FIRST CADASTRE PROJECT

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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 INTERNATIONAL DEVELOPMENT ASSOCIATION PROPOSED ADDITIONAL FINANCING OF SDR 2.0 MILLION (US$3.O MILLION EQUIVALENT) TO THE REPUBLIC OF MOLDOVA FOR THE FIRST CADASTRE PROJECT PROJECT PAPER MAY 23,2005 Infrastructure and Energy Department Belarus, Moldova and Ukraine Country Management Unit Europe and Central Asia Region Report No: MD This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective as of May 5,2005) Currency Unit = Moldovan Leu (MDL) 0.08MDL = US$l US$l.O = MDL FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS ALRC BCO CAS GDP IDA NCB PI0 PRSP S SDR SIDA TCO USAID Agency for Land Cadastre Branch Cadastre Office Country Assistance Strategy Gross Domestic Product International Development Association National Competitive Bidding Project Implementation Office Poverty Reduction Strategy Paper Shopping Special Drawing Rights Swedish International Development Cooperation Agency Territorial Cadastre Office United States Agency for International Development Vice President: Country ManagedDirector: Sector Manager: Task Team Leader: Shigeo Katsu Paul G. Bermingham S. Lee Travers Maha J. Armaly

3 TABLE OF CONTENTS Data Sheet I. Introduction 11. Background and Rationale for Additional Financing 111. Proposed Changes IV. Consistency with CAS V. Economic Analysis of Cost Overrun or Financing Gap VI. Appraisal of Restructured or Scaled-up Projects VII. Expected Outcomes VIII. Benefits and Risks IX. Financial Terms and Conditions for Additional Financing

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5 MOLDOVA CADASTRE SUPPLEMENTAL PROJECT Date: May 23,2005 Team Leader: Maha Armaly Country: Moldova Project Name: First Cadastre Project Sector Manager: S. Lee Travers Country Director: Paul G. Bermingham Responsible agency: Agency for Land Relations and Cadastre Revised project development objectives/outcomes: The objectives of the project remain the same: To build a unified real estate registration program for rural and urban land, and thereby to establish a clear and enforceable ownership rights to promote the privatization of land and the development of the real estate market in Moldova. Does the scaled-up or restructured project trigger any new safeguard policies? - No P For Additional Financing [ ] Loan [x ] Credit [ ] Grant [ 3 Guarantee [ ] Other: For Loans/Credits/Others: Total Bank financing (US$m.): $3.0 million Proposed terms: IDA Credit Financing Plan (US$m.) IBRD/IDA Others 1

6 I. Introduction Moldova - First Cadastre Project Additional Financing for Project Scale-up Project Paper This Project Paper seeks the approval of the Executive Directors to provide an additional credit in an amount of US$ 3.0 million equivalent to the Moldova - First Cadastre Project (PE-P035771), Credit Number 3061-MD. The proposed additional credit would help finance the costs associated with scaling up activities to enhance the impact of a well performing project. Additional financing will (i) fund surveying activities in preparation for registration; and (ii) update existing information system to consolidate data from all territorial cadastral offices and improve information flow. The government has agreed to provide financing for incremental operating costs including registration activities and the operation of the Project Implementation Office (PIO). Parallel financing, in the form of grants, to support the First Cadastre Project was provided by several donors, including Norway for public information, and Switzerland for equipment, technical assistance and training for the mapping agency. Sweden provided financing for technical assistance for all aspects of project implementation and remains the most active partner. Swedish technical assistance covered surveying, mapping, legal framework, accounting, valuation and fiscal cadastre. Considerable training was also provided inside and outside Moldova. Sweden continues to support the project, including finalizing a business plan for the Agency for Land Cadastre (ALRC). Discussions were held with SIDA to continue support for the project. USAID has provided financing for privatization of agricultural land, and remains involved in the process of land consolidation. 11. Background and Rationale for Additional Financing Project Development Obiectives and Scope: The original credit of SDR million (USD15.9 million equivalent) was approved by the Board of Executive Directors on April 23, 1998, and became effective in March The Project s primary objective is to develop and implement a national unified real estate registration program for urban and rural land, and thereby to establish a system of clear and enforceable ownership rights so as to promote the privatization of land and the development of real estate markets in Moldova. The project also aimed to (a) provide property owners with security of ownership rights such that they can sell or rent real estate or pass on their holdings as inheritances; (b) commercial banks with the confidence necessary to give secured credit against real estate; (c) the real estate market with information on ownership of property for the market to function effectively; (d) government agencies and institutions with basic information 2

