PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE CADASTRE PROJECT - RU

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Project Name PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE CADASTRE PROJECT - RU Report No.: AB1191 Region EUROPE AND CENTRAL ASIA Sector General public administration sector (34%);Law and justice (33%);Housing finance and real estate markets (33%) Project ID P Borrower(s) REP OF RUSSIAN FEDERATION Implementing Agency Federal Agency for Cadastre of Immovable Property 37 Prospekt Vernadskogo, Moscow Tel. (7095) Environment Category [ ] A [ ] B [X] C [ ] FI [ ] TBD (to be determined) Safeguard Classification [ ] S 1 [ ] S 2 [X] S 3 [ ] S F [ ] TBD (to be determined) Date PID Prepared October 25, 2004 Date of Appraisal November 1, 2004 Authorization Date of Board Approval March 8, Country and Sector Background Markets for land and real estate in the Russian Federation are under-developed and inefficient by the standards of developed market economies. This is caused by contained lack of clarity on land ownership, complicated and costly procedures associated with transactions -- especially for new development -- and reluctance of municipal governments to switch from lease payments for municipally owned land to potential tax payments from privatized land. As part of this general situation, information on immovable property in Russia is maintained in an inefficient manner, with implications for fiscal, planning and administrative purposes. Furthermore, links between the cadastre and other public and private sector users of the information are weak and unreliable. Inefficiency of land and real estate registration processes constrain the development of market relations in various sectors of the economy and limit the ability of the population to derive full benefits form their legislated property rights. The Government has set as a priority dealing with these problems. A set of legislation and regulatory documents are in the process of preparation by the Government or have already been submitted to the Duma for consideration. A great deal of additional work in this area is needed and planned. One element of the Government s strategy is commitment to putting in place a unified State cadastre of immovable property. This has not existed heretofore, as the land cadastre did not include information on buildings, which was kept by other organizations separately. Such a unification of immovable property in a single cadastre is common practice around the world. The failure to establish a unified cadastre has imposed high costs in terms of coordination of information and processing of market transactions in immovable property. Other parts of the Government s plan call for rationalization and simplification of the regulatory environment. At present, clients are required to go to the land cadastre offices for documentation for each transaction involving land, and for those conducting transactions with buildings or

2 apartments, they are also required to go through the Bureaus of Technical Inventory (BTIs) for additional documentation and clearance. This adds unnecessary time and expense to the process. The BTIs continue to conduct technical inventory survey of real estate on a monopoly basis. Lastly, current procedures require new survey for every transaction. Government has recently eliminated these for resurveying of land in cases where there has been no change in the identity of the property. This agreement needs to be expanded to include the technical inventory surveys, and commensurate changes introduced in the appropriate normative and regulatory documents. The need for such surveys should be determined by the parties to the transaction themselves and not the State. Once a property is recorded in the unified State Cadastre of Immovable Property, that information should suffice for the purpose of subsequent transactions unless and until there is a change in the property identification (change in parcel boundaries, new construction or demolition). As is the case in countries around the world, it will be in the interest of the parties involved in registration to ensure that the information contained in the unified State Cadastre is accurate. The Government intends to introduce competition for the conducting of technical inventory (survey) of buildings and structures and to open up markets for survey of land parcels, which in many places in Russia are de facto monopolies. On the question of development of land markets at the municipal level, alternative revenue sources need to be established to replace the current income stream accruing from the lease of municipally owned land. That land is allocated in a non-transparent and inefficient manner. But for privatization to move forward, mechanisms for municipal immovable property tax must be prepared and readied for implementation. The basic legislative and regulatory basis for the Project exists. The Law on Cadastre was adopted in 2000 and in 2004 the Federal Agency for Cadastre of Immovable Property was established as part of the Ministry of Economic Development and Trade with the purpose of unifying the preceding land and buildings cadastres. 2. Objectives The Project development objective is to improve the information flow and rationalize normative and operational procedures for the Unified State Cadastre of Immovable Property so as to facilitate development of real property markets, improve the quality of services provided by the offices of the Cadastre Agency, and strengthen linkages with other organizations. Chief among the latter will be the Offices for the Registration of Rights under the Ministry of Justice, the Tax Authorities, and municipal administrations. The outcome indicators will be: Increased number of market transactions in immovable property in regions participating in the Project. Increased collection of land and other immovable property taxes in regions participating in the Project.

