Documnt of The World Bank FOR OIFICLAL USE ONLY OF THE PRESIDENT OF THE TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Documnt of The World Bank FOR OIFICLAL USE ONLY A'Vt 3/4W - '$ MEMORANDUM RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENTO US$16.2 MILLION TO FIJI FOR A HOUSING PROJECT MARCH 16, 1990 Rqpwt No. P-5006-FIJ Thi* doument ba a restcted dwiibuon and may be used by rcpits ondy In the performance of their ofia dutis Its contents may not otherwise be dicosed wftout Wodd Bank authrkadton.

2 ! CURRENCY UNITS Currency unit - Fiji Dollar (F$) US$ F$1.47 (as of 1/11189) F$1.00 = US$0.71 FISCAL YEAR January 1 - December 31 (for GOF and parastatal agencies) WEIGHTS AND MEASURES I hectare (ha) square meters (sq m) or 2.47 acres (ac) FREQUENTLY USED ABBREVIATIONS ADB - Asian Development Bank CE - Chief Executive GOF - Government of Fiji DPW - Department of Public Works EDP - Electronic Data Processing FNPF - Fiji National Provident Fund HA - Fiji Housing Authority HFC - Rome Finance Company IDC - Interest during Construction MHUD - Ministry of Housing and Urban Development NLTB - Native Land Trust Board PRB - Public Rental Board SOB - Statement of expenditure TCPD - Town and Country Planning Department UNDP - United Nations Development Programme

3 FOR OFmFCIAL USE ONLY FIJI HOUSING PROJECT Loan and Project Summary Borrower: Beneficiaries: Amount: Terms: On-lending Terms: Fiji Housing Authority (HA), Native Land Trust Board, Public Rental Board US$16.2 million equivalent Repayable in 17 years, including 5 years of grace, at the Bank's standard variable interest rate. Part of the proceeds of the loan, equivalent to US$14.5 million. would be onlent by GOF to HA for 17 years including 5 years of grace at a variable market-based interest rate (currently 8.5?). GOF would bear the foreign exchange risk. Financing Plan: Local Foreign Total USS million Housing Authority Public Rental Board Beneficiaries IBRD ADB Japanese Grant UNDP Total Financing la HA would finance total Interest During Construction, estimated at US$10.1 million. Economic Rate of Return: 13X Staff Appraisal Report: No FIJ dated June 30, 1989 Map: IBRD la Includes taxes and duties estimated at US$O.l million equivalent. 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.

4 FOR OFmFCIAL USE ONLY FIJI HOUSING PROJECT Loan and Proiect Summary Borrower: Beneficiaries: Amount: Terms: On-lending Terms: Fiji Housing authority (HA), Native Land Trust Board, Public Rental Board US$16.2 million equivalent Repayable in 17 years, including 5 years of grace, at the Bank's standard variable interest rate. Part of the proceeds of the loan, equivalent to US$14.5 million, would be onlent by GOP to HA for 17 years including 5 years of grace at a variable market-based interest rate (currently 8.52). GOF would bear the foreign exchange risk. Financing Plan: Local Foreign Total ---- USS million Housing Authority Public Rental Board Beneficiaries IBRD ADB Japanese Grant UNDP Total Financing la HA would finance total Interest During Construction, estimated at US$10.1 million. Economic Rate of Return: 13? Staff Appraisal Report: No FIJ dated June 30, 1989 Map: IBRD /a Includes taxes and duties estimated at US$0.1 million equivalent. 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,

5 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO FIJI FOR A HOUSING PROJECT 1. The following memorandum and recommendation on a proposed loan to Fiji for US$16.2 million equivalent is submitted for approval. The loan would have a term of 17 years including 5 years grace, at the standard variable interest rate, and would assist in financing the Government's efforts in housing and urban development. A part of the loan proceeds (US$14.5 million equivalent) would be onlent to the Fiji Housing Authority for a term of 17 years including a five-year grace period at a market-based variable interest rate (currently 8.52). The Government would bear the foreign exchange risk. The project would be cofinanced by ADB ( loan of $10.1 equivalent at standard terms plus a small technical assistance grant), and grants of US$1.1 million and US$0.3 million from Japan and UNDP respectively. 2. Background. Of Fiji's total population of 715,000 (1986 census), nearly 40? live in urban areas. Over 75? of this urban population lives in the cities of Suva (the capital) and Lautoka. The urban population has been growing at about 2.6? per annum versus 1.92 for the total population. This growth, which adds 1,400 new urban households every year, has generated strong demand for housing in urban areas. The public and private sectors have been increasingly unable to meet the housing needs of the lower and middle income groups resulting in a growing backlog (currently estimated at about 8,000 households) of unmet housing demand and increasing squatting (about 5,000 households). 3. Key Sector Issues. There are four major issues in the sectort (a) Fiji lacks coherent housing and urbanization policies resulting in unclear and overlapping responsibilities among sector agencies and preventing the development of effective responses to urban growth and housing demand; (b) Housing development standards are inappropriate - plot size, infrastructure and housing standards have all increased in recent years; the costs associated with these sthadards have risen faster than incomes and lower income groups have been increasingly unable to afford formal sector housing; (c) Land management and planning capabilities require strengthening; to date urban development in Fiji has taken place on freehold and Crown land reserved for this purpose; development has almost exhausted these reserves and there will be no further alienation of native land into freehold or Crown ownership; and (d) The Housing Authority (HA), which is the most important sector agency and the largelt housing development and mortgage finance institution in the country, is in serious difficulty; HA suffers from conflicting