7 for urban planning and land management; (e) the real estate market with information on property values; and (f) the private sector with opportunities to develop in areas related to real estate registration (surveyors, notaries, valuers). The project objective and scope remained consistent throughout project implementation. Proiect Performance to Date: The project has been successful in reaching its objective. The Agency for Land Registration and Cadastre has the sole responsibility for developing and maintaining the real estate registration system in Moldova. A committee of other government stakeholders, including Ministries of Economy, Agriculture, Finance and Justice oversees the work of the Agency. Real estate owners have one stop to undertake real estate registration tasks in the Territorial Cadastre Offices (TCOs) of the ALRC. A unified registration system is considered best practice in the region in terms of simplifying the process for real estate owners as well as managing and making best use of the system from the government s view. It facilitates planning and expansion of use into other areas, such as fiscal cadastre. The Project has exceeded appraisal estimates in terms of its accomplishment. In the urban areas, for example, at appraisal, a total of 330,000 objects were expected to be registered. By December 2004, a total of about 550,000 objects were surveyed and registered. In the rural areas, the objectives of the project were modest, given the uncertainty of farm privatization at the time. The project aimed to register 220,000 land plots and managed to survey and register about 290,000 land plots by December USAID provided substantial aid to the privatization of agricultural land and financed the surveying of about 90% of farm lands. The First Cadastre Project assisted in the registration of these parcels. All told, about 75% of the estimated number of properties in the country is now registered. Additionally, the cadastre agency registered mortgages, transactions and encumbrances through its responsibility for maintaining the integrity and update of the data. These numbers will increase by the time of project completion. Other project objectives were also accomplished. The cadastral survey industry, which was state owned at the beginning of the project, is now a vibrant and competitive industry with updated equipment and skills. The system now provides secure property rights to owners. This is reflected in the increased number of transactions such as sales, leases and inheritances. The increased numbers of mortgages registered reflect the confidence of commercial banks and their reliance on the system to verify ownership and to record transactions and encumbrances. The number of mortgages doubled between 2000 and 2001 with a further 50% increase in Leaseholds are increasing particularly in the agricultural area and are being used, along with sales, in the process o f agricultural land consolidation. Institutionally, the ALRC is a stronger organization well staffed with skilled professionals. It 3

8 continues to improve the system to ensure its sustainability in consultation with branches o f govemment. Proiect implementation has been satisfactory. The project overcame start-up difficulties usually associated with projects in new environments. The Project Implementation Office (PIO) became acquainted with Bank requirements, some of which became more rigorous during project implementation, such as financial management. Government commitment ensured that the appropriate staff were appointed. Training was provided on the Bank s fiduciary requirements and systems were established that responded to project development. Counterpart financing was available, and for a time was provided through a Dutch grant for IDA financed projects in Moldova. There has been a strong overall effort to review and improve project portfolio implementation in Moldova through a combined and sustained effort by the World Bank and the Government. While some PI0 management tumover caused concern, project implementation continued on track. Donor financing of technical assistance and training added considerable value to technical skills available to Moldova at the time. The Credit was extended from February 2004 to November 2005 in order to utilize available funds to undertake more survey and registration activities, and to resolve procurement issues that arose. Audits were submitted on time and had unqualified opinions with suggestions for improvement which were taken into account and discussed with the World Bank. Project supervision was reviewed by the Quality Assurance Group in September 2004, and was rated satisfactory, with some elements rated highly satisfactory. Rationale for the Borrower s Request: The request for continued World Bank support to develop the real estate cadastre in Moldova was articulated in the PRSP adopted by the Government in December The formal request by the Government dated March 2005 indicated the desire to scale up the activities to enhance the development impact of a well performing project. The Government aims to survey and register all properties in the country and to leverage resources and existing institutional capacities and momentum to enhance the potential for success. This strategy would ensure equity among real estate holders, improve planning and management o f land and natural resources, and enhance capacities to implement fiscal cadastre Proposed Changes The changes proposed to the project are clear. Additional financing is being requested to undertake (i) additional surveying for an estimated 400, ,000 objects; and (ii) upgrade of the existing information system. The additional financing will not fund registration and PI0 activities which will be taken over by the govemment to start transitioning the cadastre and registration activities to the government as the Bank withdraws from the sector. These components are the main elements of the First Cadastre Project. 4

