PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 20.1 MILLION (USD 30 MILLION EQUIVALENT) FOR A FOR SERBIA.

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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 20.1 MILLION (USD 30 MILLION EQUIVALENT) TO SERBIA AND MONTENEGRO FOR A REAL ESTATE CADASTRE AND REGISTRATION PROJECT FOR SERBIA April 26,2004 Environmentally and Socially Sustainable Development Unit Europe and Central Asia Region Report No: TGs document has a restricted distribution and may be used by recipients only in the perfonnance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective March 26,2004) Currency Unit = Serbian Dinar (SDR) SDR = US$1 US$ = SDR 1 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS CFAA CM DCA DGP EAR EAG ERR EU FIAS FMR GOS GTZ ICT IDA IDP IT MOF MCI MTP PTU REC RGZ SAM SSCR Law TSS Country Financial Accountability Assessment Cadastre Municipality Development Credit Agreement (legal agreement) Digital Geodetic Plan European Agency for Reconstruction, EU Expert Advisory Group Economic Rate of Return European Union Foreign Investment Advisory Service, World Bank Financial Management Report Government of the Republic of Serbia German Technical Assistance Agency Information and Communications Technologies (including information systems) International Development Agency (one of the organs of the World Bank) Internally Displaced Persons Information Technology Ministry of Finance (GOS) Ministry of Capital Investments (GOS) Mid-Term Program of RGZ Project Implementation Unit (within RGZ) Real Estate Cadastre Republic Geodetic Authority (GOS) Serbia and Montenegro Law on State Land Survey, Cadastre, and Registration of Real Estate Rights (1992 and all amendments to-date) Transitional Support Strategy (of IDA) Vice President: Shigeo Katsu (ECAVP) Country ManagerBIirector: Orsalia Kalantzapoulos (ECCU4) Sector Manager: Joseph R. Goldberg (ECSSD) Task Team Leader (TTL) / Deputy TTL: Lynn C. Holstein /Victoria Stanley (ECSSD)

3 FOR OFFICIAL USE ONLY SERBIA AND MONTENEGRO REAL ESTATE CADASTRE AND REGISTRATION PROJECT (Serbia) CONTENTS Page A. STRATEGIC CONTEXT AND RATIONALE Country. and sector issues... 1 Rationale for Bank involvement... ;... 2 Higher level objectives to which the project contributes... 2 B. PROJECT DESCRIPTION Lending instrument... 3 Project development objective and key indicators... 3 Project components... 4 Lessons leamed and reflected in the project design... 5 Alternatives considered and reasons for rejection... 5 C. IMPLEMENTATION Partnership arrangements Institutional and implementation arrangements Monitoring and evaluation of outcomes/results... 8 *.. 4. Sustainability Critical risks and possible controversial aspects Loadcredit conditions and covenants... 9 D. APPRAISAL SUMMARY Economic and financial analyses Financial Management Social Assessment Environment Safeguard Policies Technical... : Policy Exceptions and Readiness Annex 1: Country and Sector Background This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.

4 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies Annex 3: Results Framework and Monitoring Annex 4: Detailed Project Description Annex 5: Project Costs Annex 6: Implementation Arrangements Annex 7: Financial Management and Disbursement Arrangements. 50 Annex 8: Procurement Annex 9: Economic and Financial Analysis Annex 10: Safeguard Policy Issues Annex 11: Project Preparation and Supervision Annex 12: Documents in the Project File Annex 13: Statement of Loans and Credits Annex 14: Country at a Glance Annex 15: Social Assessment. Summary Map IBRD (date March )

5 SERBIA AND MONTENEGRO REAL ESTATE CADASTRE AND REGISTRATION (Serbia) PROJECT APPRAISAL DOCUMENT EUROPE AND CENTRAL ASIA ECSSD Date: April 26,2004 Team Leader: Lynn C. Holstein Country Director: Orsalia Kalantzapoulos Sectors: Housing finance and real estate Sector MangerDirector: Joseph Goldberg markets (25%);Law and justice (25%);Information technology (25%);General agriculture, fishing and forestry sector (25%) Themes: Other public sector governance (P);Personal and property rights (P);Land management (S) Project ID: PO Environmental screening category: C - Not Required I Lending Instrument: Specific Investment Loan Safeguard screening category: S3 I [ ]Loan [XICredit [ ]Grant [ ]Guarantee [ ]Other: For Loans/Credits/Others: Total Bank financing (us$m.): (equivalent ) SDR 20.1 million Borrower: Serbia and Montenegro. Responsible Agency: Government of Serbia, through: Republic Geodetic Authority (RGZ), Bulevar Vojvode Misica Belgrade, Serbia tel fax sdabasi@,r,rgz.co.vu; r,rgz@,eunet.vu web site:

6 7Y hual hmulative Estimated disbursements (Bank FY/USSm) Project implementation period: Start: October 31,2004 End: October 31,2010 Expected effectiveness date: October 3 1, 2004 Expected closing date: October 3 1, 2010 Does the project depart from the CAS in content or other significant respects? Re$ PAD A.3 Does the project require any exceptions from Bank policies? Re$ PAD D. 7 Have these been approved by Bank management? Is approval for any policy exception sought from the Board? Does the project include any critical risks rated substantial or high? Ref: ~~ PAD C.5 also Annex 4.1 Does the project meet the Regional criteria for readiness for implementation? Ref PAD. D [ ]Yes [x]no [ ]Yes [XI No [ ]Yes [XI No [ jyes [X~NO [x]yes [ ]No [x]yes [ ]No Project development objective Re$ PAD B.2, Technical Annex 3 To increase confidence and lower transaction costs by building a more efficient property registration and cadastre system, with the purpose of contributing to the development of effective real property markets. This will be achieved by speeding-up the titling process by improving and supporting the real estate cadastre (REC) system operation that is conducted by RGZ and its branch and local offices Project description [one-sentence summary of each component] Re$ PAD B.3.a, Technical Annex 4 The project would consist of two components: a) support for the acceleration of the formation of the REC resulting in more secure property rights; and, b) capacity building and institutional development for RGZ including project management and training. Which safeguard policies are triggered, if any? Ref: PAD D. 6, Technical Annex 10: None Significant, non-standard conditions, if any, for: Re$ PAD C. 7 None Board presentation: May 25,2004 Loadcredit effectiveness: October 31, 2004 Covenants applicable to project implementation: See PAD C. 6

7 A. STRATEGIC CONTEXT AND RATIONALE 1. Country and sector issues The past decade following the break-up of the former Yugoslavia has been a difficult one for the Republic of Serbia - regional conflict, ineffective economic management, poor governance, and international isolation combined to bring per capita GDP down to less than half its 1989 level, and drove external debt to exceed 130 percent of GDP and annual inflation to over 113 percent. Available statistics for 2002 show that close to a quarter of the population of the Republic of Serbia is concentrated in the narrow interval just above the poverty line and a full 10 percent of the population is living in absolute poverty. In addition, there are some 600,000 refugees and internally displaced persons (LDPs) placing additional pressure on already strained social services. However the last few years - since the elections of have brought significant change, including an over 4 percent average annual growth rate in real GDP during , a decline in inflation to high single digits, and beginnings of reform and restructuring of the economy. The Government of Serbia s (GOS) Economic Recovery and Transition Program features the following themes: restoring macroeconomic stability; stimulating near-term growth; improving social well-being; and improving govemance. The Poverty Reduction Strategy Paper for Republic of Serbia (March 16,2004, IDNSecM-0100) outlines the GOS s plan for poverty reduction by giving high priority to restructuring of the economy and job creation, and creating new employment and income opportunities. This turbulent history combined with nearly 60 years of socialism have left Serbia s property records and land administration system in a poor state. Over 70 percent of apartments are not registered in a viable registration system, land transactions in rural areas are often not legally registered, increased illegal building - with 200,000 illegal structures in Belgrade alone, a significant backlog in civil courts where about 20 percent of cases are land or property related, out-of-date or incomplete property registers and cadastral maps, and a mismatch between land parcel records in cadastre offices and those in the legal registers maintained by municipal courts. In addition, only 20 percent of the country was covered by the land book system in the municipal courts, meaning that the remainder of the country has had only a land parcel inventory system. The GOS has recognized that an effective national property rights system is a prerequisite for economic growth and broadening economic prosperity through land and housing development, wise stewardship of natural resources, increased use of property as collateral for credit purposes, increased property tax collection, and efficient land markets. A high-level government committee was established, headed by the Prime Minister in 2002 and focused on land registration, real property markets, privatization, and property rights. The GOS strategy also includes priority support for the formation of a real estate cadastre (REC) nationwide and efforts to address illegal construction. In 2002 the major law on State Land Survey, Cadastre and Registration of Real Estate Rights (SSCR Law) was amended to include most of the functions Elections were held in December 2003 and a new Government formed in early March The new Government s strategy for land administration is one of modemization and continued improvement and it has stated that it will be very active in this topic area. 1

8 necessary for the introduction of secure cadastre and real property registration systems, and the GOS confirmed the single agency model adopted in 1992, A donor conference for land administration was convened by the GOS in 2002 and continues in 2004 with regular donor meetings. Finally, the Republic of Serbia has placed a high priority on establishing a clear path to European integration through the European Union. This will require efficient and fair property markets and functional property registration systems. 2. Rationale for Bank involvement Now that the basic pre-requisites for a successful program exist - a satisfactory law, a viable single agency, and high level government commitment - Bank support can readily contribute to improving the cadastre and registration system operation in Serbia, thereby speeding up the transition to a market economy in a crucial domain in which public involvement and positive extemalities are an important element. The Bank already has projects in land administration across the region and in most of the Republic of Serbia's neighboring countries. The Bank brings to the task experience gained from operational involvement in this field in Armenia, Bulgaria, Croatia, Georgia, Kazakhstan, Moldova, Romania, Russia, Slovenia and many other countries. The Republic of Serbia has achieved good donor coordination in this area, however the Bank is able to involve other donors in ways the Borrower and other donors alone cannot, by providing a framework for project interaction. 3. Higher level objectives to which the project contributes The Transitional Support Strategy (TSS) for Serbia and Montenegro was updated and approved by the World Bank Board on March 16,2004 (IDA / R ). The Real Estate Cadastre and Registration project is included in the TSS Update as part of the FY04 program. The proposed project would help support two of the GOS's four Near and Medium Term Reform Agenda goals as contained in the TSS: (i) stimulating near-term growth and creating the basis for a sustainable supply response; and (ii) improving govemance and building effective institutions. The TSS update identifies the requirements for stimulating growth and creating the basis for a sustainable supply response, including that property rights and claims are recognized, contracts can be enforced, and a level playing field exists between the existing enterprise sector and the new private sector; and strengthening the legal and institutional framework for improved real property registration. The project will support this goal by helping to make real property rights more secure, the involved institutions more transparent, and contracts more enforceable. The project will also support private sector development by reducing some administrative barriers and impediments to private investment. The project will help develop effective landproperty registries, and through the more rapid and secure registration of mortgages will better support the development of functioning property markets and of efficient financial intermediation with collateral based on secure property rights. By helping to build accountable and effective public institutions the project will support the "govemance" goal. The project will facilitate the protection of property rights and enforcement of contracts in civil courts, through the creation of a reliable real estate cadastre. It will help 2

9 reduce informality by streamlining and publicizing procedures dealing with property registration, and improve property registration and cadastre services to citizens and other branches of government. This increased transparency will also help facilitate foreign and domestic investment. Republic Geodetic Authority s (RGZ) Mid-term Program (MTP) for was developed by RGZ and approved by GOS in late 2003 in association with this project. The IDA funds will contribute to the MTP s objectives, and it is hoped that other donors will also use the MTP as the overall programmatic framework. (see Annex 9 for more on the MTP). B. PROJECT DESCRIPTION 1. Lending instrument A SIL was selected as it is better suited to building effective registration and cadastre systems, and for building capacity as is needed in this project. Support is necessary in this project over the long haul and this i s difficult with most adjustment operations. Getting policy right is only the beginning - finishing the solution requires years of detailed work and resolution of numerous contentious issues which always arise when establishing a new system as fundamental as this. It is only by being present through these years on a continuous basis that the Bank can effectively support programs like this. Systematic change requires a long-term commitment. 2. Project development objective and key indicators The proposed project has the followinp obiective: to increase confidence and lower transaction costs by building; a more efficient property registration and cadastre system, with the purpose of contributing, to the development of effective real property markets. This will be achieved by accelerating the titling process through improving and supporting the real estate cadastre (REC) system operation that i s conducted by RGZ and its branch and local offices. In this manner the project will also support the phased transfer of the real property registration system - currently operating in some of the municipal courts - into RGZ, as stipulated in the SSCR law. The project includes support for the implementation of many parts of the SSCR law, particularly that of establishing a one-stop-shop or window for real property registration and cadastre services and providing access to this information to civil society, govemment, and the private sector. To achieve this objective, the project will support both operational tasks and improvement of the REC, as well as institutional development for RGZ. To achieve sustainability of the integrated cadastre and land registration system in RGZ and its local offices, the project will support business process improvement, better planning of cost recovery, improving RGZ s out-sourcing approach, the use of publicity and public information campaigns, and support the accelerated transfer of the registry system fiom the courts to RGZ. The project will involve many stakeholders, including academic institutions, the private sector, real estate support professionals, and other civil society groups. Key performance indicators (KPI) will be: 1) increase in the number of transactions occurring in land and real estate, and increased volume of mortgages; and 2) increased satisfaction with services provided by the registry and cadastre systems. Intermediate Operational Development results will be measured by: a) percentage completion of the real estate cadastre; and b) overhauled RGZ offices with modem ICT system. Intermediate Institutional Development results will be measured by: a) reduction in transaction turn around times; and b) percentage of 3

10 customers satisfied with service. These KPIs will be measured by annual customer surveys, regular project monitoring of the RGZ offices, and other means. As a result of the project about 600,000 folios will be adjudicated and clarified in 50 cities and towns with an estimated 1,000,000 land holders benefiting. In addition, some 3 10,000 transactions per annum will be more secure, and the transaction times for sales in project offices will be reduced from 60 days to 5 days (excluding the 15 day public notification period) over the 6 year period of the project. This could potentially benefit some 4 million citizens of Belgrade, Nis, Novi Sad and other areas with improved registry and cadastre services. An output matrix is contained in Annex Project components The project has two components: Operational Development and Support ($25.73 million - 86% of the Credit) The objective of this component is to support RGZ to speed-up the completion and maintenance of the REC and deliver quality services to all constituencies. This component will therefore support RGZ to complete the REC in an accelerated time flame in the priority urban and related rural areas, and further develop the ongoing real property registration system focusing on improving customer service. This component will also provide production of digital maps for the 89 cadastral municipalities (CM) chosen as the project sites in mostly urban areas. The direct beneficiaries of this component will be the 89 CMs chosen, property owners, and real estatekadastre professionals such as surveyors and lawyers. However the improvements to ICT, strengthening of secondary transactions, and control network improvements will benefit all RGZ offices and therefore most Serbian property owners. The legal extension component will target poor and otherwise disadvantaged groups and property owners. Specific tasks to be undertaken include: (i) (ii) (iii) (iv) (v) (vi) (vii) control network improvements, including support for the continuous operating network of GPS stations; digital cadastre mapping (up-dating and conversion; renewal); real estate cadastre (REC) formation involving data collection, delimitation, adjudication, survey and registration; focused support for REC formation in Belgrade; strengthening of the secondary transaction system (REC maintenance), especially the registration of sales, mortgages, subdivisions - including facilities improvements (office building and renovations, and office equipment); information and communications technology (ICT) systems modemization for REC; and provision of legal extension services for low-income property owners. Capacity Building and Institutional Strengthening ($4.27 million of the Credit - 14%) ) The objective of this component is to provide institutional development, capacity building and project management for RGZ. While RGZ staff appear to be the direct beneficiaries of this component, the improvements to business processes, legal framework, and customer service will benefit all those who use the cadastre and registry systems. In addition, the public information campaign 4

11 will have several target groups - cadastre and real estate professionals, landowners, and the general public, among others. Specific tasks include: (i) strategy and business plan development and implementation including a cost recovery strategy, and business process improvements; (ii) ICT strategy development and implementation; (iii) legal framework completion; (iv) customer publicity and information campaigns, including outreach to other professionals (real estate agents, bankers, advocates, etc.); (v) training and human resource development; (vi) project management for both headquarters and regional offices; (vii) research and development; and (viii) monitoring and evaluation, customer surveys, and special studies. 4. Lessons learned and reflected in the project design International best practice is observed by the support for the one agency model in land administration in Serbia. Other projects in the region have shown that a dual or triple agency system undertaking cadastre, registration and land administration is laborious and expensive, and has resulted in long project preparation and implementation times. Coordination under such multi-agency projects is expensive and service to the civil society remains poor. Other lessons reflected in project design include: the project has a simple focused design on land administration; an adequate legal framework is in place (but will be improved during the life of the project); there is an adequately trained staff in place; the implementing agency has no conflicting mandates (e.g., its mandate does not include management of both public and private lands); a business planning approach is to be developed by RGZ; an outsourcing model is being implemented; and a publicity/public information campaign has been incorporated into the project design. 5. Alternatives considered and reasons for rejection Single Anencv Model Accepted The most significant factor in determining the project design was the decision taken in 1992 (and confirmed by the GOS and Parliament in 2002), to move the land registration function out of the municipal courts and into the cadastral agency. This decision consolidated both functions under one administrative agency and is the favored model of the World Bank. The other alternative of the dual system of real property rights registration is seen in about half the countries in the region whereby: (i) the land book is maintained by the municipal courts, and notionally with administration by the Ministry of Justice; and (ii) the cadastre is maintained by a cadastral agency usually located under the ministry of public works or interior. Often this dual system approach has presented difficulties for both project design and implementation. The Bank considers single agency models simpler and more easily and economically implemented, and therefore is in full agreement with the GOS on this issue. No Project Option The no project option was considered. This would mean that the GOS and RGZ would be left to implement the SSCR law and formation of the real estate cadastre with little additional support. Under current implementation arrangements, completion could take another 10 years, as only 20 percent of the court's land books have been transferred into RGZ 5

12 offices to-date. RGZ has tackled mainly the rural areas over the last 2 years, leaving the more complex urban areas still to be dealt with. A concem has been expressed in some quarters that the longer it takes to move the registry system out of the courts into RGZ, the more likely it is that opposition will be expressed and the process stopped. Overall the real estate cadastre is needed now in order to provide the necessary infrastructure for a well functioning real property market which the present court land book system is not providing (e.g., in Belgrade about 70% of apartments are not in any registration system). Multiple Component Project In the interests of simplicity and focus, several other components which had been considered for inclusion in the project have been rejected by the GOS and the Bank task team. Components rejected were property tax system support and associated real property valuation system improvements, state real property asset management, and improvements to the construction and usage permitting processes. GOS stated that other donors would be encouraged to consider supporting them or that the Bank might be requested for support via a possible continuing project. C. IMPLEMENTATION 1. Partnership arrangements The following parallel-financing has been agreed in principle by other donor partners: - EU: The EU (through its implementation agency, the European Agency for Reconstruction (EAR) in Serbia) has confirmed that support will be possible from the EU CARDS 2005 and 2006 annual programs subject to the approval of the EC and the EU member states. The proposal submitted by RGZ to EAR is for EUR 9.0 million over two CARDS years (2005,2006) and will support: (a) the modernization of REC in regional offices (the roll-out of the new IT system); (b) cadastre mapping conversion; (c) establishment of the REC in selected rural areas; and, (d) TA and training, especially to ensure that the legal framework is in line with the best EU practice and standards as applicable. It is expected that the proposal will be further discussed and refined by RGZ and EAR, finalized by September/October 2004, with funds likely to be available by May Norwav: RGZ has submitted a proposal to Government of Norway amounting to EUR 0.95 million for 2004 for the: (a) establishment of a cadastre map scanning center in RGZ; and (b) technical assistance to implement an efficient product line. This proposal is expected to be approved by Norway in the third quarter of This would be parallel financing managed by Norway. Further fimding in other years may be sought by RGZ. Sweden: SIDA has committed to support RGZ beginning in May 2004 for about one year by providing training and other TA support for the PIU and RGZ staff in general. It will include project management, procurement, and financial management training; support for institution building; and may include study tours and educational support to the University of Belgrade in land surveying and linkages to a Swedish university. The amount is about EUR 500,000. Germanv (GTZBMZ): In May 2003 GTZ signed a MOU with RGZ for EUR 1.O million over two years to support RGZ with: policy and legislative framework changes; methodologies and 6