3 Elimination of requirement for survey (technical inventory) for secondary transactions in immovable property. Reduced cost of survey (technical inventory) for immovable property For the first two indicators, statistical information is regularly collected by the Government. Baseline data will be set for each participating region for the year prior to entry into the Project. For the market transactions indicator, growth of [ ] % percent will be expected annually. For the tax revenue indicator, growth of 10% in will be set for the second year of implementation of the Project in each region, with additional 5% annual increases in subsequent years of project implementation. The third indicator will be readily monitorable through the work on the legal and normative documents under the Project. For the fourth indicator, the legal and regulatory reform subcomponent of the Project will allow for markets for survey (technical inventory) of immovable property to be opened up to competition. Technical requirements for surveys will be reviewed with the goal of reducing the costs of these surveys where lower value of the land warrants more pragmatic approaches. This presupposes adoption of the draft legal and normative documents prepared. This indicator is not, therefore, strictly under the control of the Project, but is an important indicator of the intended positive developmental impact. Progress on this indicator will be assessed through the monitoring assessments to be carried out during the life of the Project as well as on survey cost data provided to the Cadastre Agency. Key results indicators will be: Reduction in the average time for recording new property surveys by the Cadastre Agency. Increased number of transactions per staff of the Cadastre Agency. Reduced expenditures per transaction for the Cadastre Agency. Reduction in the number of steps requiring the client to interact with the Cadastre Agency in connection with transactions in immovable property. Reduced average time for providing service to clients visiting the Cadastre offices. Increased number of information requests to the Cadastre offices. Increased client satisfaction with operation of the Cadastre offices. Presently, an average of two months is required to process new property surveys by the Cadastre Agency. The target for the Project will be to lower this to two weeks by the end of the Project. The number of transactions per staff member are expected to increase as a result of taking on responsibility for recording information on buildings and through efficiency improvements in the operation of the Cadastre offices. In addition to improved labor productivity, overall economic efficiency of the offices will improve and be measured as the ratio between expenditures of the cadastre offices and the number of transactions. The two basic types of transactions are recording of properties in the Cadastre and requests for information. These will be weighted to reflect the differing average amount of time for completing each. A goal of the Project will be to reduce the required interactions by clients involved in transactions in immovable property from the current level of four. This is consistent with the

4 goal of reducing the costs of transactions and is an important justification for the large investment in information systems under the Project. For new properties not currently entered in the cadastral data base, the number of visits to the Cadastre Agency office will be reduced to two. For properties already recorded in the cadastral data base, the requirement to visit the Cadastre Agency will be eliminated, as the Registration of Rights offices will be able to access information in the Cadastre Agency data base as necessary to verify information on the property. As is the case in other countries, it will be in the interests of one or more of the parties to a transaction to ensure that the description of the property being submitted for registration of rights is accurate. It is an important goal of the Cadastre Agency to reduce the average amount of time clients spend in the office per visit from the current level of 2 hours to 20 minutes by the end of the Project. These assessments will also be used to measure progress in improving the quality of services provided by the offices of the Cadastre Agency and be verified by the Project social assessments. Implementation of an information system linking the levels and offices of the Cadastre Agency more reliably, as well as improving information linkages with outside organizations will result in an increased number of information requests being generated. This will be tracked as an output indicator, drawn from data collected by the Cadastre Agency. A qualitative assessment of client services will be collected through the Project social assessments. The project will directly address one of the three priority areas included in the CAS approved on June 6, strengthening public sector management -- and assist with another -- improving the business environment and enhancing competition. Under the first point the Project will contribute to enhancing accountability mechanisms and information flows within and across different levels of government, improve the efficiency and quality of public service delivery, and improve fiscal management. Under the second point the Project will contribute to protection of property rights. The CAS is built upon a cross-sectoral approach to improving the environment for economic development in Russia, while addressing important social and environmental issues. The Cadastre Project reflects that cross-sectoral orientation and is directly tied to the Government s strategy to improve the functioning of the public sector, and to foster growth through improved functioning of markets. The Project is being developed in coordination with an approved Government investment program, "The Federal Targeted Program for Creating an Automated System for Operation of the State Land Cadastre and State Inventory of Real Property", which is being implemented by the Federal Agency for Cadastre of Immovable Property Objects (Cadastre Agency). 3. Rationale for Bank Involvement

