Document of

The World Bank

Report No: 20755-PH

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LEARNING AND INNOVATION LOAN

IN THE AMOUNT OF US$4.79 MILLION EQUIVALENT

TO THE

REPUBLIC OF THE PHILIPPINES

FOR A

LAND ADMINISTRATION AND MANAGEMENT PROJECT

September 20, 2000

Rural Development & Natural Resources Sector UnitEast Asia and Pacific Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective as of July 26, 2000)

Currency Unit = Peso (P)1 pesos = US$0.0223

US$1.00 = 44.75

FISCAL YEARGovernment: January 1 - December 31

ABBREVIATIONS AND ACRONYMS

AusAID The Australian Agency for International DevelopmentBLGF Bureau of Local Government FinanceCARP Comprehensive Agrarian Reform ProgramCAS Country Assistance StrategyDENR Department of Environment and Natural ResourcesDOJ Department of JusticeERR Economic Rate of ReturnGOP Government of the PhilippinesIACC The Inter-Agency Coordinating CommitteeICC Investment Coordination CommitteeIPN Informal Policy NoteLIL Learning and Innovation LoanLMB Land Management BureauLRA Land Registration AuthorityMARO Municipal Agrarian Reforn OfficeNEDA National Economic and Development AuthorityNGO Non-Governmental OrganizationNPV Net Present ValuePIO Prototype Implementation OfficePMO Project Management OfficeROD Registry of Deeds

Vice President: Jemal-ud-din Kassum, EAPVPCountry Manager/Director: Vinay K. Bhargava, EACPF

Sector Manager/Director: Mark D. Wilson, Acting, EASRDTask Team Leader/Task Manager: Wael Zakout, EASRD

PHILIPPINESLAND ADMINISTRATION AND MANAGEMENT PROJECT

CONTENTS

A. Project Development Objective Page

1. Project development objective 22. Key performance indicators 2

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 32. Main sector issues and Government strategy 33. Learning and development issues to be addressed by the project 54. Learning and innovation expectations 5

C. Project Description Summary

1. Project components 72. Institutional and implementation arrangements 83. Monitoring and evaluation arrangements 9

D. Project Rationale(This section is not to be completed in a LIL PAD)

E. Summary Project Analysis

1. Economic 92. Financial 103. Technical 114. Institutional 115. Social 116. Environmental 127. Participatory Approach 12

F. Sustainability and Risks

1. Sustainability 132. Critical risks 133. Possible controversial aspects 14

G. Main Conditions

1. Effectiveness Condition 142. Other 15

H. Readiness for Implementation 16

I. Compliance with Bank Policies 16

Annexes

Annex 1: Project Design Summary 17Annex 2: Detailed Project Description 23Annex 3: Estimated Project Costs 30Annex 4: Cost Benefit Analysis Summary 31Annex 5: Financial Summary 35Annex 6: Procurement and Disbursement Arrangements 36Annex 7: Project Processing Schedule 46Annex 8: Documents in the Project File 47Annex 9: Statement of Loans and Credits 48Annex 10: Country at a Glance 50

MAP(S)IBRD 30861

PHILIPPINES

Land Administration and Management Project

Project Appraisal Document

East Asia and Pacific RegionEASRD

Date: September 20, 2000 Team Leader: Wael ZakoutCountry Manager/Director: Vinay K. Bhargava Sector Manager/Director: Mark D. WilsonProject ID: P066069 Sector(s): VM - Natural Resources ManagementLending Instrument: Learning and Innovation Loan (LIL) Theme(s):

Poverty Targeted Intervention: N

Project Financing Data1 Loan K Credit [] Grant K Guarantee El Other (Specify)

For LoanslCredits/Others:Amount (US$m): US$4.79 million

Proposed Terms: Fixed-Spread Loan (FSL)Grace period (years): 8 Years to maturity: 20Commitment fee: 0.85% for the first Service charge: 0.00%four years; and 0.75% thereafter (ifapplicable)Front end fee on Bank loan: 1.00%Financin Plan: suce lcaF i TotalGOVERNMENT 1.36 0.00 1.36IBRD 2.59 2.20 4.79AUSTRALIAN AGENCY FOR INTERNATIONAL 1.00 3.20 4.20DEVELOPMENT

Total: 4.95 5.40 10.35

Borrower: GOVT. OF THE PHILIPPINESResponsible agency: DEPT. OF ENVIRONMENT AND NATURAL RESOURCES(DENR)Address: Visayas Ave, Dilliman, Quezon City, 1100, The PhilippinesContact Person: Ms. Mylene Albano, Assistant Secretary for Local Governments and Executive Director of LAMPTel: 63 2 925 2328 Fax: 63 2 925 2328 Email: lamp(denr.gov.ph

Estimated disbursements ( Bank FYIUS$M):

AY a 2001 f 200,I 2003 2004 f_Annual 0.5 1.5 2.0 0.8

Cumulative 0.5 2.0 4.0 4.8

Project implementation period: November 2000 - April 2003Expected effectiveness date: 11/30/2000 Expected closing date: 09/30/2003

OCS PAD Fa Rft M-.h MM

A. Project Development Objective

1. Project development objective: (see Annex 1)

The Land Administration and Management Program (LAM Program)

The LAM Program is a long-term commitment (could be 15-20 year program) by the Government of thePhilippines. The overall goal of the program is to alleviate poverty and enhance economic growth byimproving the security of land tenure and fostering efficient land markets in rural and urban areas, throughthe development of an efficient system of land titling and administration, which is based on clear,transparent, coherent and consistent policies and laws, and is supported by an appropriate institutionalstructure.

The long-term program would achieve:

* A clear, transparent, coherent and consistent set of land administration policies and laws;* Accelerated programs that would formally recognize the rights of eligible land holders and facilitate the

recording of these rights in a strengthened land administration system;* An efficient land administration system operating throughout the Philippines in accordance with

government policy, and responsive to the needs of the people, supported by a sustainable financingmechanism;

* An effective and transparent land valuation system, in line with internationally accepted standards, thatserves the needs of all levels of government and the private sector; and

i A well functioning land market operating in both urban and rural areas.