13 procedures in real property registration; land management at the municipal level; and institutional capacity building. Implementation of this agreement began in January To coordinate the above and future donor contributions RGZ has established and conducts regular donor meetings with minutes circulated and displayed on the RGZ website. The last donor coordination meeting was held in February It was confirmed during the preparation of the project that RGZ will conduct regular donor meetings throughout the life of the project. In 2003 a donor s MOU was agreed in principle among members and RGZ. 2. Institutional and implementation arrangements The main implementing agency is the Republic Geodetic Authority (RGZ), the government authority responsible for cadastre and registration of real property rights. RGZ reports to the Ministry of Capital Investments (MCI). The project implementation arrangements build on lessons learned from other land registration and cadastre projects in the region. Project implementation arrangements include a project council and project implementation unit as follows : Proiect Council (PC) This will be headed by the Director General (DG) of RGZ and will consist of representatives of MCI and MOF, and the involved directors of project related directorates in RGZ. This council will provide policy guidance and direction. A sub-set of this PC, the Steering Committee, would be comprised of the RGZ s DG and Assistant Directors and would be responsible for agency level decision making. Proiect Implementation Unit (PIU) will be an administrative unit within RGZ and will report to the RGZ Director General and Deputy Director as would any other directorate. It will undertake all roles and tasks required for project administration and implementation, including procurement, contract supervision, reporting, annual planning, budgeting, disbursement and accounting, and work with the line departments in RGZ to ensure work programs are achieved, targets are set and monitored, and that the job gets done. Also to ensure constant linkages of the PKJ with the RGZ departments central to the project, there will be Intra-Agency teams established and conducted in the two main RGZ directorates (for Real Estate Cadastre and for Information and Communications Technology). These will have at least two senior RGZ staff working at least half -time on project matters. The basis of these teams was agreed in the minutes of negotiations and included in the DCA as a covenant to the Credit (see Annex 6). There will be an Expert Advisorv Group (EAG) for the project. This expert group will consist of academic and other experts in the areas of geodesy and law, and will also include representatives from the private sector, civil society, real estate professionals, and related NGOs. A Client Advisory Group (CAG) would be convened on an as-needed basis to provide feedback to RGZ about information campaigns, service standards, fee schedules and other client issues. In 1992 the SSCR Law (amended in 2002) formalized RGZ as the centralized national agency responsible for establishing and maintaining the REC. A further re-organization of RGZ was carried out in 2003 with the intent of better focusing the agency on the REC task, out-sourcing many of the survey functions, and ensuring that the activities of the Agency are carried out with a high degree of professionalism and quality. The property rights registration function (part of 7

14 the REC formation and maintenance) is a comparatively recent activity for RGZ. Under the project a Real Estate Registration Management Unit within the REC Directorate will be established with an appropriate mandate, staff, and financial resources to address and highlight this function at least for the period of project implementation. This was agreed to by MCI and RGZ during preparation, confirmed during negotiations and is recorded as a covenant of the Credit in the DCA. The technical capacity of RGZ, the private sector, and academia to undertake the project is satisfactory. Serbia has a well-regarded reputation for education in geodesy and survey. The technical and human resources of RGZ and the private sector are adequate to undertake the proposed project. This project accounts for less than 30 percent of the total proposed efforts of RGZ for the next six years. In that context, the need for management and organizational skills within RGZ is crucial. The project will support RGZ to manage the tasks and disburse the level of funds proposed over the six years, through the development of its institutional capacity under Components A and B. Moreover, key posts in the PIU were established by Negotiations in order to manage the project, and an estimated 50% of the tasks will be contracted out. 3. Monitoring and evaluation of outcomeshesults Monitoring and evaluation will be essential in determining the effectiveness of the project. RGZ already has in-house capacity for input and output reporting and does so regularly to government. The second component of the project - capacity building for RGZ - will include training in monitoring and evaluation. During the preparation phase, a customer survey to provide baseline data on service quality and capacity was undertaken. A number of other studies including the social assessment and land market study provided additional data for monitoring and evaluation. A monitoring and evaluation plan for the project was developed for the project including a plan for data collection, preparation of baseline data, reporting formats, terms of reference for studies to be conducted during the project, and two training sessions for RGZ staff. The PIU in RGZ will be responsible for regular reporting to the Project Council on input and output targets and progress. Outcome indicators will also be monitored on a semi-annual basis both to the Project Council and the World Bank supervision team. RGZ s regular monthly and quarterly reporting to Government will continue and project outputs will be included. See Annex 3 for Arrangements for Results Monitoring and actual numbers. 4. Sustainability The project will explore opportunities for partial or full cost recovery to cover the cost of maintenance of the REC - including cadastre and property/land registration functions. Experience from other countries shows that this function can be self-financing from fees for recording transactions, registration, and supply of information. Inherent in this is the need to build capacity within the main implementing agency - RGZ - to do efficient business planning, and this will be supported early in the project. (see below Credit conditions and covenants 6, g) Another key to sustainability is the improved quality of customer service in the cadastre offices that will be dealing with an increased number of transactions than previously experienced. Maintenance of the REC will also be dependent on development of effective ICT systems, 8

15 human resource development, and streamlining office procedures. All of these issues will be covered by the project. (see below Credit conditions and covenants 6, e and k) 5. Critical risks and possible controversial aspects Due to the substantial legal and institutional changes already made in support of the real estate cadastre, the institutional risks are somewhat reduced. However the reputational and political risks to the government if the real estate cadastre is not completed and maintained in a timely manner are significant. A small but vocal minority has already begun agitating for the retum of the land registration hnction to the courts. While formal resistance at this time is minimal, failure or perceived failure on the part of RGZ could provide ammunition for those who wish to see a retum of the land registries to the courts - as has already happened in Bosnia-Herzegovina. Public perception of the services provided by RGZ is currently mixed and increased quality of customer service - particularly for the registry function - will be essential. This aspect is the focus of a credit condition (see below Credit conditions and covenants 6, d and e). The social and political issues related to the number of refugees and internally displaced persons in Serbia (about 600,000) are contributing to pressures on land in the shape of informal occupation of lands and apartments. The social assessment and the special study on land and minorities and gender have provided more details on this issue and its interplay with the project design. Illegal construction, privatization, restitution and land consolidation will remain significant issues for the country for some years and these issues already exert pressure on the currently overburdened cadastre and registration system. Improving the operational systems and the capacity of RGZ will provide support for the govemment to further address these crucial issues. (a risk matrix is contained in Annex 4.1) 6. Loadcredit conditions and covenants The following covenants (confirmed during negotiations) and are: Project management conditions: a. That RGZ will maintain the Implementation Agreement agreed and signed on March 26,2004 by RGZ and MCI under terms and conditions satisfactory to IDA, that provides: (i) the project related responsibilities of RGZ, MCI, MOF and others; (ii) the specific project responsibilities of the departments of RGZ; (iii) the obligations of RGZ to support the PIU in the carrying out of the Project in accordance with the DCA and related project documents, especially in procurement, financial management, disbursement, and reporting; and (iv) assurances on achieving the required level of counterpart funding. b. That the Republic of Serbia shall take all necessary measures in order to provide that the legal rights registration to real property and the cadastral function will remain in a single agency (RGZ or a successor agency) as at present under the Law on State Land Survey, Cadastre, and Registration of Real Estate Rights of 1992 (SSCR law) as amended. 9

16 C. d. e. That for the period of the Credit, RGZ will maintain project management arrangements satisfactory to IDA to include: (i) a project council, and (ii) a full-time, fully staffed Project Implementation Unit, with TORS, staff, and sufficient resources; (iii) an expert advisory group with a TOR and sufficient resources; and (iv) Intra-agency teams in the Real Estate Cadastre and ICT departments of RGZ. That RGZ agree to establish and maintain a real estate registration management unit within its organizational structure with a mandate, staff, and financial resources satisfactory to IDA for at least the life of the project. That RGZ, in registering a standard transaction of sale (without a subdivision) in the REC, will introduce service delivery standards (via a RGZ regulation) to reduce maximum processing times as follows: 60 days by the end of 2006; 40 days by the end of 2007; 20 days by the end of 2008; 10 days by the end of 2009; and 5 days by the end of 2010 (Note: this does not include the subsequent 15 day public notice appeal period after the above processing time). Dated covenants: f. g. h. 1. j- k. 1. That proposals satisfactory to IDA for amendment of the SSCR and related laws affecting real property rights and registration, along with associated regulations for cadastre survey and business processes streamlining, will be developed during the first project year with a view to improvement and modernization, and will be submitted to Parliament on or before October 30,2006. That RGZ will develop and begin implementation of a business strategy including cost recovery by January 3 1, 2006; and that RGZ will implement an executive agency structure or similar (in a manner similar to the Netherlands Cadastre, and the HM Land Registry of England and Wales) by January 3 1, That the REC procedures for application or demand driven entry into the REC will be improved, preferably by administration regulation, to allow separate real estate objects to become part of the REC on application or ex-officio, to be incorporated in the amendments to the SSCR law by October 30,2006. That RGZ undertake on a regular basis, project monitoring and evaluation of performance targets including social indicators, established at the start of the project, to monitor progress of implementation, beginning January 3 1, 2005 with annual up-dates. That RGZ will put in place processes that particularly target low-income landholders including legal aid (and extension), targeted lower fees for low-income landholders, and continue the free REC first-time registration initiative under the law. That RGZ will develop and implement an information and communications technologyhformation management strategy focused on the users of the systems. A strategy, satisfactory to the IDA, will be drafted by December 3 1,2005, and begin to be implemented by June 30,2006. That for the period of the credit the Republic of Serbia shall take all necessary measures in order to provide that conveyancing and public notary functions for the transfer of real property (services to civil society) are not restricted to the proposed profession of notaries, rather that such services continue to be provided as well by qualified lawyers, advocates, and by qualified conveyancers. 10

17 D. APPRAISAL SUMMARY 1. Economic and financial analyses Project Benefits Improving the REC and registration services will alleviate one of the major constraints towards the development of land markets in Serbia. Implementation of the proposed project will result in benefits to both individuals and Serbian society via (a) facilitated real estate transactions consisting of property sales and leases; (b) accelerated access to building land and land acquisitions for builders and developers; and (c) enhanced procedures for the privatization of state owned assets which occupy land. The project s impact on builders and developers will be significant as they will henceforth be able to build faster and transact more freely owing to an enhanced process for land acquisition that would be afforded by the unified REC supported under the project. Another distinct and equally important facet of the project will be the reduced per unit cost of service delivery (cost effectiveness) to the clients which will be reflected in the future fee structure of RGZ. Indicative Economic Rate of Return (ERR) The indicative economic analysis is based on estimating the expected impact on the overall land markets resulting from improving the public services provided by RGZ. Improved title security and efficiency gained in market transactions are the principal benefits from the project. These improvements would be reflected in the future number of transactions as well as average property prices, the product of which would determine the total market value. In this context, the average property price is some form of a weighted measure for a property pool consisting of houses, apartments and enterprises. From the with and without project computations, incremental market growth was estimated. This estimate was subjected to downward adjustments to arrive at net incremental benefits due to the project from which an ERR could be estimated. The planning horizon was assumed to be 20 years. Using the rather restrictive and conservative assumptions (see Annex 9 for details) together with base project data, the indicative ERR is estimated at 30% for a total project investment - IDA and Government fimds combined - of about US$39.5 million plus a further package of donor financing of US$l million (including government contributions) from Norway, for a total of US$40.5 million. The key parameter driving the analysis is the number of REC folios to be completed under the project which is estimated at 596,000 for the project life. Due to the broad geographical coverage, the project benefits accrue to the Serbian society as a whole. Over the 20- year planning horizon, comprising both the implementation and operational periods of the project, it is expected that some 580,000 market transactions would occur under the with project scenario against 480,000 under the without project scenario. The principal source of project benefits is the increased market the increment of 100,000 transactions), as highlighted by the comparison of these two key figures. At a discount rate (OCC) of 10% the net present value of economic benefits directly attributable to the project attains some US$90 million which is three times greater than the amount of funds invested in the activity. Financial Analysis RGZ Self-Financing To receive RGZ service, clients must pay the necessary fees to designated banks or the post office. Most RGZ offices are in close proximity to such facilities. Thus, RGZ does not handle any cash itself As of April 2003, all of RGZ s fee income is being deposited into a special account and subsequently consolidated in the so-called Consolidated Treasury Account. Release of budgetary appropriations is made out of this account. The annual fee income 11

18 budgeted for Fiscal Year 2003 was SD 770 million against actual earnings of SD 812 million at the end of the year. RGZ could access some SD 468 million of its own sale proceeds while the remaining SD 353 million was not released, but turned over to the next year s budget. RGZ s effective self-financing ratio in 2003 was 71% - higher than that of the previous years. This positive budgetary performance however was partly the result of lower budgetary spending than planned, i.e. SD 1,164 million against a plan of SD 1,572 million. (see Annex 9 for full write-up) Transaction Costs One goal of the project is to lower secondary transaction costs especially for real estate sales. In Serbia these costs are relatively high: there is a property transfer tax of 5% of the transaction value, a capital gains tax, registration fees, survey fee, real estate agents fees, lawyers fee, and others. High transaction costs impact on sales, sometimes driving the transaction into informality (with no consequent registration) or stopping the transaction altogether. Two of the targets to achieve the lowering of transaction costs are: (i) to lower the property transfer tax rate, and (ii) review the proposed notary function under consideration by GOS. High transfer tax rates, in addition to causing a flight to informality, contributes to the stifling of the development of land markets in Serbia. The project design team asserts that the long-term effects of a reduction in the percentage of transfer tax from its current level of 5% down to 2 or 3% in phases would be beneficial and eventually yield more in property related tax revenue from both sources of property and transfer taxes combined. This would be due largely to bringing many unregistered properties under registration from which a property tax could be collected and generally increased market operations. In order to investigate this matter further, a study has been included within the framework of the project, and after discussions with the IMF, the matter was deferred for debate at a later date. 2. Technical REC Creation and Maintenance The creation of a complete REC over the whole country is a primary task, but this is a long-term program that cannot be hded solely by this Project. The full program is described in Annex 4 and other donors are also helping to support this work. The Project focuses on those sites that RGZ has found to be more difficult and time consuming to complete - especially the busier urban centers that are also the hub of real estate market activity. However, the project also targets those poorer members of the community that lack access to land or secure tenure because of lack of understanding or access to information or legal advice. The creation of the REC is only part of the formation of a real estate register and cadastre, with the other part being maintenance and up-dating; this takes place mostly through sales and subdivisions. The whole REC system must be sustainable, and adequate funds are allocated to ensuring that registration offices are renovated, with good public reception areas and that they provide a friendly, efficient customer service. Under the project RGZ, as an organization, will be analyzed and a corporate plan and annual business plans developed to enable it to work along self-funding commercial lines, with the objective of gaining self-financing Agency status. Policy and Lena1 Framework The basic legal framework for this project in Republic of Serbia is in place. The SSCR Law as passed in 1992 and further amended (particularly as amended in May 2002), provides a solid foundation for the proposed project. The law provides a unified cadastre and registration agency; a unified land and building cadastre; and well defined rules and procedures for the adjudication and systematic registration of titles. The SSCR law is an eclectic mix of various national cadastre and registration systems, which with respect to registration of 12

19 rights relies most heavily on the inherited Austro-Hungarian registration law and principles prevalent in the region. At the same time, the law contains some radical, modem departures from the standard Austro-Hungarian laws seen in other countries, and these departures will benefit the proposed project significantly. While there are many modem and noteworthy elements of the main SSCR Law and legal framework, the project will support improvements to the legal and policy framework, such as registration of apartments, registration of incomplete structures, definition of the land parcel, and others. The policy framework for land and property in Serbia overall remains incomplete with a number of important laws on denationalization and restitution still to be passed, and a new illegal construction law just beginning implementation. These key issues have been taken into account in project design to the extent possible based on known information and experience from other countries in the region. It is expected that these issues will not pose a problem to the REC formation and other activities under the project, provided that issues are anticipated and contingent procedures devised. The project will support legal framework completion under Component Financial Management A financial management review was undertaken in January 2004 and updated in February 2004 to determine whether the financial management arrangements for the Project are acceptable to the Bank. It has been concluded that the Project satisfies the Bank s financial management requirements. The Serbia and Montenegro (SAM) CFAA report notes that there are a number of risks for the management of public funds in SAM. The risks to public funds include: (a) poor public sector financial management in the past; (b) unfinished reforms - the governments of both Serbia and Montenegro have commenced a process of major reform, which looks good as designed, but it is still too early to say if the reforms will be totally successful; (c) capacity constraints in both the Federal and Republic level governments; (d) weak banking sectors; (e) weak audit capacity; (f) poor implementation capacity in line ministries; and (g) the lack of extensive Bank implementation experiences within SAM. Since re-joining the membership of the World Bank, SAM has been using individual implementation units for each investment project (traditional PIU model), located within the relevant line ministries or project beneficiaries, to mitigate some of these risks. Disbursements from the IDA credit will follow the transaction-based method, i.e., the traditional IDA procedures including direct payments, special commitments and reimbursements, either with full documentation or certified statements of expenditures. It is not anticipated that the project will migrate to report based disbursement. 4. Social Assessment Based on the findings of the draft Social Assessment (SA) and a special study on Minority and Gender Issues, there are several core social issues relevant for this project: a. The influx of refugees and IDPs has increased the number of illegal or semi-legal settlements and housing units often with uncertain property rights. These groups are concentrated around large cities (Belgrade, Novi Sad, Kraljevo) and generally in the northem province of Vojvodina. 13

20 b. C. d. e. f. Serbia is a country of ethnic diversity with Albanians, Vlachs, Hungarians, and Bosnians concentrated in specific regions; and the Roma people, some 80 percent of who live in poor settlements. However, with the exception of the Roma people, it appears that the position of ethnic minorities with regard to property issues is no different from that of the majority Serb population. The incompleteness of ownership records is a problem across the country for all groups. That being said, the Roma people are the most disadvantaged group - living in poverty and informal or illegal settlements. The SA has revealed a general public ignorance about the REC and its objectives and procedures - 80% of respondents have no knowledge that RGZ serves as a new integrated agency. The SA also confirmed a wide-spread distrust of government in general and its institutions. With regard to gender, the findings are that women s property rights are legally protected. However in some areas and among some ethnic groups a type of retraditionalizing is taking place, especially in rural areas, where common law favors male inheritance of property. There are some indications that corruption i s an issue, in particular with regard to issuing of construction permits (though this is not a RGZ function). A set of recommendations to improve services has been incorporated into the project design that will help to address some of the issues raised above. The project includes a legal aid component that is designed to provide legal advice to disadvantaged groups that are unsure of their rights and cannot afford to hire an advocate. Increasing public awareness and knowledge of RGZ, the REC process, the law and procedures for registration is another critical component of the project. Public education is necessary so that citizens are aware of and seek to enforce their rights. Public awareness is also a prerequisite for holding government agencies accountable. Serbia has developed various strategies for minorities and refugees that deal with their housing and social issues - such as the National Strategy for the Roma, and the National Strategy for Refugees and IDPs. These strategies also provide for a new institutional framework with special institutions and national task forces put in place. Finally, the project seeks to make the procedures and processes of RGZ and the REC more accessible and transparent. Client Advisory Groups will be convened at several of the Cadastre Offices across the country to provide feedback on a regular basis to those offices and the project on issues of service standards, public information and other issues. Regular customer surveys will be carried out as part of the project s monitoring and evaluation. Opportunities for corruption in service delivery will be reduced by improved public information and oversight. 5. Environment The environmental category rating is Cy and no Environmental Assessment is required. The proposed project deals exclusively with land administration and does not provide direct support to land management. Land administration concerns the establishment and maintenance of the land and real estate cadastres, as well as improvements to the legal framework and improved IT systems. Environmental protection will benefit from this general framework and improved IT systems by making data more readily available to other constituencies - forestry management agency, NGOs, other government ministries, etc. 14