5 The Bank has an established track record in cadastre in the Russian Federation and the CIS as a whole, having implemented the LARIS Project in Russia and numerous cadastre related projects throughout the region. The Bank is able to provide expertise to assist the Government in elaboration of its plans for improving the functioning of the cadastre and advice during the course of project implementation. The Bank is also well positioned to pull upon the activities of other donors in the area of cadastre. A prime example is the SIDA-financed projects in the Northwest Region, particularly the pilot linking of the registration and cadastre systems in Arkhangelsk. In addition, there have been a number of donor projects that have earlier piloted work in areas relevant to the Project. Among these were the TACIS-financed project to improve inter-agency linkages in the area of immovable property (Rostov and Taganrog) and the CIDA-financed project in Dmitrov (Moscow Oblast) to introduce one-window registration of immovable property and improved inter-agency information sharing. The Cadastre Project will be implemented in parallel with a Registration Project, now being prepared by the Ministry of Justice for implementation at the Federal, regional, and municipal levels. The Bank s involvement in both projects will help ensure that the needed coordination between the two in terms of participating regions, and information linkage solutions are consistent and work together. 4. Description The Project will be composed of four components: (1) Institutional Development of the Real Estate Cadastre; (2) Cadastre System Interrelations; (3) Real Estate Taxation Development; and (4) Project Monitoring and Management. Summary descriptions of these are provided in this section, and detailed descriptions are provided in Annex 4. The Project will run for 6 years and will be implemented in 38 Subjects of the Federation (SOFs) and in approximately 960 municipalities (rayons) within those regions. Implementation will be split into three phases: (1) the pilot phase, covering 3 SOFs and municipalities therein; (2) the first roll-out phase of 10 additional SOFs and associated municipalities; and (3) the second rollout phase of an additional 25 SOFs and associated municipalities. It is expected that 5 years will be required to complete these three phases, keeping in mind the need to incorporate lessons from the pilot phase into the subsequent phases and the time involved in procuring large ICT systems included in the Project. However, the Cadastre Agency and the Government as a whole has expressed a strong desire to accelerate this pace to the maximum extent, hopefully to as little as 3 years. The Bank has agreed to make every effort to adhere to the accelerated timeframe. Agreement on the three pilot SOFs has not been finalized and will be agreed at negotiations. Other participating SOFs will be selected during project implementation. An important criterion for the Cadastre Agency in selection of regions will be economic size and demonstrated generation of land and property taxes. Selection will need to be coordinated, however, with selection of SOFs for participation in the parallel Registration Project, as more effective linkage between the immovable property cadastre and the system of registration of rights is an important developmental goal of both projects. An additional criterion for selection of regions could be the

6 commitment of government administration in an SOF to support the developmental goals of the Project. Some elements of the Project will have impact beyond the 38 participating SOFs. This includes various aspects of the Institutional Development Component (legal and regulatory reform, business systems analysis of the Cadastre Agency, and training), and the Real Estate Taxation Component, where mass appraisal methodologies will be elaborated for implementation by municipal government anywhere in the country. 1. Institutional Development of the Real Estate Cadastre ($18.08 million of which IBRD loan $14.68 million and Government budget $3.40 million 14.8% of the Loan ) The objective of this component is to improve the functioning of the offices of the Cadastre Agency and support the development of immovable property markets through a program of preparing legal and regulatory documents, training of staff, improvements in the Cadastre office facilities at the municipal level, and elaboration of the business plan for the Agency. As the CA takes on responsibility for registering buildings in addition to land, it becomes the primary counterpart with the Registration of Rights Offices for ensuring that transactions can occur with security, speed and at low cost. The component will consider all the legislative framework that effects the development of real estate markets (including land allocation and urban planning) as well as the specific rules and procedures that impact the cadastre and the surveying of land and buildings. This legal analysis will be tendered out to firms. In addition to the broad goal of market development, there is a specific goal of making the cadastre offices more client friendly and efficient with respect to customer services, and to ensure that staff meet adequate performance standards. Specific tasks to be undertaken include: (i) A full legal analysis and development of draft legislation as required to make the real estate market more efficient; (ii) Full regulatory and procedural documentation to improve cadastral services with respect to speed, cost, quality and long-term sustainability; (iii) Improvements to the physical structure of the offices involved in the Project in order to improve customer services; (iv) Provision of better information to the public and professional community; (v) Implementation of a full and comprehensive training program for CA staff. 2. Cadastre System Interrelations ($88.79 million of which IBRD loan $67.60 million and Government budget $21.20 million 68.3% of the Loan ) The objective of this component is to develop an information system that will enable the Cadastre Agency to communicate between the three levels of the cadastre (municipal, regional and Federal) such that at any level, the key stakeholders and the public can acquire information on real estate rapidly and at minimal cost. The system will provide the required data back-up facilities (off-site) and the databases and communications required to allow the System of Registration of Rights, the Tax Service and other users acquire information, submit documents or receive official certificates through the internet from any location.

