~ Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Date: November 10,2008 Country: Ukraine Project Name: Rural Land Titling and Cadastre System Development Project ID: PO35777 Annual Cumulative UKRAINE RURAL LAND TITLING AND CADASTRE SYSTEM DEVELOPMENT PROJECT EUROPE AND CENTRAL ASIA REGION PROJECT PAPER Borrower: Ukraine Responsible Agency: The State Committee for Land Resources Revised estimated disbursements (Bank FY/US$m) 46377-UA Task Team Leader: Gavin Adlington Sector Manager: John Kellenberg Country Director: Martin Raiser Environmental Category: B I FY 104-08 I 09 I10 Ill I12 I 13 15.46 6.07 20 20 20 20 15.46 21.53 41.53 61.53 81.53 101.53 The restructuring is based on absence of objection from the Board. : Does the restructured project require any exceptions to Bank Policies? Have these been approved by Bank management? Is approval for any policy exception sought from the Board? Proposal to Restructure -- Yes -- No Not applicable - No Revised project development objective/ outcomes: The revised objectives of the Project are to assist the Borrower in: (i) privatization of the lands of state and communal farm enterprises, agencies and organizations through transfer to the employees of these enterprises, agencies and organizations as well as retirees from among them, designating for each of them a land parcel (share); (ii) allocating land parcels to owners of land parcels (shares) in kind (on site) and issuing state land deeds to them; and (iii) establishing a land cadastre. The objectives have been amended by deleting a sub-paragraph that stated encouraging the restructuring of farm enterprises into more efficient units, with due consideration for environmental and social safeguards, and by inserting the word land before the word cadastre in subparagraph (iii) and deleting reference to a title registry system. The project outcomes are affected because the agency originally envisaged as responsible for establishing a unified (urban and rural) cadastre and title registry system has been unable to do so because of legal and institutional obstacles. The revised outcome enables such a cadastre and registry system to be established only for the titles issued under the project, by the main beneficiary agency. Farm restructuring is largely completed without project intervention and the project activities relating to the establishment of farm advisory services, and the monitoring of the consequent improved economic efficiency of the farms, is removed from the project.
Does the restructured project trigger any new safeguard policies? - No Revised Financing Plan (US$m) I Recipient IBRD ~niirce I 1 I----- Foreign.mal 3 629,61 0.00 Total 0.00 3 629,61 101 530,OO 101 530,OO Introductory Statement This Project Paper seeks the approval of the Executive Directors to introduce the following changes in the Ukraine, Rural Land Titling and Cadastre System Development Project, Loan No. 4709 - UA. The proposed changes take into account difficulties experienced with completing the legal framework for parts of the project due to institutional rivalries that have not been resolved. The project included a Part that was supposed to establish a unified registration system covering both urban and rural areas and it included hnding for the transformation of the State Land Cadastre Center (SLCC) to implement this activity. The SLCC have been unable to undertake this work because of resistance from the Ministry of Justice and it has now been agreed that resolution of the differences between the institutions is highly unlikely and that the project outcomes relating to this Part can not be met, The project also included a Part on farm restructuring that has seen little progress and is no longer required. Other parts of the project are progressing satisfactorily. The project restructuring is necessary in order to amend the project development objective, revise the project outcomes and reallocate resources to ensure that land titling and cadastre systems in rural areas function effectively. This also entails cancellation of the sub-loan agreement between the government and the SLCC and cancellation of the Project Agreement between IBRD and the SLCC. Background and Reasons for Restructuring Original Proiect Concept. The Project preparation was initiated in early 2001 (the Concept Review Meeting took place on February 5,2002) and was approved by the Board on June 24,2003. The Loan and Project Agreements were signed on October 17, 2003 and became effective on July 30, 2004. The long delays in signing and effectiveness of the Loan after Board approval were mainly related to slow government procedures for processing loans and political reasons in Ukraine, and not related to the Loan itself. The Project s development objectives are to assist the Borrower in: (i) privatization of the lands of state and communal farm enterprises, agencies and organizations through transfer to the employees of these enterprises, agencies and organizations as well as retireesfrom among them, designating for each of them a land parcel (share); (ii) allocating landparcels to owners of landparcels (shares) in kind (on site) and issuing state land deeds to them; (iii) encouraging the restructuring of farm enterprises into more efjicient units, with due consideration for environmental and social safeguards; and (iv) establishing a cadastre and title registry system where rights to 2
