US$M): (US$M US$M): US$M): Board Approval Date : 08/29/2002 Closing Date : 09/30/ /30/2010. Group Manager :

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1 IEG ICR Review Independent Evaluation Group 1. Project Data: Date Posted : 04/21/2011 Report Number : ICRR13605 PROJ ID : P Project Name : Real Property Registration & Cadastre Project Country: Croatia Sector Board : Sector(s): General agriculture fishing and forestry sector (40%) Law and justice (35%) Central government administration (25%) Theme(s): Land administration and management (29% - P) Personal and property rights (29% - P) Rural markets (14% - S) Judicial and other dispute resolution mechanisms (14% - S) Access to law and justice (14% - S) L/C Number: L4674 Partners involved : Appraisal Actual Project Costs (US$M US$M): Loan/Credit (US$M US$M): Cofinancing (US$M US$M): Board Approval Date : 08/29/2002 Closing Date : 09/30/ /30/2010 Evaluator : Panel Reviewer : Group Manager : Group: Gita Gopal Rene I. Vandendries IEG ICR Review 2 IEGPS2 2. Project Objectives and Components: a. Objectives: The objective of the proposed project is to build an efficient land administration system with the purpose of contributing to the development of efficient real property markets. To this end, the project will (i) accelerate registration in both the cadastre and real property registration systems; (ii) streamline both systems and the associated transaction processes; (iii) harmonize data between the two systems and ensure that they match with reality by undertaking cadastre re -survey where necessary, and land book registration correction and renewal in a systematic manner in selected areas of the country; (iv) improve customer relations and service provision, as well as organize awareness campaigns among stakeholders, aimed at supporting professionals, financial institutions, and real property holders; and (v) address impediments to the operation of an efficient mortgage system. (Project Appraisal Document, Pg. 2) The Loan Agreement states the objective briefly as follows : The objective of the Project is to assist the Borrower in developing an efficient land administration system in order to improve functioning of real property

2 markets through enhancing the land registration and cadastre systems. This review relies on the objectives stated in the PAD since they are more detailed and clearer. b.were the project objectives/key associated outcome targets revised during implementation? Yes If yes, did the Board approve the revised objectives /key associated outcome targets? No c. Components (or Key Conditions in the case of DPLs, as appropriate): The project involved four components : Component A - Real Property Registration System Development (Appraisal Cost Estimate: US$8.28 million; Actual: US$16.20 million) This component would focus on improving the land book registration system that operates in the municipal courts under the Land Registration Act, 1996, thus increasing the security of property rights over real property and transactions conducted under this system. The component would support the organization and training of the Land Registration Management Unit (LRMU); address the present registration backlogs; focus on improving and streamlining demand -driven transaction processing; and support computerization of registration in the registry offices of the four major cities and about 20 other offices. It would also pilot in project years 2 through 5 a program to provide legal advice to low income owners on property registration related issues. Component B - Cadastre System Development (Appraisal Cost Estimate: US$7.76 million; Actual: US$20.50 million). This component would focus on the improvement and streamlining of the new integrated cadastre system (under the Law of State Survey and Real Estate Cadastre, 1999), and ensure that the system is maintained up-to-date in the regional and branch offices, operated by the State Geodetic Administration (SGA) and in the Zagreb city cadastre office. The component would focus on developing affordable technical standards and regulations, building a cadastre based on business /corporate plan principles, training staff and the private sector, upgrading equipment and offices, implementing quality control mechanisms, and developing and implementing an information system, and a multi-spatial information system. Operations to update the cadastre in about 5 percent of the country would be undertaken where possible under component C. Component C - Inter-institutional Operations and Information Technology (Appraisal Cost Estimate: US$11.38 million; Actual: US$21.70 million). This component would develop and implement joint field operations for the cadastre and land book registration systems, particularly a program to achieve harmonization of data between the municipal cadastre offices and court registry offices. It would do this using joint systematic registration and cadastre methods with the two institutions working together, and data verification and conversion. It would design and implement joint information and communications technology and management systems in the two institutions and associated offices. Component D - Project Management. Training and Monitoring (Project Cost Estimate: US$5.78 million; Actual: US$10.20 million) This component will support: (i) Project management by the PIU and the institutional teams in Ministry of Justice (MOJ) and SGA; (ii) The improvement of the legal framework for real property matters; (iii) The design and implementation of a common information and communications technology /information management (ICT/IM) strategy for SGA and MOJ and associated offices; (iv) The provision of training for SGA, MOJ, LRMU and the land registries, and the Zagreb City Cadastre Office; (v) A public awareness campaign and consensus building strategies; (vi) a Service Commercialization and Marketing sub-component including the development and testing of One-Stop-Shop approaches for registration and cadastre; (vii) Pilot activities for simplifying the existing procedures for registering apartments; and (viii) Project monitoring, evaluation, reporting, including the social aspects, and customer surveys in the cadastre offices and land book offices. *Physical and price contingencies and a front end fee constituted : US$4 million d. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The PAD estimated project costs at US$37.20 million, with the Bank contributing US$25.70 million, Government US$6.6 million and EU supplying some US$4.9 million. However, project costs at completion were about US$69 million comprising contributions from the World Bank (US$34.09 million), EU Cards (US$16.30 million, exceeding initial estimates) and the Croatian Government (US$18.6 million, exceeding the initial estimate). Although the original loan financing amount was for US$ 25.7 million, a total of

