FOR OFFICIAL USE ONLY

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 20.5 MILLION (US$32.8 MILLION EQUIVALENT) TO THE REPUBLIC OF HONDURAS FOR THE SECOND LAND ADMINISTRATION PROJECT IN SUPPORT OF THE SECOND PHASE OF THE LAND ADMINISTRATION PROGRAM Sustainable Development Central America Country Management Unit Latin America and Caribbean Region June 9, 2011 Report No: HN This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank s policy on Access to Information.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective June 9, 2011) Currency Unit = Honduran Lempira HNL = US$1 US$1.61 = SDR 1 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS AECI AMHON APL BP CGPP CONAPON COHEP CONPAH DCA DGCG DGOT DGR DGRP EA GEF FONAC IBRD ICF IDA IHAH IHDN IHT ILO INA INFOP IP Agencia Española de Cooperación Internacional (Spanish International Cooperation Agency) Asociación de Municipios de Honduras (Honduran Association of Municipalities) Adaptable Program Loan Bank Procedures Confederación General de Patronatos de Pobladores (General Confederation of Local Community Councils) Comisión Nacional de Política y Normativa de la Propiedad (National Commission forr Land Policies and Standards) Consejo Hondureño de la Empresa Privada (Private Enterprise Honduran Council) Confederación de Pueblos Autóctonos de Honduras ( Honduran Confederation of Autoctonous Peoples) Development Credit Agreement Dirección General de Catastro y Geografía (General Directorate of Cadastre and Geography under IP) Dirección General de Ordenamiento Territorial (General Directorate of Territorial Planning, under SEPLAN) Dirección General de Registros (General Directorate of the Registry under IP) Dirección General de Regularización Predial (General Directorate of Parcel Regularization under IP) Environmental Assessment Global Environment Facility Foro Nacional de Convergencia (National Forum for Inclusive Dialogue) International Bank for Reconstruction and Development Instituto de Conservación y Desarrollo Forestal, ÁreasProtegidas y Vida Silvestre (Institute for Forest Conservation and Development, Protected Areas and Wildlife) International Development Association Instituto Hondureño de Antropología e Historia (Honduran Institute of Anthropology and History) Instituto Hondureño de Derecho Notarial (Honduran Institute of Notary Law) Instituto Hondureño de Turismo (Honduran Tourism Institute) International Labor Organization Instituto Nacional Agrario (National Agrarian Institute) Instituto Nacional de Formación Profesional (Institute for Professional Training) Instituto de la Propiedad (Property Institute)

3 IPDP IPN IPP IPR MASTA NDF NGO OD OMS OP PA PAD PATH PCU PDO PPF RENOT RNP SAG SDR SEDINAFRO SEFIN SEIP SEPA SEGPLAN SERNA SIAFI SINAP SINAPH SINIT SURE UEPEX Indigenous Peoples Development Plan Inspection Panel Indigenous Peoples Participation Plan Independent Procurement Review Mosquitia Asla Takanka (Unity of the Mosquitia) Nordic Development Fund Nongovernmental Organization Operational Directive Operational Manual Statement Operational Policy Protected Area Project Appraisal Document Programa de Administración de Tierras de Honduras (Honduras Land Administration Program) Project Coordination Unit Project Development Objective Project Preparation Facility Registro de Normativas de Ordenamiento Territorial (Territorial Planning Norms Registry Module under SINAP) Registro Nacional de Personas (National Registry of Personal Identification) Secretaría de Agricultura y Ganadería (Ministry of Agriculture and Livestock) Special Drawing Rights Secretaría de Pueblos Indigenas y Afrohondureños (Ministry of Indigenous and Afro-Honduran Peoples) Secretaría de Finanzas (Ministry of Finance) Secretaría del Interior y Población (Ministry of Interior and Population) Sistema de Ejecución de Planes de Adquisiciones (System for the Implementation of Procurement Plans) Secretaría Técnica de Planificación y Cooperación Externa (Ministry of Planning and International Cooperation) Secretaría de Recursos Naturales y Ambiente (Ministry of Environment and Natural Resources) Sistema de Administración Financiera Integrado (Integrated Financial Administration System) Sistema Nacional de Administración de la Propiedad (National Property Administration System) Sistema Nacional de Areas Protegidas de Honduras (National System of ProtectedAreas of Honduras) Sistema Nacional de Información Territorial (National Territorial Information System Module under SINAP) Sistema Unificado de Registros (Integrated Registry Module under SINAP) Unidades Ejecutoras de Proyectos Externos (Executing Units of Externally-Funded Projects, module under SIAFI) Regional Vice President: Country Director: Sector Director: Sector Manager: Task Team Leader: Pamela Cox C. Felipe Jaramillo Laura Tuck Ethel Sennhauser Enrique Pantoja