The Land Administration and Management Project (LAM Project)

The project would be a first step towards the implementation of a long-term land administration andmanagement program. The development objectives of the project are to assess the viability of the LandAdministration and Management Program and to formalize the institutional arrangements needed to supportits development, by testing alternative approaches to accelerated programs designed to improve theprotection of rights to land, eliminate fake titles, and introduce a framework for an equitable system of landvaluation. This would be done through: (i) policy studies, analysis, and key decisions and actions of theGovernment of the Philippines (GOP); (ii) prototypes to test and implement interim institutionalarrangements and adjusted processes of work flow to develop an efficient land titling and administrationsystem in the prototype areas; (iii) evaluation of the prototypes; and (iv) drafting of legal instruments toformalize the institutional arrangements.

2. Key performance indicators: (see Annex 1)

The impacts and outcomes of the project would be measured through a set of key indicators which include:(i) Government approves a time-bound action plan to set up the institutional arrangements necessary for animproved and effective system of land administration; (ii) The Inter-Agency Coordinating Committee(IACC) and key agencies approve recommendations for policy formulation in the areas of: (a) propertyvaluation; (b) demarcation of forest boundaries; (c) land development process; (d) finance and feestructures for land registration; (e) fragmented laws and regulations; and (f) institutional structure for landadministration; (iii) Procedures and guidelines for accelerating land titling programs tested, reviewed andendorsed by the implementing agencies and the IACC; (iv) Procedures and guidelines for land recordsreconstitution tested, reviewed and endorsed by the implementing agencies and the IACC; and (v)

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Government approves the direction of the long-term program and phase II of the LAM project, whichincludes a time frame of addressing institutional and policy reform areas recommended by the IACC andexpanding the titling program and the record reconstitution program to the rest of the country. Detailedperformance indicators are included in Annex I.

Rationale for Using a LIL

Experience in the sector shows that the issues of land management and administration are often complex,politically charged, requiring high and sustained commitment to address institutional and policy reform. Inmany countries, the process took a long time (Thailand, for example, took around 20 years and Indonesia isembarking on a 25 year program). Therefore, the use of the LIL will provide an opportunity to testapproaches, achieve changes, and assure workable institutional arrangements prior to supporting thelong-term program. While the Government at all levels recognizes the urgent need to improve the currentland administration system, at present the institutional arrangements and policy reform needed to bestachieve this objective are still unclear. A LIL would enable learning, communication, and buildingconsensus among different stakeholders to propose changes in organizational culture as a prerequisite tosubsequent commencement of the long-term program. It will also enable potential donors, including theBank, to assess Government commitment for reform before supporting the long-term program.

B. Strategic Context1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1)Document number: R99-55 Date of latest CAS discussion: 05/04/99

The proposed project is consistent with CAS objectives in two areas: (i) accelerating environmentallysustainable agricultural growth and alleviating poverty in rural areas; and (ii) promoting sustainable urbandevelopment and combating urban poverty. The proposed project would contribute to the first objectivethrough provision of secure land titles to landholders in rural areas where poverty is more prevalent. Theland titles could be used as collateral for credit needed to promote investment, productivity, and incomes.The project would contribute to the second objective by rationalizing land policies and institutionalresponsibilities for land administration. This would enable transparent and secure land transactions,facilitating investment, growth, and the building of more affordable housing in the urban areas. In addition,improving land administration functions would improve the effectiveness and efficiency of land registrationoffices, reduce corruption in land transactions, and eventually eliminate bad and fake titles. This outcome isalso consistent with the CAS objective of improving govemance and transparency and combatingcorruption.

2. Main sector issues and Government strategy:

An Informal Policy Note (IPN) on Land Management and Administration, prepared jointly by theGovernment and the Bank, highlighted the following sector issues:

Weak and Inefficient Land Administration System. There are a number of issues identified in the IPNwhich constrain the efficiency and effectiveness of the land administration system. First, there are multipleagencies involved in land administration, with no overall institutional mechanism for resolving outstandingissues. As a result, many issues remain unresolved for a long time. Second, the major land administrationlaws are outdated, and some do not comply with recent land use legislation. Third, not all privately claimedalienable and disposable (A&D) land is titled. Fourth, existing land record management systems areinefficient, and there are limited inventories of land records. Fifth, a large proportion of the records hasbeen destroyed by war, theft, fire and water damage, or simply misplaced in the frequent transfer of

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records. Many of the remaining records are in exceedingly fragile condition and some have been illegallyaltered. Sixth, there is no complete set of cadastral maps that show titled and untitled properties on A&Dland, and information in the Registry of Deeds (RODs) cannot be searched by parcel or cadastral mapnumber. Thus, the titling system does not support quality control; consequently, multiple titles, overlap andgap titles are not easily detected. Seventh, land registry is not easily accessible and high transaction costs,discourage both, registration and investrnent. Finally, all of these problems have eroded public confidenceand trust in the titling and registration system as a whole.

Under the current land administration system, it takes between six months to several years to obtainoriginal titles and between several weeks to a few months to register subsequent land transactions. Thepercentage of untitled land is high (approximately 1/3 of parcels in rural areas). Land grabbing is widelypracticed among those who can afford to pay the expenses for first time registration. These inefficiencies,combined with high land taxes, have produced informal land markets, particularly in poor communities,resulting in long-term tenure insecurity and decreased government revenues from land-related taxes.

Rigid and Outdated Land Management and Administration Policies. Fragmented responsibilities forland management and administration among several government agencies without appropriate mechanismsfor coordination have resulted in ineffective land management and administration. A key issue in landpolicy has been the land classification system, which is rigid and unresponsive to the evolving needs ofagricultural and urban development; furthermore, it has not been effective in promoting sound managementof natural resources. Several agrarian, urban, community development, and protected land programs havebeen imposed on this fairly static land classification system by different government agencies in recentyears, leading to problems with overlapping mandates and multiple land management and administrativeprocesses. This has added to the difficulty of changing the classification system, to respond to the emergingneeds for economic growth and poverty reduction.

