Document of The World Bank

FOR OFFICIAL USE ONLY

Report No: 32344-MD

INTERNATIONAL DEVELOPMENT ASSOCIATION

PROPOSED ADDITIONAL FINANCING OF SDR 2.0 MILLION

(US$3 .O MILLION EQUIVALENT)

TO THE REPUBLIC OF MOLDOVA

FOR THE

FIRST CADASTRE PROJECT

PROJECT PAPER

M A Y 23,2005

Infrastructure and Energy Department Belarus, Moldova and Ukraine Country Management Unit Europe and Central Asia Region

This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS (Exchange Rate Effective as o f M a y 5,2005)

Currency Unit = Moldovan Leu (MDL) 0 .08MDL = U S $ l

US$l.O = 12.475 MDL

FISCAL YEAR

January 1 - December 31

ABBREVIATIONS AND ACRONYMS

ALRC BCO CAS GDP IDA N C B P I 0 PRSP S SDR SIDA TCO USAID

Agency for Land Cadastre Branch Cadastre Office Country Assistance Strategy Gross Domestic Product International Development Association National Competitive Bidding Project Implementation Office Poverty Reduction Strategy Paper Shopping Special Drawing Rights Swedish International Development Cooperation Agency Territorial Cadastre Office United States Agency for International Development

Vice President: Shigeo Katsu

Sector Manager: S. Lee Travers Country ManagedDirector: Paul G. Bermingham

Task Team Leader: Maha J. Armaly

TABLE OF CONTENTS

Data Sheet

I. Introduction

11. Background and Rationale for Additional Financing

111. Proposed Changes

IV. Consistency with CAS

V. Economic Analysis o f Cost Overrun or Financing Gap

VI. Appraisal o f Restructured or Scaled-up Projects

VII. Expected Outcomes

VIII. Benefits and Risks

IX. Financial Terms and Conditions for Additional Financing

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MOLDOVA CADASTRE SUPPLEMENTAL PROJECT

Date: May 23,2005 Team Leader: Maha Armaly Country: Moldova Project Name: First Cadastre Project

Sector Manager: S. Lee Travers Country Director: Paul G. Bermingham

Responsible agency: Agency for Land Relations and Cadastre

Revised project development objectives/outcomes: The objectives o f the project remain the same: To build a unified real estate registration program for rural and urban land, and thereby to establish a clear and enforceable ownership rights to promote the privatization o f land and the development o f the real estate market in Moldova.

Does the scaled-up or restructured project trigger any new safeguard policies? N o

[ ] Loan [x ] Credit [ ] Grant [ 3 Guarantee [ ] Other: For Loans/Credits/Others:

P - For Additional Financing

Total Bank financing (US$m.): $3.0 mi l l ion Proposed terms: IDA Credit

Financing Plan (US$m.)

IBRD/IDA Others

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Moldova - First Cadastre Project Additional Financing for Project Scale-up

Project Paper

I. Introduction

This Project Paper seeks the approval o f the Executive Directors to provide an additional credit in an amount o f U S $ 3.0 mi l l ion equivalent to the Moldova - First Cadastre Project (PE-P035771), Credit Number 3061-MD. The proposed additional credit would help finance the costs associated with scaling up activities to enhance the impact o f a well performing project. Additional financing will (i) fund surveying activities in preparation for registration; and (ii) update existing information system to consolidate data from all territorial cadastral offices and improve information flow. The government has agreed to provide financing for incremental operating costs including registration activities and the operation o f the Project Implementation Office (PIO).

Parallel financing, in the form o f grants, to support the First Cadastre Project was provided by several donors, including Norway for public information, and Switzerland for equipment, technical assistance and training for the mapping agency. Sweden provided financing for technical assistance for al l aspects o f project implementation and remains the most active partner. Swedish technical assistance covered surveying, mapping, legal framework, accounting, valuation and fiscal cadastre. Considerable training was also provided inside and outside Moldova. Sweden continues to support the project, including finalizing a business plan for the Agency for Land Cadastre (ALRC). Discussions were held with SIDA to continue support for the project. USAID has provided financing for privatization o f agricultural land, and remains involved in the process o f land consolidation.

11. Background and Rationale for Additional Financing

Project Development Obiectives and Scope: The original credit o f SDR 1 1.5 mi l l ion (USD15.9 mi l l ion equivalent) was approved by the Board o f Executive Directors on April 23, 1998, and became effective in March 1999. The Project’s primary objective i s to develop and implement a national unified real estate registration program for urban and rural land, and thereby to establish a system o f clear and enforceable ownership rights so as to promote the privatization o f land and the development o f real estate markets in Moldova. The project also aimed to (a) provide property owners with security o f ownership rights such that they can sel l or rent real estate or pass on their holdings as inheritances; (b) commercial banks with the confidence necessary to give secured credit against real estate; (c) the real estate market with information on ownership o f property for the market to function effectively; (d) government agencies and institutions wi th basic information

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for urban planning and land management; (e) the real estate market with informat ion on property values; and (f) the private sector with opportunities to develop in areas related to real estate registration (surveyors, notaries, valuers). The project objective and scope remained consistent throughout project implementation.