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5 Table of Contents I. Strategic Context... 1 A. Country Context... 1 B. Sectoral and Institutional Context... 1 C. Higher Level Objectives to which the Project Contributes... 3 II. Project Development Objectives... 3 A. PDO Project Beneficiaries PDO Level Results Indicators... 4 III. Project Description... 4 A. Project components... 5 B. Project Financing Lending Instrument Project Cost and Financing... 8 C. Lessons Learned and Reflected in the Project Design... 8 IV. Implementation... 9 A. Institutional and Implementation Arrangements... 9 B. Results Monitoring and Evaluation C. Sustainability V. Key Risks and Mitigation Measures VI. Appraisal Summary A. Economic and Financial Analysis B. Technical C. Financial Management D. Procurement E. Social F. Environment Annex 1: Results Framework and Monitoring Annex 2: Detailed Project Description Annex 3: Implementation Arrangements Annex 4: Operational Risk Assessment Framework (ORAF) Annex 5: Implementation Support Plan Annex 6: Team Composition Annex 7: Governance and Accountability Action Plan... 66

6 Annex 8: Economic and Financial Analysis Annex 9: MAP IBRD

7 Date: June 9, 2011 Country Director: C. Felipe Jaramillo Sector Director: Laura Tuck Sector Manager: Ethel Sennhauser Team Leader(s): Enrique Pantoja Project ID: P Lending Instrument: Adaptable Lending Program PAD DATA SHEET Honduras Second Land Administration Project PROJECT APPRAISAL DOCUMENT Latin America and the Caribbean Region LCSAR Sector(s): General agriculture, fishing and forestry sector (55%); Sub-national government administration (25%); Central government administration (20%) Themes: Land administration and management (25%); Personal and property rights (25%); Decentralization (24%); Other rural development (13%); Other urban development (13%) EA Category: B Project Financing Data: Proposed terms: Hardened IDA terms 20 years of maturity with a 10-year grace period and principal repayment of 10 percent per annum for years [ ] Loan [X] Credit [ ] Grant [ ] Guarantee [ ] Other: Source Total Project Cost: Cofinancing: Borrower: Total Bank Financing: IDA New Recommitted Borrower: REPUBLIC OF HONDURAS Total Amount (US$M) US$32.8 million US$ 0 million US$ 0 million US$32.8 million US$32.8 million Responsible Agency: Property Institute Contact Person: Lic. Lidia Alvarez Sagastume, Executive Secretary Telephone No.: (504) Fax No.: (504) lidiaalvarezsagastume@yahoo.com Estimated Disbursements (Bank FY/US$ m) FY Annual Cumulative

8 Project Implementation Period: January 2012 June 2016 Expected effectiveness date: January 2012 Expected closing date: January 30, 2017 Does the project depart from the CAS in content or other significant respects? If yes, please explain: Does the project require any exceptions from Bank policies? Have these been approved/endorsed (as appropriate by Bank management? Is approval for any policy exception sought from the Board? If yes, please explain: Does the project meet the Regional criteria for readiness for implementation? Yes X No Yes X No Yes No Yes X No X Yes No If no, please explain: Project Development objective Project development objective (PDO) is to provide the population in the Project Area with improved, decentralized land administration services, including better access to and more accurate information on property records and transactions. Project description [one-sentence summary of each component] Component 1: Policy and Institutional Strengthening aimed to policy and strategy development and to support to key land agencies. Component 2: Cadastral Surveying and Land Regularization to help improve security of tenure in the Project area. Component 3: Demarcation of Protected Areas, specifically focusing on the boundaries of buffer zones. Component 4: Strengthening of Miskito People's Land Rights, including participatory demarcation and collective titling in participating communities and technical assistance for territorial planning and natural resource management Component 5: Project Management and Monitoring and Evaluation (M&E). Safeguard policies triggered? Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Forests (OP/BP 4.36) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Indigenous Peoples (OP/BP 4.10) Involuntary Resettlement (OP/BP 4.12) Safety of Dams (OP/BP 4.37) Projects on International Waterways (OP/BP 7.50) Projects in Disputed Areas (OP/BP 7.60) X Yes No X Yes No X Yes No Yes No X Yes No X Yes No X Yes No Yes No Yes No Yes No

9 Financing Agreement Reference Section 5.01 a) - Section 5.01 b) Schedule 2, Section I.A.1(a) Schedule 2, Section I.A.1(b) Conditions and Legal Covenants: Description of Condition/Covenant Additional Condition of Effectiveness: The Subsidiary Agreement has been executed on behalf of the Borrower and the IP Additional Condition of Effectiveness: The Coexecuting Agreements have been executed by the respective parties. The Steering Committee chaired by the Executive Secretary of the IP, and a Technical Committee for Components 2, 3, and 4. A Technical Committee, which shall include representatives of the respective Co-executing Agencies and shall meet on a quarterly basis to discuss issues related to the implementation of the Project. Date Due By effectiveness By effectiveness Throughout project implementation. Throughout project implementation. Schedule 2, Section I.A.2(b) Schedule 2, Section I.C. 2 (a) Schedule 2, Section I.E.1 PCU personnel shall only be hired based on professional criteria and shall only be replaced for reasons related to performance. To enter into an agreement with each Selected Municipality (Participation Agreement). The Recipient shall, and shall cause the IP to, implement the EMP, the Process Framework and the IPP in accordance with their respective terms. Throughout project implementation. Prior to carrying out any activity in each Municipality