immovable property can be adequately registered. To achieve these objectives, the Project envisaged seven Parts that were to be implemented over a period of 8 years by the State Committee for Land Resources (SCLR), State Land Cadastre Center (SLCC) - a self-financing enterprise reporting to the SCLR) and the Ministry of Agricultural Policy. Most of the funds (82%) were to be utilized under Part D: allocate parcels to individuals in rural areas on an equitable basis, establish their property rights by issuing state deeds for land and Part E: establish a national cadastre and title registry. The project covers the whole country. The remaining Parts supported these primary activities with publicity, training, legislative development, farm advisory services, equipment for the SCLR and project management. The total Project loan amount was US$195.13 million. Proiect Performance. The project was rated moderately unsatisfactory in May 2005 and unsatisfactory in March 2006 because of a combination of sub-par performance, slow disbursements and the failure of the SLCC to implement Part E because of disagreements with the Ministry of Justice over responsibility for the registration of property rights. The disputes led to the suspension of Part E in February 2006, but the suspension did not lead to resolution of the problems and the conditions for lifting the suspension have never been met. During the period since suspension there has been a succession of governments and heads of the counterpart agencies and various attempts to get new legislation passed in order to clarify concerns over institutional responsibility, but to no avail. The lack of activity with the establishment of the unified registration and cadastre system led to cancellation of US$74 million in July 2006 and US$19.6 million in June 2008. The latter cancellation was concluded ahead of completing the restructuring of the Project in order to reduce commitment charges and as agreed with the Borrower. Reasons for Restructuring. The project restructuring is required because the project design included a requirement to establish a unified registration system for urban and rural land (Part E of the Project) and it has not been possible to achieve this. Restructuring will enable the government to meet the revised development objectives and continue with the successes already achieved in those parts of the project that have been successful so far. The project is performing satisfactorily apart from the suspended Part and some issues with the Farm Restructuring Part (referred below). The project has been instrumental in helping the government to issue land titles and, although most of the funding has come from the government, the initial requirement to issue 4 million land titles is already exceeded. Six major contracts for production of cadastral maps covering 21 regions are underway and the final tender covering 5 regions is being evaluated. The SLCC have implemented a system for recording securely all titles so far issued as expected under the project outcome indicators. The public awareness program, various legislative improvements, training programs and other institutional improvements have progressed well. The only reason that the project remains in problem status is the inability of the SLCC to implement the activities under Part E and the lack of activity with Farm Restructuring (Part F). There has been little ownership or perceived need to implement the farm advisory services under Part F, and the government have asked for this Part to also be cancelled. 3
Continued Requirement for Proiect Activities. There is a moratorium on land sales for agricultural land in Ukraine. The moratorium restricts owners ability to make maximum use of their land assets, including the ability to utilize it for getting credit. It is the policy of the government to remove the moratorium and it is due to be lifted once all agricultural land titles have been issued and a reliable system for recording land rights and transactions with land rights is established. This is the fundamental requirement of the project and the project should continue in order to complete this requirement. Proiect Outcomes. The overall outcome of the project was to distribute land in rural areas to individuals and to provide them with secure title registered in a secure and reliable registration system. This outcome is not affected by the restructuring and with the proposed changes the remaining uncommitted funds can be put to productive use to achieve this primary outcome. However, the project included an agreement to establish a unified registration system that encompasses all land and buildings in both urban and rural areas, and the outcomes for Part E agreed during negotiations can no longer be achieved. The outcomes for Part E were separately listed because they were the responsibility of the SLCC. Aspects of the project relating to farm restructuring (including business development) were over-optimistic and the activities in the Part are also to be cancelled. Thus amendments to the project objective and project outcomes need to take into account the cancellation of Parts E and F. Funds required for these activities have already been cancelled. Government s request for restructuring. The government s initial request