21 ~~ 6. Safeguard Policies Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP/GP 4.01) [XI 11 Natural Habitats (OP/BP 4.04) [I [XI Pest Management (OP 4.09) [I Ex1 Cultural Property (OPN 11.03, being revised as OP 4.11) [I Ex1 Involuntary Resettlement (OP/BP 4.12) [I [XI Indigenous Peoples (OD 4.20, being revised as OP 4.10) [I [XI Forests (OP/BP 4.36) [I [XI Safety of Dams (OP/BP 4.37) [I [XI Projects in Disputed Areas (OP/BP/GP 7.60)* [I [XI Projects on Intemational Waterways (OP/BP/GP 7.50) [I [XI The projects compliance with the Bank s safeguard policies has been reviewed to ensure that all potential issues have been taken into account in the project s design, and it has been concluded that no Bank safeguard policy is triggered by the proposed project. It has the Bank s S3 Safeguards Classification. A satisfactory legislative framework exists for cultural property, forests and environmental protection. The project will focus primarily on urban areas and will not undertake forest sector activities and interventions that will impact significantly upon forested areas. The main focus of the project will be to speed up formation of the real estate cadastre in the identified 50 urban areas and in some of the surrounding rural areas. This process involves registering real estate ownership rights as currently recorded in the land book, land cadastre or with proof offered by the owners. If state owned forests or cultural property are included in a cadastral municipality, this state ownership is registered along with all private ownership, thereby clarifying the ownership situation. In addition, as the formation of the REC is a systematic process including all properties/lands in the given cadastral municipality it may introduce into the official state system previously unrecorded or unknown lands of environmental or cultural value. Resettlement/Illeaal Construction In Serbia, existing informal settlement/occupation is supported under the law and the gaining of title to real property by prescription is possible. Also, the SSCR Law has provisions within it that allow qualified registration of real property when full evidence is not available to prove rights. There is no indication that the GOS intends to resolve the issues of illegal construction other than by providing the opportunity to legalize in an evenhanded manner. 7. Policy Exceptions and Readiness None * By supporting theproposedproject, the Bank does not intend to prejudice thefinal determination of theparties claims on the disputed areas 15

22 Annex 1: Country and Sector Background SERBIA AND MONTENEGRO: REAL ESTATE CADASTRE AND REGISTRATION PROJECT (Serbia) Property rights and land administration in Serbia are under stress, owing to the country's dynamic and turbulent history, especially over the last 60 years. As a result real property markets are constrained, meaning that domestic and foreign investors cannot invest with confidence, mortgage systems, while available are difficult, and owners hold their properties less than securely. Some of the results and problems are: 0 over 75 percent of apartments are not registered in a viable registration system; 0 land transactions in rural areas are often not legally registered; 0 uncertain status of land underneath and adjacent to buildings, common property within buildings, and the exterior walldfacade; 0 illegal buildings and settlements have been built around most main cities (e.g., Belgrade, Novi Sad) with about 200,000 in Belgrade alone; 0 significant backlogs in the civil courts, where about 20 percent of civil cases are land related; 0 the state is still the legal owner of most urban lands; 0 cadastre registers and maps are often out-of-date and do not cover complete areas; and 0 land parcel records in the cadastre offices often do not match those in the legal registers in the municipal courts, which contributes to long waiting periods to rectify these problems. An effective national property rights system is a prerequisite for land and housing development, broadening economic prosperity, wise stewardship of natural resources, increased use of property as collateral for credit purposes, and efficient land markets. For such measures to take root requires partnerships between government, civil society, the private sector and donors. An efficient property rights system, and the supporting cadastre and registration systems, is the hidden infrastructure needed to achieve secure and effective property markets and contribute to overall development goals. The Real Estate Cadastre and Registration project reflects this cross-sectoral focus, and will provide property rights infrastructure in support of the GOS privatization plans, efforts to deal with illegal buildings and construction, urban planning, reform of the property tax and valuation systems, agriculture policy and forestry management. Government priorities that will be taken into account in the project design include: 0 Actions that would lead to more secure property rights and more secure property transactions especially those that would lead to more domestic and foreign investment, and those that would better support the privatization process and improve the mortgage system; 0 Balancing the priorities between urban and rural areas, and between industrial, residential and agricultural lands; 0 Support actions that will complement the FIAS study of administrative barriers to investment in Serbia, which is already underway; and 16

23 0 Actions that will help deal with the problem of illegal building across Serbia. The Government strategy to address the above issues includes priority support for the formation of the "real estate cadastre'' nationwide and efforts to address illegal construction. By December 2003 approximately 45% of the territory of Serbia has been completed and the function appears to be receiving adequate budget. There is a high level inter-ministerial committee to oversee the Real Estate Cadastre (REC) formation and other land matters, indicating that the GOS recognizes the REC formation and operation as a priority. Most of the necessary prerequisites for the proposed project are in place and include: 0 The SSCR Law, passed in 1992 and further amended in May 2002, contains most functions necessary for the introduction of secure cadastre and real property registration systems. The law is flexible enough to include in the real estate cadastre, properties that have been illegally constructed. 0 A viable single agency, the RGZ, to implement the above cadastre and registration law that is well managed and has already set-up a full-time PIU for both the preparation and implementation phases. RGZ has been well funded over the last two years by GOS funds for this function, but more support is needed. 0 An educated and motivated staff to execute the project and related tasks, and private sector development begun with the passage of recent legislation to allow private surveyors to take over the majority of cadastral survey work for civil society. The basic legal framework for this project in Republic of Serbia is in place. The SSCR Law provides a solid foundation for the proposed project. The law provides a unified cadastre and registration agency; a unified land and building cadastre; and well defined rules and procedures for the adjudication and systematic registration of titles. The SSCR law is an eclectic mix of various national cadastre and registration systems, which with respect to registration of rights relies most heavily on the Austro-Hungarian registration law and principles prevalent in the region. At the same time, the law contains some radical, modem departures from the standard Austro-Hungarian laws seen in other countries, and these departures will benefit the proposed project significantly. The noteworthy elements of the law include: 0 There is a single cadastre and registration agency, which is outside of the court system and not subject to Ministry of Justice supervision. This is the modem trend in national registration systems, and a positive development for Serbia. 0 The law defines an integrated cadastre and registration database, as well as the necessary relationships between physical and legal cadastre. 0 Land and building cadastre and registration are integrated into the single system. 0 The system is essentially land parcel based. 0 The law provides a logically consistent and reasonably efficient procedure for adjudication of titles and conversion of data from existing sources to the new integrated land cadastre and registry. 17

24 0 The law provides logically consistent and reasonable rules for registering provisional titles, an essential component of any registration system in countries with seriously disrupted title histories. 0 The rules for registering real estate transactions (maintaining the cadastre) are relatively transparent and provide a significant level of protection to property rights. Such unification of immovable property in a single real estate cadastre is common practice around the world and is necessary for improved market functioning (e.g., Hungary, Netherlands, Norway, Slovakia, Czech Republic, Thailand, Indonesia, and New Zealand). While the SSCR law could be improved by carefully considered modifications focused on clarifying and simplifying some rules and procedures, the defects in the current law, such as they are, are not an obstacle to development of an efficient and effective cadastre and title registration system. As the GOS begins to address issues of privatization, restitution, consolidation and other key reform issues, the unified real estate cadastre will provide much needed information and help support these various reform initiatives. 18

25 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies SERBIA AND MONTENEGRO: REAL ESTATE CADASTRE AND REGISTRATION PROJECT (Serbia) 1. World Bank Financed Projects: Private Sector Development TA Second Private and Financial Sector Adjustment Credit Privatization and Restructuring of Banks/Enterprises - TA 2. Other Development Agency Financed Projects Legal Framework project (GTZ-Germany) - ongoing; improvements to the legal framework for land administration and selected other sectors ( ) Real Estate Market Development Project (USAID) - closed; focused on streamlining and improving the relevant legalhegulatory framework; initial ownership registration; agricultural land consolidation; development of local NGOs and SMEs; and public education campaign ( ). 19

26 Annex 3: Results Framework and Monitoring SERBIA AND MONTENEGRO: REAL ESTATE CADASTRE AND REGISTRATION PROJECT (Serbia) Results Framework PDO Increase confidence and lower transaction costs by building a more efficient property registration and cadastre system, with the purpose of contributing to the development of effective real property markets. Intermediate Results One per Component Component One: Operational Development and Support Targeted offices have slulls and infrastructure to accelerate completion of the REC in a quality manner. Component Two: Capacity Building and Institutional Strengthening Targeted offices applying new service standards. Customers in target areas have increased access to related information. Outcome Indicators Increased number of transactions in land and real estate; increased proportion of mortgages. Increased satisfaction of customers with the cadastre and registration services provided. Results Indicators for Each ComDonent Component One: % completion of REC in targeted areas % cadastre offices retrofitted and improved with new ICT system. Component Two : % of transactions meeting new service standards % customer satisfaction % of customers aware of real property procedures and rights Use of Outcome Information PY 1-PY2: Initiate appropriate legal and organizational changes and strategy development. PY 1-PY3: Rationalize business processes and policies. Use of Results Monitoring Component One: Improve methodology, technology, and procedures for REC establishment. Expand application of modern IT to more cadastre offices. Component Two: Update internal performance and customer service standards. Improve staff training. Improve and expand public awareness campaign. 20

27 2 I I m Lu 0

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29 I H s VI wm N 2E:E:mLn F F I F 0 0 mn N mvrlnbbnhln m 3 E: 33 I F 3 H m $ U

30 Annex 4: Detailed Project Description SERBIA AND MONTENEGRO: REAL ESTATE CADASTRE AND REGISTRATION PROJECT (Serbia) Component A: Operational Deyelopment and Support Al. Geodetic Reference Framework To facilitate the rapid application of modern and efficient surveying technologies for cadastre works it is agreed that the project will include completion of the Active Geodetic Reference Base (ARGOS) real time positioning system, which is based on Global Positioning System (GPS). A central facility for monitoring and distribution of correction signals through GPS and ten reference stations will be established by RGZ in 2004, before the start of the project. The project will finance the last 19 stations of 29 so that the system covers the entire territory of Serbia. The classical geodetic horizontal reference control network of Serbia was developed in the 19th century, in four orders, with a coordinate origin and datum in Austria. There are nearly 70,000 geodetic control stations in it. Their quality of coordinates, documentation, monumentation and location, however, do not meet the modern requirements, and need to be improved for the purposes of the REC. Recently, 8 EuREF stations were set up on the territory of Serbia and Montenegro. A project completed in 2002 has fkrther established a homogeneous GPS control network by breaking down (densifying) the EuREF to a GPS-measured network of 841 stations3 at an average distance of 10 km. This is a good basis for the establishment and maintenance of the REC that will enable sporadic registration of parcels and properties in it. To meet various requirements for application of modem GPS techniques, and in particular to enable efficient GPS surveys for REC purposes, RGZ have designed and are implementing a network of 30 (+ 4) permanent GPS stations (AGROS), at an average distance of 70 km and with positional accuracy off 10 mm. AGROS is a part of the EuPos standards. The implementation so far has been jointly performed with considerable contributions from the local authorities. One permanent station in CaEak, which is outside the scope of AGROS, is already operational since 18-Feb-03; another four have been purchased by a scientific project in Novi Sad and will be installed by the end of In 2004, further 6 stations will be made available for AGROS under a signed contract agreement between RGZ and the Ministry of Defense. The new ARGOS network will be the base for future survey work of all kinds and over the next few years the existing 70,000 points of geodetic control spread throughout the country will be used less and less. The MTP does not include any systematic component for improvement or current maintenance of the existing horizontal survey control. Verification of lower order control, operational survey control, and their rehabilitation are included as phases in the updating of the cadastre mapping within the establishment of the REC - cadastral municipality by cadastral municipality, but even here it should not be necessary for most sites. * 6 in Serbia and 2 in Montenegro Kosovo is not covered by these 841 points 24

31 RGZ has not yet decided on a pricing policy for supply of positional data to the private sector or other government bodies, but it is planned to develop a financial plan for this by the end of the second year of the project. The ARGOS network is the basic geodetic infrastructure required for the long-term operation of survey work in Serbia. As such it is an important sub-component of this project. The costs for completing the network are included in the government budget and are considered as part of the government contribution to this project. A2. Digital Cadastre Maping There are 5,826 cadastral municipalities (CM) in the Republic of Serbia (including Kosovo and Metohija), which were mapped in the Gauss-Kriiger projection, with the exception of 149 C M in Vojvodina in stereographic projection and 42 C M in Central Serbia in Soldner projection. This cadastre mapping is practically all in analogue format, with just 1.2% digitized in vector format, and is split into 75,672 cadastral plans in different scales as follows: Table 1 RGZ s Mid-Term Program (MTP) contains a separate component that is a national program for the conversion in vector format of all cadastre mapping4 within 5 years, at an estimated cost of 32.8 M. In addition, the Law on State Land Survey, Cadastre, and Registration of Real Estate Rights of 1992 (SSCR law), amended in 2002, stipulates that all cadastral plans in the REC should be in the state coordinate system, i.e. in Gauss-Kriiger projection. The MTP addresses this issue by another component for transformation of rural C M and resurvey of urban CM in stereographic and Soldner projection, to be done by photogrammetry. The resurveys will cover a total area of sq. km, at an estimated cost of 17.0 M. Thus, these two components alone will expend one third of the costs for whole MTP program. The MTP, however, does not associate the conversion and resurvey plans directly with setting up the REC throughout Serbia, and how coordination of effort will be achieved. Except for legal stipulations for the resurvey, neither of the two activities is critical for the initial establishment of the REC, as one of the REC phases deals with updating the cadastre mapping, rarely including the production of a DGP as well. The argument that there is high demand for DGP in vector format would possibly stand in urban areas with active property market, but is weak in rural areas. If the demand is high, the customers should be willing to support the map conversion by sharing some of its costs. A scanned raster map image will serve most customers in the meantime. The essential updating of the cadastre maps will take place systematically in the process of establishing the REC. However, this is a long-term process and offices must also have the capacity to update the cadastre map and their records on a demand driven basis when applicants wish to undertake a transaction. production of Digital Geodetic Plans (DGP) 25

32 It was agreed that RGZ will maintain a facility for scanning of cadastral maps under the project. The center should include a flat bed scanner and a number of work stations for geo-referencing and for registration of parcel numbers and reference points for parcels. The Government of Norway has been requested by RGZ to provide support for this scanning center, both the equipment and necessary technical assistance and training for RGZ staff. If Norway agrees, then the corresponding amount (US$900,000) could be transferred to other project activities. Two sets of equipment and software will also be purchased to enable the vectorization of the scanned images to be completed by vectorizing the raster image on screen. Two people will be recruited by RGZ for the period of the project to be trained and to work on the vectorization of the scanned images. The project scope offers a pragmatic and economically feasible compromise: 0 full coverage of the whole territory of Serbia (about 75,000 map sheets in various large scales) with a scanned, raster digital mapping product, with very limited geo-referencing, and semi-automatic vectorization of parcel numbers, plus one point (e.g. centroid) per parcel; 0 limited geographic coverage of the target CMs only with digital vectorized cadastre mapping to be maintained in the new IT system. The project will concentrate on full production of digital maps in the 50 cities and towns targeted under the project. The REC maps on roughly 1,940 sq. km of these urban areas will be vectorised so that contemporary computer aided services and digital maintenance of all A/N and cadastral mapping data will be in place for at least these 89 urban CMs. The current methods for digitizing used in Serbia are risk averse in the extreme. Under the Project this work will be contracted to the private sector, but specifications currently include a very high level of content and accuracy requirements. The specifications will need to be modified to be more pragmatic for the requirements of cadastre mapping and regi~tration.~ RGZ will utilize their present control unit of 50 inspection staff and workstations to manage and control the quality of the output. The quality control (QC) methodology of RGZ, which is now based on checks and verification of 100% of the output digital cadastral plans (DCP), should also be revised and optimized by applying modern quality assurance techniques, in order to increase the cost efficiency of this unit. To ensure that the work is done according to specifications and good practice, an international quality control consultant will be required. A3. Real Estate Cadastre Execution There are 4,596 cadastre municipalities in total. At this moment, in 44.4% of cadastral municipalities (indicators from December 2003), real estate evidence has been established. There Land use I fertility grades and related data on self-contained parts of the parcels are another moot issue in a REC record. It is disputable whether the sophsticated system for legal recording of land uses and soil fertility grades should be a part of the REC. It neither facilitates the real estate market, nor seem to reflect any market perceptions of the land values in reality. The consultants recruited under the PHRD fundmg are addressing these issues, as well as the standards, content, accuracy, methods and technical specifications for digitizing and these will be applied during the Project. 26

33 are 2,684 remaining6 to be completed. Of the total completed only 6 towns (3 1 cadastre municipalities) have completed the REC. It is expected that by the end of 2004 another 21% of cadastral municipalities (990) will have the REC introduced, making a total of 3029 (66%). This will include a further 13 towns (14 Cadastre Municipalities). Thus, by the time the project starts it is estimated that 34%7 of Cadastre Municipalities will remain to be completed, but these include many of the bigger and more complex urban sites.8 It is these sites that the project will target. RGZ, as the entity in charge of formation of the REC, has defined this assignment as the highest priority within its MTP. This means that more than 2,500 CM (> 50%) will have to be covered by the REC in the years to come. Out of this number, some 370 CM (=: 14%) are not included in the MTP because they are in stereographic projection (40%), or have still incomplete resurveys or land consolidation schemes ongoing in them (60%). In some 1,390 CM (=: 55%) the REC will be executed under the accelerated procedure of article 136a of the SSCR Law, which entails immediate conversion of available data sources and abbreviated publication requirements. In some 790 CM (=: 31%) of which 15% are urban and 85% are rural there will be the full procedure of the REC consisting of publication and individualized hearings. The pertinent costs are estimated in MTP at 38.9 M, of which 30% are for the CM with accelerated procedure, and 70% for the CM with public display procedure. In terms of priorities for the implementation of the REC, the law specifies a priority to finalize the cadastre mapping coverage by 2005 in those rural C M where no land book exists and which are subject to the accelerated procedure. RGZ will be undertaking this work using its own resources and plan to complete these rural CMs by the end of June The project will concentrate on urban areas, where the legalization of illegal buildings, the expected privatization of urban land, and the emerging real estate market demand quick action. The project will complete the REC for approximately 1 1,700 ha of urban land within the 50 selected urban municipalities - representing 59 cadastral municipalities (CMs). The establishment of the REC in a cadastral municipality where public display will take place is split into the following phases described below. Each phase has a percentage weight which was estimated by RGZ on the basis of the time it takes. This estimate was developed for monitoring and evaluation purposes in their annual planning process: 0 preliminary works - data collection, analysis, identification of changes (8%) 0 project design documentation - elaborate Terms of Reference / Specifications (1 5%) 0 reference control project - rehabilitation of survey control (if necessary) (1 0%) 0 operational control project - rehabilitation / development of operational survey control (1 0%) 2684 represents slightly more than 55.6%. Some cadastre municipalities are only partially completed. 7 The remaining 34% comprises: 16% (739) where Land Book offices operate and 18% (847) where only the old cadastre exists. The MTP shows 17% to be completed in 2005,4% in 2006,4% in 2007 and 4% in % are not covered at all. The remaining sites are often the urban, high population and difficult sites. The 8% not covered do have the REC established, but the work needs to be redone because of the poor quality of maps or use of illegal map projections. The Bank funded project will include much of the work in the MTP for , including 30 of the remaining 59 urban cadastral municipalities. 27

34 0 data collection and updating - owners / users; field surveys of missing buildings and objects - mandatory and on demand; alpha-numeric (A/") data (10%) 0 production of the cadastral master plan - usually, not in digital format (10%) 0 production of the A/N cadastral database (12%) 0 public display - and adjudication (20%) 0 quality control and entry in force - publication in the Official Gazette (5%). The establishment of the REC by accelerated procedure follows a similar scheme, but no public display is made, and data collection and updating refers to transformation from land cadastre only. However, owners / users are notified by mail and posting at the court, and have a 90 day period (2 years if actual notice is not received) to object to the rights or the parcel recorded in the REC. All the rest of the updating, including surveys of buildings, is left over for registration on demand and will be performed by the private sector surveyors. As this work is technically and legally more straightforward and can be done with RGZ's own resources, the project will concentrate on sites that do require conversion of Land Book data and the full public display and adjudication procedure. The 59 CMs have been selected on this basis. During project preparation the stages shown above were evaluated to see which could be contracted to the private sector and which must be done by RGZ. Indicative average costs of $1 5 per folio and a rate of 15 folios per day were used as a basis for costing the activities of the F2EC establishment. 0 The preliminary works and project design are a task for RGZ, but additional temporary help would be recruited 'as needed' to help with the tasks. 0 The reference and operational control would only be needed if (a) the existing control were not adequate; and (b) the buildings in a particular area were high and close together so that GPS equipment and the ARGOS network could not be utilized. If the reference control network is required (estimated as one sixth of the cases) the work could be contracted to the private sector. 0 Vectorizing of cadastre maps can be contracted to the private sector (completed under sub-component A2). 0 Data collection and the creation of a dossier for each property unit and the generation or update of the databases will be done by RGZ, but the project will pay for hired staff to assist them and the materials required to undertake the work. 0 According to the law a commission consisting of a lawyer, a cadastral surveyor and a local resident are required to approve each dossier ready for public display. They will be hired and funded by the project. 0 The final work to organize the public display, undertake quality control and gazette the results are the responsibility of RGZ. 0 The project will help to cover the travel and per diem costs of RGZ staff. mote: The underlying concept for the legislation and regulations that regulate cadastral mapping specifications is to stipulate the technology to be used and the accuracy to be achieved. At an ever accelerating rate, any set of laws and regulations based on the present concept would very soon reflect technology that becomes obsolete, and therefore regulatory constraints start to hinder the use of modem technology. This applies to the present surveying and mapping legislation and by-laws in Serbia, as well. Best international practice shows that it is more cost effective and flexible to identify user requirements for a product first, and then translate them into standard product specifications, thus leaving the selection of technology to qualified professionals. The Administration Section responsible for inspection and audit of practices and results has a primary focus on ensuring professionalism and a consistently high quality of data for the REC. At staged intervals before and after the adjudication of 28