9 The proposed changes would require an amendment to the Development Credit Agreement (3061-MD) to increase the credit amount, amend the disbursement categories, and establish a new schedule for repayment arrangements. Project costs will increase by $4.50 million, including the government s contribution. Further, with the ongoing Swedish assistance, the government will adopt the business plan that will consolidate the cadastral offices and that will improve the financial sustainability framework of real estate registration and cadastre. The consolidation of the Territorial Cadastre Offices (TCOs) and their Branch Cadastre Offices (BCOs) under the umbrella of ALRC is an important step towards improved management of the system. Strengthening government oversight of the system is required to ensure cost control, affordable fees, and overall operational and financial sustainability of the system. Disbursement arrangements will utilize the new financing parameters for Moldova. The new implementation schedule, taking into account the long implementation period of a typical survey contract, and the time needed for registration, indicates that the closing date for the Additional Financing will be June 30,2007. No changes to the project description or objective are needed. A draft amendment to the Development Credit Agreement has been prepared. IV. Consistency with the CAS The First Cadastre Project has been consistent with Country Assistance Strategies since its approval by the Board. Transformation to a market economy, building market institutions and private sector development have been themes of CASs agreed between the World Bank and the Government. The latest CAS of November 2004 aims to promote sustainable growth and to reduce high levels of poverty by relying on three pillars: (i) promoting conditions for sustained growth and employment creation; (ii) improving access to social capital and services and community infrastructure; and (iii) improving public sector govemance and combating corruption. The first pillar relies on improving the business climate. Real estate registration and enforcement of ownership rights is an essential element of private sector development. The report on Doing Business in 2005 showed that delays in private property registration acted as deterrent to business development. Agriculture remains an important sector in Moldova and constitutes about 22% of GDP in The First Cadastre Project has assisted in the registration of farm land, continues to register transactions leading to consolidation of land in the sector, and consistently supports market means for such consolidation through sales and leaseholds. The Agency for Land Relations and Cadastre is a comerstone in the government structure in supporting the legal framework for private property. While not directly targeting poverty, the project ensures the legality of ownership of the most tangible asset that the population at large received after privatization, and allows the population to utilize these assets to their best value for the owners. 5

10 V. Economic Analysis of Cost Overrun or Financing Gap Not Applicable. This request is for additional financing for scale up of activities. VI. Appraisal of Restructured or Scaled-up Projects. Institutional: The activities under the project are similar to the ones already being financed under the First Cadastre Project. The institutional framework and staffing are already in place. The Project Implementation Office will continue to prepare semi-annual project reports. Adopting and implementing the business plan for consolidating the cadastral offices and strengthening oversight will be an important contribution to the institutional framework. Technical: The additional financing will support surveying activities that have been undertaken under the First Cadastre Project for the last 5 years. Technical capacities in the country exist and supervision capacity at the PI0 is available. The update of the information system i s a continuing activity from the First Cadastre Project following a study to improve data integrity and consolidation through improved communications among cadastral offices. Safeguards: - The First Cadastre Project was given an Environmental Category C. The additional financing will have similar rating. The additional financing will not fund any new civil works, and land acquisition issues will not be triggered. In the long term, an improved cadastre and mapping system can have a positive impact on the environment by providing current and reliable land information which can assist in preparation and enforcement of environmental protection programs and better management of land resources. Financial Management: The financial management system for the First Cadastre Project exists and has been reviewed by the Bank. The system will be used to incorporate the expenditures financed by the additional credit and the government's counterpart funds under the additional financing. The project accounts of the First Cadastre Project have been audited annually throughout implementation. Audits were submitted on time and had unqualified opinions with suggestions for improvement which were taken into account and discussed with the Bank. Procurement: Based on experience under the First Cadastre Project, shopping and national competitive procedures for the procurement of technical surveys and software will be used. In Moldova, for technical surveys, small works delivered lower costs per parcel surveyed, allowed more firms to compete, and were easier to implement and monitor given the proximity of branch cadastral offices to the areas being surveyed. Because of the limited time, delays in large contracts will be costly. Software for improvement of the information system will be procured based on shopping in one package. The 6