10 Schedule 2, Section I.E.2.a Ensure that no private land titles are issued in areas within or adjacent to: (i) Protected Areas unless the boundaries of said Protected Areas have been delimited in a manner satisfactory to the Association; and/or (ii) other critical natural habitats unless: (A) the Recipient has made an official decision, satisfactory to the Association, about their status (in which case such titling may only occur in a manner consistent with such status); and (B) the boundaries of such areas have been delimited in a manner satisfactory to the Association. Throughout project implementation Schedule 2, Section I.E.2.b (i) Ensure that no titling of lands within or in the vicinity of lands identified with physical cultural resources will take place unless the Recipient has made an official decision, satisfactory to the Association, about their status (in which case titling may only occur in a manner consistent with such status); and Schedule 2, Section I.E.2.b (ii) Ensure that IHAH is immediately notified in case any physical cultural resources are discovered during cadastral surveying or other Project activities. Throughout project implementation

11 Schedule 2, Section I.E.2.c Schedule 2, Section I.E.2.d Schedule 2, Section I.E.2.e Ensure that, other than the activities covered by the Process Framework, no physical or economic involuntary resettlement shall take place as a consequence of Project implementation; Ensure that no physical demarcation, delimitation or titling of lands within or adjacent to Indigenous Peoples Lands take place unless procedures that adequately reflect the rights of indigenous and Afro- Honduran peoples, including the corresponding consultation process with affected parties in a manner satisfactory to the Association and set forth in the Operational Manual, have been followed; and Ensure that measures to discourage and avoid deforestation as a consequence of Project implementation are taken in accordance with the Association s Operational Policy Throughout project implementation Throughout project implementation Throughout project implementation

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13 I. Strategic Context A. Country Context 1. Honduras is a lower middle income country with a per capita gross national income of US$1,800 (2009 Atlas GNI per capita). The country has about 7.5 million people; nearly half of the population lives in rural areas. About 44.5 percent of the population currently lives below the poverty line, while 20.1 percent lives in extreme poverty. Following the global economic crisis, the Honduran economy staged a moderate recovery during Official figures show that GDP grew 2.6 percent in 2010, up from 1.9 percent in Growth recovery in 2010 was accompanied by deterioration in the external balance and increased inflation. The external current account deficit increased from 3.7 percent of GDP in 2009 to 6.2 percent of GDP. This reflects a jump in the merchandise trade deficit as the price of oil imports increased. Similarly, inflation reached 6.5 percent in 2010, up from 3 percent in In the absence of major external shocks, the economy is expected to continue recovering, and GDP growth is expected to rebound to around percent through Land tenure security is central to economic growth and poverty reduction in Honduras. In general, weak property rights have discouraged investments and restricted access to credit; coupled with a highly skewed land distribution, land tenure insecurity has also contributed to social instability (often through illegal land occupation and violent disputes) and unsustainable land uses. In this context, strengthening property rights has the potential to stimulate economic growth and reduce poverty rates, especially in urban and rural areas critical for Honduras development. In the eastern-most department of Gracias a Dios a region known as La Mosquitia the recognition of the ancestral land rights of indigenous peoples can contribute to sustainable development by strengthening their capacity for territorial and natural resource management. B. Sectoral and Institutional Context 3. Honduras has achieved substantial improvements in the legal, institutional and operational framework for the protection and management of property rights. The promulgation of the 2004 Property Law represented a landmark development laying out a comprehensive legal framework for strengthening land administration in the country. The Property Law created the Property Institute (IP) to oversee the national cadastre and real estate registry, and regularize land tenure, in an integrated manner. The Property Law also converted the registration system from person-based (folio personal) to parcel-based (folio real), which allowed to bring together cadastral information (exact geo-spatial description) and legally recognized rights. These legal and institutional reforms are improving the everyday lives of Honduran citizens through the implementation of the National System for Property Administration (SINAP) a technological platform that includes modules for an Integrated Real Estate Registry (SURE), a Territorial Planning Norms Registry (RENOT), and a National Territorial Information System (SINIT). 4. The Honduras Land Administration Program (PATH) has been instrumental in the formulation and implementation of these legal and institutional reforms, and in the development of SINAP. As detailed in the Implementation Completion and Results Report (ICR, Report