Multiple and Inconsistent Land Valuation Systems Used in Various Government Agencies. In thedifferent government agencies, several systems and methodologies for the valuation of real propertiesoperate, and are utilized for different purposes, including real property taxation, and compensation for land,acquired for public investment and for valuation under the Comprehensive Agrarian Reform Program(CARP). The multiplicity of systems and methods has often produced doubtful valuations whosecontestation in court has, at times, caused long delays in the implementation of government programs.Doubtful and contested land valuations have also had an adverse impact on the efficiency of land marketsand land administration. Below market valuation of land prevents the efficient allocation of lands to theirbest use and leads to a relatively low tax burden which encourages land speculation and undermines thegeneration of significant revenues from land ownership. The absence of national standards and methods ofvaluation in accordance with international standards and practice provide a loophole to the overvaluation ofreal property and underestimation of a property-related lending risk. This undermines the integrity offinancial transactions and the stability of the financial system.

Inefficient Land Markets. An inefficient and ineffective land administration system combined withfragmentation of responsibilities of land management and administration and inconsistent and outdated landpolicies have resulted in inefficient land markets. In the urban land market, there is unmet demand forhousing, commercial and industrial land because urban land supply is far short of demand. In addition,difficulties surrounding the conversion of agricultural lands to non-agricultural use, whether for housing,commercial or industrial purposes, have constricted the supply of urban land. This shortage of urban landhas led to rising urban land prices that have made it unaffordable for the majority of the population. Thehigh cost of urban land has driven many people to establish informal settlements on public and privatelands. The CARP, which is achieving some success in promoting social equity through the transfer of lands

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to landless farmers has, nonetheless, had an adverse effect on formal rural land markets. The CARP lawhas restrictions on the buying and selling of agricultural land under the program. In addition, many untitledprivately claimed alienable and disposable (A&D) lands exist outside the formal rural land market. Thisphenomenon, and the CARP law restrictions, are the main causes of stagnation in the formal rural landmarket.

Government Strategy. The Government Strategy on land administration and management, which wasapproved by the National Economic and Development Authority (NEDA) Board sets out the Governmentdirection for improving the security of land tenure, improving service delivery of land administration,eliminating fake and multiple titles, and promoting an efficient land market. The Strategy outlines the stepsthe Government plans to achieve the desired objectives. The Strategy recognizes the long-term nature ofthis program and highlights a focussed approach on the first step, undertaken in a 3-year project (thisproject) to study and test alternative techniques with regard to policy, institutional and technical methodsand make recommendations to the Govemment for decisions and actions before the initiation of thelong-term program.

The commitment of the Government to implement this Strategy was shown by the fast approval by theInvestment Coordination Committee (ICC) Board of the proposed project. Further, the President of theRepublic of the Philippines established the Inter-agency Coordinating Committee (IACC) by ExecutiveOrder No. 129 to prepare and coordinate the implementation of the Land Administration and ManagementProgram. The IACC is chaired by the Department of Environment and Natural Resources (DENR),co-chaired by the Departnent of Justice (DoJ) and includes the membership of 13 departments andagencies directly involved in the land administration and management. The IACC reports directly to thePresident of the Republic of the Philippines.

3. Learning and Development issues to be addressed by the project:

The proposed project will address the issues highlighted above in land administration, policy and management,and in property valuation. For land administration, the project will test the existing organizational responsibilitiesto adopt new approaches toward improvements in delivery mechanisms of land administration. The project willaddress the property valuation issues by introducing a framework for real property valuation in line withinternational accepted standards and practices. The proposed project will also include several studies on keypolicies in land administration. The recommendations of the proposed studies on land administration will guidepolicy makers in making well informed decisions on future laws and regulations.

4. Learning and innovation expectations:

D Economic 1 Technical 12 Social 1 Participation1 Financial 1 Institutional D Environmental El Other

Financial: The project would test a scheme for the optimal level of first time registration fees and fees onsubsequent land transactions. The optimality of the level of these fees is an important factor for: (i) costrecovery; and (ii) participation of eligible land owners in the proposed project in terms of titling their landand registering subsequent land transactions. While higher fees would enhance opportunities for costrecovery and therefore, project sustainability, they would also represent a disincentive for eligible landowners to participate in the proposed project. To address this trade-off, the project would study theappropriate structure and level of fees with a view to enhancing cost recovery while also providingadequate incentives for eligible land owners to participate in the program.

Technical. The proposed project would pilot several conventional and new technologies, such as rectified

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aerial photography, total station and Global Positioning System (GPS) technologies to determine the mostcost effective technology to be used for cadastral mapping and title production, given the accuracyrequirements stated in the Philippines laws and regulations. The choice of the technology will have majorimplications on the cost of title production and, therefore, on the cost of the long-term program.

Institutional. Tests to address institutional issues would be the most challenging part of the proposedproject. Responsibilities of land administration are fragmented between the Department of Environment andNatural Resources (DENR) and the Land Registration Authority (LRA). The existing system has generatedmany problems and resulted in duplicate and fake titles, and opened the door to corruption. The projectwould support piloting a One-Stop-Shop (OSS) where all agencies involved in land administration havetheir offices under one roof in order to improve service delivery. The project would test the viability of theOSS in improving service delivery and building confidence and consensus among the different agencies inorder to formalize these arrangements before the implementation of the long-term program. The projectwould also test public and private participation in the implementation of the project in the areas ofcadastral mapping, map production and adjudication. The formalization of the institutional arrangementsby the Govemment (either by law or by other administrative procedures) by the end of the LIL projectwould be a major factor in consideration of future support to the long-term program (beyond the LILphase).

Social. The project would test and identify measures to ensure that operational procedures and standardsthat will address social, cultural and gender considerations are in place during the adjudication process.The project would also test ways to manage expectations, maximize transparency and public confidence,provide safeguards to ensure full involvement of women and other marginalized or disadvantagedbeneficiaries, and expand dispute resolution. The project would include the design and assessment ofeducation, information and communication strategies, geared toward key stakeholders' participation, accessand benefit from the project.