3 US$34.09 million was disbursed and an amount of US$34,000 was cancelled. (Note: The Bank loan was denoted in Euros and discrepancies are due to foreign exchange rate fluctuations.) EC funds under the Community Assistance for Reconstruction, Development and Stabilization (CARDS) program were administered under a recipient-executed Bank Trust Fund. Project activities were also supported or complimented by extensive bilateral assistance by USAID and the governments of Norway, Sweden, the Netherlands, and Germany. Two reallocations were effected in August 2008 and in June Reasons included the allocation of unallocated funds; reduction in the costs for service contracts due to a change in contracting category; reduced need for consultants/training due to the availability of EU funds; lower than expected operating costs; and agreement to expand the number of office renovations. The original closing date of September 30, 2008 was extended to December 15, 2009, and then to June 30, This 21 month extension of the Project closing date was necessary to complete the implementation of the Joint Information System (JIS), which was recognized by both the Bank and the client as essential to the successful completion of the Project and the land administration reforms. 3. Relevance of Objectives & Design: Relevance of objectives was high; The project objectives were consistent with the Bank's 2001 Country Assistance Strategy, which specified improving governance and creating the conditions for competitive real property sector development as two key objectives. The Project was also seen as strengthening work initiated under another Bank -supported Court and Bankruptcy Administration Project. The objectives were consistent with client priorities and needs as reflected in the Government s five year plan of 2001, namely to improve and promote the environment for real estate security and investment. Such objectives remained relevant even at the end of the project because the proposed measures were expected to bring Croatia closer in line with the real estate systems in EU countries. Relevance of project design was substantial : The design of the project was focused, based on international experience gained through Bank support elsewhere as well as consistent with analytical work prepared by the Foreign Investment Advisory Service (FIAS) of the World Bank and IFC. However, some targets (such as requiring SGA and Land Registry Offices (LROs) to develop plans to become self-financing) were unrealistic. The Project was finalized in close cooperation with other donors, in particular the European Union (EU) which provided significant co-financing. Results of a stakeholder consultation also fed into the design of the project, The results framework was substantially sound. 4. Achievement of Objectives (Efficacy): The objective of building an efficient land administration system for the development of efficient real property markets was substantially achieved through the following : (i) Accelerated registration in both the cadastre and real property registration systems (substantial achievement ): Registering ownership rights has become quicker and has been accelerated from 100+ days at the start of the project to 52 days nationwide in 2010, and from 480 days down to 106 days in Zagreb. The time to register mortgages at the LROs, likewise, has been reduced from 58 days to 6 days country-wide in 2010 and from 64 days to 11 days in Zagreb in the same period. Forty percent of offices now register sales within 7 days; mortgages are registered within 6 days nationwide; and extracts are issued within one day nationwide for both land registry and cadastre information. The ICR notes that the 5 day target for sales transactions was overly ambitious and the increase in new transactions was much more than expected (55 percent increase over four years) impacting on the speed of transaction processing. Citizens no longer need to go to a LRO to see their property data or follow up on their pending business