14 #1445) of the First Phase, the Program has also contributed to the recognition and enforcement of the land rights of almost 75,000, mainly poor families living in informal peri-urban areas of Tegucigalpa and San Pedro Sula the two largest cities in the country. In addition to the modernization of six key regional property registries, over 365,000 parcels have been surveyed and 40,000 new property titles have been generated throughout the Program s life. These efforts have resulted in more efficient, effective and transparent land administration services in project areas, through improved cadastral mapping, land titling, registration of land transactions, and record management. 5. Despite the substantial progress made under Phase I, Honduras still faces important challenges to consolidate land governance in the country: the legal and policy framework needs to be made more consistent; key agencies need further institutional strengthening and better coordination, as well as more insulation from political interference; municipalities need to be strengthened to advance decentralization of the system and ensure maintenance of cadastral information; a more strategic and culturally-responsive approach to indigenous peoples land rights needs to be advanced; 1 capacity for alternative conflict resolution mechanisms needs to be increased; and a culture of registry needs to be further promoted. 6. Given the long term effort required to reform land administration, PATH was originally designed as an Adaptable Program Loan (APL) with three phases to be implemented over a 12- year period. The First Phase was implemented between 2004 and 2010 with a cost of US$34.7 million. IDA and the Nordic Development Fund (NDF) supported the First Phase with credits of US$24.79 million (Credit #3858-HO) and US$7.9 million, respectively. Progress on the triggers to move to the Second Phase is satisfactory (see Annex 2 for details). 7. The approval of the Second Phase (The Project) was delayed by the political crisis of 2009 and subsequent IDA resource constraints. Specifically, during the preparation of the Second Phase the Government requested to extend Program implementation to 18 years through four phases, considering: (i) implementation delays during the First Phase; (ii) a more realistic assessment of the client s implementation capacity, land regularization costs, and institutional strengthening needs; and (iii) IDA resource constraints coupled with the need to respond to the country s fiscal emergency. At the same time, the new Government rapidly ensured effectiveness of a Project Preparation Facility (PPF) of US$3.0 million and requested the Bank to consider retroactive financing under the new Credit. 8. Among development partners, the Bank is uniquely positioned to support the Government in the implementation of PATH. The Bank has accumulated significant regional and global experience in supporting land administration reform. The Bank and Honduras have forged a strong partnership that involves policy dialogue, technical assistance and financial support to the land sector. The Bank initiated this support with a successful pilot effort under the Rural Land Management Project (PAAR, Credit #2940) approved in In addition, the Bank financed a land access pilot (PACTA, Credit #3435) that the Government has continued with its own funds 1 Recognizing the land rights of indigenous peoples is a major challenge across the region. Important lessons were learned during Phase I, which experienced an Inspection Panel Investigation in relation to this important goal. The INP investigation was carried out in 2006, and both the Final INP Panel Investigation Report and Management Report were discussed by the Board in October The agreed Management Action Plan was fully implemented. All the reports related to the investigation can be found by Request No. 38 at 2

15 after the Project closed in In Central America, the Bank is financing land administration projects in Guatemala (second phase) and Nicaragua (first phase), and financed first phases in El Salvador and Panama. All these experiences have shown that land administration reform requires a long, continuous engagement and informed risk-taking. C. Higher Level Objectives to which the Project Contributes 9. The proposed Project is consistent with the World Bank Group s Interim Strategy Note IDA/R (Report # 56450) discussed by the Executive Directors on November 9, 2010 and ongoing dialogue for the new Country Partnership Strategy (CPS). The Second Phase would complement the country program, including projects such as the Rural Competitiveness Project (Credit # 4465) in facilitating land tenure information to improve access to land, and the Improving Public Sector Performance Project (P110050) in promoting institutional strengthening of key land administration agencies. 10. PATH is consistent with the country s long-term development strategy set forth in Honduras Country Vision and National Plan , approved by Congress on November 25, Goals in the strategy include support to consolidate private property, land tenure regularization, and strengthening of municipal capacity for fiscal and territorial planning. The National Plan also establishes regional development councils to oversee the implementation of the strategy. In addition, the Government Plan sets specific targets for strengthening the capacity of municipal governments to develop, approve and register land use and zoning plans. The proposed Project would contribute directly to the goals of land tenure regularization and municipal strengthening. II. Project Development Objectives A. PDO 11. The proposed Program Objective for the overall Adaptable Program Loan is to strengthen property rights in Honduras through modernization of the legal framework, institutional strengthening, and development of a fully integrated and decentralized National System for Property Administration (SINAP). 2 As noted above, the Program will have four phases, of which this Project is the second phase. The triggers to move from Phase II to Phase III are: (i) Organizational Development Plan for IP implemented successfully; (ii) at least 8 associated centers are established by IP (including municipalities and other entities); and (iii) incorporation into SURE of at least 80 percent of parcels surveyed under the Program. It is expected that basic project design (including objectives and components) will be maintained through each phase to facilitate program management, implementation and monitoring and evaluation. (See Annex 2 for further details on the Program). 12. Specifically for the proposed Second Phase (The Project), the Project Development Objective (PDO) is to provide the population in the Project area with improved, decentralized 2 The original Program s Objective, described in the PAD for Phase I, was to establish a national property rights system (National System for Property Administration, SINAP) that will be fully integrated and decentralized. 3