Proiect Performance to Date: The project has been successful in reaching i t s objective. The Agency for Land Registration and Cadastre has the sole responsibil i ty for developing and maintaining the real estate registration system in Moldova. A committee o f other government stakeholders, including Ministr ies o f Economy, Agriculture, Finance and Justice oversees the work o f the Agency. Real estate owners have one stop to undertake real estate registration tasks in the Terri torial Cadastre Off ices (TCOs) o f the ALRC. A un i f ied registration system i s considered best practice in the region in terms o f s impl i fy ing the process for real estate owners as w e l l as managing and mak ing best use o f the system f r o m the government’s view. I t facilitates planning and expansion o f use into other areas, such as fiscal cadastre.

The Project has exceeded appraisal estimates in terms o f i t s accomplishment. In the urban areas, for example, at appraisal, a total o f 330,000 objects were expected to b e registered. By December 2004, a total o f about 550,000 objects were surveyed and registered. In the ru ra l areas, the objectives o f the project were modest, g iven the uncertainty o f fa rm privatization at the time. The project aimed to register 220,000 land plots and managed to survey and register about 290,000 l and plots by December 2004. U S A I D provided substantial a id to the privatization o f agricultural land and financed the surveying o f about 90% o f farm lands. The First Cadastre Project assisted in the registration o f these parcels. All told, about 75% o f the estimated number o f properties in the country i s now registered. Addit ional ly, the cadastre agency registered mortgages, transactions and encumbrances through i ts responsibil i ty for maintaining the integr i ty and update o f the data. These numbers will increase by the t ime o f project completion.

Other project objectives were also accomplished. The cadastral survey industry, w h i c h was state owned at the beginning o f the project, i s n o w a vibrant and competit ive industry with updated equipment and skills. The system now provides secure property r ights to owners. This i s reflected in the increased number o f transactions such as sales, leases and inheritances. The increased numbers o f mortgages registered ref lect the confidence o f commercial banks and their reliance o n the system to ver i f y ownership and to record transactions and encumbrances. The number o f mortgages doubled between 2000 and 2001 with a further 50% increase in 2002. Leaseholds are increasing part icularly in the agricultural area and are be ing used, along with sales, in the process o f agricultural land consolidation. Institutionally, the A L R C i s a stronger organization w e l l staffed with ski l led professionals. I t

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111.

continues to improve the system to ensure i t s sustainability in consultation with branches o f govemment.

Proiect implementation has been satisfactory. The project overcame start-up difficulties usually associated with projects in new environments. The Project Implementation Off ice (PIO) became acquainted with Bank requirements, some o f which became more rigorous during project implementation, such as financial management. Government commitment ensured that the appropriate staff were appointed. Training was provided o n the Bank’s fiduciary requirements and systems were established that responded to project development. Counterpart financing was available, and for a t ime was provided through a Dutch grant for IDA financed projects in Moldova. There has been a strong overall effort to review and improve project portfol io implementation in Moldova through a combined and sustained effort by the Wor ld Bank and the Government. Whi le some P I 0 management tumover caused concern, project implementation continued o n track. Donor financing o f technical assistance and training added considerable value to technical skills available to Moldova at the time. The Credit was extended f rom February 2004 to November 2005 in order to utilize available funds to undertake more survey and registration activities, and to resolve procurement issues that arose. Audits were submitted o n t ime and had unqualified opinions with suggestions for improvement which were taken into account and discussed with the Wor ld Bank. Project supervision was reviewed by the Quality Assurance Group in September 2004, and was rated satisfactory, with some elements rated highly satisfactory.

Rationale for the Borrower’s Request: The request for continued Wor ld Bank support to develop the real estate cadastre in Moldova was articulated in the PRSP adopted by the Government in December 2004. The formal request by the Government dated March 2005 indicated the desire to scale up the activities to enhance the development impact o f a we l l performing project. The Government aims to survey and register a l l properties in the country and to leverage resources and existing institutional capacities and momentum to enhance the potential for success. This strategy would ensure equity among real estate holders, improve planning and management o f land and natural resources, and enhance capacities to implement fiscal cadastre.