11 Bank will review two packages for procurement of technical surveys and the package for procurement of goods. Description Estimated Procurement Bid Award Start cost Method Opening Recomm. Date A. Survey Contracts 1. 7 contracts <$100,000 S - Technical June July 2005 Aug. each Services contracts <$300,000 NCB- July August Sept. each Technical contracts <$loo,ooo Services S - Technical July August Sept. each Services contracts <$300,000 NCB - Sept. Sept. Sept. each Technical Services End Date Sept March2007 Nov May Equipment Oracle <$loo,ooo S - goods June July August Nov update with options Procurement planning for technical surveys will be done in such a way as to ensure completion of surveying in areas where coverage is close to completion in order to prepare for the consolidation of offices in the near future. Counterpart Funds: Total govemment funding required is estimated at $1 S O million. This will cover the costs for registration of surveyed objects at a total estimated cost of $1,000,000. PI0 staff and operational costs will also be covered by the govemment starting in December 2005, and the estimated cost is $500,000. The government contribution to these categories which were previously partly financed by the Bank will enable transition and Bank exit. Sustainabilitv: Real estate registration is the basis for private property ownership and a market economy. Moldova is on a firm road to a market economy, and the system, is therefore inherently sustainable as the basis for the transition and sustainability of the market. Moldova has taken the decisions to establish a modem legal and institutional framework for the cadastre registration system and is committed to continue to maintain and update it. The additional financing will ensure further action is taken to enable the system to meet the challenges. The ALRC has introduced a proposal to Parliament to consolidate the cadastre offices operations. It has also introduced a proposal to ensure that tariffs recover costs, while remaining affordable to the population. These proposals have taken into account Bank recommendations and studies supported by Swedish assistance. The 7

12 Government has confirmed its commitment to take action with regard to consolidation of the cadastral offices and to adhere to cost recovery principles while ensuring the financial sustainability o f the cadastral system. The government s commitment to the sustainability of the system is reflected in taking responsibility for the operational costs to prepare for Bank exit. Further, the government aims to build on the legal cadastre to strengthen fiscal cadastre and has allocated funds for this purpose. Additional Financing by Category (US$): Revised Disbursement Schedule: 1 SDR = US$ 1.5 as of May 9, Category Works Goods Technical Services Consultants Services (including audits and training) Incremental Operating Costs Refunding of Project Original Amount of the Credit Allocated (Expressed in SDR) 170,000 3,630,000 4,000, ,000 1,550, Additional Financing Allocated (Expressed in US$ Equiv) 100,000 2,900,000 Current % of Expenditures to be Financed 90%. 100% of Foreign expenditures, 100% of local expenditures) 100% 100% 100% through December 1, 2001,60% of expenditures through December 1, 2003 Yo of Expenditures to be Financed for Additional Financing 100% 100% 8

13 Preparation Advances 7 Unallocated Total 350, ,500,000 3,000,000 VII. Expected Outcomes The additional financing would support surveying and registration activities for about 400, ,000 more parcels. This would increase the coverage to about 85% to be accomplished by the end of the Project by June 30,2007. The Government showed commitment to complete the surveying and registration of the remaining parcels in the country. This would make Moldova one of the first countries in the CIS to complete land and real estate registration to such a large extent, and would facilitate the registration of the remaining real estate parcels. This accomplishment would facilitate further services provided by the Cadastre such as planning and monitoring of physical infrastructure and natural resources. In addition, it would further assist the govemment in its objective to build an equitable fiscal cadastre that would cover the whole country and to receive Bank advice in this area. VIII. Benefits and Risks The benefits arising from additional financing of the First Cadastre would largely supplement the benefits envisaged and accrued originally. These include: (a) providing guarantee o f ownership and security o f tenure; (b) facilitating the functioning of real estate markets; (c) supporting privatization in the agricultural sector; and (d) supporting effective urban planning. The additional financing would be implemented in a much less risky environment than at the inception of the First Cadastre. The institutional and legal frameworks have been developed, and the capacity of the Agency for Land Relations and Cadastre i s well established with skilled staff in the technical and legal areas. Staff are familiar with the requirements of the World Bank. The population and the commercial banks are familiar with the system and rely on it to undertake transactions in the real estate market. Government counterpart funding has been assured. IX. Financial Terms and Conditions for Additional Financing The additional credit would be an IDA Credit repayable in 40 years, including a grace period of 10 years. 9

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