16 land administration services, including better access to and more accurate information on property records and transactions. 13. The Project Area includes selected municipalities in the departments of Choluteca, Colón, Copán, Cortés, Comayagua, El Paraíso, Francisco Morazán, Gracias a Dios, Olancho, and Yoro. Municipalities in these departments have been selected to participate in the Project based on a spatial analysis that considered, inter alia, the correlations between high population density, economic dynamism, and high tenure insecurity. These selection criteria are described in the Operational Manual. Additional departments and municipalities may be added to the project based on these criteria and the Bank s no objection. 1. Project Beneficiaries 14. The Project s direct beneficiaries include: Within the Project Area, urban and rural families of over 390,000 parcels which would be surveyed, validated, and incorporated into SURE, including 50,000 parcels with new titles and 40,000 parcels registered under folio real; Women, who are expected to benefit from the recognition of their property rights, particularly through the provision of new titles; The members of at least 25 indigenous communities in La Mosquitia ( Participating Miskito Communities ) expected to benefit from the delimitation, demarcation, collective titling, and registration of their ancestral lands; Selected municipalities in the Project Area expected to benefit directly from capacity building and access to improved land administration information; At the national level, land administration agencies are expected to benefit from an improved governance structure and capacity development to operate SINAP. 15. Indirectly, the overall population of the Project Area would benefit from a better enforcement of property rights and improved land administration services. 2. PDO Level Results Indicators 16. The PDO outcome indicators are: At least 70% of the modernized registries clients (and 70% of women) rate its services as satisfactory (third level on a four-level scale); The average time to register a land transaction through the modernized registries under the Project is 18 days (from a baseline of 23 days); 100% of the modernized registries operating costs are covered by registration fees; SURE maintains a 96% accuracy rate in the registry of land titles in folio real; At least 50,000 families in rural and urban areas obtain new land titles through the Project, and at least 30% of these new titles are issued to women. III. Project Description 4

17 A. Project components 17. The Project constitutes the second phase of the Program, and consists of the following five components: Component 1: Policy and Institutional Strengthening (US$ 9.0 million) 18. Sub-Component 1.1: Supporting the consolidation of land policy and strategy to enhance governance in land administration, including: (i) (ii) consolidation of land policy and strategy, through: (A) workshops and technical assistance on issues within the general framework of land policy and territorial planning; and (B) the preparation of a policy and master plan for the development of the country s national cadastral system; strengthening of the transparency of Program implementation by conducting at least two social audits of relevant Project activities; (iii) development of the normative and procedural framework for municipalities to become associated centers of the IP for cadastre, registry and property regularization purposes. (iv) development of standard documents for notary protocols related to property registry procedures, and through a consultation process, the fostering of an agreement on a proposal to increase access to notary services with the objective of promoting a culture of registry. 19. Sub-Component 1.2: Strengthening the institutional capacity for land administration in the country s territory, including: (i) (ii) strengthening of the IP, through: (A) improvement of its administrative and operational capacity by providing equipment, software and technical assistance to facilitate the implementation of the IP s organizational development plan and to integrate the Program s activities into the IP; (B) continuation of the modernization of regional property registries to support regularization processes, including: (1) implementation of SURE in at least five new registries with high transaction volumes; and (2) carrying out of small rehabilitation works in the IP and selected registries (excluding new constructions and additions to existing structures); (C) strengthening of three operational units of the IP: the General Directorate of the Registry (DGR), the General Directorate of Cadastre and Geography (DGCG), and the General Directorate for Parcel Regularization (DGRP); (D) carrying out of capacity building for alternative conflict resolution mechanisms for cadastral surveying and establishing inter-municipal limits; and (E) strengthening of the Information-Technology Unit in the IP to operate SURE and its interaction with the other SINAP subsystems. carrying out of capacity building for selected municipalities to allow them to function effectively as associated centers of the IP and to implement urban titling activities, territorial planning, including zoning and updating of municipal limits; (iii) carrying out of capacity building for the National Agrarian Institute (INA), focused on rural titling and collective titling of Indigenous Peoples Lands, including supporting the Inter-Sectoral Commission for Protecting Land Rights of Garífuna and Miskito 5