35 ownership interests is completed, the inspection units have an integral involvement in the REC build process. Ownership folios are inspected before public notice can take place and the final results of the adjudication are again inspected before REC upload is given official confirmation. This approach is demanding from a time perspective as it is designed to be very risk averse. Prior to effectiveness the associated rules will be reviewed and it is expected that recommendations will gradually be adopted to improve output and lower costs during the project period. A4. Real Estate Cadastre Completion for Belzrade - The project will have a special focus on helping complete the REC in Belgrade municipality in both urban and its surrounding rural areas. The rationale for this focus is that Belgrade is the largest and most complex city in Serbia, where the RGZ offices should be the flagship of the REC. The Belgrade market has crucial importance for the whole real estate market in Serbia, as there are some 2 million people living in Belgrade with about 500,000 housing units within which a significant percentage of Serbia s gross domestic product is generated. The offices in Central Belgrade and Zemun (part of metropolitan Belgrade) are the largest offices in Serbia and are already very busy with the current REC creation and maintenance tasks. They will need extra management and organizational support in order to: 0 improve customer service 0 streamline business processes quickly complete the REC in Belgrade fully take over registration of real estate rights from the Land Book courts develop a sound partnership with Belgrade municipality The following will be included under this sub-component: (a) Built in technical assistance focused on Belgrade. This will be implemented through a QCBS contract with a consulting firm over five years, with an option for annual revision on the basis of performance, supporting 2.5 man-years of intemational project management input and 5 man-years of local project management to be team leader of the task force for Belgrade. The Consulting firm will be charged with managing the REC project for Belgrade and will report to the PIU and RGZ. The firm will also advise RGZ and the PIU on the countrywide project implementation as needed. (b) Built-in business planning assistance specifically for the operation of the RGZ offices in Belgrade during the first year of the project. (c) Establish two new offices for Belgrade (one will be in Novi Belgrade) that will be appropriately furnished and equipped in order to radically improve the quality of customer service and provide a model for the rest of the country. (d) Inclusion of all urban CMs and cadastre offices (COS) in Belgrade and its suburbs - ie. the inclusion of 4 more COS and 30 new CMs under the project. The REC will be established in all 30 CMs, with a relevant increase in the number of REC commissions. (f) Roll-out of the new IT system to the 4 existing COS and 2 new COS within Belgrade, including supply of hardware, data migration, and installation of software. 29

36 (h) Vectorization of all REC mapping in Belgrade, adding 91,000 ha of mapping to the overall project. This new sub-component will add to the overall numbers of cities, CMs and COS targeted by the project. The new total numbers are as follows: 0 50 cities/towns 0 210,000ha 0 89 cadastral municipalities (CMs) 0 52 cadastre offices (COS) 0 596,000 folios A5. Improving Registration Services to the Public The economic impact of the project will be greatly influenced by the quality of service, timely provisions of the services, and the perceived legal integrity of the property rights record provided by the REC when transactions occur. To gain public confidence in the unified system and the unified records of the REC, RGZ will need to establish respect for the legal integrity of its own property rights records. The process of registration of the transfer of rights (including mortgages and leases) must be seen by the public to be simple, legally sound, inexpensive, rapid and reliable. REC offices are still developing and improving their procedures and office infi-astructure, and the aim should be to provide client accepted records in a user-friendly environment and a five day service for registration, if no mutations of the object (sub-divisions, boundary changes, etc.) are involved. International and local consultants will be retained to provide technical assistance with business process and workflow analysis. Emphasis will be placed on introducing business process review to RGZ staff in year 1 to document current procedures and identify efficiency improvements and productivity gains. In year 2, consulting assistance will focus on developing work manuals and client handbooks as required in support of the adoption of best practices leading to an enhanced legal framework and new regulations. Local consultation will continue in year 3 to complete documentation and assist RGZ to realize the full benefit of business process review. The project will support facilities improvements that are focused on ease of client access and facilitating better customer service in the 52 cadastre offices that represent the 50 political municipalities included in the project. The budget includes costs for renovations, replacing office fumiture, archive furniture, equipment and the supply of materials required for operations (such as bulk supplies of standard forms, paper, toner, etc.) RGZ has set a priority on improvement of the reception areas, especially in the big cities where most of the market transactions take place, and the majority of customers of the new REC system will be serviced. Among the 50 target cities for the project supported by the WB, there are two: Grocka (Beograd) and sabac, where RGZ needs to acquire new office premises and have access to development land. It is appropriate to construct new office buildings there -with an approximate total floor area of 210 sq.m and 3 10 sq.m respectively. The relevant indicative unit 30

37 costs were justified by the present market level of real estate prices, and include the costs for finishing works. It is expected that the construction works will be completed within a 2 year period after the contract award. In the remaining 50 cadastre offices, the project will support the renovations of office premises, with an emphasis on reception areas and facilities for customer services. The total floor area of renovated office space will be approximately 9600 sq.m. The relevant indicative unit costs are just rough estimates. More detailed technical specifications by professional engineers / architects will be produced during project implementation. Office hmiture will be supplied to all 52 cadastre offices in the project. The schedule for constructiodrenovation works and the supply of furniture needs to be carefully coordinated with the schedule for REC establishment and the schedule for IT system deployment. Ad. Information and Communication Technoloaies Svstems Modernization for REC Improvement of the REC services to the public requires modernization of the REC ICT system so that the individual offices can operate more efficiently and effectively. The objective stated above of providing a five day registration service will require the establishment of an effective automated registration system. The system should also be able to be integrated with other RGZ activities and be able to be linked to other govemment services (such as planning or property tax collection). General information provision to the public and professional users through WEB based technology is also becoming a standard objective internationally. All of the cadastral municipality offices have a local computer network. The existing computer network is old and an extension and reorganization is needed. There is little provision for data security, use tracking or provision of history of actions. The currently applied maintenance system has to be improved in order to allow an efficient operation of the IT systems. RGZ performed a detailed study of the existing hardware and the future needs in the central and regional offices. An Analyses Report for the existing HW and SW has been elaborated and it is included in the RGZ MTP. Currently RGZ uses the following application software for initial input and maintaining cadastral data and cadastral operations: (a) Jedinstvena Evidencija (JE-cadastre application) ver Land Book and Cadastre - implemented in all Cadastre offices 0 The software has been developed with FoxPro 2.5, database format - 0 Novel1 network (b) GeodIS- REC Information System Implemented in two of 9 cadastre offices in Belgrade - Stari Grad and Stari Rakovica. 0 Windows application; Relational database (c) MapSoft Implemented in 137 cadastre offices 0 AutoCAD application, DBF data format 31

38 (d) E-Kadastar (E-Cadastre) implemented in Novi Sad as a Pilot Project for data distribution, Land Cadastre and REC, via Intranet. The graphic data and the alphanumeric data in the existing systems are not linked. The existing systems are based on the old technologies and have to be transferred into the new ones. Overall the objectives of this subcomponent are to: 0 Continue the RGZ REC business computerization 0 Facilitate the RGZ REC Users day-to-day work 0 Achieve immediate provision and control of REC information By the end of the project the following should have been achieved: 0 WEB based access to REC services 0 Help Desk Established 0 Electronic exchange of information (both graphic and non-graphic data) 0 Percentage of the document flow in electronic format 0 Application software delivered, installed and put into operation. 0 User Manual available. System administrators Manual available. Training modules available. System administrators trained. 0 Hardware, communication equipment and standard Software (SW) delivered, installed and fully operational. The project will build on the PHRD ICT studies to help RGZ to perform the full stakeholder analysis, to elaborate User and System requirements, Software Development Plan, Risk List, Project Quality Plan, full technical specifications for software development and supply of equipment, and the ICT/Information Management (IM) Strategy. The ICT/IM Strategy has to cover the following main sections: organizational - review and suggest REC IT proper organization; management and methodology - describe the service provisions of the REC ICT system to the users of the system as well as the necessary management and overall IT methodology to be applied; and technical - define the computerization technical standards and needs by priorities. During the preparation phase the IT Training Strategy has to be defined, including: IT specific technical training and training of users. With the purpose to support all these activities RGZ has established two multidisciplinary working groups. The project itself will include stages for: prototype development; testing; pilot implementation; roll-out in two phases - phase one in the 52 selected high priority cadastre offices, and phase two in the rest of the selected cadastre offices; data migration; and training and maintenance of the new system. The project also includes the supply of hardware, basic software, communication equipment, and development of LAN and WAN for the selected 52 cadastre offices. The application development and supply of equipment will be major contracts for companies to tender. During execution it will be necessary to ensure that sufficient quality control is maintained and an international expert will be hired to do this work. A separate contract for international and local experts will be issued to help RGZ in the process of acceptance of the delivery and installation of the hardware and software. During the period in which the new system is being developed it will be necessary to maintain and improve the existing application software and to ensure the ability for data migration from 32

39 the existing system to the new system. Maintenance and improvement of the existing system is necessary and will be contracted to a local company for the period of the project. A7. Leaal Extension Sewices Estimates of the need for legal aid in different areas of the country and among different groups within society were gathered by the social research team. Existing government legal aide regimes operated by the municipalities are supposed to help the less fortunate with typical administrative matters, and counsel must be provided to the indigent in criminal cases, but assistance with property matters has not typically been provided. Moreover, many municipalities do not implement their legal aide obligation because of lack of resources. Since municipalities may be a party in certain types of property disputes (e.g. it is their responsibility to carry out eviction procedures of illegitimate tenants from flats and residential buildings, as well as enforce the laws against illegal construction), it is questionable whether they could provide conflict-free legal assistance. RGZ staff provide a significant amount of technical advice to consumers in the course of the systematic adjudication process, consisting primarily of individualized explanations of the flaws in documents and applications and how they can be rectified, but for obvious reasons cannot carry out this advice to the next level by providing legal assistance or serving as an advocate of the application. For example, under the law the office of legal counsel of RGZ is responsible for hearing and deciding in the first instance customer appeals of the decisions of the REC commissions. In recent years there has been a growing role for NGOs in providing legal aide for disadvantaged groups - primarily IDPs, refugees and Roma - with emphasis on human rights and antidiscrimination laws. Legal services provided by NGOs has consisted of general advocacy as well as individualized consultation and representation. Several of these groups were contacted in the course of appraisal and NGOs as a vehicle for delivery of legal aide services appears to be feasible and preferable approach. Legal extensiodadvice centers could be staffed by NGOs, who could assist disadvantaged groups in presenting and establishing their rights. With appropriate professional intervention it is possible that many problems of a legal nature could be resolved on the spot. Since the people themselves may not be sure how to access the assistance or even know that they can get help, the public awareness campaign will particularly target these people and try to assist them with information in the form of pamphlets and local community meetings. A legal aid strategy will be developed early in the project to further define the target groups and the appropriate scope of assistance. With the increase in project funding under the IDA credit, it is now possible to fully fund this program during the life of the project. The final phase of the legal aide program will seek to find other funding sources and bilateral assistance to continue the legal aide program after the project is completed as the need for such services will surely continue. 33

40 Component B: Capacity Building and Institutional Development Bl. Stratepic and Business Plan Development RGZ has many duties apart from creation of the REC and maintenance o f a registration service for protecting rights when transactions occur. The property rights registration service is a comparatively recent activity for RGZ and the longer term implications of providing a registration service are still being assessed. Registration in many countries is a self-funding revenue generating activity and there is an international trend to ensure the service is provided in a business like and cost-effective manner. In many countries this has led to substantial increases in investment following increased activity in registration. In RGZ the REC is one department of the total activity of RGZ, and within REC there is a mixture of services related to legal rights, cadastral survey, land use and soil productivity information and valuation information. In retum for its services, on any given day RGZ generates more than SD 2 million using its network of 165 cadastral offices across the country. Few offices report sales in excess o f SD 100,000. Some offices report either no sale at all, or receipts less than a few hundred SD per day, perhaps calling for a review for the pertinence and rationale for maintaining such a wide network of offices. An office (in central Belgrade) may deal with more than 200 distinct services daily with concentration on provision of plan copies, certificates (inquiries) and some transactions effected on the REC while generating a little in excess o f SD 200,000 fee income at the end of the day. The fee income is generally low compared with expectations in a well functioning market economy and great changes are expected if RGZ can provide good enough services to the public. During the project the complete structure of the REC will be reviewed from a client service perspective, including all services provided, the human resource requirements, client communication approaches and the projected revenues. An overall corporate vision and appropriate business strategies will be developed to describe the operating principles, services that should be provided, the service standards that should be maintained and the longer term aims of the REC. A self-funding Agency status for RGZ registration service is a goal to be achieved. Studies will take into account the changes that have occurred in recent years in the UK, Netherlands, Norway as well as in other countries including outside of Europe, as they often provide a good model of successful registration services that have positively impacted the real estate market. The anticipated legal framework and operating strategies such as financing based on cost recovery, IT/IM strategy, human resource management, etc., will be articulated early in the project. The overall corporate business strategy will be developed by the end of the second year of the project and a full business plan developed during year 3. By year 4 all necessary approval should be obtained and the business plan is expected to be implemented on an annual basis. The project will fund the services o f intemational consultants reflecting the appropriate specialized skill and knowledge, and a local financial firm to work with the RGZ executive team. In year 1 the results of a business review activity will be evaluated to confirm the mission, vision and client base o f RGZ. In year 2 consultants will support the development of the overall corporate business strategy identifying the best option for corporate realignment. Also in years 2 and 3 the operating strategies will be detailed and annual business plans defined. RGZ will 34

41 provide two people to directly support the consultants work and to supervise the implementation of plans. B2. ICT Stvatem uvdatina and imtdementation The RGZ Information and Communication Directorate has 43 permanent IT staff positions, but they are not all filled. The responsible Section of RGZ for the ICT component of the Project is the Information and Communication Sector. Currently 24 employees (4 with university Degree) are working in the Central office and 27 (9 with university Degree) in the Regional Centers and Local Offices. The roles and the responsibilities of the Information and Communication Sector are set in RGZ s Systematization plan (approved by the Council of Ministers). The application software, except the one for graphical data, has been developed by RGZ internally. Private sector support at that stage is limited to temporary tasks mainly for equipment maintenance. Working within the context of the overall corporate business strategy the improvement of the RGZ IT organization, the service provision of the RGZ Information and Communication Directorate to the users of the REC system as well as the necessary management and overall IT methodology to be applied will be covered by the REC ICT/IM Strategy. RGZ has established two multi-disciplinary working groups, to define user requirements for the ICT/IM strategy and to define the strategy. The Overall Objectives of this subcomponent are to: 0 Strengthen the administrative capacity of the RGZ Information and Communication Directorate 0 Introduce proper IT standards and methodology in the RGZ Information and Communication Directorate. 0 REC ICT Strategy updating and support to implementation, including assistance to the municipal offices. International and local experts will be assigned to support RGZ in the process of implementation of the REC ICT/IM Strategy through: a. IT project management, quality control, and contract management support; b. Provision of IT technical support for technical evaluation of contracted deliverables; c. Provision of business expertise to support the users and IT Staff in respect to: 0 user requirements finalization; project management support fiom the users perspective; 0 deliverables review fiom the users perspective; d. e. f. Support in the acceptance testing; REC ICT Strategy updating and support to the implementation, including assistance to the municipal offices; Design brochures, TV/radio spots for professional community and the general public with regard to the new service provision (in conjunction with the Public Information Campaign). B3 Legal Framework Completion 35

42 The basic laws on real property and cadastre and registration are a sufficient foundation for the project activity. The law provides a unified cadastre and registration agency; a unified land and building cadastre; and well defined rules and procedures for systematic registration. The full legal framework has been changing in recent years and there are still several problems to resolve: 0 The cadastre and registration law retains the idea defining the land parcel based on its current use and not as a contiguous areas defined by boundaries and subject to unified ownership. This is an antiquated and unstable basis for registration of rights and leads to greater expense and complexity. Similarly, the law maintains a concept that physical information about the land use, soil quality and value of the parcel must be maintained. This type of information may not be appropriate for a registration service based on legal rights and needs to be reviewed and amended. Also needing attention are the interplay with the old (1930 s) Land Registry Law; rules for licensing and using private sector expertise; facilitation of on-demand registration of applications in the REC; technical requirements for registration of apartments and buildings under construction (which presently cannot be registered as an object of ownership until a certificate of completion has been issued, preventing construction period mortgages). It is expected to have a revised law in place within two years of project effectiveness. 0 0 The current laws for allocation of land for construction and issuance of planning permission and construction permits are bureaucratic and time consuming and need to be reviewed. At the interface of the planning and registration system, the requirements to submit construction permits and original building plans, many of which cannot be found in the municipal records and which may indeed never have been issued, comprises a significant barrier to registration of multifamily buildings, and therefore to registration of apartment rights. Technical barriers to registration of buildings and apartments will be addressed early in the project, and will require cooperation between RGZ and the Ministry of Urban Planning and Construction. Land in urban areas is still State owned and the legislation concerning common ownership of properties in blocks of apartments or other common holdings needs improving. Current discussions with respect to the law include provisions to commence restitution of land to individuals, or their heirs, that was confiscated by the State in previous years, but little is known about the eventual shape of the program at this time. Also land privatization (denationalization) is a major issue that is being discussed and has already begun in limited cases under the recently adopted law on urban planning and construction. If and when a comprehensive land denationalization law and a restitution law are put forth it will be necessary to provide drafting recommendations from the perspective of the land registry as to how to coordinate denationalization and restitution with the ongoing registration of existing property rights. Though assistance with development or modifications of legislation is required, it is not anticipated that either denationalization or restitution programs would significantly affect or delay the project, but rather that the project would facilitate those initiatives. (Private ownership of urban lands still requires an amendment to the Constitution of the Republic of Serbia, but both denationalization and restitution may proceed on the basis of use rights at this time, with conversion to ownership rights when the Constitution is changed.) 36

43 0 The mortgage market is fundamental for economic activity and is still much undeveloped in Serbia. There are severe housing shortages in Serbia, but the banking sector is not confident that mortgages are a good investment opportunity. They can not be sure that a person in occupation has rights or that if foreclosure becomes necessary they will be assured of payment. Banks would have to wait until court cases are completed, which could take three years, and then are subordinate to tax payments and other creditors. Only a few banks are making what can be characterized as mortgage loans at this time, and even those are made to only the highest income classes and often depend more on personal guarantees and pledge than the property mortgage itself. A new mortgage law was under development that would modernize procedures, in particular by permitting a form of non-judicial mortgage foreclosure, but was sidetracked by the recent political turmoil. There were also proposals made for creation of mortgage insurance and a consumer credit reporting bureau, as well as law of mortgage securities. USAID conducted a comprehensive review of the mortgage market in early The current laws on regularizing illegal construction have shown some success in eliciting applications from the public, and approximately 375,000 have been submitted. Not all of these applications represent the extreme case of a structure built without land rights or permit, and many represent unpermitted home improvements. Of the number submitted, about 1 1,000 have been resolved. It is estimated by building authorities that 80% of the cases may be resolved within two years - that is before full implementation of the project - with a hard core of cases that may take significantly longer. Bases on widely accepted estimates, these applications may represent only half of the possible cases. It appears that the changes for legalization - which are within the discretion of the municipalities - may be to high for many lower income occupants to come forward, and this issue may be revisited. One of the most significant problems that will be faced by the legalization effort is informal settlements in and around cities which are occupied by Roma people which arose spontaneously long ago, perhaps in the last century, and have existed continuously since. There is every indication that the GOS intends to deal with these communities in an even-handed manner and achieve a resolution. Proposals have been made by various groups to introduce notaries in Serbia. The project has taken a position that the public notary functions for transfer of real property should not be restricted to the proposed profession of notaries, rather that such services continue to be provided as well by qualified lawyers, and other qualified professionals. There will be continuous monitoring of this situation. Business process review and subsequent process enhancements will require changes in legislation, regulations and rule books predicating a series of housekeeping changes as the project goes ahead. An analysis was conducted by consultants working under the PHRD funding. Amendments to existing legislation and the development of new legislation will be ongoing for some years to come and the project will be providing funds to support both international and local expertise to advise as legislation is developed. A working group of legal and administrative experts within RGZ has been appointed to work on these issues. Ln addition to work on laws, this component will also include revision and simplification of the numerous regulations maintained by RGZ for the establishment and maintenance of the REC. 37

