Public Disclosure Copy The World Bank Implementation Status & Results Report First Programmatic State Owned Enterprises Reform DPL (P127408) First Programmatic State Owned Enterprises Reform DPL (P127408) EUROPE AND CENTRAL ASIA | Serbia | Trade & Competitiveness Global Practice | IBRD/IDA | Development Policy Lending | FY 2015 | Seq No: 1 | ARCHIVED on 23-Mar-2016 | ISR21440 | Implementing Agencies: Ministry of Labor, Employment, Veteran and Social Affairs, Ministry of Economy Key Dates Key Project Dates Bank Approval Date:24-Mar-2015 Effectiveness Date:24-Jul-2015 Planned Mid Term Review Date:01-Jun-2016 Actual Mid-Term Review Date:-- Original Closing Date:31-Mar-2016 Revised Closing Date:31-Mar-2016 Program Development Objectives Program Development Objective (from Program Document) The Program Development Objectives (PDOs) are to reduce state participation and level of direct and indirect support to the real sector, enhance SOE performance, governance and accountability, and mitigate the short term social and labor impacts of the SOEs restructuring and disposition plans. PHRPDODEL Overall Ratings Name Previous Rating Current Rating Progress towards achievement of PDO  --  Moderately Satisfactory Overall Implementation Progress (IP)  --  Satisfactory Overall Risk Rating  --  Substantial Implementation Status and Key Decisions Pillar A – Accelerating the restructuring and divestiture program for Privatization Agency Portfolio and selected State Owned Enterprises operating in the commercial sector The resolution of the Privatization Agency (PA) portfolio is moving broadly as planned. The key prior action in this pillar is the resolution of at least 100 out of 140 companies that were in restructuring as of August 13, 2014. At the time of the appraisal for the SOE DPL2 (end-Janueary 2016), 89 companies have been resolved, mostly through bankruptcies. In parallel with resolving the companies, the authorities are proceeding with offering financial assistance packages from the Transition Fund to redundant workers. About 12,000 workers from companies that were in restructuring had taken the packages and left the companies. There are about 35,000 workers left in these companies, of which the large majority (about 21,000) are in the 17 strategically important companies. Demonstrating the commitment to completing the privatization process, the authorities have shut down the Privatization Agency (PA) at the end of 2015. Bankruptcy Unit of the PA, with about 80 of the staff, has been merged with the Agency for Licensing of Bankruptcy Administrators (ALSU) in October 2015. Of the remaining ~200 PA staff, part were moved to the Ministry of Economy in January 2016, to finalize the remaining privatizations and monitor the contracts for earlier privatizations. Although the decision to wind down the Agency is consistent with the finalization of the privatization process, this needs to be carefully managed. Bottlenecks have already been noted with managing bankruptcies, as the staff are under 3/23/2016 Page 1 of 6 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report First Programmatic State Owned Enterprises Reform DPL (P127408) intense pressure both by the increased case load and the need to adjust to new institutional arrangements. Other two prior actions under this pillar (PA2: The Borrower has announced at least twenty (20) public bids for PA Companies that were not in restructuring as of August 13, 2014; PA3: The Borrower’s Ministry of Agriculture and Environmental Protection has assessed the potential environmental damages for targeted PA Companies that were either in restructuring as of August 13, 2014 or companies for which the PA is the bankruptcy administrator and has prepared a report on the estimated volume of hazardous waste on site and initiated the disposal and treatment of hazardous waste) have been met at the time of the appraisal. Pillar B - Strengthening governance regulatory and institutional framework, and monitoring and transparency arrangements To further consolidate the improvements to PE corporate governance framework established with measures supported by SOE DPL2, the authorities have amended the legislative framework for public enterprises. New Public Enterprise Law was adopted in February 2016, further strengthening monitoring, accountability and