Proposed Changes

The changes proposed to the project are clear. Addit ional financing i s being requested to undertake (i) additional surveying for an estimated 400,000 - 450,000 objects; and (ii) upgrade o f the existing information system. The additional financing will not fund registration and P I 0 activities which will be taken over by the govemment to start transitioning the cadastre and registration activities to the government as the Bank withdraws f rom the sector. These components are the main elements o f the First Cadastre Project.

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The proposed changes would require an amendment to the Development Credit Agreement (3061-MD) to increase the credit amount, amend the disbursement categories, and establish a new schedule for repayment arrangements. Project costs will increase by $4.50 million, including the government’s contribution. Further, with the ongoing Swedish assistance, the government will adopt the business plan that will consolidate the cadastral offices and that will improve the financial sustainability framework o f real estate registration and cadastre. The consolidation o f the Territorial Cadastre Offices (TCOs) and their Branch Cadastre Offices (BCOs) under the umbrella o f ALRC i s an important step towards improved management o f the system. Strengthening government oversight o f the system i s required to ensure cost control, affordable fees, and overall operational and financial sustainability o f the system. Disbursement arrangements will utilize the new financing parameters for Moldova. The new implementation schedule, taking into account the long implementation period o f a typical survey contract, and the time needed for registration, indicates that the closing date for the Additional Financing will be June 30,2007. N o changes to the project description or objective are needed. A draft amendment to the Development Credit Agreement has been prepared.

IV. Consistency with the CAS

The First Cadastre Project has been consistent with Country Assistance Strategies since its approval by the Board. Transformation to a market economy, building market institutions and private sector development have been themes o f CASs agreed between the World Bank and the Government. The latest CAS o f November 2004 aims to promote sustainable growth and to reduce high levels o f poverty by relying on three pillars: (i) promoting conditions for sustained growth and employment creation; (ii) improving access to social capital and services and community infrastructure; and (iii) improving public sector govemance and combating corruption. The f i rs t pillar relies on improving the business climate. Real estate registration and enforcement o f ownership rights i s an essential element o f private sector development. The report on “Doing Business in 2005” showed that delays in private property registration acted as deterrent to business development. Agriculture remains an important sector in Moldova and constitutes about 22% o f GDP in 2004. The First Cadastre Project has assisted in the registration o f farm land, continues to register transactions leading to consolidation o f land in the sector, and consistently supports market means for such consolidation through sales and leaseholds. The Agency for Land Relations and Cadastre i s a comerstone in the government structure in supporting the legal framework for private property. W h i l e not directly targeting poverty, the project ensures the legality o f ownership o f the most tangible asset that the population at large received after privatization, and allows the population to utilize these assets to their best value for the owners.

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V. Economic Analysis o f Cost Overrun or Financing Gap

N o t Applicable. This request i s for additional financing for scale up o f activities.

VI. Appraisal o f Restructured or Scaled-up Projects.

Institutional: The activities under the project are similar to the ones already being financed under the First Cadastre Project. The institutional framework and staffing are already in place. The Project Implementation Off ice will continue to prepare semi-annual project reports. Adopting and implementing the business plan for consolidating the cadastral offices and strengthening oversight will be an important contribution to the institutional framework.

Technical: The additional financing wi l l support surveying activities that have been undertaken under the First Cadastre Project for the last 5 years. Technical capacities in the country exist and supervision capacity at the P I 0 is available. The update o f the information system i s a continuing activity f rom the First Cadastre Project fol lowing a study to improve data integrity and consolidation through improved communications among cadastral offices.

Safeguards: - The First Cadastre Project was given an Environmental Category C. The additional financing wil l have similar rating. The additional financing will not fund any new c iv i l works, and land acquisition issues will not be triggered. In the long term, an improved cadastre and mapping system can have a positive impact on the environment by providing current and reliable land information which can assist in preparation and enforcement o f environmental protection programs and better management o f land resources.

Financial Management: The financial management system for the First Cadastre Project exists and has been reviewed by the Bank. The system wil l be used to incorporate the expenditures financed by the additional credit and the government's counterpart funds under the additional financing. The project accounts o f the First Cadastre Project have been audited annually throughout implementation. Audits were submitted on time and had unqualified opinions with suggestions for improvement which were taken into account and discussed with the Bank.

Procurement: Based o n experience under the First Cadastre Project, shopping and national competitive procedures for the procurement o f technical surveys and software wil l be used. In Moldova, for technical surveys, small works delivered lower costs per parcel surveyed, allowed more firms to compete, and were easier to implement and monitor given the proximity o f branch cadastral offices to the areas being surveyed. Because o f the limited time, delays in large contracts wil l be costly. Software for improvement o f the information system will be procured based o n shopping in one package. The

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Bank will review two packages for procurement o f technical surveys and the package for procurement o f goods.