44 Disputes Estimations by municipal courts and lawyers stated that up to one third of court cases may be property related, consisting of everything from testamentary and common ownership issues to boundary disputes. Courts expect these numbers to increase if laws on restitution and land denationalization are adopted. Claims may be litigated in the judicial system for an average period of five years or more. The Jurist and Bar Associations stressed that there is an urgent need to create a critical mass of real estate lawyers to help resolve these issues. The project is limited in its ability to resolve serious legal disputes, which must be referred to a court for decision. These are estimated to comprise 510% of the cases, which presently arise in the course of establishing the REC. However, the fact of such disputes is accepted in all registration projects and done not significantly affect the efficiency of the project. Moreover, it is expected that the normal project procedures, as well as the proposed legal aid program can, through early intervention of professional advice, help to resolve issues of a less serious nature before they reach the level of court action. B4 Global Customer Publicitv and Information Campaims Preliminary results of the Social Assessment confirm the perceptions that many people do not use the existing REC system when they make a transaction. For many it is because the buildings are illegal and they cannot use the official procedures, for others it is lack of knowledge of the benefits of the system, or avoidance of the taxes and fees that need to be paid. The benefits of registering and obtaining secure and guaranteed title far outweigh the costs and in most European countries it is unthinkable to avoid the official procedures because of the risk this entails with property that is a huge portion of one s total assets. Serbians will gradually also want to make use of this security, but they need to be advised of the advantages and the legal requirements. RGZ has been involved in public awareness campaigns because it is required during REC formation and during the program for regularizing illegal constructions. Programs so far have included: 0 Special lectures and short movies through the TV 0 Printing materials 0 Occasional TV information bulletins 0 Production of quarterly professional magazines 0 Local TV during REC formation 0 Production of posters, notepads, calendars, pencils, etc, 0 Creation of the WEB site 0 Conferences - for donors and professional organizations, which are covered by TV 0 Production of a logo 0 Production of the pamphlet Cadastre in the service of citizens These innovations have been highly successful, but have been limited due to lack of funds. National TV advertisements cost 65 Euro per second and even local TV advertisements range from 50 Euro for an 18 second slot to 50 Euro per second. Radio is less expensive, but still will cost between 0.15 Euro to 2.5 Euro per second dependant on whether it is a local or a national channel. Newspaper advertisements similarly vary between 35 Euro and 370 Euro for a quarter page. 38

45 Of note - for the education of both the general user and professional communities - is that RGZ has established a website which provides a good deal of information, as well as legal and regulatory documentation (instructions, guidelines). RGZ has also recently implemented an interactive question and answer service which will be archived online and will serve as a FAQ (frequently asked questions) facility. Further steps could be considered to enhance this valuable information source, including the publishing of key decisions of the appeal examiners which involve novel factual or interpretive content. At present appeals decisions are not generally available, perhaps contributing to the impression that a significant number of frivolous appeals of REC commission decisions are filed by attorneys. Further development of the website as a tool for assistance to professionals should be considered during the course of public information campaign (PIC) design. The project will provide funds to improve the outreach, which will be geared towards information over the media, renting billboards in major cities and advertising through other sources where possible. Explanatory pamphlets will be regularly distributed and be made available at offices throughout the country. Primary clients of the REC have a somewhat skeptical attitude regarding the REC services and records primarily in the area of property rights registration. Seminars targeted at professional organizations (real estate agency, banking, survey, legal, chambers of commerce, etc.) will be regularly conducted. Additionally the creation of regular consultation forums for primary clients can be successful in dispelling uninformed and/or negative attitudes. A full time public awareness consultant will be attached to the PIU to manage this activity and to ensure that assistance and focus on the poor, elderly and minority groups is included in the campaign. It is planned that design of the PIC will begin late in year 1 most likely through a local firm with international consultant(s) retained to provide advice and technical assistance. B5 Traininp and HR Develovment RGZ is one of the larger employers in the government of Serbia. There is currently little documentation on human resources and no defined strategy beyond systematization to periodically review and adjust the numbers and caliber of staff. Staff levels and skills should be based on a needs analysis that is business driven and intricately linked to the corporate strategy and business plan adopted by RGZ. The GOS is currently developing a human resource management system for placement in ministries and agencies. RGZ should adopt such a system. Thus, the business planning and other activities included in Component B 1 will have to take these issues into account. Training for the ICT system will be provided by the contractors responsible for development of the REC application software. In this way RGZ will have a cadre of in-house trainers for the ICT system roll-out to all users throughout RGZ. It is estimated that this will include about 12 trainers who will be responsible for training users in the selected offices. RGZ is in the process of establishing a small permanent training center at their headquarters in Belgrade in order to be able to provide training under the project and for their regular programs that are not project In Belgrade the rent for a billboard includes 200 for the design of the poster and between 230 and 460 for the rental dependant on the size and whether it is illuminated. 39

46 based. The room will be provided by RGZ, but the equipment and basic furniture will be provided by the project. Linked to the training based on IT enhancements is the need for initial training and an ongoing continuous learning environment that is centered on the acceptance, review, verification and recording of property rights transaction documentation. At present, there is no formal training program for the more than 175 lawyers employed in REC establishment and maintenance, as well as other functions of RGZ. New hires, particularly those assigned to the REC commission work in the field are provided with an instruction manual and some amount of mentoring by experienced hands. While this may have been marginally sufficient to date, the project will require hiring of up to 100 additional lawyers and several hundred other employees trained to some extent in the law, and there is a growing recognition within RGZ that more formalized training procedures may be necessary to meet the immediate project needs as well as the longer term needs of professional development. The REC and Legal Directorates will play a key role in the development and delivery of this portion of the RGZ training program. However, there is general agreement that present staff are not able to provide training as well as keep up with the ongoing work of RGZ within normal working hours. Some degree of additional assistance or staff incentives needs to be explored. This may consist of identification and hiring of professional trainers (former judges and legal chairpersons of the REC commissions); retention of outside training agency; and appropriate incentives for existing staff in terms of overtime compensation. In any case, RGZ staff will have to remain closely involved with determining the structure and content of training curricula (for example, a case study approach) and in many cases may actually deliver the training. Training plans, schedules and modules are being developed and in addition to the IT training referred above, training will include: e e a System administrators; Over 250 ICT system users trained at the central and regional levels; Over 300 reception clerks trained at the regional centers; Introductory courses for over 100 people based at the regional centers; Courses in land management, real estate markets (including basic valuation techniques), registration practice, etc. (both for RGZ staff and the private sector); Workshops for PIU staff; Management studies; 3 Overseas study tours. RGZ has received fimding from Sweden SIDA to for professional development of the PIU and other RGZ staff involved in the project. This training/development will begin in 2004 and will focus on management, procurement, disbursement, and accounting training for the PIU staff. A second component will focus on management and business planninglstrategy training for RGZ senior management and selected managers of branch and local offices. Training in land registration, including quality customer service will also be included under the SIDA grant. The objective of the training program is to better prepare RGZ and the PIU for effective project implementation. 40

47 Under the project there is a potential to involve Belgrade University geodetic faculty staff in the provision of training and education services as it is the only organization able to produce professional geodetic engineers in Serbia. IDA agreed that on an exception basis, that RGZ may engage the geodetic faculty to provide services to the project, though it would be subject to an agreed annual plan. With regard to training to be carried out under the Project, the Republic of Serbia, through the RGZ, shall: (a) not later than November 30 of each year during the implementation of the Project, furnish to IDA for its approval, a proposal for the training plan to be carried out under the Project during the following calendar year, including (i) an overview of the scope and content of the training programs or activities, (ii) an explanation of how each training program or activity is expected to contribute to achieving the objectives of the Project, (iii) the budget to be made available therefore, taking into account considerations of economy and efficiency; (iv) the criteria for the selection of the beneficiaries and the providers of training; and (v) the schedule for implementation of the training, and (b) except as otherwise agreed by the IDA, carry out the annual training programs and activities in accordance with the agreed selection procedures, budget, and schedule, all under contractual or other arrangements satisfactory to IDA. B6. Proiect Mananem en t A Project Implementation Unit will be established full time with sufficient professional personal to administer the project. They will be based at the RGZ building and report directly to the Director (or his deputy) of RGZ. The PIU will be responsible for: & Administration & management of the project. & Financial Management and Reporting. & Procurement of goods and services. & Technical support (ICT, Legal, Cadastre & Surveying support). & System of planning the project activities. & Finance system (annual planning, budgeting and accounting). & Control quality system and contract supervision. & Monitoring & evaluating System and reporting. & Supporting the steering committee, project managers and consultants within the project implementation; & Relationship and communication system with the World Bank officers; 41

48 6' System for preparing and archiving all the documentations. B7. Research and Development There is a vital need for application of innovative methods and concepts in the REC establishment and maintenance in order to break through. Therefore the project will have adequate resources earmarked for research and development (R&D) purposes. Economic handson solutions and application of international best practices will be sought for bottlenecks identified during project preparation, by pilot projects, tentative studies or other R&D approaches. Issues that will be addressed refer to at least: a) the overly stringent and inflexible technical standards of REC mapping in terms of geometrical accuracy, thematic content, level of detail, and data collection methods; b) resolving the REC establishment problems in 374 CMs - both urban and rural; c) resolving the issues in registration of real rights in apartments and common property; d) additional issues identified by the RGZ consultants in the studies under the PHRD grant. New concepts and best practices that should be tested and in case of success incorporated in legislative amendments are the cadastral index map approach, technologies using orthophoto images as REC mapping base, and others. B8. Monitoring and Evaluation It is imperative to ensure that the outputs referred to in Annex 3 are, in fact, achieved. This requires constant checking and monitoring. This will require sustainable and built-in monitoring and evaluation capacity with RGZ. A number of studies being conducted during preparation will provide the baseline data, including the customer survey, social assessment, land market study and others. An international specialist has been contracted through the PHRD grant to provide reporting formats, analysis of baseline data, training for RGZ staff in M&E, and necessary TORS for additional work to be done during project implementation to be completed by project effectiveness. The goal of this project sub-component is to build capacity within RGZ for this hnction to be on-going through-out the project and beyond. 42

49 ~ Risks To Project Development Annex 4.1 The Main Risks to Proiect Success Risk Mitigation Measures Risk Rating with Mitigation The public does not accept the benefits of the new system and therefore does not use it. The new government does not support the actions needed or fund the government contribution. I Law is reversed to allow Courts to continue with registration - thus REC might be halted and the project might be requested to deal with two agencies I]roResults Resistance to change and inflexibility in approach makes it difficult to complete the REC in a reasonable time and cost frame. Experience from other projects shows that it is difficult to fully implement automated IT systems. System Administration capacity for the automated systems may be difficult to build up, partly through low salary levels for civil servants. Insufficient expertise and personnel available to fill all adjudication commission positions when creating the REC. Good public awareness program and increased efficiency and quality of service. RGZ to keep other government ministries and politicians involved through regular steering committee meetings and stakeholder contributions. Improve RGZ service standards, coverage, publicity, and lower secondary transaction costs; more visibility; establish a real property registration management unit; also conditionality is included in the DCA Intemational technical assistance within the project and supervision from the Bank; and bilateral TA. Intemational technical assistance within the project and supervision from the Bank. Lessons leamt from other projects in the region will be applied. Single agency module strengthens possibility of smoother design and implementation. Fully catered for in the training program. Technical assistance provided. GOS has a policy to gradually improve the salary levels for civil servants and to make the civil service more efficient. Improving the procedures and time taken should reduce the requirement for so many Commission members. The project will fund Commission members at normal market rates and can require performance standards accordinglv. Intemational and local expertise are targeted at ensuring that a good corporate strategy and business plan are developed. Government Dolicv is smmathetic to M M S M S M M M 43

50 and being able to invest profits to improve services. Bilateral funding, especially from EU, Sweden and Norway, does not materialize leaving the completion of the MTP beyond the life-time of the project. Regulations are not modernized to fit new technologies to allow speed- UP. privatizing activity. Close coordination with other donors by RGZ and the Bank team. Initial indications are very favorable. Project support is necessary to up-date the regulations as they are 50 years old. Targeted for early in project implementation. N M fisk rating: High Risk (H) - greater than 75% probability that the outcome/ result will not be achieved. Substantial Risk (S) is a 50-75% probability. Modest Risk (M) is a 2550% probability. Low or Negligible Risk (N) is less than 25%. 44

51 Annex 5: Project Costs SERBIA AND MONTENEGRO: REAL ESTATE CADASTRE AND REGISTRATION PROJECT (Serbia) Serbia Real Estate Cadastre and Registration Summary of Project Cost Estimates (US$ 000) PROJECT COST BY COMPONENT AND/OR ACTIVITY (US$ OOO) Local Foreign Total A. Operational Development and Support 1. Establishment of Basic Geodetic System Digital Cadastre Mapping 537 1,653 2, Real Estate Cadastre Execution 6, , Strengthening Secondary Transactions 3, , ICT for REC 1,294 4,682 5, The Belgrade REC 5,316 3,222 8, Legal Advisory Services Subtotal Operational Development and Support 17,899 11,116 29,015 B. Institutional Strengthening and Capacity Building 1. Strategic and Business Planning ICT Strategy Updating and Implementation Legal Framework Global Publicity and Information Campaign Training and HRD PIU 1, , Research and Development Monitoring and Evaluation Subtotal Institutional Strengthening and Capacity Building 4, ,043 Total BASELINE COSTS 22,076 11,982 34,058 Physical Contingencies 1, ,434 Price Contingencies 2,699 1,322 4,021 Total PROJECT COSTS 25,891 13,623 39,514 Total Financing Required 30,000 Identifiable taxes and duties are US$6.47 m, and the total project cost, net of taxes, is US$33.04m. Therefore, the share of project cost net of taxes is 83.6%. 45

52 Annex 5 Continued Serbia Real Estate Cadastre and Registration Financing of Investment/Recurrent Costs and Financial Charges by Year (US$ Million) I. Investment Costs The Government IDA Total Investment Costs 11. Recurrent Costs The Government IDA Total Recurrent Costs Total Financing of Costs Financ in g Total -- ~ ~

53 Annex 6: Implementation Arrangements SERBIA AND MONTENEGRO: REAL ESTATE CADASTRE AND REGISTRATION PROJECT (Serbia) Organization - Republic Geodetic Authoritv (RGZ) The main implementing entity for the project is the Republic Geodetic Authority (RGZ). RGZ was created in 1992 when the extensive network of municipal cadastre offices was consolidated under its mandate. RGZ is one of seven specialized agencies within the Government of the Republic of Serbia. It notionally reports to the Ministry of Capital Investments, however receives its budget directly from the state. At present RGZ is responsible for activities related to mapping, cadastre and registration of real estate rights in Serbia. The Agency s main task in the last 5 years has been the formation of the Real Estate Cadastre (REC) under the SSCR Law which stipulates that RGZ is the single registration and cadastre agency and that it should complete the REC within a given timeframe. Organizationally, RGZ is divided into six directorates and two support departments. The six directorates are headed by Assistant Directors who are government appointees. These six Assistant Directors report to the Director General of RGZ and his Deputy - also both government appointees. The current RGZ organizational structure was approved in June 2003 with 2,885 full time staff positions, the majority of which are within the Directorate for REC with 2,581 positions (90%). All positions within RGZ are civil service positions and are regulated by civil service regulation. The Directorate for REC includes a small central office as well as all of the nine major regional offices and 152 local offices throughout the country. The staff of these offices perform the work of the REC formation as well as the day-to-day processing of secondary transactions (registering mortgages, sales, sub-divisions). Overall, this Directorate is responsible for the records of 4,591 cadastral municipalities (CMs) across Serbia. Of these, 2,004 CMs have been entered into the REC (44%). Less than 1% of staff positions are assigned to the REC head office. Legal, inspection, and surveying and mapping services are provided by other RGZ Directorates operating in a matrix like manner and are primarily based at the head office. Lawyers working on the REC or secondary transaction processing in the regional and local offices are under the Directorate for REC. Most regular surveying functions have been outsourced to the private sector and RGZ provides only quality control and supervision, as well as licensing for private survey companies. Individual private surveyors are licensed by the Chamber of Engineers. The 2003 re-organization of RGZ brought about several changes to ensure that the activities of the Agency were carried out with a high level of quality and professionalism. Organizational units were created in a new Administration Sector responsible for inspection and audit of practices and results with a primary focus on ensuring professionalism and a consistently high quality of data for the REC. At staged intervals before and after the adjudication of ownership interests is completed, the inspection units have an integral involvement in the REC build process. Ownership folios are inspected before public notice can take place and the final results of the adjudication are again inspected before REC upload is given official confirmation. This approach is demanding from a time perspective as it is designed to be very risk averse. Based on 47

54 experience to date and if necessary reinforced with an additional trial period to determine an acceptable level of risk, the inspection activity could be reduced. Within the REX Sector the new organization included lawyer and geodetic engineer positions with the assigned role of overseeing the functioning of the REC. Professional practice, quality standards and property rights record integrity are among the responsibilities of this group. The property rights registration function (part of REC formation and maintenance) is a comparatively recent activity for RGZ. Under the project a Real Estate Registration Management Unit (RERMU) will be established within the REC Directorate with an appropriate mandate, staff, and financial resources to address and highlight the registration function at least for the period of project implementation. RERMU will be responsible for development and maintenance of quality standards and property records integrity. This unit will also be responsible for the professional training of the lawyers and registrars working within RGZ. RGZ receives an annual budget from the Government of Serbia on the basis of a regular annual budget request. The main difference between RGZ and other government ministries, however is that RGZ is a significant revenue earner from the fees collected for registration and other services. All RGZ revenues are deposited in a central revenue account for GOS and a portion of these total revenues is earmarked to offset approximately half of RGZ s annual budget. There are restrictions on the use of these funds as earmarked revenue cannot be used to augment staff salaries. All salaries are set by GOS and paid out of the annual budget. Revenues can only be used to offset operating costs. The project includes funding for strategic and business plan development with a goal of moving RGZ toward greater self-financing and budget independence. As is the case in many of its neighboring countries, there is no independent organizational unit within RGZ specifically dealing with human resource development or training. Personnel management activity typical of old-style line government organizations is carried out by a unit within the Legal Directorate. This activity is focused on setting the official staff compliment and recruitment, and reacting to specific staffing issues and complaints. Recruitment decisions are made by the regional and local office directors. Training programs within RGZ are primarily as and when needed events and address specific technical needs. Although funds are earmarked for staff training, there is no annual planning exercise for staff training needs, nor are there longterm training plans for employees. During the life of the project, Component B will seek to address some of these issues of HR development and training. Project Imdementation Arrangements Project Council (PC) This would be headed by the Director General (DG) of RGZ and would consist of representatives of MCI, MIER and MOF, and the Deputy Director General of RGZ. The Project Council would ensure high level coordination and communication among the relevant ministries involved in the implementation of the project. Project Steerina Committee (PSC ) This group is a subset of the PC and would be made up of the Assistant Directors of RGZ and would be responsible to receive and approve the annual work 48