4 because such transactions can be conducted on line. The electronic system also allows anyone to verify the status of their application if they have the application number, reducing the number of visits to the LROs. The number of the land record cases resolved in 2009 amounted to 524,726 - an increase of percent as compared to 2003 when 351,293 LR cases had been processed. Unresolved cases were reduced by 78 percent in June 2010 from the number that existed in (ii ii) Streamlined systems and associated transaction processes (substantial achievement ): According to the ICR, the project supported several regulatory and legal changes, which inter alia led to the simplifications and improvements such as delegation of land registration to authorized clerks rather than judges; procedures for on-demand harmonization of land registry and cadastre records at the request of the owner, rather than having to wait for systematic harmonization; use of the national personal identification number which will improve data quality and security; formally linking land registry and cadastre data in the unified land database leading the way for the JIS; and improved apartment registration procedures. The project, however, failed to tackle issues related to expanding practices for resolution of land disputes. One covenant in the loan agreement requiring a business plan for the SGA and activity plans for the LROs was modified to reflect the fact that both are fully budgetary entities. It was instead replaced with the development of a joint action plan for the JIS. The ICR indicates that the number of requests for information and records from the cadastre averaged above 1.2 million queries a year from 2002 to 2009, while over 7 million queries were recorded annually on the e-cadastre website. More than 20 million queries were recorded per year on the e -LR web portal, and some 31,000 calls were received by the Land Registry information line. (iii iii) Harmonized data between the two systems that match with reality in selected areas of the country (substantial achievement ): The project supported the computerization of the land registry files from paper based titles to digital files (between 2003 and 2007), with 99 percent of this data verified nationwide. Zagreb's land registry files are 100% digitized and verified. The original indicator (offices in 5 percent of the country will be integrated and operational ) was replaced with "pilot the integrated business processes and new information technology system in 2 locations" because according to the ICR the local SGA offices and LROs were already operationally integrated. Instead, the project helped to establish a JIS, which integrated SGA and MoJ data, bringing it close to the efficiency level of a single agency. The JIS has been rolled out only to two localities. According to the ICR, coordination and communication between the two partners has increased from almost nothing to regular daily communication, and agreement on the need for a permanent inter -ministerial coordinating body for the land administration reform (iv iv) Improved customer relations and service provision, as well as increased awareness among stakeholders, aimed at supporting professionals, financial institutions, and real property holders (substantial achievement ): A public awareness campaign was developed in 2006 in collaboration with SGA and MOJ. The public awareness campaign achieved its goals according to the ICR. A survey conducted in 2008 showed that 60% of the population were aware of the campaign, while 80% had a correct understanding of the campaign message related to the government s reform program goals and objectives; the role of citizens and property rights holders; and the importance of good quality registration and cadastre services. By the end of the campaign, 2,479 newspaper and periodical articles had been published relating to the LR and cadastre. The Project web page had been redesigned ( and the in-depth brochure on land registry and cadastre procedures had been printed and distributed free of charge to all households nationwide. This brochure is a how-to guide for citizens on cadastre and land registry. In addition, several smaller leaflets have been excerpted from the brochure explaining particular procedures. 10 LRO Officers were trained in order to strengthen internal capacity to provide such training. An independent training audit in 2006 found that the training efforts largely met their objectives. A legal aid pilot project for low income citizens was initiated but was not successful. However, a legal aid law in 2008 made this objective redundant. (v) Increased efficiency in the mortgage system (substantial achievement ): As a result of the changes noted above, the number of newly extended mortgages in the country increased from 5,350 in 2002 to almost 9,000 in This declined to, 8,000 in 2007 and 7,400 in 2008 due to the global financial crises. Loan amounts also more than doubled between 2002 and 2007, from HRK 4.13 billion to HRK10.01 billion.

5 5. Efficiency (not applicable to DPLs): Overall, project efficiency was substantial. The PAD calculated the ERR at around 27 percent for a total project investment of US$35 million by the Bank, Government and other donors over the 5-year implementation period. The ICR, however, does not calculate an ERR at closing on the grounds that the ERR at appraisal "was based on certain performance related projections all of which have been exceeded by wide margins." It argues that actual re-computation of NPVs and ERRs was, therefore, not warranted (See Table on Page 39 of the ICR). The Project was also able to leverage the loan funds to significantly increase donor co -financing. Furthermore, the ICR points out that SGA and MOJ generated US$ 83 million in fees for cadastre and land registry services from 2002 to 2009, exceeding the total project-related investment. During this period the incremental real estate transfer tax collections also increased dramatically to more than one billion from The ICR acknowledges that much of this was due to the global real estate boom, but that the improved land administration services under the Project also contributed to this increase. a. If available, enter the Economic Rate of Return (ERR ERR)/Financial Rate of Return (FRR FRR) at appraisal and the re-estimated estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal Yes 27% 100% ICR estimate No * Refers to percent of total project cost for which ERR/FRR was calculated. 6. Outcome: Outcomes were satisfactory. Relevance was high. Efficacy and efficiency were substantial. The project contributed to a more efficient land registration system reflected in reduced backlog for registration applications, reduced time for registering transactions, increased transparency and availability of information on property rights, reduced transaction cost of land administration services, and finally contributed to increased number of mortgages. a. Outcome Rating : Satisfactory 7. Rationale for Risk to Development Outcome Rating: Risks are considered low. The Ministry of Finance (MOF) has requested Bank financing for a follow -on project, which is under preparation. This proposed project is expected to strengthen the Project s outcomes, complete the implementation and roll out of the JIS nationwide, and further implement a national spatial data infrastructure. a. Risk to Development Outcome Rating : Negligible to Low 8. Assessment of Bank Performance: Bank performance at entry was satisfactory. Overall, the project was designed in a straightforward manner and while objectives were fairly ambitious, they were achievable. The Bank, however, underestimated the complexity and resources needed for implementing the IT system. The Bank also planned on the two relevant land agencies moving towards self -financing (based on international practice), but this approach was not fully owned by the Government. The Project was finalized in close cooperation with the European Commission (EC), given Croatia's aim to bring its real estate systems in conformity with that of European Union (EU) countries. This also generated significant EU co-financing. Bank performance during implementation was satisfactory. The Bank provided good implementation support. Government officials apparently stated that Bank support helped to shift their mindsets from that of administrators to customer-focused service providers. The Bank actively collaborated with the Government and helped to design the EU CARDS grant activities to be complementary to and integrated into the Project. The ICR notes that the Bank could have more proactively supported the borrower in addressing problems