Participation. The level of participation by eligible land owners is subject to, among other things: (i)transparency of the adjudication system; (ii) first time and subsequent registration fees as described above;(iii) intensity and depth of the Customers Relations Service (CRS); and (iv) overall confidence in thesystem. The project would test (ii) and (iii). Transparency and overall confidence in the system will be thecore of the project design.

The project would also seek active participation of non-governmental organizations (NGOs), peoples'organizations (POs), women's groups, real estate groups and other relevant associations during projectimplementation. Several mechanisms and strategies will be tested and/or validated towards ensuringinformed and meaningful participation of Local Government Units (LGUs), NGOs and POs and otherrelevant government and private sectors in the implementation of Social Assessment, Customers RelationsServices and Local Advisory Committee activities, among others.

C. Project Description Summary

1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed costbreakdown):

1. Land Policy Development (USS 0.50 million). The component would study and makerecommendations on key policy areas of land administration, including: (i) land development process; (ii)land registration finance and fee structure; (iii) real property valuation framework; (iv) forest boundarydemarcation and operational procedures policy study; (v) fragmented land laws and regulations framework;

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and (vi) institutional arrangements for land administration.

2. Prototypes (US$ 4.5 million). The component would have two prototypes: Land Titling andAdministration prototype and Record Management prototype. The Land Titling and Administrationprototype (US$ 3.25 million) will be implemented in six municipalities in Leyte province and will focus onaccelerating the issuance of land titles using the existing administrative and judicial proceedings, enhancingservice delivery of land registration, and improving coordination between DENR and DAR in theimplementation of CARP operations. The land record prototype (US$ 1.35 Million) will be implemented inQuezon City and will focus on record verification and reconstitution, creation of cadastral map base in theROD, elimination of fake and duplicate titles (in the prototype area), and linkage to the LRA-sponsoredcomputerization project, Build, Own and Operate (BOO) and other government land-relatedcomputerization initiatives.

3. Institutional Development (US$ 5.0 milion). The component would provide support to theProject Management Office and the two Project Implementation Offices of the two prototypes. Thiscomponent will include: technical assistance (TA), training and overseas study tours, monitoring andevaluation including two rounds of social assessment and one development impact study, and the purchaseof furniture, office equipment, and vehicles. The Australian Agency for International Development(AusAID) would finance (subject to AusAIDs management approval) the TA, international training andoverseas study tours.

4. Phase II preparation (US$ 0.3 million). The component would include the design of the long-termprogram of the Land Administration and Management including one round of social assessment.

1. Land Policy Institutional 0.50 4.8 0.50 10.4Development

2. Prototypes Other Public 4.50 43.5 3.49 72.9SectorManagement

3. Institutional Development to LAM Institutional 5.00 48.3 0.70 14.6Management Office Development

4. Project Preparation for Subsequent 0.30 2.9 0.05 1.0Phases

Total Project Costs 10.30 99.5 4.74 99.0Front-end fee 0.05 0.5 0.05 1.0

Total Financing Required 10.35 100.0 4.79 100.0

2. Institutional and implementation arrangements:

2.1. Institutional

The successful implementation of the Project would require the coordinated inputs from several keyagencies particularly the Land Management Bureau (LMB) and the Land Management Service (LMS) in

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DENR; the Land Registration Authority (LRA) and the Registries of Deeds (RODs) in DOJ; theDepartrnent of Agrarian Reform (DAR) and their offices in the field; and the Bureau of Local GovernmentFinance (BLGF) and the Bureau of Internal Revenue (BIR) of the Department of Finance (DOF). Theframework to support this coordinated effort has already started, with the formation of an Inter-AgencyCoordinating Committee (IACC) and a Technical Working Group (TWG). DENR has played a key role inpromoting the Program, and therefore, would be the lead agency for the preparation and implementation ofthe project. DENR would collaborate closely with other key agencies like the LRA/DOJ, DAR, andBLGF/DOF during project implementation. Similarly, the role and active support of the courts would haveto be elicited given their critical importance in the entire land administration process.

For this project, DENR will take the lead in project implementation under the overall guidance of theIACC. The lead agency of the long-tern program will be determined during this project as part of theinstitutional arrangement study. The Project Management Office (PMO) would be headed by anExecutive Director (who is already appointed) and two Deputy Directors, one from the Land ManagementBureau (LMB) of DENR, the other from LRA. The PMO would be staffed by contracted and detailedqualified staff from the three main agencies, DENR, LRA, DAR. The PMO Executive Director will reportto the Inter-Agency Coordination Committee (IACC) for policy and technical guidance and to DENR foradministrative and financial matters.

There will be two Prototype Implementation Offices (PIOs) to be responsible for the actual implementationof the two prototypes. The PIO of the Land Titling and Administration Prototype (PIO 1) will be located inPalo Municipality of Leyte province. The PIO1 would be headed by a senior DENR official and staffed bydetailed and contracted qualified staff from ROD, LMS, and Municipal Agrarian Reform Offices(MARO). The PIO for the Land Records prototype (PI02) will be located in Quezon City Register ofDeeds and be headed by a senior LRA official. P102 will be staffed by detailed and contracted qualifiedstaff from DENR-NCR (National Capital Region), ROD, and the LGU. The two PIOs will report to thePMO for both technical and administrative matters. In addition, a local advisory committee will beestablished in the locality of the two prototype areas to monitor the implementation of the prototypes andprovide advice to the PIOs. The local advisory committee will be headed by the chief executive of the localgovernment in the prototype area and will include representatives from regional and local governmentagencies, NGOs and POs.

While the PMO will coordinate the Policy Studies' component, the line agencies will be responsible for thesubstance of the studies, thus serving in a counterpart capacity. The counterpart for the Property ValuationStudy and Finance and Fee Structure Study will be DOF (with active participation of BLGF/BIR); LandDevelopment Process Study is National Economic and Development Authority; Institutional Structure forLand Administration will be the Department of Budget and Management (DBM), Fragmented Land Lawsand Regulations Study will be DOJ; and Demarcation of Forest Boundaries Policy and OperationalProcedures Study will be DENR . The lead agency will make available at least two senior staff to workwith the study team during the entire study period.