55 plan and targets, related annual project budgets, and resulting annual reports. A part-time project director would be appointed by the DG to which the PIU and Project Manager would report. The PIU would be the secretariat of the Project Steering Committee with the head of the PIU, the Project Manager, a non-voting member. Project Implementation Unit RGZ requires that project implementation on a day to day basis, will be conducted by a Project Implementation Unit (PIU) which would be formed within RGZ. RGZ decided that the PIU would be an administrative unit within RGZ and would report to the RGZ Director General and Deputy Director as would any other directorate. It would undertake project procurement, contract supervision, reporting, annual planning, budgeting, and accounting, and work with the line departments in RGZ to ensure work programs are achieved, targets are set and monitored, and that the job gets done. RGZ decided that the contracted members of the PIU would be paid from the Credit to help ensure an adequate salary level for this important function of project implementation and coordination. All contracted members of the PIU would be selected through competitive procedures. The PIU would consist of the following full-time professionals: Project Manager, Technical Coordinator, Procurement Specialist, AccountadDisbursement Specialist, Information and Communications Technology Specialist, Monitoring and Evaluation Specialist, and necessary assistants. The Project Manager would report to the Project Director at least on a biweekly basis. There will be an Expert Advisorv Group (EAG) for the project. This expert group would be an expanded version of the existing RGZ advisory group, which consists of academic and other experts in the area of geodesy. Added would be a private sector representative, a civil society representative, real estate lawyer, and a related NGO. Intra-Agency Teams The two main project directorates in RGZ - REC and IT - will nominate two staff each to act as the facilitators of the Project within their Directorates, and to coordinate between the PIU and their Directorate in the execution of the Project. While the PIU will have responsibility for all implementation, the Directorates will be responsible for developing, reviewing, and approving technical specifications and terms of reference, executing, supervising and monitoring the quality of work for the activities financed all working with the PIU. An additional Client Advisorv Group would be convened on an as-needed basis to provide feedback and advise on issues related to clients and customers of RGZ and the project, including, fee schedules, service standards, the public information campaign, and others. 49

56 Annex 7: Financial Management and Disbursement Arrangements SERBIA AND MONTENEGRO: REAL, ESTATE CADASTRE AND REGISTRATION PROJECT (Serbia) Country Issues The SAM CFAA report notes that there are a number of risks on the management of public funds in SAM. The risks to the public funds include: (a) poor public sector financial management in the past, (b) unfinished reforms - the governments of both Serbia and Montenegro have commenced a process of major reform, which looks good as designed, but it is still too early to say if the reforms will be totally successful, (c) capacity constraints in both the Federal and Republic governments, (d) weak banking sectors, (e) weak audit capacity, (f) poor implementation capacity in line ministries, and (g) the lack of extensive Bank implementation experiences within SAM. Since rejoining the membership of the World Bank, SAM has been using individual implementation units for each investment project (traditional PIU model), located within the relevant line ministries or project beneficiaries, to mitigate some of these risks. During the period since the CFAA was published, the number of commercial banks assessed as acceptable to hold Special Accounts has increased from 3 to 5 and the number of firms assessed as acceptable to audit Bank-financed projects has increased from 2 to 4, indicating an improvement in the fiduciary environment. Experience in implementing Bank-financed projects is increasing but the lending portfolio is still too young to be able to conclude that the Borrower has a thorough understanding of Bank operations. Strengths and Weaknesses The head office accounting function is adequately staffed. The lack of experience in Bank financial procedures is being addressed through (i) the provision of Technical Assistance funded by SIDA; (ii) a Bank led Disbursement and Financial Management seminar (completed); and (iii) ongoing support from the country FMS. Implementing Entity The main implementing agency is the Republic Geodetic Authority (RGZ), the government authority responsible for cadastre and registration of real property rights. RGZ reports to the Ministry of Capital Investment (MCI). The project implementation arrangements build on lessons learned from other land registration and cadastre projects in the region. Project implementation arrangements include a project council and project implementation unit as follows: Proiect Council This would be headed by the Director General (DG) of RGZ and would consist of representatives of MCI and MOF, and the involved directors of project related directorates in RGZ. This council would provide policy guidance and direction. It would also receive and approve the annual work plan and targets, related annual project budgets, and resulting annual reports. A part-time project director would be appointed by the DG to which the PIU and Project 50

57 Manager would report. The PIU would be the secretariat of the Project Council with the head of the PIU, the Project Manager, a non-voting member. Proiect Implementation Unit RGZ requires that project implementation on a day to day basis, will be conducted by a Project Implementation Unit (PIU) which would be formed within RGZ. RGZ decided that the PIU would be an administrative unit within RGZ and would report to the RGZ Director General and Deputy Director as would any other directorate. It would undertake project procurement, contract supervision, reporting, annual planning, budgeting, and accounting, and work with the line departments in RGZ to ensure work programs are achieved, targets are set and monitored, and that the job gets done. RGZ decided that the contracted members of the PIU would be paid from the Credit to help ensure an adequate salary level for this important function of project implementation and coordination. All contracted members of the PIU would be selected through competitive procedures; they will not be civil servants. The PIU would consist of the following full-time professionals: Project Manager, Technical Coordinator, Procurement Specialist, AccountantDisbursement Specialist, Information and Communications Technology Specialist, Monitoring and Evaluation Specialist, and necessary assistants. The Project Manager would report to the Project Director at least on a biweekly basis. There will be an Expert Advisory Group (EAG) for the project. This expert group would be an expanded version of the existing RGZ advisory group, which consists of academic and other experts in the area of geodesy. Added would be a private sector representative, a civil society representative, real estate lawyer, and a related NGO. Funds Flow The IDA Credit will be made available to the State Union of Serbia and Montenegro (SAM) under a Credit Agreement, governing the terms and conditions of the Credit. The Government of SAM would on-lend the funds on IDA terms to the Republic of Serbia based on a Subsidiary Credit Agreement with terms and conditions satisfactory to IDA. The Republic of Serbia will use these funds as a part of its budgetary expenditure on capital improvements and for technical assistance. Counterpart funds will be drawn down in accordance with the regular budgetary mechanisms of the Republic of Serbia and will be subject to the control and oversight of the Treasury department of the Ministry of Finance. The RGZ has submitted to the MOF, a budget request adequate to cover the first year of expenditures under the project, however, this was not approved by the newly formed Government. RGZ will reserve hds from its own resources for purposes of ensuring counterpart funds for The counterpart funding obligations for the following years would be met thereafter by regular Government of Serbia sources. The following legal agreements will confirm the flow of funds and the respective parties' roles and responsibilities: 0 0 The Development Credit Agreement, between IDA and Serbia and Montenegro (SAM); The Sub-credit Agreement, between SAM and GOS; 51

58 A small volume of disbursements under the project are expected to take place as direct payments from the Credit Account. For the remaining payments, a special account (SA) will be opened by the GOS on behalf of the RGZ in a one of the 5 Serbian commercial banks pre-qualified to hold Special Accounts. Staffing of the Accounting/Finance Function Transaction processing, i.e. authorizing contracts, receiving goods into stores, issuing GRNs, checking invoices, authorizing payments, etc., will be performed in accordance with the existing arrangements within RGZ and hence staff are fully familiar with the processing procedures. SIDA has agreed to finance training for the staff of RGZ in Bank procurement, disbursement and financial management, hence, staff will acquire the specific knowledge necessary to implement the Project. Further, accounting staff have received training on Bank FM and disbursement processes from the country FMS and the Loan Officer. Accounting Policies and Procedures A PIP has been prepared for the project. Also, an accounting manual including descriptions of key positions, key internal controls, document processing procedures etc. has been prepared. Major accounting policies underlying the preparation of project financial reports are: Supplier invoices for services/goods rendered are recognized when received. 0 Physical assets are expensed on purchase (asset listing is maintained off balance sheet). Signed contracts are recorded as commitments, off balance sheet. Realized foreign exchange gains/losses only are booked to income. Reporting and Monitoring RGZ will prepare financial monitoring reports (FMRs) on a quarterly basis. The FMRs include: Project Sources and Uses of Funds Uses of Funds by Project Activity Balance sheet Special Account Statement Procurement report The first Financial Monitoring Report will be furnished to the IDA not later than 45 days after the end of the first calendar quarter after the Effective Date, and will cover the period from the Effective Date to the end of the first calendar quarter. FMR formats were agreed with the PIU and were confirmed during negotiations (actually included in the accounting manual). Information Systems The PIU will maintain its accounting records using an off-the-shelf small business accounting package. The software is capable of producing the financial reports required by the Bank. Procurement plans will be maintained on spreadsheets and will be reconciled to the budget data in accounting system. 52

59 Supervision Plan The project implementation progress reports will be monitored in detail during regular supervision missions. FMRs will be reviewed on a regular basis by the Belgrade-based FMS and any issues arising will be followed up promptly. The frequency of on-site FM supervision missions will be determined based on the Project s FM risk rating, which will be generated using the ECA risk model. Audited financial reports of the Project will be reviewed and identified issues followed up.. Internal Audit RGZ has an internal control department comprising 5 staff, The department implements only exante controls rather than, and as defined by the Institute of Internal Auditors (ITA), bringing a systematic, disciplined approach to evaluating and improving the effectiveness of risk management, control and governance processes. Accordingly, no reliance will be placed on the work of the internal audit function. External Audit Article of the Law on Budgetary System, provides for the establishment of an independent Supreme Auditor and of a Budgetary Inspection department within the Ministry of Finance. However, to date, only the Budgetary Inspection department has been established. The Budgetary Inspection has not yet reviewed RGZ s operations. Until such time as the independent Supreme Auditor has been established in a manner acceptable to the Bank, the Project will continue to rely on private sector auditors. RGZ is not required by law to prepare entity financial statements or to submit its financial reports for independent audit. However, as one of the RGZ s objectives is to become more commercial in its operations and Bank funds are being used to develop the capacity of the institution, it is appropriate that it should begin to develop commensurate accounting and reporting systems. RGZ charges fees for its services, however, the income it currently generates is paid directly into an account of the Ministry of Finance. It was agreed therefore that the cost of undertaking a full scope audit of RGZ would outweigh the benefits. Instead, the audit of RGZ will initially be limited in the scope, but progressively increased until, should RGZ become a financially and operationally independent agency, or otherwise directly retain the revenues it generates, a full scope audit, in accordance with International Standards on Auditing would be required. RGZ will continue to prepare its entity financial statements in accordance with the requirements for a Serbian budgetary agency The following chart identifies the audit reports that will be required to be submitted by the RGZ together with the due date for submission. 53

60 Audit Report RGZ entity (limited scope) Project, SOE and Special Account Due Date Within 5 months of the end of each fiscal year Within 5 months of the end of each fiscal year and also at the closing of the project Financial Covenants The PIU is to maintain a satisfactory Project Financial Management System, including records and accounts, and to prepare financial statements in accordance with accounting standards satisfactory to the Bank. The PIU is to provide annual project accounts and an audit report to the Bank within five months of each fiscal year (with the audit to be carried out by independent auditors in accordance with International Standards on Auditing, and TORS satisfactory to the Bank). The PIU is to prepare quarterly Financial Monitoring Reports (FMRs) which will include, at a minimum:. A statement of sources and uses of hds for the Project showing year to date and cumulative amounts and explains variances between the actual and planned uses of such funds; A balance sheet; A statement of the Special Account, showing the opening balance, movements during the period and the closing balance; and A statement of the status of procurement under the Project. The first FMR will be furnished to the Association not later than forty-five (45) days after the end of the first calendar quarter after the Effective Date Disbursement Arrangements The project is expected to be implemented over a period of six years, which includes six months for the completion of accounts and the submission of withdrawal applications. Disbursements from the IDA credit will follow the transaction-based method, i.e., the traditional Bank procedures including reimbursements with full documentation, SOE's, direct payments and special commitments. To facilitate timely project implementation, the RGZ, with the assistance of the MOF, will establish, maintain and operate, under conditions acceptable to the Bank, a Special Account in Euro, in one of the five pre-qualified commercial banks operating in Belgrade. An initial authorized Special Account allocation of 0.55 million will be established. The authorized allocation of the Special Account will be 1.03 million, once the aggregate disbursements of the Credit total SDR 2.10 million or more. Replenishment applications should be submitted by the PIU monthly or when one third of the funds of the SA have been used, whichever occurs first, and must include reconciled bank statements as well as other appropriate supporting documents. 54

61 Annex 8: Procurement SERBIA AND MONTENEGRO: REAL ESTATE CADASTRE AND REGISTRATION PROJECT (Serbia) Procurement of goods, technical services and works will be done in accordance with World Bank Guidelines: Procurement under the IBRD Loans and IDA Credits (issued in January 1995, revised January and August 1996, September 1997, and January 1999). Consulting Services, technical assistance and training will be procured in accordance with the Guidelines: Selection and Employment of Consultants by World Bank Borrowers (issued in January 1997, revised September 1997, January 1999, and May 2002). The Bank's Standard Bidding Documents, Request for Proposals and Forms of Consultants' Contract will be used. A General Procurement Notice (GPN) will be published in the Development Business of the UN in June Procurement Responsibilities The Project Implementation Unit, which reports to the Director General of the Republic Geodetic Authority (RGZ) and indirectly to the Project Council, consisting of the representatives of Ministry of Capital Investment (MCI), the Ministry of Finance (MOF), and RGZ, will manage procurement procedures supported by at least one full-time procurement officer responsible for all procurement. The procurement officer was appointed before negotiations. The technical and procurement capacity of the RGZ will be strengthened by additional technical and at least one procurement staff. The institution already has some qualified and experienced procurement staff. Procurement Methods (Table A) The project includes procurement of civil works, goods, technical services, and consultant services. A detailed procurement plan for these needs has been prepared and included in the Project Implementation Plan (PIP). During project implementation, the procurement plan will be updated every year at least. The Project procurement arrangements are shown in Table A below. Thresholds for Procurement Methods for Works, Goods and Technical Services The following thresholds are proposed in Table B (the aggregates are given in the footnotes to Table A): (i) ICB for Works = US$600,000 or more per contract (ii) ICB for goods = US$lOO,OOO or more per contract. (iii) ICB for Technical Services = US$500,000 or more per contract. (iv) International Shopping (IS) for goods = less than US$lOO,OOO per contract. (IS can be used to procure equipment, materials or commodities which are off-the-shelf). IS for Technical Services = less that US$125,000 per contract. The award shall be made on the basis of obtaining 55

62 and comparing price quotations from at least three suppliers from two countries. (v) National Shopping for Goods = Less than US$50,000 per contract (based on obtaining minimum three quotations from domestic suppliers); National shopping for technical services = less than US$60,000 per contract. (vi) NCB for Works = Less than US$600,000 per contract. (vii) NCB for Goods = Less that US$lOO,OOO per contract (viii) NCB for Technical Services = contracts estimated to cost less than US$500,000 per contract. (ix) Minor Works = Less than US$lOO,OOO per contract for works and technical services. The above thresholds have been set taking into account that the project institutions especially RGZ, have been outsourcing technical services and other procurement for the past two years. There are overall 200 survey firms. NCB will be subject to the following conditions: a point system of evaluation will not be used; domestic preference will not be applied; international bidders will not be excluded from bidding; and the first two NCB bidding documents will be prepared and submitted to the Bank for review and no-objection before contract award. No bids will be rejected at the bid opening. All bids submitted on or before the deadline for submission of bids will be opened and read out at a public bid opening; local bidders shall demonstrate availability of obtaining securities and reasonable access to credit; bid evaluation criteria shall be pre-disclosed to bidders; and technical specifications shall be clearly written. These conditions shall be discussed at the negotiations and made part of the Credit Agreement. Goods and technical services bid for IT. A single- or two-stage bidding procedure for information system design, implementation, supply of customized software, data entry design, and goods. For this purpose the Bank's Standard Bidding Documents - "Supply and Installation of Information Systems, Single-Stage (or Two-Stage) Bidding", March 2003, or another agreed version may be used. Direct Contracting The project will involve direct contracting for software in Components A and B. This is necessary as RGZ has been building its information systems for the last 5 years and have made investments in application software and newly developed software. The institution has standardized application software, and additional purchases of this software will be made under the project. Consulting Services Consultants' Services will be selected in accordance with the Bank Guidelines issued in January 56

63 1997 and revised in 1997, 1999, and in May 2002, and for this project will include Quality and Cost Based Selection (QCBS), Consultants Qualifications (CQ), Least Cost Selection (LCS), and individual consultants (IC). QCBS selection over US$200,000 will be advertised in the Development Business and in a national newspaper for expressions of interest, from which a short list will be drawn. For contracts estimated to cost less than US$200,000, short lists may be based solely on national firms. The contract for auditing and one for supervision will be procured following the LCS method. Contracts estimated at less than US$lOO,OOO each for legal advice, study tours, training courses, quality control, and publicity campaigns will be procured following the CQ. Individual consultants will be selected in accordance with Part V of the Consultants Guidelines. All individual contracts will be advertised. Contracts for service delivery for data entry clerks, survey technicians, and legal clerks may be procured in accordance with paragraph 3.19 of the Consultant Guidelines, whereby jobs shall be advertised locally and the employment terms and unit costs for contractors shall be agreed upon with the Association. Training A schedule for training activities will be prepared on an annual basis as part of the annual work plan process and submitted to IDA for no-objection. Training through the Belgrade University in the Faculties of Geodesy, and Law, will be allowed if required (on an exceptional basis), as this is the only institution in Serbia able to provide project related training in the topic area of cadastre, registration, geodesy, and law. At present there is no private sector capability in these topic areas. Single-Source Selection Services for further development of proprietary software and consultancy may with the Bank's agreement undertake single-source selection in accordance with paragraphs 3.8 through of the Consultants Guidelines. Bank's Prior Review Thresholds (see Table B) Prior review thresholds are as follows: (a) Goods: All ICB, the first NCB package, and the first IS and NS packages. (b) Technical Services: All ICB packages, the first NCB package each year, the first NS and IS packages. (c) Works: First NCB and first MW (d) Consulting Services: Bank prior review will be required for all terms of reference, irrespective of the contract value. (e) All consultant contracts with consulting firms estimated to cost US$200,000 or more per contract (Full Review). 57

64 (f) All contracts with consulting firms estimated to cost between US$ 100,000 and US$200,000 per contract (Partial Review). (8) All consultant contracts with individuals estimated to cost US$50,000 or more full review. (h) First contract then terms of reference only for contracts with individuals estimated to cost less than US$50,000. Under Service Delivery Contracts for component A, a large number of clerks, students, and others will be hired for collection of data entry and verification, typing and clerical work in the cadastre and registry offices on a contractual basis. These contracts will be advertised locally. Terms and conditions of contracts and unit rates will be agreed with the Bank before the selection process begins. Operating Costs The Credit will finance operating costs which means: (i) incremental operating costs incurred on account of the project implementation by the PIU, RGZ institutional teams, and Land Registration Management Unit, including for consultant s services, communication costs, procurement publicity notice costs, transportation costs, fuel, vehicle maintenance, office equipment, office rental, supplies, equipment maintenance, and audit costs; (ii) travel costs and per diem allowances for staff of RGZ assigned to field and office work requiring travel for the project (this is an investment cost as by creating a cadastre, an asset is being established). Overall they will be disbursed at 80% until December 31,2006 and 60% thereafter until the end of the credit. No government staff salaries will be paid from credit funds. Retroactive Fin an cing After project effectiveness, the Loan proceeds will be used to reimburse eligible expenditures incurred by the project agencies after February 1,2004 up to a limit of EUR 240,000. Such expenditures will have been procured following Bank s procurement rules. Activities and items financed would include: office equipment including furniture for the PIU and RGZ as appropriate and the land registry function group (LRMA) and the two most project involved Directorates (IT and REC), office hardware and software for the PIU, LRMU and RGZ, vehicles, selected PIU consultants, critical international advisers including procurement, some training, and operating expenses for the PIU and LRMU. Post Review All contracts not subject to the Bank s prior review will be subject to ex-post review, on a selective basis. One out of ten contracts for goods, works, technical services and consulting services will be subject to ex-post review. Supervision missions will include a procurement specialist especially in the first two years whose main responsibility will be to conduct ex-post reviews of the procurement process and documentation and provide his or her findings. 58

65 Table A: Project Costs by Procurement Arrangements (US$ ('000) Serbia Real Estat Cadastre and Registration Procurement Arrangements (US$ '000) International National Competitive Competitive Bidding Bidding Other N.B.F. Total A. Civil Works 1. New Buildings B. Goods 2. Renovations C. Consulting Services D. Technical Services E. Training F. Recurrent Total Project Credit Amounts - 5,678 (5,394) - 2,676 (2,275) - - 8,354 (7,669) 3,594 (3,109) - 2,630 (2,104) 386 (378) 14,507 (11,000) 3,066 (2,606) 965 (965) 3,323 (2,169) 24,876 (19,222) , ,689-1,537 (1,230) 2,630 (2,104) 7,374 (7,O 17) 14,872 (1 1,000) 8,710 (5,516) 97 1 (965) 3,420 (2,169) 39,5 14 (30,000) Note: Figures in parenthesis are the respective amounts financed by World Bank ' A break-down of "other" is as follows: 59

66 Table A1 : Consultant Selection Arrangements (US$ million equivalent) 1/ Consultant Services Expenditure Category A. Firms B. Individuals Total QCBS LCS CQ IC N.B. Total Cost F (8.45 7) (5.774) (0.088) (0.903) (6.765) (4.235) (4.235) (5.774) (0.088) (0.903) (4.235) (11.OO) 1 \ Including contingencies Note: QCBS = Quality- and Cost-Based Selection LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines) N.B.F. = Not Bank-financed Figures in parenthesis are the amounts to be financed by the Bank Credit. 60