6 and delays with the development of land administration software systems. However, it adds that during the last two years of the Project the Bank increased supervision and support and successfully helped to implement the IT systems. a. Ensuring Quality -at at-entry Entry:Satisfactory b. Quality of Supervision :Satisfactory c. Overall Bank Performance :Satisfactory 9. Assessment of Borrower Performance: Government performance was satisfactory. It adopted policies and regulations in a timely manner to support achievement of objectives. It ensured that the implementing unit was always well staffed. According to the ICR, it took steps to have the loan ratified by the Parliament in a timely fashion and took steps to ensure other regulatory and legal reform needed for the proposed reform. The performance of the Project Implementing Unit was satisfactory. The MOJ was slow in the beginning, although it set up the LRMU. The LRMU was not well organized or adequately staffed during the first two years, causing the Bank team to downgrade the project rating for 'Implementation Progress' to unsatisfactory in Immediately thereafter, MOJ ensured that the unit was well -staffed and after that the ICR notes that Project management by the PIU was exemplary. The PIU managed and completed some 420 contracts. A Joint Fiduciary Review was conducted in 2008 and it found no deviations. The PIU maintained a good monitoring system and undertook studies and assessments that they were expected to carry out. The two key agencies coordinated and worked together well according to the ICR. a. Government Performance :Satisfactory b. Implementing Agency Performance :Satisfactory c. Overall Borrower Performance :Satisfactory 10. M&E Design, Implementation, & Utilization: Overall, the quality of M&E was substantial. M&E at Design : The project included a set of clear indicators as well as identified methodologies as to how the indicators would be assessed. It set aside the funds necessary for such monitoring and evaluation. M&E during Implementation : The PIU collected data from the start of project implementation, but the PIU provided such information to the Bank regularly only from They collected relevant data and conducted user surveys as agreed. Overall, M&E was satisfactory during this period. Utilization of M&E : The data was shared on the webpage, which according to the ICR gave all stakeholders a sense of clear progress. The ICR also notes that sharing of data created a pressure on different stakeholders to achieve progress. By the end of the project, the two agencies had internalized the M&E systems. Customer surveys and social assessments were conducted and fed into the preparation of the ICR. a. M&E Quality Rating : Substantial 11. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): Safeguard Issues : For purposes of OP/BP 4.01 (Environmental Assessment), the project was rated as Category C. Although 19 LROs were renovated (mostly in urban areas), the works was more cosmetic in nature. The ICR notes that no adverse environmental impacts were identified.

7 No fiduciary Issues were identified. All audits provided a clean opinion. No unintended impacts are noted in the ICR 12. Ratings: ICR IEG Review Outcome: Satisfactory Satisfactory Risk to Development Negligible to Low Negligible to Low Outcome: Reason for Disagreement /Comments Bank Performance : Satisfactory Borrower Performance : Satisfactory Quality of ICR : Satisfactory Satisfactory Satisfactory NOTES: - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate. 13. Lessons: Even in countries with some capacity, projects with clear and straightforward objectives have more of a chance of achieving results. Good and timely supervision or implementation support can help projects resolve issues created by entry problems. 14. Assessment Recommended? Yes No 15. Comments on Quality of ICR: The ICR is clear and well-written. It substantiates the ICR ratings and discusses the project achievements well. The ICR could have better explained the implications of the revision of the covenant (requiring SGA and LRO to move towards self-financing), particularly since the PAD had stated that the covenant was consistent with international good practice. It would have been equally helpful for the ICR to explain the failure to expand mechanisms to resolve land disputes. a.quality of ICR Rating : Satisfactory