18 Communities (established by the Presidential Accord No ) and building capacity in INA for alternative conflict resolution; (iv) carrying out of capacity building for the National Institute for Forestry Conservation and Development, Protected Areas and Wildlife (ICF), including technical assistance and technology transfer to ensure that it plays an active role in SINAP implementation; (v) carrying out of capacity building for the Ministry of Planning (SEPLAN), the Honduran Association of Municipalities (AMHON) and municipalities to promote gradual incorporation of territorial planning norms into RENOT, including the establishment of at least one departmental council of territorial planning in the Project Area; (vi) consolidation of SINAP, building on the progress made during the first phase of the Program, by supporting the IP, Co-executing Agencies and selected Municipalities in the Project Area to gradually strengthen their capacity to operate SINAP and to develop mechanisms to ensure its sustainability; (vii) improvement of the wireless network (Red Metropolitana Inalámbrica) established during the first phase of the Program to facilitate data transmission and inter-agency communications and to ensure connectivity of SINAP. Component 2: Cadastral Surveying and Land Regularization (US$ 18.0 million) 20. Sub-Component 2.1: Carrying out geo-referenced cadastral surveying in the Project Area, identifying the legal status of each property and incorporating the properties in SURE, including: (i) (ii) preparatory activities such as declaration of zone under cadastral process ( Zona a Catastrar ) by the DGCG, taking of aerial photography and preparation of digital ortho-photos, and purchasing of satellite imagery within the Project Area; surveying, validation and incorporation in SURE of at least 390,000 urban and rural parcels in the Project Area; (iii) geo-referenced surveying of the administrative limits of at least ten selected municipalities. 21. Sub-Component 2.2: Carrying out the legalization, titling and registration under Folio Real of at least 90,000 parcels in the Project Area, including: (i) (ii) the provision of new titles for approximately 50,000 families through the various options provided under the Property Law and in close collaboration with INA, the Municipalities and/or the ICF, as the case may be; the legalization of 40,000 parcels with an existing property registry to transfer them into the folio real through a coordinated effort between the three main directorates of the IP (DGR, DGCG, DGRP) to carry out an investigation comparing geographical with legal data. Component 3: Demarcation of Protected Areas (US$0.50 million) (i) Carrying out the delimitation and demarcation of the buffer zone of at least four protected areas in the Project Area, including the incorporation of the cadastral 6

19 information and its link to the ordinances and norms that establish land use into SURE and RENOT, respectively; (ii) carrying out specific activities under the Project s communication strategy for community outreach to raise awareness among residents in and around the area of the buffer zone demarcated under the Project on the land use designation; (iii) supporting implementation of the Environmental Management Plan (EMP) and the Process Framework. Component 4: Strengthening of Miskito People s Land Rights (US$ 1.8 million) (i) (ii) Carrying out participatory delimitation, demarcation, collective titling, and registration of Indigenous Peoples Lands in the department of Gracias a Dios, based on culturally accepted practices and with a focus on at least 25 participating Miskito Communities; providing capacity building and organizational support to participating Miskito communities to establish alternative conflict resolution mechanisms during the process of delimitation, demarcation, titling and registration, with the support of the Project s communication strategy; and (iii) providing technical assistance and capacity building for participating Miskito communities, including: (A) territorial planning and natural resource management; and (B) education to increase legal awareness and help improve organizational capacity in relation to land tenure. Component 5: Project Management and Monitoring and Evaluation (US$ 3.5 million) 22. Supporting Project management, including: (i) training and workshops; (ii) technical assistance; (iii) the carrying out of the fiduciary aspects of the Project, including financial management, audits and procurement; (iv) the establishment of the Steering Committee; and (v) the oversight of the implementation of a communication and a gender strategy for the Project. 23. Supporting Project monitoring and evaluation, including: (i) the integrated financial administration system (SIAFI), which will record the Project s physical and financial progress; (ii) the semi-annual progress reports measuring periodically Project Indicators based on agreed methodologies; (iii) baseline surveys for the third phase of the Program; (iv) a mid-term review report; and (v) a final Project impact evaluation and implementation completion report. B. Project Financing 1. Lending Instrument 24. The Project is the Second Phase of Land Administration Adaptable Program being financed through an APL. At the request of the Government, 100 percent of Project costs, estimated at US$ 32.8 million, will be financed by Credit proceeds to simplify project implementation. The Government also requested the Bank to consider up to 20 percent of retroactive financing under the Credit. 7

20 25. The Government requested a PPF of US$3.0 million, approved by the Bank in December 2008, to ensure continuity of the program and to carry out several key pilots for (i) contracting out modernization of registries, specifically scanning and digitalization of registry records; (ii) contracting out cadastral services in a small municipality; and (iii) testing a methodology for territorial planning and integrating municipal territorial plans in SINAP. The PPF included retroactive financing. 2. Project Cost and Financing Project Cost COMPONENT/SUBCOMPONENT Including IDA % Contingencies Financing Financing 1. Policy and Institutional Strengthening 1. 1Policy Institutional Strengthening Subtotal Policy and Institutional Strengthening Cadastral Surveying and Land Regularization 1. Cadastral Surveying Land Regularization Subtotal Cadastral Surveying and Land Regularization Demarcation of Protected Areas Strengthening of Miskito s Peoples Land Rights Project Management, Monitoring and Evaluation TOTAL C. Lessons Learned and Reflected in the Project Design 26. Project design reflects lessons learned from the First Phase and from other programs in the country, region and the world, financed by the World Bank and other development partners. The most relevant lessons are: (i) (ii) Improving a land administration system involves gradual changes in the legal and institutional framework, demanding a constant monitoring of these changes to understand the implications for advancing the reform program and project implementation. This is critical since the outcome of processes to strengthen and/or consolidate the legal framework is beyond the Project s control. Focusing land regularization activities in priority areas, rather than undertaking a systematic land regularization process, can increase the impact and sustainability of land administration projects. A spatially differentiated approach prioritizing areas of high demographic and economic dynamism and high tenure insecurity could result in increased impact on these areas and a longer sustainability of project outcomes. (iii) Strong focus on municipalities is critical to the sustainability of investments on cadastre and registry modernization. At the general level, it is important to integrate land administration within the long-term vision of the municipalities and to make them active partners in the implementation of the cadastral system. This requires the development of a clear strategy for decentralization, outlining plans for the 8