To clarify the roles and responsibilities of the IACC, PMO, PIOs and the Local Advisory Committee, thePMO will prepare Memoranda of Agreements (MOAs) at the central and local levels, to provide aframework for agreements among the different agencies. These will be prepared and signed prior to Bankapproval. The detailed design of the two prototypes spells out the detailed implementation arrangements forthe prototype activities.

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3. Monitoring and evaluation arrangements:

Monitoring and Evaluation will be an integral part of project implementation and will formn a good part ofComponent 3. A Monitoring and Evaluation Unit would be established in the PMO to monitor and evaluatepolicy study progress and recommendations, and the progress of the two prototypes. The two PIOs willalso establish a Monitoring and Evaluation Unit to monitor the performance of the two prototypes. Theevaluation of these two components will be an important input in the formalization of the institutionalarrangements, the drafting of laws and administrative decisions, and the overall design of the second phaseof the project. In order to facilitate the Unit operations, a monitoring and evaluation system would beestablished during early stages of project implementation based on the logframe of Annex 1. The technicalassistance of the project will also include intemational and national advisors to assist the PMO in themonitoring and evaluation activities.

The component would include two rounds of social assessment, one at the beginning of the project and onein the middle (a third round is designed at the end as an input to design of the long-term program). TheTOR of this social assessment is included in the project file. Further, a development impact study will beconducted to monitor the socio-economic impact on project beneficiaries, with a base line study to becarried out at the beginning of the project, followed by a second round in the subsequest phase.

D. Project Rationale[This section is not to be completed in a LIL PAD. Rationale should be implicit in paragraph B: 3.]

E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)

1. Economic (see Annex 4):[For LIL, to the extent applicable]e Cost benefit NPV=US$5.79 million; ERR = 24 % (see Annex 4)O Cost effectivenessO Other (specify)The primary benefits from the LAM project can be grouped under four categories. First, by testing andintroducing new approaches to land titling and administration, the project would lay a strong foundation fora future LAM program which would increase efficiency in land titling and registration. Second, itsprototypes would generate some incremental land titles and the benefits that derive from them. Third, theprototypes would also improve the quality of existing land records and efficiency in land administrationboth of which would increase confidence and efficiency in the land registration system. And finally, byimproving the quality of land records, the project would increase the benefits accruing from the Build, Ownand Operate (BOO) and other government land-related computerization initiatives, that is being fundedseparately.

An economic analysis for such a land administration project would normally follow the conventionalapproach to economic evaluation of investments, which proceeds by estimating a future stream of costs andbenefits and deriving net benefits to calculate an Economic Rate of Return (ERR) and a Net Present Value(NPV). We are unable to undertake precise estimation of ERR and NPV for the proposed project for twoprincipal reasons. First, as this is a learning and innovation project with a focus on testing and learning,project resources, spent directly on the production of land titles are limited to about one-half of total projectcosts. Second, expected project benefits are difficult to estimate in the the Philippines as there are no dataon which they can be based. Past experience cannot be a guide, as the land registration system has beendysfunctional. For these reasons, an ERR and NPV will thus not be computed for this project.

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In response to the Government of the Philippines, we have carried out a hypothetical analysis of theeconomic worth of the project, based on land titling experiences and data from Thailand. The method andresults of the hypothetical economic analysis are presented in Annex 4.

2. Financial (see Annex 4 and Annex 5):NPV=US$ million; FRR = % (see Annex 4)[For LIL, to the extent applicable]One objective of the financial analysis would be to assess whether the net financial benefits expected fromthe project are attractive enough for the targeted entities --- the landholders --- to participate in the project.In most countries, landholders usually want to obtain land titles in order to improve land ownership securityand to use titles as collateral for institutional credit. Both, land ownership security and access toinstitutional credit would lead to increased investment, land productivity, and incomes. If landholders wereto be charged the full cost of land titling, the decision by a landholder to participate in a land titling schemewould depend on whether the expected financial returns are higher than the payment for a land title. Underthe normal situation where titles are issued upon request by landholders who are made to pay the full costof the title, the landholders who request a titling service do so with the expectation that the financial returnfrom acquiring the title would be higher than the cost of the title.

Due to the effort to keep land titling costs low by undertaking land titling in large volumes village byvillage (the so-called systematic adjudication), the initial charge for a land title, under the proposed project,has to be kept low (lower than the cost of producing a title), to ensure high participation of landholders on avoluntary basis. It should be set at a level consistent with the affordability of the poorest landholders. Forexample, in Thailand where the land titling program has been successful, landholders are charged less thanUS$5/title compared to the average cost of US$36/title. The difference between US$36 and US$5 is thesubsidy from the Government of Thailand. The Government recovers the subsidy by charging registrationfees on subsequent land registrations. This arrangement has worked well in Thailand. It is expected that asimilar arrangement would be introduced in the proposed project, although a careful study of the structureand levels of land-related taxes is planned to be undertaken with a view to striking the correct balancebetween the need to attract people to register land transactions on one hand, and the need for cost recoveryand govermment revenue on the other.

Fiscal Impact:

It is expected that the proposed project would generate incremental revenue for the central and localgovernments from the following sources. Higher revenues would accrue from: (i) registration fees collectedby the Register of Deeds (RODs); (ii) real property tax collected by Local Government Units (LGUs); and(iii) capital gains tax and stamp duty collected by the Bureau of Internal Revenue (BIR). The increasedrevenue would come as a result of a larger number of land transactions due to: (i) an increase in theproportion of land that is titled; (ii) improved efficiency in land administration that would make it easierand quicker for registration of land transactions; and (iii) a revival and invigoration of land markets in ruraland urban areas. Higher revenues would also come as a result of higher land values due to: (i) rising landand property prices reflecting a higher future net income stream, created by land titling benefits; and (ii)more objective and improved methods of property valuation which the project would promote. Due to lackof data on changes in land transactions and expected tax elasticities, we are unable to estimate theincremental net revenue that would be generated by the project. To give an illustration of revenue flowsfrom land titling, it may be useful to review the experience of another country which has been implementingland titling projects. In Thailand, annual revenues from land-related taxes (excluding property taxes) rosenearly 4 times within 10 years of land titling from less than US$300 million in 1984 to more than US$1billion in 1994. These annual revenues are more than ten (10) times greater than the recurrent expenditures

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of Thailand's Department of Lands, which amounted to US$87 million in 1997.