7 Specific tasks include: (i) Improvements to the existing cadastre software in use in municipal and regional offices; (ii) Data replication at the regional level; (iii) Development of an application module for document circulation; (iv) Development of an application module for archiving (and data backup); (v) Development of an application module for remote training; (vi) The purchase of the necessary ICT hardware and software to implement the system; (vii) Provision of mobile archive storage shelving for paper records. 3. Real Estate Taxation Development ($13.51 million of which IBRD loan $10.67 million and Government budget $2.84 million 10.8% of the Loan ) This component will improve the tax systems for land and immovable property. Although there are already land and property taxes, they are separate taxes and many properties are not included because the existing tax rolls are incomplete. The Russian Federation is still developing appraisal methodology, and the legislative base for imposing a combined land and property tax is not yet finalized, thus pilot work is considered essential to help finalize work on the valuation methodology and show how the tax can be implemented so that it includes all immovable property. The first activity in this component requires the development of mass appraisal software and pilot testing of the software using real data in four complete regions of the country. Once the legislation and procedures are agreed, the imposition of the tax will be the responsibility of local authorities and for this reason the second part of this component will entail development of a market monitoring system that will provide basic market price data and be used by the CA for: (a) responding to complaints or objections from the public following creation of the tax rolls; (b) checking the fairness and quality of the tax assessments on a random basis for quality control purposes; (c) providing (or selling) market price information to interested parties, such as real estate agents, developers, credit organizations, local authorities, etc. One contractor will be recruited for quality control of the pilot work and system development. 4. Project Management and Monitoring ($4.62 million of which IBRD loan $3.87 million and Government budget $0.75 million 3.9% of the Loan ) The Cadastre Agency is responsible for the project and achievement of the project objectives. A Project Working Group will be established by the Director of the Cadastre Agency to provide conceptual leadership to project implementation and to monitor project progress. A Project Implementation Unit (PIU) will be hired to manage the financial accounting and reporting, and procurement activity under the Project. The PIU will be responsible for the other administrative activities associated with implementation. To that end, four coordinators will be hired to oversee the logistics of contract execution. The four coordinators will include responsibility for ICT; training and institutional development; real estate taxation and legislation. A Project Director will be hired to supervise the team. In addition the PIU will include support staff in the form of an office manager, two translators and a driver. The PIU will be hired following a competitive tender for provision of these services.

8 Results of the Project will be assessed on a regular basis by an independent firm recruited for that purpose. A minimum of three rounds of social assessments will be conducted; one prior to initiation of Project implementation in a given region, one midway through implementation in a given region, and one toward the end of implementation (planned for years 1, 3, and 5 of the Project). Given the phased introduction of regions into the Project, the scope and terms of reference for each separate assessment assignment will need to be tailored accordingly. 5. Financing Source: ($m.) BORROWER 28.7 INTERNATIONAL BANK FOR RECONSTRUCTION AND 100 DEVELOPMENT Total Implementation The Project is being implemented in conjunction with the Federal Targeted Program Establishment of the Automated System for the State Land Cadastre and State Real Estate Records Maintenance ( ). It will also be coordinated with the ongoing project work of SIDA and EU-TACIS. The Project will be implemented by the Federal Agency for Cadastre of Immovable Property (Cadastre Agency) through its network of offices at the regional and local levels. The Federal Agency will provide conceptual leadership for the various project sub-components and will designate responsible staff for each part of the Project. A Project Implementation Unit (PIU) will be used for the Project and will be responsible for the following areas: procurement, financial management and accounting, and administrative oversight of project implementation measures. This will include obtaining necessary Government and World Bank clearances for specific project implementation steps, preparation of financial management reports (FMRs) and other project reports, maintenance of the project procurement plan, and preparation of annual project budgets for clearance by the Government and the Bank. At the regional level, responsibility for project implementation will be placed with the Head of the Territorial Office (TO) of the Cadastre Agency. The Head will be authorized to assign specific project implementation functions to his staff as appropriate and will be responsible for coordination with regional government. 7. Sustainability As the Project will be financing a large communications and information system, the maintenance costs for keeping the system operational will be significant. In the view of the Bank, maintenance costs will be manageable within expected budgetary allocations of the Agency for the life of the Project. However, for sustainability beyond this point, Government will need to look at a qualitative increase in budgetary allocations in support of the Unified State