21 establishment and strengthening of the national cadastre and an agreed definition of institutional roles at the central and municipal levels. (iv) Ensuring broad indigenous communities support for a Project requires attention to representativeness and legitimacy of consultation mechanisms. Whenever possible, the consultation framework should rely on existing structures / organizations. Social assessments should provide sound analysis of the organizational structure and dynamics of indigenous peoples organizations and federations to assess the feasibility and legitimacy of proposed consultation frameworks. (v) Even though PCUs can make institutionalization more difficult, they represent a practical solution to achieve efficiency and efficacy in implementation of complex projects. Accountability systems within PCUs should be reinforced to ensure compliance with Bank and government policies and procedures. Moreover, to mitigate the risk of creating a parallel structure under the PCU, coordination with co-executing agencies should be ensured through effective mechanisms. IV. Implementation A. Institutional and Implementation Arrangements 27. The Property Institute (IP) will continue to be the Project s Implementing Entity and the Project Coordination Unit (PCU) established for the implementation of the First Phase will continue to be responsible for overall project coordination, administration of the credit funds and monitoring and evaluation (M&E). The Co-Executing Agencies include AMHON, ICF, INA, and SEPLAN. Multi-institutional Co-Execution Agreements by component will specify the roles and responsibilities of these agencies under the Project. IP will also sign bilateral participating agreements with the municipalities benefiting from Project activities. In addition, IP will seek advice from other agencies to facilitate Project implementation and will sign memoranda of understanding (MoUs) with them if necessary. These Advisory Agencies include, inter alia, the Honduran Institute for Anthropology and History (IHAH), the Honduran Tourism Institute (IHT) the Institute for Professional Training (INFOP), the Ministry of Natural Resources and Environment (SERNA), the National Personal Identification Registry (RNP), the Ministry of Interior and Population (SEIP), and the Ministry of Indigenous and Afro-Honduran Peoples (SEDINAFRO). 28. The Project will have a Steering Committee, chaired by the Executive Secretary of IP and comprised of senior-level representatives of each of the co-executing agencies and SEFIN to promote overall inter-institutional collaboration, monitor compliance with the participation and municipality agreements, provide policy and operational guidance, and discuss manuals and other outputs of the Project. In addition, a Project Technical Committee will be established to deal with operational and implementation issues to which advisory agencies may be invited when relevant. 29. The PCU, under the leadership of a national coordinator, will directly manage the project s technical, legal, administrative, financial, procurement, and monitoring activities. The core staff of the PCU will include a procurement officer, a financial officer, an M&E officer, a communication officer, a social specialist, and an environmental specialist. The national 9

22 coordinator will have the overall responsibility of supervising the staff of the PCU in their planning, organizing, and executing of all day-to-day administrative, technical, and legal activities of the project. In addition to the Administration-FM and procurement units, the PCU will include among others the following implementing units: info-technology, cadastral and regularization, modernization of registries, and institutional strengthening. A Committee to oversee SINAP will also be established within the national coordinator s purview. The Operational Manual will include the PCU s organizational structure and describe the duties and responsibilities of Project staff along with the Project s technical, administrative, financial, procurement, safeguards and monitoring procedures. B. Results Monitoring and Evaluation 30. Land administration institutions (IP, INA, ICF, and SEPLAN) and municipalities will monitor land regularization and territorial planning activities using their own systems; the PCU will collect and incorporate these data into an integrated financial information system (SIAF) that will monitor the Project s physical and financial progress. Incremental costs would be allocated to conduct an evaluation of Project s outcomes and impacts. PDO indicators would be measured using the methodology developed for the ICR of the First Phase. An evaluation would be conducted to assess Project impacts and outcomes on a broader set of economic, social, and environmental indicators. Qualitative participatory evaluations will complement this impact evaluation. These participatory evaluations will include focus groups with key stakeholders: (i) public notaries and financial institutions as frequent users of SINAP; (ii) municipality staff working on cadastre and territorial management; (iii) urban beneficiaries in informal settlements; and (iv) Miskito communities. C. Sustainability 31. Overall, successive governments have maintained a consistent land policy and strategy, which has materialized in the approval of several key legal reforms (2003 Territorial Planning Law, the 2004 Property Law, and the 2007 Forestry Law). This improved legal framework one of the triggers of Phase I is critical to the sustainability of Program results. In particular, the Property Law provided the IP with an enabling framework to be the leading agency in land administration issues in the country. Also, the revenue generated from cadastre and real estate transactions can give IP the capacity to be financially self-sustainable. Since the IP still needs to be strengthened to be able to fulfill its leadership role, the Project will continue supporting its institutional capacity building, the modernization of property registries, and the development and institutionalization of SINAP. The establishment of municipalities as associated centers of IP will further increase the sustainability of Project results by ensuring that cadastral information is kept updated. V. Key Risks and Mitigation Measures 32. Overall Project risk during implementation is rated medium driven by impact (high impact/low likelihood). The main potential project risks are political, fiduciary, and stakeholderrelated. There are overall governance risks at the country-level creating an environment conducive to political interference in the Project implementing agency. Mitigation measures 10

