At [innovation [innovation financing least 80% of 2016 IF least 80% of 2017 IF vouchers, TTF, vouchers, TTF, programs MGP budget MGP budget collaborative grant collaborative grant [innovation committed using committed using scheme, to be scheme, to be vouchers, 7TF, IF's international IF's international defined in POM] in defined in POM] in collaborative peer review and peer review and the Borrower's 2018 the Borrower's 2018 grant scheme, to investment investment budget for IF. At budget for IF. At be defined in committee selection committee selection least 80% of 2018 IF least 80% of 2018 IF POM] in the process. process. MGP budget MGP budget Borrower's 2018 committed using committed using budget for IF. At IF's international IF's international least 80% of 2018 peer review and peer review and IF MGP budget investment investment committed using committee selection committee selection IF's international process. process. peer review and H.E. Siniga Mali -9- June 26, 2018 investment MGP Proposal for scaling- committee implementation up MGP submitted selection process. evaluation by MoESTD to the conducted. Borrower or development partner donor institutions Amount of the Dropped (Euro 3,580,000) (Euro 3,580,000) (Euro 3,580,000) (Euro 2,685,000) (Euro 13,425,000) Loan Allocated DLI 4: At least one TTF At least Euro 0.9 At least Euro 0.9 Technology service line million allocated in million allocated in transfer and deployed. the Borrower's 2017 the Borrower's 2018 commercializat budget to TTF budget to TTF ion facilitated operations and operations and via the TTF services, and at least services, and at least 3 technology transfer 7 technology transfer transactions transactions initiated. initiated. TTF program evaluation conducted and proposal for scaling-up technology transfer activities submitted by MoESTD to the Borrower or development partner donor institutions. Amount of the (Euro 2,685,000) (Euro 2,685,000) (Euro 3,580,000) (Euro 8,950,000) Loan Allocated H.E. Siniga Mali -10- June 26, 2018 )LI Retroactive/2015 2016 2017 2018 2019 2020 Total DLI 5: Public 2015-2020 Time bound Action Institutional setup Competitive research sector research and Plan to implement recommended by the performance based reforms innovation research and Feasibility Study call for public designed and strategy adopted innovation strategy, implemented, research financing adopted by the Borrower including including launched by the including deployment timeline establishing the new Science Fund. At commitment to for introducing Science Fund or least 80% of the reforming public performance based similar institution as funds budgeted for RDI sector. financing schemes, recommended by the the call are adopted by the Feasibility Study. committed. Borrower. At least 5 external At least 10 Time bound action assessments of RDIs additional external plan to implement completed. assessments of research and RDIs completed. innovation infrastructure Public RDI sector roadmap and action reform program plan adopted by the adopted by the MoESTD. Borrower. At least 50 RDI self- assessments completed. Complete Feasibility Study to (i) assess the current system of public research financing and the network of RDIs and (ii) recommend institutional setup for introduction of Science Fund or I H.E. Mr. Siniga Mali -11- June 26, 2018 DLI Retroat e/2015 2016 2017 201N 2019 2020 Total similar institution and performance based financing schemes. Amount of the (Euro 2,685,000) (Euro 3,580,000) (Euro 3,580,000) (Euro 3,180,000) (Euro 13,025,000) Loan Allocated DLI 6: Action plan to 85% of the total Number of Effectiveness enhance the quality number of NES case employers visited by of NES labor of employer services workers as of the NES within the intermediation and case December 31, 2017 last 12 calendar services management adopted are certified month period: delivered to by NES ("NES according to newly 17,500 clients Action Plan") adopted standards (employers under NES Action Number of NES- and Plan registered unemployed) unemployed improved individuals transitioning into formal jobs within the last 12-month calendar period: 270,000 Amount of the (Euro 2,685,000) (Euro 1,790,000) (Euro 2,685,000) (Euro 7,160,000) Loan Allocated DLI 7: Case Special registry of Staffing reforms Standard deviation Standard deviation load unemployed adopted by NES for of mean case load of mean case load management persons who are 2016 are per branch office is per branch office is in NES branch temporarily implemented, and 300 or less. 275 or less. offices prevented from targets on case load improved working per branch office are established by published on the NES. NES website. H.E. Mr. Siniga Mali -12- June 26, 2018 DLI RetroacIiNe/201 5 2016 2017 2018 2019 2020 Total Amount of the (Euro 895,000) (Euro 2,685,000) (Euro 2,685,000) (Euro 2,685,000) (Euro 8,950,000) Loan Allocated DLI 8: Rule book Action plan on 50% of unemployed NES starts pilot of Effectiveness redefining "low- monitoring, evaluation individuals a re-designed of ALMPs risk group" of its and re-design of registered in NES as ALMP, taking into improved current risk ALMPs; and on of December 31, account evidence through profiling as profiling of registered 2019 have a risk from previous statistical "requiring unemployed profile according to evaluations of evidence minimal to no individuals approved the new ALMPs NES services", by NES