for restructuring was received on October 29,2007. Amendments to their proposal were agreed during a supervision mission in May 2008. The agreements with regard to the final form of the restructuring were documented in the Aide Memoire and covering letter to the government following the mission in May 2008. Proposed Changes It is proposed to amend the Development Objective to state: to assist the Borrower in: (i) privatization of the lands of state and communal farm enterprises, agencies and organizations through transfer to the employees of these enterprises, agencies and organizations as well as retireesfrom among them, designating for each of them a land parcel (share); (ii) allocating landparcels to owners of landparcels (shares) in kind (on site) and issuing state land deeds to them; and (iii) establishing a land cadastre. This objective retains the primary focus specified in the PAD. The original CAS goal at the time of project preparation was: The Establishment of Private Property Rights ; and the related Key Performance Indicator was: Most agricultural land would be privately owned and recorded in a secure recording system. Land owners feel that their property rights are secure. The 2008-201 1 Country Partnership Strategy (CPS) mentions the fact that the CAS goal with respect to land issues from 2000 is still not realized, but that it is still relevant. The removal of the rural land sales moratorium and evidence of rural land markets functioning remain as goals in the 2008-201 1 CPS. The restructured project should enable these goals to be finally achieved. 4
The key performance indicators agreed during negotiations would be amended by deleting the indicators that refer to farm restructuring (in terms of establishing farm advisory services) and for Part E. The main focus of the project would remain with rural areas and cover the whole country. The initial agreement to include urban areas in a unified cadastre and registration system is abandoned because of the legal and institutional difficulties addressed above. The project will continue with the institutional development, education, public awareness, national cadastral mapping exercise and legal development, all as originally envisaged for the project. The SLCC would no longer be involved with the project, but the main beneficiary (the SCLR) remains unaffected. The Advisory Council will no longer be required because Parts E and F are deleted and the Advisory Council was to be established to support those Parts of the project. The subloan to the SLCC and the project agreement between IBRD and the SLCC will also be cancelled as the SLCC will no longer be a party to the project. The restructuring agreement between the task team and the government includes conversion to 100% financing of expenditures for all project activities. The request for 100% financing was sent by the government on October 29,2007 and it was agreed. The agreement was sent to the government by the Country Director on January 9,2008 but no action was taken to amend the loan agreement because of this pending restructuring. It was agreed during the May 2008 mission to include the 100% financing of expenditures in the restructuring proposal so that only one amendment to the Loan Agreement needs to be made. During subsequent discussion and correspondence it was also agreed that Part G of the project would be able to cover taxes, social costs and pension contributions for Project Implementation Unit staff as these costs were additional to the annual budget provision to the SCLR and for the project period only. However, the Oblast level implementation units referred under Part G are no longer required now that Parts E and F are to be cancelled. The agreements reached in May 2008 included reallocation of some of the funds under Part E so that: a rural cadastre and registration system could be put in place by the SCLR (under Part D); data entry and provision of the necessary hardware could be provided (under Part A); and to cover the funding of registration fees. The remaining funds from Part E were cancelled and confirmed by a letter to the government from the Country Director dated June 2,2008. This cancelation amounting to US$19.6 million was in addition to a previous cancellation of US$74 million communicated to the government on July 24,2006. It was also agreed in May 2008 that the current restriction in Part C to assistance to only four universities needs to be amended to allow assistance to be unrestricted as to the numbers and locations of the universities. It was originally expected that four universities would be sufficient to provide the national requirements for land managers but increased activities and actual demand has shown that this is insufficient and that a limitation in the number of universities to be assisted is not necessary. Additional minor modifications to definitions of operating costs, technical services and training are made for clarification, and, as further clarification, a reference to sociologic and customer surveys is added to the project description. 5