67 Table B: Thresholds for Procurement Methods and Prior Review Expenditure Category 1. Works 2. Goods 3. Services Technical Services (e.g. aerial mapping, cadastre survey) 4. Consultant Services And Training Contract Value Threshold (US$) > 600,000 < 600,000 < 100,000 > 100,000 <100,000 < 50,000 > 500,000 > 125, ,000 < 60,000 > 200,000 Firms < 100,000 Firms < 200,000 Firms Individual 5. Service Contracts I Individuals Procurement Method ICB 1 Contracts Subject to Prior Review (US$ millions) All First contract First contract IS I NCB First contract NS First contract ICB All NCB First contract each year MW I IS First contract NS First contract QCBS All CQ > 50,000 LCS > 50,000 IC > 50,000 SPN, TOR and contract conditions < 50,000 First then TOR onlv I IC or similar I Each batch Total value of contracts subject to prior review: $19.1 million Overall Procurement Risk Assessment: Average Frequency of procurement supervision missions proposed: One every 6 months (includes special procurement supervision for post-review/audits) during the first two years of project implementation, and once every year thereafter. One in ten contracts will be subject to periodic ex-post reviews. 61

68 Table B1: Project Procurement-Related Information and Review Thresholds Section 1: Capacity of the Implementing Agency in Procurement and Technical Assistance Requirements o A qualified and experienced procurement officer to be appointed to the PIU by negotiations; o The procurement officer to receive training in ILO Turin within six months of the credit effectiveness; o In addition to the procurement officer at least 2 staff from the relevant departments of the RGZ to receive procurement training preferably in ILO; o The procurement and technical capacity of the procurement department to be strengthened to deal with the incremental workload; o A procurement launch workshop of a duration of two to three days to be organized in Belgrade for the staff of all the agencies involved in project implementation. Section 2: Training, Information and Development on Procurement Estimated date of Project Launch Workshop: October 2004 Estimated date of publication of General Procurement Notice: July 2004 Indicate if there is procurement subject to mandatory SPN in Development Business: No Domestic Preference for Goods: No Domestic Preference for Works, if applicable: Retroactive financing: Yes Advance procurement: No Explain briefly the Procurement Monitoring System: Procurement implementation progress will be monitored through progress reports and supervision missions. During the first two years of implementation, two supervision missions per year will include a procurement specialist who will be responsible for updating the procurement plan, and conducting ex-post reviews. Hisher findings will be included in the supervision reports for monitoring their implementation. Co-financing: No Section 3: Procurement Staffing Indicate name of Procurement Staff or Bank's staff part of Task Team responsible for the procurement in the Project: Ireneusz M. Smolewslu, Senior Procurement Specialist, Ext Thresholds generally differ by country and project. Consult OD "Review of Procurement Documentation" and contact the Regional Procurement Adviser for guidance. 62

69 Table C: Allocation of Credit Proceeds Expenditure Category Amount in US$ million Financing Percentage (1) Works % (2) Goods % of foreign expenditures; and 100% of local exdenditures (3) Technical Services % (4) Consultants Services including auditing a. expert advice, research, % individuals and 80% for reviews, and auditing firms b. implementation and 9.93 operational tasks (5) Training % (6) Operating Costs % until December 31,2006 and 60% thereafter (7) Unallocated 0.87 Total Credit Costs Use of statements of expenditures (SOEs): YES The Association may require withdrawals from the Credit Account to be made on the basis of statements of expenditure for expenditures under contracts for: (a) goods costing less than $100,000 equivalent per contract (with the exception of the first such contract; (b) works costing less than $600,000 equivalent per contract with the exception of the first such contract; (c) for services of individual consultants costing less than $50,000 equivalent per contract; (d) services of consulting firms costing less than $100,000 equivalent per contract; (e) training, regardless of the cost thereof; (f) operating costs, regardless of the cost thereof; and (8) technical services costing less than $500,000 equivalent per contract (with the exception of the first such contract) all under such terms and conditions as the Association shall specify by notice to the Borrower. Special Account: YES See Annex 7 for details under the heading Disbursement Arrangements, 2 d paragraph. 63

70 Annex 9: Economic and Financial Analysis SERBIA AND MONTENEGRO: REAL ESTATE CADASTRE AND REGISTRATION PROJECT (Serbia) Introduction: Economic analysis of most cadastre and registration projects, where base data quality and coverage may often be problematic, would naturally be influenced by the powerful impact on the outcome of various assumptions adopted by the analyst. Under these circumstances, IRR estimates would be highly speculative. Similarly, for lack of data and difficulties in quantifylng key variables, the project efficiency parameters, particularly the ERR estimate, provided below should be viewed as indicative as to the benefits that a REC project can possibly offer. The principal motive as to why an indicative ERR was attempted is to highlight how little impact on real estate markets need to be generated to more than recover the investment costs. [Comparison of Project Magnitudes with the Entire Country Description Unit Project Serbia Rate of Coverage Number of Properties Property Units 596,000 1,000,000 I I I 1Number of I Persons I 1,788,000 I 3,000,000 lowners I I I 58.1% 59.6% 59.6% Cadastral Municipalities CM 89 4, % 1.9% Priority remaining CMs where no resurveys are needed CM % Brief Proiect Description: In addition to critical institutional strengthening of the parent agency, RGZ, the project will support creation and maintenance of a Real Estate Cadastre (REC) system in selected areas in Serbia and the city of Belgrade. It will lend assistance to the operations of 89 Cadastral Municipalities (CM) under the jurisdiction of 52 cadastral offices (CO) in 50 cities. Due to the project s urban focus no interventions are planned in the rural areas. Although covering some 2,100 km2, or less than 3% of the country s surface area (above table), the project will target all of the high priority remaining 59 Cadastral Municipalities, where REC still needs 64

71 to be instituted, and offer REC services to more than half of the Serbian population. To facilitate and accelerate operational support to REC, the project sites have been selected by RGZ where no mapping re-surveys would be needed and existing base maps can be utilized. In order to enhance customer services, the same sites will be targeted by the project to renovate and equip the customer service areas and build new buildings where needed. REC coverage for the city of Belgrade will be comprehensive and, when completed, will set a model for the rest of the country as well as other countries in the area. The project will receive IDA funding for US$30 million, and will represent an investment package of about US$39.5 million in IDA and government funds combined. It is also estimated that after the project start-up in 2005, complementary parallel financing will be secured for another US$ 1.O million from Norway. With contributions from the EU and other donors, total foreign funding mobilized in favor of RGZ is expected to reach about US$50 million in two years. The project will be implemented over 6 years from 2005 through Basic Economic Rationale: The World Bank is funding land administration projects in various parts of the world because it has been clearly shown that secure tenure and trustworthy registration systems allowing rapid and secure transactions are essential for economic prosperity. Sample projects around South America, the Caribbean and SE Asia have demonstrated that a secure title can add more than 20% to property value and multiply by several-fold the income generated through registration fees, sales taxes and property taxes. Economic Analysis Type of Proiect: This project aims at alleviating institutional constraints to the development o f effective land markets in Serbia. In this sense, the proposed project is of the blueprint type in which the major investments have been largely identified and designed in detail before IDA credit effectiveness. The analysis of the economic soundness of the project, subject to the caveats stated above in the introduction, were studied on the basis of the results of a limited and indicative cost-benefit analysis since the project will generate benefits that could be measured in monetary terms. A cost-effectiveness analysis was not performed. Operating Constraints on the Land Markets: In Serbia, there are about one million illegally constructed buildings, 200,000 of which are in Belgrade alone. There exist entire settlements that have been illegally built. Partly due to registration hurdles and delays, building illegally continues in Serbia. Meanwhile most of the land transactions in rural areas go unregistered. Urban land is owned by the State as the Serbian constitution does not allow for private ownership of such land. Only land use rights are accorded to investors and users. The status of land user does not provide sufficient security to investors, especially in cases when there are ambiguities regarding property rights. Lack of security stifles investments in land and precludes the creation of vibrant land markets, which constitute an essential feature of flee market-based economies. There is a particular need for reinstating private land ownership (in urban areas) to enable the transition toward a full-fledged land market in the country. This project will support the alleviation of some o f these ills. Due to historical circumstances, the ownership rights and land management issues in Serbia have been in disarray, particularly over the past 60 years. As a consequence, the real estate market is 65

72 limited. Domestic and foreign investors cannot invest in a reliable manner. The mortgage system is hardly available, and the owners have no security as far as their ownership rights are concerned. Some of the consequences of this situation are that: (a) more than 70 percent of apartments have not been registered in the corresponding registration system; (b) in the vicinity of majority of large cities, illegal settlements and structures have been erected, notably in Belgrade and Novi Sad, implying that the ownership on these structures has not been recorded into the land books; (c) land-related civil disputes constitute at least 30 percent of total cases in the judicial system and fuel social disharmony, and (d) data on the parcels in the cadastre do not match the data from the municipal courts and the situation in the field, causing long delays when the need arises to correct these data. The Serbian Land Market The land market in Serbia is already beginning to operate across the country and all sectors. Based on limited data, the project design team estimated the total turnover in the market in 2002 to be about US$1.4 billion. The real estate market compares favorably with other indicators. In 2002, the GDP for Serbia was US$15 billion and government budget about half of this amount. Serbia has about 19 million land parcels, the constituent parts of which comprise some 2 million buildings, 3 million apartments and over 5 million hectares of agricultural land. This endowment is a good basis for a vibrant land market. Moreover, the acceleration of REC creation and expansion via the proposed project, legalization of illegal buildings (which is underway), adoption and implementation of a law on land restitution, planned facilitation of the mortgage markets, reactivation of the new housing construction industry, and general economic recovery in the country will all help stimulate the demand for property transactions by increasing the number of legally recognized property objects on the market. The heightened demand for property transactions will in turn increase pressure on RGZ to expand and enhance its services. Hence, the valuable support function of the REC services will become much more apparent a few years from now as REC service areas are expanded, rendered operational and as RGZ matures in service delivery using the REC. Proiect benefits: Improving the REC and registration services will alleviate one of the major constraints towards the development of land markets in Serbia. Implementation of the proposed project will result in benefits to both individuals and Serbian society via (a) facilitated real estate transactions consisting of property sales and leases; (b) accelerated access to building land and land acquisitions for builders and developers; and (c) enhanced procedures for the privatization of state owned assets which occupy land. The project s impact on builders and developers will be significant who will henceforth be able to build faster and transact more freely owing to an enhanced process for land acquisitions that would be afforded by the unified Real Estate Cadastre (REC) supported under the project. Another distinct and equally important facet of the project will the anticipated reduced per unit cost of service delivery (cost effectiveness) to the clients which will be reflected in the future fee structure of RGZ. 66

73 Indicative Economic Rate of Retum (ERR): The indicative economic analysis is based on estimating the expected impact on the overall land markets resulting from improving the public services provided by the national agency, RGZ. Improved title security and efficiency gained in market transactions are the principal benefits from the project. These improvements would be reflected in future number of transactions as well as average property prices, the product of which would determine the total market value. In this context, the average property price is some kind of a weighted measure for a property pool consisting of houses, apartments and enterprises. From the with: and without project computations, incremental market growth was estimated. This estimate was subjected to downward adjustments to arrive at net incremental benefits due to the project from which an ERR could be estimated. The planning horizon was assumed to be 20 years. Using the below-listed (rather restrictive and conservative) assumptions together with base project data, the indicative ERR is estimated at 30% for a total project investment - IDA and Government funds combined - of about US$39.5 million plus a further package of donor financing of US$ 1 million (including government contributions) from Norway, for a total of US$40.5 million. The key parameter driving the analysis is the number of REC folios to be completed under the project, which is estimated at 596,000 for the project life. Due to the broad geographical coverage, the project benefits accrue to the Serbian society as a whole. Over the 20- year planning horizon, comprising both the implementation and operational periods of the project, it is expected that some 580,000 market transactions would occur under the with project scenario against 480,000 under the without project scenario. The principal source of project benefits is the increased market volume (i.e., the increment of 100,000 transactions), as highlighted by the comparison of these two key figures. At a discount rate (OCC) of 10% the net present value of economic benefits directly attributable to the project attains some US$90 million, which is three times greater than the amount of funds invested in the activity. Results of the analysis are shown in the table below. The next table contains the critical parameters, base data and assumptions leading toward the economic analysis. 67

74 SERBIA. FQal Estate cadastre and Registration Rqect With and Without Project Comparisons Using Projections for Property Markets 'on Period Operational Period Year1 Year2 Year3 Year4 Year5 Year6 Year10 Year15 Year20 NumberofProperties Unit 596, , , , , , , , ,000 wttlwt Prqect AverageRoperlyRice US$ 40,ooo 40,ooo 40,ooo 40,000 40,m 40,000 40,000 40,ooo 40,000 Market T u m YO 4% 4% 4% 4% 4% 4% 4% 4% 4% Number of Transactions Number 23,840 23,840 23,840 23,840 23,840 23,840 23, Market Tumwer (Sze) US$ Million wth..-. RNerf..-,--. REC Expansion YO 0% 24% 24% 24% 24% 5% REC Expansion - Cumulative % 0% 24% 47% 71% 95% 100% 100% 100% 100% Properties in REC Number - 141, , , , ,M)o ,000 PropertiesnotyetinREC Number 596,ooO 454, , ,244 30,992 - conputatim Far prsperties (a.met M e t Premium for Properties in RK: Percent MarketTumovernith REC percent Number of Transadions for Roperties in REC Number AverageRopertyPtiCi? US MarketsegnentTumover (Size) for Fnperties in REC US$ Billion rment) in REC 1.000/o 1.mh 2.wh 2.Wh 3.00% 3.000/0 4.Wh 4.08% 4.16% 4.24% 4.33% 4.42% - 5,763 11,757 17,988 24,463 26,321 40,4W 40, ,800 41,200 41, ,008 1, % 4.78% 28,491 41,200 1,174 3.Wh 5.28% 31,456 41, % 5.83% 34,730 41, conputatim for PTqOerties (bbrket Segment) IW Yet in REC NumterofTransadim Number MetSize US$ Million NumberofTransactias P-kmber 28,491 31,456 34,730 M e t T u m (Size) US$ Million 1,174 1,296 1,431 Results of Analysis Value of Incremental Market Tulnaemental Net Bene% to Transacting Parties US Million US Million ~ pro& costs - IDA +GOVT Parallel Finance - Nolway cash FIW US$ Million US$ Million USMillion (7.83) (7.79) (5%)

75 SERBIA - Real Estate Cadastre and Registration Project Critical Parameters and Assumptions Leading to ERR Computation a r a m e t e r Without Project IWith Project Comment Using 596,000 for the number of properties in the service zone of 89 umber Of Real Estate About 24,000 market transactions per year estimated by using an ransactions in the initial overall market turnover of 4%. itervention Area - Base Year verage Value of Property ransacted on the Market - ase Year,ate of growth in real estate ansactions :ate of Growth in Average 'roperty Value,rea Coverage or Market benetration Rate by the 'roposed Project US$40,000 for urban properties No Growth is Assumed under w/out project scenario IMarket turnover with REC will improve from existing 4% to 6% in 20 years and the number of transactions will stabilize at about 20,000 per annum. There will certainly be a significan positive change in average DroDertv values with the establishment of REC (called the No change is assumed under REC premium), But, for the w/out project Scenario illustrative purposes, this growth rate is assumed to attain a I symbolic 3% and gradually ]building up over the years. IREC for about 596,000 properties will be phased as 0%,24% for 4 None See PIP years and 4% in final project year Cadastral Municipalities. It is also assumed that the number of properties will not change over time and new construction will simply replace retired property. Data come from the "estimated overall value of property stock in Serbia" (Le., US$ 33.7 billion) divide1 by the number of properties (about 1 milllion), slightly adjusted upward in order to properly account for the higher-value urban property pool. This is the hypothesized market spurring effect due to improved RE( services. The market premium on securely titled property may be as high as 20% as revealed by empirical evidence in other countries. For the first 10 years of project horizon, relative to the real cost of The implicit assumption is that, at t~ acquisition, about a fifth of the total market value (and thus of its :onversion of Market incremental value as well) will represent some sort of capital gains the market price Of a prope' 'umover Values into Project (and thus income) for the beneficiaries involved, The embodies capital gains at about 20: lenefits be unleashec capitals gains rate progressively reduces to about 8% in 15 years On average' which by transacting the property. as the market settles. I lote: The concept of "proper" represents a weighted pool of various types of real estate possessions: houses, apartments etc. I Financial Analysis Financial Statements 2003: RGZ produces five financial statements on an annual basis. These consist of (a) budget, (b) income statement, (c) balance sheet, (d) statement o f capital expenditures, and (e) cash flow statement. During appraisal of mid-february, the RGZ Finance Department had not yet finished processing the official versions of these statements except for the budget, which was submitted to the Government in November All 10 of the regional centers must first finish work on the financial statements and send them over to RGZ headquarters in Belgrade for consolidation. The targeted date for completing the key statements was March 3 1,2004, three full months after the closure of the fiscal year. This delay alone points to the fact that RGZ may indeed benefit significantly from a well designed MIS (proposed under the project) with an automated data processing facility. 69

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78 Trends of RGZ Self Financing 80.00% 70.00% 0 r: 60.00%.- a 50.00% I % Q) Ua.cI 30.00% C 20.00% L % 0.00% Years Fiscal impact and project sustainability RGZ Sustainabilitv: RGZ is a financially sound revenue earning entity, and its reliance on central govemment funding is decreasing and was about 30% in The central government budget covers basic salaries and allowances, but no O&M costs. RGZ has consistently improved its self-financing ability (chart above) over the years except for 2000 (due to civil strife). If necessary funding could be secured to fully implement RGZ s Mid-Tenn Plan, the Agency would have weaned itself off central budget in about 5 years and become completely self financing, as shown in the below table. RGZ s Mid Term Plan (MTP) was submitted to the Government for approval about mid- September This submission embodied various improvements over previous versions. The MTP is a critical document for RGZ, because in addition to hlfilling legal requirements, it acts as a vehicle for seeking Government support for the proposed investments as well as serving as a basis for the development of business plans for RGZ. MTP s review by the Government produced mixed results. The document was reportedly approved by the Ministry of Urban Planning and Construction (MUPC), and Ministry of Local Self Government while it received a conditional no-objection from the MOFE, which declined to offer financial commitments to find the investment operations therein described. This outcome of financial non-commitment from the Government should not diminish the utility of the MTP as an indispensable framework for helping streamline RGZ s operations as a whole, providing a clear vision to the agency as well as serving as an apparatus for raising the required funds towards financing the planned operations, particularly from the donor community. 72

79 RGZ s Mid-Term Plan Projections for Sources of Funds Description!Units I TOTAL Central Government I I I I I I Budget Allocation RGZs Own Resources International Donors Municipalities Total Resources SD B SD B SD B SD B SD B However, the proposed IDA-funded project will partly support RGZ s MTP and will help mobilize further resources to the benefit of RGZ. Due to uncertainties with the funding situation for the MTP, and the recent political changes in the country, at this time it is difficult to predict how fast RGZ will fully attain its objective of becoming fully self-sustaining. The proposed project will increase RGZ s ability to enhance its fee income, which it keeps to finance its operations, by expanding the scope of its services and helping it take over registration responsibilities from land book offices in a much faster manner. RGZ s Financial Burden on the Government: In conjunction with RGZ services an administrative tax is collected that goes directly to the treasury account. The amount of the administrative tax collected in 2003 was about SD 270 million. Therefore, RGZ s net burden on the government turns out to be rather limited, and is computed to be around 6% for That is to say, RGZ directly or indirectly helps collect SD 94 of every SD 100 that it spends in public funds. This is a very good record to start the proposed project, which will carry RGZ to further improvements in self-sufficiency and attainment of a semi-autonomous status, as is being advocated in the core project design. Property and Transfer Taxes: As shown in the table below, Serbia collects more in real estate transfer taxes (US$61 million) than in property tax (US$48 million). This is an anomalous situation, and implies a large degree of tax evasion in property taxes. In principle, working backwards from either property tax or transfer tax, one should be able to arrive at the same overall value of property stock in Serbia, as highlighted in the table. There is a significant discrepancy between the results of the two approaches. Estimates based on property tax result yield a much lower overall property stock value (US$ 10 billion), while those based on the transfer tax yield a much higher figure (US$30 billion). This discrepancy is attributed to massive evasion on the property tax (computed to be around 70%). The only perceivable manner of assisting the Government with its property tax collections is to bring unregistered properties in a unified record keeping system as offered by the REC, which the Bank-funded project is supporting. 73