management. methodology. undertaken by taking into NES. account registered unemployed At least I service individuals' self- provider for labor assessment of market trainings service needs, hired based on a adopted by NES. performance based contract. Amount of the (Euro 895,000) (Euro 2,685,000) (Euro 2,685,000) (Euro 2,685,000) (Euro 8,950,000) Loan Allocated DLI 9: Study to (i) design a Transition of program to reduce social disincentives to enter assistance formal jobs for beneficiaries social assistance into formal beneficiaries; and jobs facilitated (ii) improve activation of social assistance beneficiaries through improved services, carried out by the Borrower. H.E. Siniga Mali -13- June 26, 2018 1)LI Retroactike/2015 2016 2017 2018 2019 2020 Total Amount of the (Euro 1,790,000) (Euro 1,790,000) Loan Allocated Total (Euro 84,625,000) H.E. Siniga Mali -14- June 26, 2018 Annex 4 Amended Supplemental Letter No. 2 REPUBLIC OF SERBIA ___ _ ,201 International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Re: IBRD Loan No. 8528-YF (Serbia Competitiveness and Jobs Project) Performance and Monitoring Indicators Dear Sirs and Mesdames: This refers to paragraph A, Section II of Schedule 2 to the Loan Agreement between the Republic of Serbia (the Borrower) and the International Bank for Reconstruction and Development (the Bank) for the above-captioned Project. The Borrower hereby confirms to the Bank that the indicators set out in the attachment to this letter shall serve as a basis for the Borrower to monitor and evaluate the progress of the Project and the achievement of the objectives thereof. Very truly yours, REPUBLIC OF SERBIA By Authorized epresentative Attachment H.E. Siniga Mali -15- June 26, 2018 Revised Attachment to Supplemental Letter No. 2 IBRD Loan No. 8528-YF Performance and Monitoring Indicators PDO and Non-DLI Intermediate Indictors Project Development Objectives PDO Statement The PDO is to improve the effectiveness and coordination of selected public programs to alleviate constraints to competitiveness and job creation, including investment and export promotion, innovation, active labor market programs, and labor intermediation. These results are at Project Level Project Development Objective Indicators Cumulative Target Values Indicator Name Baseline 2016 2017 2018 2019 2020 New investor leads generated by the reformed investment 20 22 25 28 31 33 promotion agency (Number), annual Participants in export promotion programs that engage in new 85 90 95 180 190 200 export activities (Number), annual New collaborations facilitated between research organizations and 3 5 8 14 20 25 the private sector (Number) NES registered unemployment cases transitioning into formal job 232,280 245,000 260,000 270,000 275,000 280,000 (Number), annual (2014) Intermediate Results Indicators H.E. Siniga Mali -16- June 26, 2018 Cumulative Target Values Indicator Name Baseline 2016 2017 2018 2019 2020 Component 1: Investment and Export Promotion MoE investment and export promotion programs restructured [DLI DLI table DLI table DLI table DLI table DLI table DLI table 2] Number of documented interests by investors (Number), annual 61 67 74 82 87 90 Component 2: Innovation Private financing catalyzed through IF support programs (Amount (2014) 0.3 m 0.7 m 1.4 m 2.1 m USD) [see DLI 3] 2.8 m 3.6 m Enterprises and startups financed through IF programs (Number) (2014)11 15 30 45 [see DLI 3] 60 75 Enterprises and startups financed with female owner (Number - (2014)1 2 4 6 Sub-Type: Breakdown) [see DLI 3] 8 10 Innovative products or services developed by beneficiary firms (2014) 16 7 10 15 (Number) [see DLI 3] 20 25 Innovative products or services launched by beneficiary firms (2014)3 0 3 8 (Number) [see DLI 3] 8 10 Technology transfer: IF TTF service lines deployed [see DLI 4] 0 2 5 6 8 (Number) 7 Technology transfer: transactions initiated (Number) [see DLI 4] 0 0 0 10 12 15 R&I strategy, action plan, RI Roadmap and public research sector reforms including establishment of Science Fund designed and DLI table DLI table DLI table DLI table adopted [see DLI 5] DLI table DLI table Science Fund programs initiated 0 0 0 0 1 1 Science Fund competitive grants awarded 0 0 0 0 10 20 H.E. Siniga Mali -17- June 26, 2018 Citizen engagement: Innovation matching grant beneficiary annual 0 0 0 1 2 3 survey (Number of surveys) Component 3: Labor NES registered female unemployment cases transitioning into 122,491 130,000 137,000 140,000 142,500 145,000 formal job (Number), annual (2014) Field visits to Number of field visits to employers per year by the NES (Number) 15,909 17,000 17,100 17,500 17,750 18,000 [see DLI 6] employers (2014) % of total NES staff that is operating as certified case worker 0(2014) 40 85 85 85 85 (Percentage) [DLI 6] Standard Deviation of mean case load per branch office over all 381 350 300 275 270 260 branch offices [DLI 7] (2014) Gross placement rate of NES start-up support program for self- 37(2013) 37 39 42 42 42 employment 6 months from completion (Percentage) Gross placement rate of NES hiring subsidy program for new 41(2013) 41 43 46 46 46 employment 6 months from completion (Percentage) Number of new or re-designed ALMPs in the NES [DLI 8] 0 0 0 0 0 1 Citizen engagement: Number of employers reached by client 0 1,000 2,000 3,000 3,250 3,500 satisfaction and needs survey ** The Indicator Description will now be provided in the POM