6 -2- objectives, poor operating policies, staffing gaps and organizational weaknesses, and increasing operating losses. 4. Rationale for Bank Involvement. As the first Bank operation in the sector, the project focuses on rectifying critical institutional, technical and financial problems constraining the sector as well as formulating the sound policy framework required for future development. Once appropriate design standards have been successfully employed in the public sector housing program to the benefit of lower income households and once sector institutions, especially HA, are operat-ng on a technically and financially viable basis, future Bank assistance might focus on longer range objectives: enhanced private sector involvement in low income housing development and finance, improved financial intermediation for housing, and integration of housing finance in the financial sector. 5. The Bank's ongoing and proposed lending in road rehabilitation (Road Upgrading Project - Loan 2871-FIJ) and telecommunications (Third Telecommunications Project - Loan 3074-FIJ), as well as the proposed housing project, support GOF's recovery program by providing or improving key infrastructure and services needed by the productive sectors. The proposed housing investment would generate employment by stimulatins the construction sector and related industries (building materials, home furnishings, etc.) The housing would be targeted to the areas where industry is or will be located and to the workforce required by industry. A better housed workforce near sources of employment should lead to increased productivity. 6. Proiect Obiectives. The objectives of the project are: (a) improved housing and urbanization policies and standards appropriate to lower-income housing; (b) strengthened sector institutions; and (c) increased provision of affordable housing to lower-income groups. 7. Proiect Description. The proposed project, to be implemented over seven years ( ), would comprises (a) formulation of new housing and urbanization policies and operational approaches to urban development through technical assistance, training and equipment to the Ministry of Housing and Urban Development (MHUD);(b) institutional strengthening of: (i) urban planning capability of the Town and Country Planning Department (TCPD);(ii) land use planning capability of the Native Lind Trust Board (NLTB); and the operations and financial management of HA through technical assistance, training and equipment; and (c) land development and housing through (i) development of 3,181 new residential plots; (ii) house construction finance for the 3,181 new plots (iii) house construction finance for 2,000 existing plots; and (iv) rehabilitation of 720 rental units for sale. 8. The total project cost and financing plan are shown in Schedule A. IBRD funds would finance land development and house construction as well as institutional strengthening for HA and NLTB and the operationalization of

7 - 3 - urban policies for MHUD. The ADB loan has already been signed and would finance land development, house construction and institutional strengthening for TCPD. UNDP would finance policy development for MHUD and the Japanese grant would cover most of the institutional strengthening requirements of HA. Procurement and disbursement arrangements are summarized in Schedule B. A timetable of key project process.ng events and the status of Bank operations in Fiji are given in Schedules C and D respectively. A map is also atteched, a Staff Appraisal Report No FIJ dated March 19, 1990 is being distributed separately. 9. Agreed Actions. GOF has endorsed a detailed revitalization plan for HA including policy, financial, organizational and operational changes to bring about its financial viability and enable it to develop affordable housing for lower and middle income groups. A broad outline of a plan has also been agreed for the restructuring of the public rental housing program. As conditions of effectiveness: (a) GOF and HA would execute a subsidiary loan agreemen" for the onlending of Bank loan proceeds; (b) HA would revise its bidding procedures and draft bid documents; (c) HA would transfer to the Public Rental Board the assets and liabilities of the public rental housing program. As disbursement conditions: (a) HA would formulate and submit to the Bank for review the criteria for project sites to be developed in response to demand; and (b) GOP would develop and submit to the Bank for review a detailed plan for the rental restructuring program. Assurances were obtained that GOF would causet (a) timely and complete provision of offsite infrastructure for project site: (b) annual review with Bank of HA's program, budget and financial performance; (c) the HA revitalization and rental restructuring plans to be implemented; (d) implementation of institution building components by the Town and Country Planning Department and the Native Land Trust Board; (e) formulation of housing and urbanization policies, urban and land use planning standards and building codes and their submission to the Bank for review by June 30, 1993; (f) appointment of consultants acceptable to the Bank by December 31, 1990 for the operationalization of policies, standards and codes; (g) prompt handover by HA of completed infrastructure to the relevant agencies for operation and maintenance and acceptance by these agencies of O&M responsibility; and (h) appropriate return on equity by HA and progressive reduction by HA of the ratio of its operating expenses to its average total assets. 10. Benefits and Risks. The project would provide affordable housing to about 6,000 low and moderate income households, reaching down to the lowest 13th percentile of the urban income distribution. The revitalization of HA and the restructuring of the public rental program would generate important financial benefits for GOP by reducing or eliminating subsidies and improving cost recovery. Project-financed house construction would create about 2,000 jobs. Environmental conditions would be improved through the extension of water and sewerage services to project beneficiaries, including about 70 squatter households. Institutional strengthening and policy development would improve resource allocation in the urban sector. The economic rate of return on housing developed under the project is estimated to be about 132.

