Moldova: Transport Sector Review Update With emphasis on the Road Sector

What triggered the paper? The request of the Government in 2001for a Road Project supported by the Bank, as a priority in Gov.’s development agenda (therefore the paper’s emphasis on the road sub-sector) The need for the Bank to renew its knowledge of the sector, and start a Transport policy dialogue

What is the background? Moldova – landlocked country, highly trade dependent (over 90% of GDP), gateway between FSU countries and the West Economy largely based on agriculture and agro-industry (over 30% of GDP) Access to regional markets is a strategic priority, dependent on a well functioning transport industry and a solid transport infrastructure Gov. made the first steps by joining WTO and the Stability Pact for SEE in 2001

What are the findings? Transport sector has not been a priority for Gov., IFIs No National Transport Strategy covering all sub-sectors; (proposed to be drafted within the WG 4 under PRSP) Low share of Transport in public expenditures: 2.3 % in the annual budget; about 0.5 % of GDP Progress of reforms in the T sector is lagging behind, including (i) defining a new role of the Gov, and (ii) increasing private sector participation MOT civil servants have jobs in the private sector Railways reforms started with separation of services, plans to eliminate cross-subsidies, commercialization Private entrepreneurship started in trucking; constraints in access to international markets due to (i) low level of professionalism, (ii) inadequate roads infrastructure

What are the findings (cont)? Road management has not been divested from MOT, conflicting roles as policy maker, contractor, and supervisor The construction industry only partly private Trade and transport suffer from corrupt practices of Customs and other border agencies, lack of modern and transparent border procedures Unclear rules of game in Civil Aviation: privatization started, sustainability questionable Urban Transport in crisis in Chisinau: drastically declining services & high budget constraints to the Municipality

Issues in Road Management Critical shortage of road maintenance funds 78% of the national roads and 88% of the local roads have reached the end of their economic life and are technically outdated > exponential deterioration Inadequate road network conditions > high transportation costs > reduced competitiveness

Evolution of Road Condition

Road Density (km per 1000 population)

Road Density (km per square km)

Issues in Road Management Moldova loses between US$10-20 million/year by not maintaining the roads Moldova spends 0.25% of GNP on roads compared with an average of 1.2% in 36 countries Gov. lacks fiscal discipline on budget allocation for road maintenance > “second generation” road fund proposed by MOT Road safety management is an issue (high rate of fatal accidents: 1120 deaths/mil rd veh

Maintenance Expenditure for National Roads as percentage of GDP

Recommendations (i) maintenance, (ii) maintenance, (iii) maintenance, particularly for the road sector On Railways: address the PSO problem; implement restructuring of CFM; update legislation On Roads: create an autonomous and financially independent Road Authority; increase maintenance budget; create a modern mechanism for rd. financing; investigate the cause for high accident causes A possible Bank financed operation in the road sector to address the major issues identified by the Study

Next Steps Continue the sector dialogue with the Government in support of defining its National Transport Strategy Address the transport priorities in the context of the up-coming PRSP Discuss the draft with the Government Disseminate the revised paper in the context of PRSP WG 4 (infrastructure) Identify transport stakeholders for the Participation & Consultation process of the PRSP