Description Estimated Procurement Bid Award Start cost Method Opening Recomm. Date

A. Survey

1. 7 contracts <$100,000 S - Technical June July 2005 Aug. each Services 2005 2005

2. 1 contracts <$300,000 NCB- July August Sept. each Technical 2005 2005 2005

3. 8 contracts <$lOO,OOO S - Technical July August Sept. each Services 2005 2005 2005

4. 4 contracts <$300,000 NCB - Sept. Sept. Sept. each Technical 2005 2005 2005

Contracts

Services

Services

End Date

Sept. 2006

March2007

Nov. 2006

M a y . 2007

1. Equipment Oracle <$lOO,OOO S - goods June July August Nov. 2005 update with 2005 2005 2005 options

Procurement planning for technical surveys will be done in such a way as to ensure completion o f surveying in areas where coverage i s close to completion in order to prepare for the consolidation o f offices in the near future.

Counterpart Funds: Total govemment funding required i s estimated at $1 S O million. This will cover the costs for registration o f surveyed objects at a total estimated cost o f $1,000,000. PI0 staff and operational costs will also be covered by the govemment starting in December 2005, and the estimated cost i s $500,000. The government contribution to these categories which were previously partly financed by the Bank will enable transition and Bank exit.

Sustainabilitv: Real estate registration i s the basis for private property ownership and a market economy. Moldova i s on a firm road to a market economy, and the system, i s therefore inherently sustainable as the basis for the transition and sustainability o f the market. Moldova has taken the decisions to establish a modem legal and institutional framework for the cadastre registration system and i s committed to continue to maintain and update it. The additional financing wil l ensure further action i s taken to enable the system to meet the challenges. The ALRC has introduced a proposal to Parliament to consolidate the cadastre offices operations. I t has also introduced a proposal to ensure that tari f fs recover costs, while remaining affordable to the population. These proposals have taken into account Bank recommendations and studies supported by Swedish assistance. The

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Government has confirmed i t s commitment to take action with regard to consolidation o f the cadastral offices and to adhere to cost recovery principles whi le ensuring the financial sustainability o f the cadastral system. The government’s commitment to the sustainability o f the system i s reflected in taking responsibility for the operational costs to prepare for Bank exit. Further, the government aims to build o n the legal cadastre to strengthen fiscal cadastre and has allocated funds for this purpose.

Additional Financing by Category (US$):

Revised Disbursement Schedule:

1 SDR = U S $ 1.5 as o f M a y 9,2005.

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Category

Works Goods

Technical Services Consultants’ Services (including audits and training) Incremental Operating Costs

Refunding o f Project

Original Amount of the

Credit Allocated

(Expressed in SDR)

170,000 3,630,000

4,000,000 450,000

1,550,000

1.350.000

Additional Financing Allocated

(Expressed in US$ Equiv)

100,000

2,900,000

Current % of Expenditures

to be Financed

90% .

100% o f Foreign expenditures, 100% o f local expenditures) 100% 100%

100% through December 1, 2001,60% o f expenditures through December 1, 2003

Yo o f Expenditures

to be Financed for Additional Financing

100%

100%

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Preparation Advances 7 Unallocated

Total

VII. Expected Outcomes

350,000

1 1,500,000 3,000,000

The additional financing would support surveying and registration activities for about 400,000-450,000 more parcels. This would increase the coverage to about 85% to be accomplished by the end o f the Project by June 30,2007. The Government showed commitment to complete the surveying and registration o f the remaining parcels in the country. This wou ld make Moldova one o f the f i r s t countries in the CIS to complete land and real estate registration to such a large extent, and would facilitate the registration o f the remaining real estate parcels. This accomplishment would facilitate further services provided by the Cadastre such as planning and monitoring o f physical infrastructure and natural resources. In addition, i t would further assist the govemment in i t s objective to build an equitable fiscal cadastre that would cover the whole country and to receive Bank advice in this area.

VIII. Benefits and Risks

The benefits arising f rom additional financing o f the First Cadastre would largely supplement the benefits envisaged and accrued originally. These include: (a) providing guarantee o f ownership and security o f tenure; (b) facilitating the functioning o f real estate markets; (c) supporting privatization in the agricultural sector; and (d) supporting effective urban planning.

The additional financing would be implemented in a much less r i sky environment than at the inception o f the First Cadastre. The institutional and legal frameworks have been developed, and the capacity o f the Agency for Land Relations and Cadastre i s we l l established with skilled staff in the technical and legal areas. Staff are familiar with the requirements o f the Wor ld Bank. The population and the commercial banks are famil iar with the system and rely on i t to undertake transactions in the real estate market. Government counterpart funding has been assured.

IX. Financial Terms and Conditions for Additional Financing

The additional credit would be an IDA Credit repayable in 40 years, including a grace period o f 10 years.

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