8 The main risks are that: (a) GOF will be unwilling or unable to meet its policy and financial commitments to the restructuring of HA and the public rental housing program and (b) demand for project-financed housing will not materialize. Vhese risks are mitigated by (a) GOF's already demonstrated commitment to its sound economic recovery program and substantial actions already taken to complete much of the reform agenda for HA and the rental program and (b) conservative tailoring of the project in light of current demand. 12. Recommendation. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank and recommend that the Executive Directors approve the proposed loan. Attachments Washington, D.C. March Barber B. Conable President

9 Schedule A FIJI HOUSING PROJECT Estimated Costs and Financing Plan (US$ million) Local Foreign Total Estimated Costs: A. Policy Development B. Institutional Strengthening C. Land Development and Housing Base Cost (end 1989 prices) Physical Contingencies Price Contingencies Total Proiect Cost la Interest During Construction - (IDC) on Bank Loan lb IDC ou Other Loans Total Financing Required Financing Plan: Housing Authority -c Public Rental Board Beneficiaries IBRD ADB Japanese Grant UNDP Total la Includes taxes of US$0.1 million equivalent. lb IDC on the Bank loan is based on the expected onlending rate to HA of 8.5s. The foreign cost component of this IDC is based on the Bank's current variable rate of 7.75Z. IDC on other loans includes the ADB cofinancing (at the same expected onlending rate) and HA's local borrowing. /c Includes the total Interest During Construction estimated at US$10.1 million

10 Schedule B FIJI HOUSING PROJECT Procurement (US$ million)s Expenditure Category Procurement Method ICB LCB Prudent Other N.A. Total Shopping Civil Works (3.4) (1.3) (0.1) (4.8) Materials and Equipment (1.6) (0.2) (1.8) House Construction (7.9) (7.9) consultant Services (1.7) - (1.7) Total (5.0) (1.5) (0.1) (9.6) (16.2) Notes Amounts in parentheses are the respective amounts financed by the Bank. Disbursement (US$ million, including contingencies) Category Amount Z of expenditures to be financed Civil Works S of total expenditures Materials and Equipment O of foreign expenditures and 65Z of local expenditures House Construction Z of total expenditures Consultant Services of total expenditures Total 16.2 Estimated Disbursements: Bank Fiscal Year US$ million Annual Cumulative

11 Schedule C FIJI HOUSING PROJECT Timetable of Key Proiect Processing Events (a) Time taken to prepares (b) Project prepared by: 34 months Ministry of Housing and Urban Development and Fiji Housing Authority (c) First IBRD mission: February 1987 (d) Appraisal mission departures November 1988 (e) Date of negotiations: July 1989 (f) Planned date of effectiveness: August 1990 (g) List of relevant PCRs and PPARs: None

12 Schedule D STATUS OF BANK GROUP OPERATIONS IN FIJI A. STATEMENT OF BANK LOANS (as of September ) /a /b Amount (USS million) Bank Undis- Original bursed Loan Fiscal Principal number Year Borrower Puroose (less cancellation) Nine loans fully disbursed FIJ 1988 Fiji Road Upgrading FIJ 1989 Fiji Third Telecommunications a Total of which has been repaid Total now outstanding Amount sold 3.46 Total loans now held by Bank Total undisbursed B. STATEMENT OF IFC INVESTMENTS (as of September ) Undisbursed Total including Original Commitments Held Participating Fiscal (SS million) by IFC Portion Year Company Type of business Loan Equity Total 1984 The Fiji Sugar Corp. Sugar mill CAPOS Limited Tourism MBF Merchant Bank Fiji Forestry Products Wood Processing Total L /a The status of the projects listed in Part A is described in a separate report on all Bank/IDA-financed projects in execution, which is updated twice yearly and circulated to the Executive Directors on April 30 and October 31. ib Prior to exchange adjustments.

13 177o PROJECT SI ACTES VITI LEVU m NTA A AUSTRALIA FIJI HOUSING PROJECT SELCTE ROADS Project Locations )tvr DM8lAt Z DIVI3SON BOUNDARY ELEWCIONS ABO0VE FJ ZWO FEET VV~W0A LEVU ~~~~~~~~~~~~~~~~~~~~~~~~IT.K TWM V&ui utok KQW~~~~~~~~~~~~~~~~I~~KM Od. Lo~ ~ ~ ~~L~ iw~~~~~~~~~~~~~~~~~~~~ko n~~~~~~~~~~~~~~~~~~~~~~~~wi Siaoa For detair of project w kx;arlong see amr m>fe 2fl5' s and IBRD _ 5. _~~~~~~~~~ ~ 5 ^ _ I KLOtT ST,I3 81~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 1 tb