9 Cadastre of Immovable Property by the end of the Project. Anticipated increases in fiscal revenues resulting from implementation of the Project will greatly exceed the anticipated increase in budgetary support to the Cadastre. The economic and financial benefits to be derived from the planned upgrade in cadastre capabilities will justify their continued maintenance (and further improvement) over time. 8. Lessons Learned from Past Operations in the Country/Sector The experience with implementation of Bank projects in Russia underscores the importance of close cooperation between project implementation units and the designated implementing agencies of Government. Under the LARIS Project there was inadequate coordination of this type. For the Cadastre Project, the PIU will be linked to the Cadastre Agency through the Project Working Group. The LARIS Project also devoted inadequate attention to the question of financial sustainability of project interventions. The former Roszemkadastr and predecessor organizations never developed reliable business planning that could identify system maintenance costs and potential efficiency gains in office operation in a systematic way. The Cadastre Project will include a subcomponent that will allow the Cadastre Agency to undertake such business plan development to provide an elaborated framework for assessing its longer-term operating prospects. The LARIS Project concentrated on capacity building for the land cadastre, but there were no coherent mechanisms built into the Project for more efficient information flows with outside organizations. The Cadastre Project will bring in this new dimension, that will have significant economic and financial benefits in terms of more effective linkages with the system of registration of rights in immovable property, the tax authorities, municipal government and others. The Project design will need to remain sufficiently flexible to take advantage of further advances in ICT that occur during implementation. The Cadastre Project will incorporate a stronger program of monitoring than existed for LARIS. More attention will be given to making the cadastre system more responsive to the needs of clients and in improving the overall level of service. 9. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP/GP 4.01) [ ] [X ] Natural Habitats (OP/BP 4.04) [ ] [X ] Pest Management (OP 4.09) [ ] [X ] Cultural Property (OPN 11.03, being revised as OP 4.11) [ ] [X ] Involuntary Resettlement (OP/BP 4.12) [ ] [X ] Indigenous Peoples (OD 4.20, being revised as OP 4.10) [ ] [X ] Forests (OP/BP 4.36) [ ] [X ]

10 Safety of Dams (OP/BP 4.37) [ ] [X ] Projects in Disputed Areas (OP/BP/GP 7.60) * [ ] [X ] Projects on International Waterways (OP/BP/GP 7.50) [ ] [X ] 10. List of Factual Technical Documents CADASTRE PROJECT -- RU Review of Existing Information Technology used by Offices, Suitability Analysis and Elaboration of a Strategy and Plans for Future ICT Developments, Project preparation study No. 1. Investigation of Legal Framework and Existing Procedures of Rights Registration and Real Property Recording, Project preparation study No. 2 A Study of the Current Registration System for Rights and Recordation of Immovable Property Objects, Project preparation study No. 4 Rezul taty i osnovnye napravleniya deyatel nosti Federal nogo agenstva kadastra ob yektov nedvizhimosti (Results and basic directions of work of the Federal Agency of Immovable Property Cadastre), 2004 Federal Targeted Program Establishment of the Automated System for the State Land Cadastre and State Real Estate Records Maintenance ( ), approved by Government Resolution No. 745, October 25, (in Russian) 11. Contact point Contact: Edward C. Cook Title: Sr Agric. Economist Tel: (202) Fax: (202) Ecook@worldbank.org 12. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C Telephone: (202) Fax: (202) * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties claims on the disputed areas

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