80 Transaction Costs: One of the goals of the project is to lower secondary transaction costs, especially for real estate sales. In Serbia these costs are relatively high. As discussed above, there is a property transfer tax of 5% of the transaction value, a capital gains tax, registration fees, survey fee, real estate agents fees, lawyers fee, and others. High transaction costs impact on sales, sometimes driving the transaction into informality (with no consequent registration) or precluding the transaction altogether. Two of the targets to achieve this goal are: (i) to lower the property transfer tax, and (ii) review the proposed notary hction under consideration by GOS. In addition to causing a flight to informality, there is evidence that the 5% transfer tax stifles the development of the land markets in Serbia. The project design team asserted that the long-term effects of a reduction on the level of the property transfer tax from its current level of 5% down to 2 or 3% in phases would be beneficial and eventually yield more in property related tax revenue from both sources of property and transfer taxes combined. This would be due largely to bringing many unregistered properties under registration from which a property tax can be collected and revamped market operations. In order to investigate the matter a study has been programmed within the framework of the proposed project, and following the advice of IMF, the matter was deferred for debate for a later date and not pursued further during the project appraisal phase. 74

81 Annex 10: Safeguard Policy Issues SERBIA AND MONTENEGRO: REAL ESTATE CADASTRE AND REGISTRATION PROJECT (Serbia) This project is rated C and no environmental assessment is required. Additional safeguard policy issues considered and explored during project preparation were forestry and cultural property. Interviews were held with staff of the Ministry for Protection of Natural Resources and the Environment - Directorate of Forests, Srbijasume (Serbia Forests), an NGO focused on the protection of cultural property, and the Republic Geodetic Authority (RGZ). A review of the legal framework for protection of the environment and cultural property was done. In addition a social assessment and land market study were conducted to provide additional information. Implications for the Environment Satisfactory legislation exists in the Republic of Serbia for environmental protection. The proposed project deals exclusively with land administration and does not provide direct support to land management. Land administration concerns the establishment and maintenance of the land and real estate cadastres, as well as improvements to the legal framework and improved IT systems. Forestry and environmental protection will benefit from this general framework and improved IT systems by making data more readily available to other constituencies - forestry management agency, NGOs, other government ministries, etc. Regulations Related to Cultural Property The Law on Cultural Property (Official Gazette No. 71/94) defines the system of safeguards for cultural property and the procedures for placing an immovable object or land under the protection of the Institute for Protection of Cultural Monuments. The Institute is responsible for maintaining the central register of immovable cultural property, after which, according to the law, the Institute must register the immovable cultural property in the land boowland cadastre or the Real Estate Cadastre (REC) - depending on which is in force in the relevant location. Supervision of the Law on Cultural Property and the Institute for the Protection of Cultural Monuments is under the Ministry of Culture. Regulations and Issues Related to Forest Lands The Law on Environmental Protection (Official Gazette No. 53/95) defines measures for environmental protection, categorization, procedures, protection of natural treasures, management of national parks, etc. There is a register of protected natural treasures, and this information should also be registered in the land boowland cadastre or the REC. The responsible ministry is the Ministry for Protection of Natural Resources and the Environment. Forest lands are part of the mandate of this Ministry, but their day-to-day management is performed by Srbijasume (Serbia Forests). Discussions with Srbijasume and the Ministry s Directorate of Forests revealed great interest in the project and the belief that the project will only benefit forest land management. Currently forest lands are both publicly and privately owned, and are managed by Srbijasume. In Serbia 27% of the territory is covered by forests - a total of 2.6m hectares, of which 44% are privately owned with some 500,000 owners and 5,000,000 parcels most on average 0.5 hectares. Currently there are 46,000 km of boundaries between private and state-owned forests, of which some 30,000 km are unclear. This problem is particularly serious in peri-urban areas. The

82 SSCR law requires that these boundaries be defined by RGZ in cooperation with the Ministry and Srbijasume. The preparatory work for this survey was done in 1993, however the work was not implemented due to a shortage of funds. Additional issues include fragmentation of forest lands, the problem of illegal and un-registered buildings on forest lands, and the lack of willingness or awareness of private owners to register their forest lands in the cadastre/rec. Conclusions A satisfactory legislative framework exists for cultural property, forests and environmental protection. The project will focus primarily on urban areas and will not undertake forest sector activities and interventions that will impact significantly upon forested areas. The main focus of the project will be to speed up formation of the real estate cadastre in the identified 17 urban areas. This process involves registering real estate ownership rights as currently recorded in the land book, land cadastre or with proof offered by the owners. If state owned forests or cultural property are included in a cadastral municipality, this state ownership is registered along with all private ownership, thereby clarifying the ownership situation. In addition, as the formation of the REC is a systematic process including all properties/lands in the given cadastral municipality it may introduce into the official state system previously unrecorded or unknown lands of environmental or cultural value. Indirect benefit of the project for forest and environmentally sensitive lands, as well as cultural property will be the strengthened capacity of RGZ overall, including skills upgrading, improved legal framework, simplified regulations, and a publicity campaign to encourage citizens to register lands and property. Resettlement/Illenal Construction In Serbia, existing informal settlement/occupation is supported under the law and the gaining of title to real property by prescription is possible. Also, the SSCR Law has provisions within it that allow qualified registration of real property when full evidence is not available to prove rights. There is no indication that the GOS intends to resolve the issues of illegal construction other than by providing the opportunity to legalize in an evenhanded manner. 76

83 Annex 11 : Project Preparation and Supervision SERBIA AND MONTENEGRO: REAL ESTATE CADASTRE AND REGISTRATION PROJECT (Serbia) Planned Actual PCD review February 2003 Initial PID to PIC Initial ISDS to PIC April 2003 April 2003 Appraisal February 2004 February 8,2004 Negotiations March 2004 March 24-26,2004 BoardRW approval May 25,2004 Planned date of effectiveness October 31,2004 Planned date of mid-term review October 2007 Planned closing date October 31,2010 Key institutions responsible for preparation of the project: Republic Geodetic Authority, Belgrade, Republic of Serbia Ministry of Capital Investments, Belgrade, Republic of Serbia Bank staff and consultants who worked on the project included: Name Title Unit Lynn Holstein, TTL Lead Land Administration ECSSD Specialist Victoria Stanley, Deputy TTL Miroslav Ruzica Ireneusz Smolewski Jonathan Pavluk Joseph Formoso Michael Gascoyne Project Analyst Snr Social Scientist Snr Procurement Specialist Snr Council Snr Finance Officer Snr Financial Management ECSSD ECSSD ECSPS LEGEC LOAG3 ECSPS Specialist Project Analyst ECCYU Lawyer and YP ECSSD Country Manager (until 3/04) ECCYU Miroslav Frick Maria Bouquet Rory O Sullivan Consultants Steve Butler Vladimir Evtimov Gavin Adlington Suha Satana Rumiana Tontchovska Ron Logan Helge Onsrud Real Estate Lawyer Cadastre and Reg specialist Project management and reg specialist Economist/ FM Specialist Information Tech Specialist Institutional Specialist Cadastre/ reg specialist 77

84 Peer Reviewers Frederic de Dinechin Snr Land Administration Spec LAC Edward Cook Snr Agr Economist ECA Wael Zakout Lead Operations Engineer E M Bank hnds expended to Board submission: 1. Bank resources: $400, Trust funds: $220,000 Estimated supervision costs: 1. Estimated annual supervision cost: $85,000 78

85 Annex 12: Documents in the Project File SERBIA AND MONTENEGRO: REAL ESTATE CADASTRE AND REGISTRATION PROJECT (Serbia) Project Implementation Plan, version 3 Social Assessment Special Social Assessment on Gender and Minorities Main SSCR Law; and the Property Law Preparation and Appraisal Aide Memoires Institutional Analysis ICT Report and Recommendations SIDA Training Proposal Proposal for Norway Support Proposal for EU Support Consultant Report on New Law Addressing Illegal Construction Operations Manual for Financial Management Belgrade Land Administration Study 2003 CLC Austria 79

86 Annex 13: Statement of Loans and Credits SERBIA AND MONTENEGRO: REAL ESTATE CADASTRE AND REGISTRATION PROJECT (Serbia) 28-Apr-2004 Original Amount in US$ Millions Difference between expected and actual disbursements Project ID FY Purpose IBRD IDA SF Cancel. Undisb. Orig. Frm Rev'd PO EDUC IMPRVMNT PO EMG ELEC POWER RECN PO EMG POWER LIC (MONTENEGRO) PO EMPLYMT PROMO LIL PO ENERGY EFF PO ENVIRONMENT (MONTENEGRO) PO EXP FIN FAC PO FIN SEC DEVT TA GRANT PO HEALTH PO MONTENEGRO ENV INFRA PO PFSAC PO PRIV & REST OF BANKSIENTPRS TA PO PRIV SECT DEVT TA PO SOC ASST PO SOSAC PO TRADE & TRANSPORT FACILITATION IN SEE Total:

87 SERBIA AND MONTENEGRO (Annex 13 cont) STATEMENT OF IFC's Held and Disbursed Portfolio As of 3/ In Millions US Dollars Committed IFC Disbursed IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1985 Energoinvest Igalo Jugobanka MEB Kosovo MFB Yugoslavia 1980 Monte Hotels 1980 Radoje Raiffeisen Yug 1977 TKA Cain 2002 Tigar Tyre Vojvodjanska Total Portfolio:

88 ~ -Serbra ~ Lower-middle-income Annex 14: Country at a Glance SERBIA AND MONTENEGRO: REAL ESTATE CADASTRE AND REGISTRATION PROJECT (Serbia) POVERTY and SOCIAL 2002 Population, mid-year (millions) GNI per capita (Atlas method, US$) GNi (Aflas method, US$ billions) Average annual growth, Population (%) Labor force (%) Serbia and Montenegro at a glance 2/4/04 Most recent estimate (latest year available, ) Poverty (% of popuiafion below national poverty line) Urban population (% of total populafion) Life expectancy at birth (years) Infant mortality (per 1,000 live birfhs) Child malnutrition (% of children under 5) Access to an improved water source (% ofpopulation) Illiteracy (% ofpopulation age 15+j Gross primary enrollment (W of school-age population) Male Female KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982 GDP (US$ billions) Gross domestic investmenwgdp Exports of goods and services/gdp Gross domestic savings/gdp Gross national savings/gdp Current account balancelgdp Interest payments/gdp Total debwgdp Total debt service/exports Present value of debt/gdp Present value of debtlexports (average annual growth) GDP GDP per capita Exports of goods and services Serbia and Montenegro 8.3 1, Europe & Central Asia 475 1, zoo Lowermiddleincome 2,164 1,240 2,677 1.o i Development diamond' I---- I i GNi per capita I I I Life expectancy T Access to improved water source and Monfenegro -Serbia group Trade Indebtedness and Montenegro Gross primary nroilment I STRUCTURE of the ECONOMY (% of GDP) Agriculture Industry Manufacturing Services Private consumption General govemment consumption imports of goods and services GDI --O-GDP (average annual growth) Agriculture industry Manufacturing Services Private consumption General government consumption Gross domestic investment Imports of goods and services o02 I Growth of exports and Imports (%) Note: 2002 data are preliminary estimates. Group data are through ' The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. 82

89 Short-term Serbia and Montenewo PRICES and GOVERNMENT FINANCE Domestic prices (% change) Consumer prices Implicit GDP deflator Government finance (% of GDP, includes cufrent grants) Current revenue Current budget balance Overall surpluddeficit i 0-l,, I -GDP deflator *CPI TRADE (US$ millions) Total exports (fob) Food Other fuel Manufactures Total imports (cif) Food Fuel and energy Capital goods Export price index (1995=100J Import price index (1995=100) Tens of trade (7995=100) , ,412 6,320 Export and import levels (US$ mill.) l II I m Exports B Imports BALANCE of PAYMENTS (US$ millions) Exports of QWdS and Services Imports of goods and services Resource balance ,743 5, ,241 6,857-3,616 Current account balance to GDP (Oh) Net income Net current transfers -26 1, ,343 Current account balance Financing items (net) Changes in net reserves , Memo: Reserves including gold (US$ millions) Conversion rate (DEC, locavus$) 1, , EXTERNAL DEBT and RESOURCE FLOWS (US$ millions) Total debt outstanding and disbursed IBRD IDA ,740 1, ,912 2, :omposition of 2002 debt (US$ mill.) Total debt service IBRD IDA Composition of net resource flows Official grants Official creditors Private creditors Foreign direct investment Portfolio equity 242 E World Bank program Commitments Disbursements Principal repayments Net flows Interest payments Net transfers 0 75 \ ~ IBRD I - IDA D -Other multilataral F - Private >-IMF G ~ E - Bilateral Development Economics 2/4/04 83

90 Annex 15: Social Assessment - Summary SERBIA AND MONTENEGRO: REAL ESTATE CADASTRE AND REGISTRATION PROJECT (Serbia) The Serbian context reveals a number of social and related issues, such as land fragmentation, significant illegal building, and a growing property rights transformation (privatization of public enterprises, initiated restitution). In addition, new actors have appeared (private businesses, real estate agents, private surveyors, private builders), whose activities directly depend on the cadastre and'property records. The housing market is already constrained by a lack of investment in new housing units, and incomplete and mismatched property rights and cadastre records. This situation has been exacerbated by the influx of refugees and IDPs over the past decade. Due to known circumstances, the majority of the population is poor and there are many vulnerable groups. The quite recent national Poverty Reduction Strategy (November 2003) has identified certain vulnerable groups (refugees, IDPs Roma, elderly, women) and outlined specific public support to them. A growing number of them live in substandard and illegal settlements -- the number of illegally built housing units is estimated from 600,000 to 1,000, where safety issues, poor infrastructure, uncertain property rights, and the strategy of building a home as a life-long-project, prevail. Based on the draft Social Assessment and special study on Minority and Gender Issues, there are several core social issues relevant for this project. A huge influx of refugees and IDPs in the 1990s has additionally increased the number of illegal or semi-legal housing units and settlements with uncertain property rights (land, housing, business facilities). According to the PRSP, there were 278,000 refugees from Croatia and Bosnia in Serbia in 2003, in addition to around 200,000 IDPs from the Kosovo province. While many might choose to return, the lack of security and occupation of the property they left behind have made retum an unlikely choice, and they are clustered around a few big cities, such as Belgrade, Novi Sad, and Kraljevo. Although they try to re-claim their property and benefits from their countries of origin, their key efforts are to accommodate and integrate into their new environment. With support from the international community, Serbia has developed the National Strategy to Support Refugees and IDPs, which outlines the core tasks as: -the regularization of their legal status (birth certificates, domicile certificates, citizenships) and their social integration; -development of a specific housing policy for refbgees and IDPs (domestic and foreign resources, land donation, settlements building, direct subsidies to build houses), especially those who are poor and have no access to their property in countries of their origin. These programs will take time, and much more coordination, funds, and local resource mobilization are needed. RGZ has a role to play in providing up-to-date information regarding ownership, systematic formation of the REC, and in registering sporadically (or on-demand) those who wish to register their property. The project will also include a legal aide component to provide legal advice to disadvantaged groups that do not have access to information or can afford to hire an attorney. Increasing public awareness and knowledge of RGZ, the REC process, the law and procedures for registration is another critical component of the project. The Social Assessment has demonstrated a general ignorance about RGZ and the REC process with 80% of respondents not aware of RGZ or its services. Public education is necessary so that citizens are 84

91 aware of, and seek to enforce, their rights. Public awareness is also a prerequisite for holding government agencies accountable. Serbia is a country of ethnic diversity, with Albanians, Vlachs, Hungarians and Bosnians concentrated in some specific regions. The Roma people, however, are the poorest and most vulnerable group. 80% of them live in the poor settlements and regions. It is estimated that there are about 600 slums in which the Roma people live, and the majority of these settlements are not legal and are outside of any city infrastructure and regulation. Quite recently, however, several national initiatives and programs have started addressing the Roma issues, especially their housing situation. A National Roma Strategy, a new Roma Council, and the PRSP have identified core issues and proposed some comprehensive initiatives to address the full range of, Roma needs. There are some Roma settlements around larger cities, that though informal, have been in existence for decades and have some of the attributes of formal settlements. The SSCR Law allows qualified registration of real property when hll evidence is not available to prove rights, which might provide some fb-ther security. However the complexity of the legal situation with regard to many Roma settlements cannot be resolved under the current legalization laws and is beyond the scope of this project. Within the project, the legal aide component will provide legal advice to individual Roma if they seek it, and through collaboration with Roma Councils may be able to reach out more actively to the Roma community. The Public Information Campaign will specifically target disadvantaged groups such as the Roma so that they are familiar with their rights and obligations. Participation of Roma representatives will be encouraged in the Client Advisory Group to be set-up for the project. The new 2003 Law on Planning and Construction has initiated a very ambitious program of legalization of housing units and business facilities. As already mentioned, it is estimated that there are between 600,000 and 1,000,000 illegal or semi-legal houses and apartments in Serbia in The Law required that people begin the legalization process before the end of November of Around 370,000 households have applied and the government i s obliged to complete the procedure in a three-month period. But as of January 29,2004 only 1 1,726 objects were legalized. The Law has created some incentives (lower fees, payment in installments), and the has authorized local authorities to consider reducing fees for local infrastructure which are to be paid as part of the regularization process. The Law also defines clear sanctions to be executed by local governments (high fines, even property demolition) for noncompliance. It is too early to estimate the implementation of this very important project, but its success can be a comer stone of the property market, secure titles, and spatial planning. Though the legalization is not a mandate of RGZ, the legalization process is placing a great deal of strain on the branch and local offices of RGZ which have to provide documents as part of the legalization application. However, the project itself will have little intersection with the legalization process other than to register rights once the process is complete. There are some indications that corruption may be an issue. The draft Social Assessment has shown a widespread distrust in government and government institutions. With the exception of the church, Army and the police, all other institutions are trusted by less than 10% of the population sampled. Some new anti-corruption initiatives (National Anti-corruption Council, 85

92 local anti-corruption teams, civil society programs such as of OTPOR) are becoming effective tools in curbing the corruption practice within Serbia. A public information campaign to be funded by the project will also help in the reduction of corruption in this area. The customer survey currently under way should provide additional information about perception of customers and the practice in RGZ branch and local offices. The project should help to increase institutional accountability and transparency of RGZ. The public awareness and information campaign will provide access to information for the public and will target particularly vulnerable groups within society. Second, the project management arrangements include a Client Advisory Group to be convened as needed to provide advice and feedback on service standards, information campaigns and other issues of customer service and client outreach. Improving oversight by civil society and other groups could act an ally in controlling corruption. Lack of access to information is often the greatest source of informal payments within the land administration sector. Finally, the special study on Minority and Gender Issues has provided much usehl information. The objective of the study was to analyze property rights with regard to minority status and to determine the unintended impacts of land and property policy on women. With the exception of the Roma people, it appears that the position of ethnic minorities with regard to property is no different from the majority. All groups suffer from out-of-date and incomplete records and a lack of knowledge about the law, institutions and procedures. However the general issues of lack of adequate housing and illegal construction may impact refugee and IDPs communities at a higher rate than the general population due to their often marginal status within the community. In addition, discrimination against some minority groups does exist within Serbia. The complexity and often desperate situation in which some minorities find themselves requires a high level of sensitivity, transparency and fairness in the decision making. With regard to gender, the findings are only indicative and more research is needed. Legally women have the same rights as men, including property ownership. However in some areas and among some ethnic groups a type of re-traditionalizing is taking place, especially in rural areas, where common law favors male inheritance of property. Roma women are also particularly vulnerable as they are often illiterate or poorly educated, unlikely to know their rights, and exist within a traditional patriarchal culture. With regard to the project social development objectives, the likely outcomes are: (i) the project will encourage property registration and in this way support property utilization and the wellbeing of citizens; (ii) is expected to build trust in government institutions by developing clear and transparent rules, procedures and standards; (iii) will also strengthen an active participation of new social actors, such as NGOs, private businesses, condominium associations, real estate agents, and private surveyors; (iv) the poor and vulnerable groups will not only be better informed, but also supported (legal aide, incentives to register); and (v) the improvement records and mechanisms for registration should help to loosen the property market providing for increased movement of existing housing stock and further development of new housing stock. The project preparatory work has identified and consulted with certain groups, such as private businesses, former property owners, rural community boards, condominium associations, and professional groups (lawyers, private surveyors). In addition, the Social Assessment, Customer 86