3. Technical:[For LIL, enter data if applicable or 'Not Applicable']The proposed project would test various technologies for production of cadastral maps, including thesurveying of boundaries and title development. The choice of these technologies would depend on theaccuracy requirements of corner boundaries by the Philippines laws and considerations forcost-effectiveness. Experience in other countries shows that the introduction of rectified aerial photography,combined with other technologies such as a global positioning system (GPS) and total station, reducessubstantially the costs of surveying and map production. Other new technologies such as high resolutionsatellite imagery would may be tested subject to coverage. Various technologies for land recordsmanagement would also be assessed during the project. These could range from a complete manual systemto semi-manual and computerized land record management systems.

4. Institutional:

a. Executing agencies:The Department of Environment and Natural Resources will take the lead in project implementation. Otheragencies to implement the project are the Land Registration Authority of the Department of Justice and theDepartment of Agrarian Reform. DENR will take the lead in project implementation during the LIL periodand the definition of the lead agency during the long term program will be done as part of the institutionalarrangement study. Studies will be lead by the relevant agencies.

b. Project management:DENR has implemented several World Bank and other donors financed projects. Therefore, they arefamiliar with the Bank processing procedures and procurement and financial management guidelines. Thehead of the Project Management Office (the Project Executive Director) is an Assistant Secretary inDENR. Because of the important role of the Land Registration Authority in implementing the project, asenior officer of the Land Registration Authority was appointed as Deputy Executive Director of the LAMProject. Further, Prototype II will be headed by an LRA official.

International and local Technical Assistance would provide support to the PMO and the two PIOs in thetechnical, administrative and management areas. The Technical Assistance will be mobilized at early stagesof project implementation.

5. Social:

Accelerating land titling and improving service delivery of land administration functions would result in areduction of disputes over land rights. In the long term, this would have a positive social impact. Theproject does not intend to address the communal land tenure at this stage as the prototype sites would belimited to urban areas and the lowland rural areas.

Social concerns and issues have all been considered in the design of the project. These will be furtherrevalidated through the conduct of a social assessment giving special attention to the disadvantaged andmarginalized groups, and to key stakeholders. The design of the social assessment has been prepared aspart of the project preparation, and it will be conducted in three phases during various stages of projectimplementation. The first phase will be undertaken before the start of the project, the second phase justbefore the mid-term review and the third phase as part of the preparation for the long-term program. Theobjective of the first phase is to scan the social issues in the prototype area, the outcome of which would beused to improve and sharpen the design of the prototypes as well as the community awareness program.

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The aim is to ensure that low income and other marginal groups would have equal access to information,benefit from the project and have their rights protected. Results of this phase would also be used toestablish an appropriate framework for stakeholders' participation and access to the project. The secondphase would cover the same area as that of the first phase and would verify the level of stakeholders'participation, assess the project's initial social impact and determine the lessons for adjustment of theoperations of the prototype. The third phase would cover a wider area, scope and stakeholders. It wouldalso entail a more rigorous process than the first two phases. The government would use the output of thesocial assessments to develop and implement measures to minimize and mitigate any adverse social impactthat may arise from systematic adjudiation and the issuance of land titles, especially on the poor and othermarginal groups. The methodology for social assessments and consultations were designed under theguidance of an experienced social scientist from outside the operational Unit where the project istask-managed.

6. Environmental assessment: Environment Category: B (Partial Assessment)

The impact of the proposed project on the environment would be neutral in the short and medium term.Experience in the Bank-supported land administration projects in Thailand and the Brazilian North EastRegion Land Tenure Improvement Project indicates no significant impact on the environment. In the longterm though, transparent and efficient land administration systems and coherent and transparent landmanagement policies would have a positive impact on the environment in a number of aspects. Improvedland security provides incentives to invest in improved long-term land use (e.g. soil conservation in ruralareas, and investment in environmental infrastructure such as kitchen and bathrooms in urban areas).Project outputs including spatial data such as aerial photographs and cadastral maps would be usefulinputs into environmental management. As this project is supported by a LIL and has a short-termduration of 3 years, no separate environmental assessment report has been prepared. All disclosurerequirements have been met. The project would support a study to develop a national policy andoperational procedures for demarcation of forest boundaries taking into account the legal rights of forestoccupants, and the indigenous peoples and their access to forest resources are protected. Under this project,there are no indigenous peoples affected and therefore, OD 4.30 is not applied. The policy and operationalprocedures will be reviewed during the preparation of the follow-up project, and if found satisfactory to theBank, the follow-up project could support the actual demarcation of forest boundaries.

7. Participatory Approach (key stakeholders, how involved, and what they have influenced or mayinfluence; if participatory approach not used, describe why not applicable):[For LIL, to the extent applicable]

a. Primary beneficiaries and other affected groups:

Systematic adjudication is highly participatory. The adjudication process would follow the practices insimilar projects in Thailand, Laos and Indonesia, where the adjudication of land parcels is done in thepresence of the claimer of the land, all the neighbors and the village head. The claimer and all the neighborsplace boundary markers by themselves and the adjudication team records the measurement on the cadastralmap and gets signatures from all parties. To ensure all parties are present during adjudication, extensivepublic information and education campaign is done one month prior to adjudication start in the community.In the event that neighbors disagree on the boundaries, the case will be refered to the existing municipalcourt. In case the number of disputed cases is large, the project would develop and implement mediationand dispute resolution mechanisms based on the experience of similar projects.