23 include actions both at the portfolio-level to support the professionalization of line agencies and the project-level to improve governance and accountability through the implementation of an action plan (see Annex 7). Fiduciary risks remain a concern due to the fact that there were instances of non-compliance during the First Phase, some of them resulting in an INT investigation. 3 Nonetheless, fiduciary capacity has significantly improved in recent years reducing the risk of non-compliance during implementation, and specific measures (detailed below) have been introduced to further mitigate fiduciary risks. 33. There are also potential risks related to the consolidation of the legal framework for the recognition of indigenous peoples lands rights, the management of beneficiaries expectations, and ensuring broad and continuous support for Project activities. Important lessons were learned in this respect during the First Phase, which experienced an Inspection Panel Investigation. In general, the Project will continue supporting a framework of free, prior, and informed consultations with indigenous communities and coordination among co-executing agencies through the Inter-Institutional Commission to maintain broad participation and engagement. Special attention will be paid to implementing a culturally sensitive Communication Strategy, strengthening INA s and IP s capacity for promoting titling activities in La Mosquitia, and ensuring the use of culturally acceptable alternative conflict resolution mechanisms. VI. Appraisal Summary A. Economic and Financial Analysis 34. Results of the economic and financial analyses undertaken for the second phase of the Program indicate that the regularization activities are economically feasible by yielding a net present value (NPV) higher than zero and an economic rate of return (ERR) greater than the assumed opportunity cost of capital. 4 These data also show that the reduction in the transaction costs for cadastre surveying would be significant and that the net fiscal impact of the Project is positive, ranging from 9 to 27 percent of total Project cost coverage, depending on the assumed timing of property-tax payments. The results also show that the revenues generated by the registry services provided by IP are substantial with a 0.98 sustainability index, considering that all revenues are transferred to the Central Bank, of which 50 percent return to IP. Table 3 Summary of Economic Cost-Benefit Analysis Present Value of Flows Expected Benefits: US$ 24.5 Million Project Costs: 5 US$ 10.3 Million Net Present Value: US$ 14.2 Million ERR: % 35. The economic benefits considered include the increase in property value of the 50,000 parcels that are expected to receive new titles. There are other potential benefits that are more difficult to quantify, including: (i) an increase in land-related investments; (ii) an increase in 3 The INT investigation was carried out in late 2006 and covered a period when the Program was under a different implementing agency. The INT Report is publicly available at: percent. 5 Includes costs for regularization activities and recurrent costs. 6 Economic Rate of Return. 11

24 access to collateral-based credit; (iii) a reduction of transaction costs in land market transactions; (iv) strengthened conservation of protected areas (biodiversity, sustainable natural resource management, tourism); and (v) a reduction in land conflicts. Materialization of these benefits, however, depends on other factors additional to the project s activities. B. Technical 36. The Project builds upon the technical design features included in the First Phase, taking into account lessons learned and international good practices. The basic elements of this design include (i) a streamlined, standardized parcel regularization process, using modern technologies such as ortho-photos, Global Positioning System (GPS) and total stations that enhance efficiency and reduce costs; (ii) SINAP as a sustainable and efficient information and communication platform for land administration; and (iii) the provision of technical strengthening and capacity building to ensure quality and sustainability. Based on implementation experience, the PCU has improved operational procedures and quality control mechanisms. This is reflected in the Operational Manual, which includes technical annexes on the general regularization process and special cases, and a variety of procedural guidelines. These technical documents have contributed to standardize processes and norms in the country. 37. The Project will continue to advance the transition from personal registry to folio real. The experience gained under the First Phase has provided a more realistic estimation of costs and better understanding of the technical needs and capacity demands of Project activities. Exchanges with countries in the region with similar experiences have helped to improve Project design, especially the strategy for cadastral surveying and regularization as well as the development of SURE. C. Financial Management 38. The IP, through the existing PCU, will be directly in charge of financial management (FM) tasks, which will include (i) budget formulation and monitoring; (ii) cash flow management (including processing payments and submitting credit withdrawal applications to the Bank); (iii) maintenance of accounting records (including the administration and maintenance of an inventory of project assets), (iv) preparation of in-year and year-end financial reports, (v) administration of underlying information systems, and (vi) arranging for execution of external audits. 39. The IP-PCU will also oversee the administrative aspects of the proposed Project and coordinate with the co-executing agencies. As the PCU was responsible for monitoring the administrative and financial aspects of the First Phase, and is currently implementing the PPF and other Bank-administered grants, it already has the necessary financial management structure in place. 40. Based on an assessment carried out for this Project, the FM risk has been rated as Substantial considering the overall country risky environment and the potential turnover of FM staff during government transitions. Mitigation measures have been established (see Annex 3), 12