transparency provisions, including for the corporatized enterprises. Both SOE DPL2 prior actions under this pillar have been met at the time of appraisal. Pillar C – Mitigate the social and labor market impact of SOE reforms As part of policies supported by the first operation, the authorities allocated adequate financial resources to support redundant workers. At the time of the appraisal, about 19 thousand workers have taken the financial packages and left the companies from the PA portfolio. About RSD 12 billion, out of total budget of RSD 16 billion, have been spent for about 20 thousand workers. Hence, the authorities have significantly exceeded the operation’s target of at least 10,000 redundant workers having access to the packages for 2015. The 2016 Budget includes an allocation of further RSD 6 billion for the Transition Fund (lower than the 2015 Budget, but this is because most of the severances have been completed in 2015). With funding for redundancy packages secured and paying out of financial packages progressing well, focus for the second operation is shifting towards measures that could facilitate transition back into employment for redundant workers. During July and August of 2015 the government has adjusted the design of its public works program so that it can better serve as an additional safety net for vulnerable groups, including redundant workers. As a result of the reforms, participation in public works increased considerably during 2015. After the redesign of the program, an expected 10,000 registered unemployed will have participated in public works programs during 2015, which is a marked increase from 2014. However, very few of them are redundant SOE workers, yet this was to be expected; the public works program is meant to be an additional safety net for long-term unemployed who have not enjoyed employment opportunities for a long time. In the medium term, the share of participants having been laid off from SOEs is expected to increase. Risks Systematic Operations Risk-rating Tool Risk Category Rating at Approval Previous Rating Current Rating Political and Governance  High  --  High Macroeconomic  Substantial  --  Substantial Sector Strategies and Policies  Low  --  Low Technical Design of Project or Program  Low  --  Low Institutional Capacity for Implementation and Sustainability  Substantial  --  Substantial Fiduciary  Substantial  --  Substantial Environment and Social  Moderate  --  Substantial 3/23/2016 Page 2 of 6 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report First Programmatic State Owned Enterprises Reform DPL (P127408) Stakeholders  Low  --  Low Other  --  --  -- Overall  High  --  Substantial Results Results Indicators PHINDIRITBL  Reduction of direct and indirect support to companies in the Privatization Agency portfolio - annual direct subsidies and soft loans (EUR mn) (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 85.00 -- -- 10.00 Date 31-Dec-2012 -- -- 31-Dec-2016 Comments Baseline is average of 2010-12 PHINDIRITBL  Reduction of direct and indirect support to companies in the Privatization Agency portfolio - new tax obligations and social contributions arrears (EUR mn) (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 190.00 -- -- 20.00 Date 31-Dec-2012 -- -- 31-Dec-2016 Comments Baseline is average of 2010-12 PHINDIRITBL  Reduction of direct and indirect support to companies in the Privatization Agency portfolio - new arrears to public utilities (EUR mn) (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 70.00 -- -- 20.00 Date 31-Dec-2012 -- -- 31-Dec-2016 Comments Baseline is average of 2010-12 3/23/2016 Page 3 of 6 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report First Programmatic State Owned Enterprises Reform DPL (P127408) PHINDIRITBL  Disposal and treatment of legacy hazardous waste generated by companies in the Privatization Agency portfolio - total volume of legacy hazardous waste that was disposed and/or treated (Metric ton, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 -- -- 1500.00 Date 31-Dec-2014 -- -- 31-Dec-2016 Comments End Target is cumulative for 2015-16 PHINDIRITBL  Audited financial statements prepared and published by enterprises in accordance with provisions of Law on PE and new Laws on Accounting and Auditing, for PEs which the founder is the Republic of Serb (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 -- -- 24.00 Date 31-Dec-2012 -- -- 31-Dec-2016 PHINDIRITBL  Reduction of direct subsidies and issuance of new guarantees for liquidity purposes for remaining large SOEs - direct subsidies (EUR mn) (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 250.00 -- -- 200.00 Date 31-Dec-2012 -- -- 31-Dec-2016 Comments Baseline is average of 2010-12 PHINDIRITBL  Reduction of direct subsidies and issuance of new guarantees for liquidity purposes for remaining large SOEs - annual guarantees for liquidity purposes (EUR mn) (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 265.00 -- -- 0.00 Date 31-Dec-2014 -- -- 31-Dec-2016 Comments Baseline is average of 2012-14 3/23/2016 Page 4 of 6 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report First Programmatic State Owned Enterprises Reform DPL (P127408) PHINDIRITBL  Number of redundant workers receiving compensation from the Transition Fund increases from approx. 5,700 (2014) to at least 25,000 (cumulative 2015 and 2016) (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 5700.00 -- 20000.00 25000.00 Date 31-Dec-2014 -- 31-Dec-2015 31-Dec-2016 Comments End Target is cumulative for 2015-16 PHINDIRITBL  At least 30 percent of workers made redundant from public enterprises during 2016 register with NES (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target Value na -- -- 30 Date -- -- -- -- PHINDIRITBL  Number of participants in public works increases from 2,882 in 2013 to at least 7,000 in 2016 (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 2882.00 -- -- 7000.00 Date 31-Dec-2013 -- -- 31-Dec-2016 Overall Comments Result Indicator A1—Reduction of direct and indirect support to companies in the Privatization Agency portfolio: 1. Annual direct subsidies and soft loans (million Euro): 1. Baseline (average 2010-2012): 85; Target (2016): less than 10 3/23/2016 Page 5 of 6 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report First Programmatic State Owned Enterprises Reform DPL (P127408) 2. New tax obligations and social contributions arrears: 1. Baseline (average 2010-2012): 190; Target (2016): less than 20 3. New arrears to public utilities: 1. Baseline (average 2010-2012): 70; Target (2016): less than 20 Result Indicator A2—Disposal and treatment of legacy hazardous waste generated by companies in the Privatization Agency portfolio: 4. Total volume of legacy hazardous that was disposed and/or treated (tons of waste) 1. Baseline (2014): 0; Target (cumulative, 2015 and 2016): 1,500 Result Indicator B1—Audited financial statements prepared and published by enterprises in accordance with provisions of Law on PE and new Laws on Accounting and Auditing for Public Enterprises for which the founder is the Republic of Serbia: Baseline (2012, none); Target (2016), all 24). Result Indicator B2—Reduction of direct subsidies and issuance of new guarantees for liquidity purposes for remaining large SOEs: 5. Direct subsidies (million Euro) 1. Baseline (average 2010-12): 250; Target (2016): less than 200 6. Annual guaranties for liquidity purposes (million Euro): 1. Baseline (average 2012-2014): 265; Target (2016): 0 Result Indicator C1— Number of redundant workers receiving compensation from the Transition Fund increases from approx. 5,700 (2014) to at least 25,000 (cumulative 2015 and 2016) (to be monitored by gender). Result Indicator C2— At least 30 percent of workers made redundant from public enterprises during 2016 register with NES (to be monitored by gender). Result Indicator C3—Number of participants in public works increases from 2,882 in 2013 (1,187 female and 1,695 male) to at least 7,000 in 2016 (to be monitored by gender). Data on Financial Performance Disbursements (by loan) Project Loan/Credit/TF Status Currency Original Revised Cancelled Disbursed Undisbursed Disbursed P127408 IBRD-84910 Effective USD 100.00 100.00 0.00 101.46 0.00 101% Key Dates (by loan) Project Loan/Credit/TF Status Approval Date Signing Date Effectiveness Date Orig. Closing Date Rev. Closing Date P127408 IBRD-84910 Effective 24-Mar-2015 17-Apr-2015 24-Jul-2015 31-Mar-2016 31-Mar-2016 Tranches Restructuring History There has been no restructuring to date. Related Operations P149750-Second Programmatic State Owned Enterprises Reform DPL 3/23/2016 Page 6 of 6 Public Disclosure Copy