A new schedule for the withdrawal of loan proceeds and a new procurement plan for the remaining period of the project have been prepared. The new schedule and a new Monitoring and Evaluation Indicators are attached to the loan amendment letter, and a supplemental letter will attach the revised performance monitoring indicators. Analysis The financial benefit arising from the development of property markets in urban areas will no longer be relevant for the project following restructuring and focus will now be on the rural areas. The focus in the 2008-201 1 CPS references to land issues is on the problems in the rural sector because of the moratorium on land sales and lack of activity in rural land markets. The overall economic impact will be less than indicated in the PAD because the urban sector will not now be impacted by the project. A complete economic rate of return was not calculated for the project during preparation because the project was one part of a larger agenda affecting property rights and because these types of projects are not suitable for a typical economic rate of return calculation. However, the arguments used showing that the return on investments will be substantial because of increased investor confidence, increased financial liquidity, reduced transaction costs and improved efficiency of land use remain valid. The PAD also refers to the social benefit of providing secure tenure to vulnerable groups and this benefit also is still applicable. Indeed, part way through the project many of the benefits are already evident. For example, the income received by land owners through leasing out their land to local farms is already a very valuable safety net and a supplement to pensions for the elderly. There are no changes to the environmental category or new safeguard policies triggered because the project is basically downsizing to an activity that is achievable within the time frame of the project. No new activities are included and none of the excluded activities had environmental or safeguard implications. Expected Outcomes The development objective and project outcomes will be modified slightly to remove reference to farm restructuring and the unified registration system that was to be implemented by the SLCC. In comparison with the results framework approved by the Board the following applies: 6
Hierarchy of Objectives from PAD CAS Goal: Establishment of Private Property Rights PDO (summary): Establish a title registration system, allocate rural land parcels to individuals, establish their property rights and encourage the restructuring of farms into more efficient units. Output from Each part: There are seven outputs, one from each Part, in the original table. Change No change Allocate rural land parcels to individuals, establish their property rights and a title registration and cadastre system for rural land that will enable rural land markets to function. The output from Parts E and F are deleted. Key Performance Indicators from PAD Most agricultural land would be privately owned and recorded in a secure recording system. Land owners feel that their property rights are secure. There are five performance indicators referred. Four relate to land titling, security of rights and security of recording systems. The fifth stating: Average economic efficiency (total factor of production) of farms that have voluntarily restructured are more efficient than those that have not., is deleted. There are seven indicators, one for each Part, in the original table. Change No change No change to main indicators, but the indicator relating to farm restructuring is deleted because this activity is no longer included within the project. The indicator from Parts E and F are deleted. Benefits and Risks The restructuring proposal takes into account the actual situation concerning the viability of completing all the project outcomes. During project preparation the basic legislation and institutional arrangements for the unified registration system had been met, but implementation of the legislation has proven to be too difficult for the counterparts. The restructuring proposal describes those outputs that can realistically be achieved. It retains the primary benefit of meeting the need to issue land titles and establish a secure recording system for the land titles issued so that rural land markets and land use will improve, while recognizing that initial agreements to expand this activity to urban real property markets and to establish rural advisory services for farms does not have sufficient government support. Funds that would have been used for the cancelled activities have already been cancelled to reduce the government s commitment and other charges. 7
The bulk of the remaining funds in the project are already committed with existing contracts. The primary risks remaining are as follows: Risk The government has repeatedly extended the moratorium on rural land sales and is not committed to lifting the moratorium by the current deadline of Januarv 1.2009. The existing contracts for the production of cadastral maps throughout the country have suffered delays and may not been completed within the time frame of the project. Mitigation Measures Complete the issuance of land titles and the rural land registration system in order to remove the remaining reasons quoted for not lifting the moratorium. These contracts concern the bulk of the remaining project funds. Specific mapping expertise hired by the task team is regularly reviewing and monitoring the progress and facilitating completion of the work. Rating with mitigation measures Moderate Moderate 8