As regards social assessment, to ensure active and meaningful participation of stakeholders in its conduct, acore group will be formed with representation from the LGUs, NGOs/POs, academia and relevant private

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and government agencies. The core group will be trained prior to the implementation of the first phase ofsocial assessment for them to take the lead in its implementation in their respective communities.

b. Other key stakeholders:

Consultations with NGOs and POs have been undertaken from the start of project preparation activitiesthrough workshops and other informal meetings, feedback of which have been incorporated in the projectdesign. These consultations would continue through the rest of project preparation and implementationstages. In addition, qualified NGOs and POs will also be engaged as service providers in the conduct of thesocial assessment. They will also be involved and/or consulted in the conduct of various policy studies andparticipate in the activities of the Local Advisory Committee.

The Local Advisory Committee at the prototype level and the Inter-Agency Coordinating Committee(created by virtue of Executive Order No. 129 dated July 24, 1999) at the project level will take an activerole in reviewing and providing guidance and policy directions to ensure that the project achieves its desiredsocial development outcomes.

c. How will the project monitor performance in terms of social development outcomes?

The second and third phase of the social assessment and the second phase of the development impact studywill be the mechanisms to determine and measure the perfonnance of the project in terms of its achievementof the desired social development outcomes. These two studies, which complement one another, will beconducted separately and in a participatory manner.

F. Sustainability and Risks

1. Sustainability:

This section is not to be completed in LIL PAD.

2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1):

Risk Risk Rating Risk Mitigation MeasureFrom Outputs to ObjectiveSlowdown in the economy. M External to the Project

IACC is not able to operate effectively S The IACC reports to the President of theand exert leadership. Republic of the Philippines. Memoranda of

Agreements have been agreed among the mainimplementing agencies.

Department and Agencies are not willing S The support of the long-term program will beto accept and implement the agreed based on the actions taken by the govermment torecommendations of the policy studies. act on the recommendations of the policy

studies, including the recommendations on theinstitutional arrangements for landadministration. Further, the IACC is mandatedby the E.O. 129 to report to the president on thelimplementation of the program.

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No opposition from main stakeholders S The project will include a wide range ofincluding NGOs and POs. activities which involve the input and

participation of the main stakeholders includingNGOs and POs. The Social Assessment willalso evaluate the impact of the land titling onproject benificiaries. The government will usethe social assessment to develop and implementmeasures to minimize and mitigate any negativeimpact that may arise from the systematicadjudication and the issuance of titles especiallyon the poor and other marginal groups.

From Components to OutputsGOP does not provide adequate budget M Counterpart funds is a issue in the Philippines.for the project. The World Bank management in the field is in

continuous dialogue with the Government toensure that adequate counterpart funds areprovided to Bank-financed projects.

LGUs do not sufficiently address the issue M The selection criteria for the prototype sitesof back taxes so as to encourage project includes the willingness of the local governmentbeneficiaries to collect the land titles. to address the back taxes.

The majority of land owners have legal M This will be investigated during theevidence of title in the prototype area. implementation of the prototypes.

Overall Risk Rating S Moderate to High / This operation is rated amoderate to high risk. But, with this relativelyhigh risk, the expected return will be equally ashigh. For this reason, the project is designed as aLearning and Innovation Loan to ensure that therisk is adequately assessed and addressed beforeembarking on supporcing the long-term program.

Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk)

3. Possible Controversial Aspects:

None

G. Main Loan Conditions

1. Effectiveness Condition

* None

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2. Other [classify according to covenant types used in the Legal Agreements.]

Other Conditions

* Selected performance indicators, agreed with the Bank, will be used to monitor projectperformance, outcome and impact (monitoring and evaluation);

* The PMO will maintain a computerized accounting system and hire qualified staff acceptableto the Bank to operate the system;

* DENR will, by February 28 of each year, starting February 28, 2001, furnish to the Bank forits review and comments, an annual work plan and budget; and implement it, taking intoconsideration the comments from the Bank (sectoral budgetary);

* Annual financial audits will be conducted by an independent auditor acceptable to the Bankand will follow the Terms of Reference (TORs) in accordance with the appropriate auditingprinciples, as approved by the Bank, and such audits will be submitted to the Bank within sixmonths of the close of each fiscal year (accounts/audit);

* The PMO will ensure that the following reports are submitted to the Bank: (i) semi-annualreports on July 31 and January 31 of each year, commencing on January 31, 2001; (ii) a reportfor the project's mid-term review by September 1, 2001; and (iii) within 6 months beforeproject completion, the Government contribution to the Implementation Completion Reportevaluating the project's performance (monitoring and reporting);

= A mid-term review will be conducted no later than January 31, 2002 (monitoring andreporting);

* The first round of the Social Assessment will be undertaken by December 31, 2000 and thesecond round by December 31, 2001 (Monitoring and Reporting);

T The Government would develop and implement measures to minimize and mitigate anyadverse social impacts that may arise from the systematic adjudication and issuance of landtitles, especially on poor and vulnerable groups by February 28, 2002;

= The Land Development Process Study, Property Valuation Study, the Finance and FeeStructure Study, the Fragmented Land Laws and Regulations Study, the Institutional Structurefor Land Administration Study, and the Demarcation of Forest Boundaries Policy Study shallbe completed by December 2002; and

* The preparation of the long-term program will be initiated by September 30, 2002.

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H. Readiness for Implementation

1Z 1. a) The engineering design documents for the first year's activities are complete and ready for the startof project implementation.

1F 1. b) Not applicable.

1 2. The procurement documents for the first six months' activities are complete and ready for the start ofproject implementation; and a framework has been established for agreement on standard biddingdocuments that will be used for ongoing procurement throughout the life of LIL

1 3. The LIL's Implementation Plan has been appraised and found to be realistic and of satisfactoryquality.

OI 4. The following items are lacking and are discussed under loan conditions (Section G):

1. Compliance with Bank Policies

Z 1. This project complies with all applicable Bank policies.aI 2. The following exceptions to Bank policies are recommended for approval. The project complies with

all other applicable Bank policies.

Wael tZakout hMark D. Wilson 4.. Vinay K. BhargavaTeam Leader Sector Manager/Director f Country Manager/Director

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Annex 1: Project Design SummaryPHILIPPINES: Land Administration and Management Project

Hoaeyof Objectives In40" oIo~g&Evalaton Cioa AssmptionSector-related CAS Goal: Sector Indicators: Sectorl country reports: (from Goal to Bank Mission)Accelerate environmentally Sustained increase in Government statisticssustainable agricultural agricultural growthgrowth and alleviate povertyin rural areas

Promote sustainable urban Increase in affordable housing Government statisticsdevelopment

Inprove governance, Transparency international International rating ontransparency and combat ratings on perception of corruptioncorruption corruption show improvement

Follow-on DevelopmentObjective:To alleviate poverty and Increased confidence of the Socio-economic studiesenhance economic growth by security of titles by bothimproving the security of land landholders and bankstenure and fostering efficientland markets in rural and Increase in number of formal LRA recordsurban areas, through the land transactionsdevelopment of an efficientsystem of land titling and Increase of loan funding and Socio-economic studiesadministration, which is based mortgages to the propertyon clear, coherent and sectorconsistent policies and laws,and is supported by an Increase in number of farmers Socio-economic studyappropriate institutional who accesse creditstructure.

Increase in localgovernment-related revenues Government budgetfrom land-related taxes andfees

Increase of loan funding to the Socio-economic impactproperty sector Study

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'l~~~~~~~~w

Project Development Outcome I Impact Project reports: (from Objective to Goal)Objective: Indicators:To formulate and approve Government approves a Government official recordspolicy and regulatory changes, time-bound action plan to setand to test alternate up the institutionalapproaches to accelerated arrangements necessary forprograms designed to improve improved and effective landthe protection of rights to administrationland, eliminate fake titles,introduce an equitable systemof land valuation andformalize the institutionalarrangements, needed tosupport implementation of thelong-term program.

IACC and key agencies IACC official recordsapprove recommendations forpolicy formulation in the areasof: (i) property valuation; (ii)demarcation of forestboundaries; (iii) landdevelopment process; (iv)fnance and fee structures forland registration; (v)fragmented land laws andregulations; and (vi)institutional structure for landregistration. Time-boundaction plan forimplementation approved;Procedures and guidelines for IACC official recordsaccelerating land titlingprograms tested, reviewed andendorsed by the implementingagencies and the IACC

Government approves the IACC official recordsdirection of the long-termprogram and phase II of theLAM project, which includesa time frame for addressinginstitutional and policy reformareas recommended by theIACC and expanding thetitling program and the recordreconstitution program to therest of the country

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of 0-0"' 40 M:" WN I, :ft ,=B t -;-

3. Streamlined and cost 3.1 Well-functioning land 3.1. Monitoring andeffective procedures are tested titling and administration evaluation systemand put in place for an prototype, where 80% ofaccelerated program of parcels in the prototype areaissuance of land titles are titled with cost around

US$60 per parcel and 80% oftitles are collected andregistered by the beneficiaries

3.2 DENR, DAR and ROD 3.2 Monitoring andoperates a one-stop-shop, Evaluation Systemwhich cuts the time taken forissuance of new titles by 50%at the end of the project

3.3 Procedures and guidelines 3.3. Government records andfor accelerated land titling feedback from usersprogram, includingstreamlined procedures amongall the agencies, reviewed andendorsed by the IACC to beadopted in the implementationof the long-term program.

3.4 An effective community 3.4 Social assessmentrelations and servicesprogram implementedincluding broad socialawareness, impact monitoring,and NGOs participation.

4. Streamlined and cost 4.1 Improved procedures for 4.1 M&E systemeffective procedures to reconstitution of titlesimprove the validity and developed, tested andcompleteness of land titles in implemented.the register of deeds tested andput in place.

4.2 The reconstitution of 80% 4.2 M&E system;of all titles, includingdamaged, lost or incorrectrecords in the prototype area.

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4.3 Procedures for the 4.3 supervision mission andcompilation and updating of IACC recordcadastral maps, including thesharing of data among thedifferent departments/agencieshave been tested, andimplemented.

4.4 Procedures for interfacewith the BOO and other 4.4 LRA and IACC records.govermment land relatedcomputerization projectsexamined, reviewed, testedand implemented.

5. The direction of the 5.1 The NEDA Board 5.1 Government recordslong-term program and phase approved the direction of theII of the project is approved. long-term program and ICC

approved phase II of theproject.

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X~~~~~~~~ WM.1 a. Monri & Eva~i.tlon C-0COlMMu

Project Components I Inputs: (budget for each Project reports: (from Components toSub-components: component) Outputs)1. Land Policy and Legal US$ 0.5 million 1. Land Development Process GOP provides adequate budgetFramework Report; for the project;

2. Finance and Fee Structureson land transactions Report;3. Real Property ValuationReport;4. Legal Framework for LandAdministration Report;S. Forest Boundaries StudyReport;

2. Piloting Land Titling and US$ 4.5 million 6. Final Report on LGU sufficiently addressedAdministration System Prototype I; the issue of back taxes, so as

7. Final Report on Prototype to encourage project2.1 Land Titling Pilot II; beneficiaries to collect the

land titles2.2 Land Registration Pilot

The majority of land ownershave legal evidence of title inthe prototype area;

3. Institutional Development US$ 5.0 million 8. Monitoring and EvaluationReports;9. Six Monthly ProgressReports;10. Mid-term Review Report;11. ImplementationCompletion Report;

4. Project Preparation for US$ 0.3 million 12. Project Preparation ReportSubsequent phases. of the long term program.

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Annex 2: Detailed Project Description

PHILIPPINES: Land Administration and Management Project

By Component:

Project Component I - US$0.50 millionLand Policy Studies

This component will include a minimum of six policy-oriented studies to address the key policyissues of land administration and management, building on past studies and information. The studies willinvolve extensive consultation with key stakeholders, in addition to analysis, and will be action-oriented.Detailed terms of reference will spell out a clear mechanism for conducting, reviewing and approving therecommendations arising from these studies. The studies would be expected to be carried out in stagesincluding (see chart below): (i) assessing the current status; (ii) identifying the issues; (iii) identifyingoptions and implications; (iv) consultating with key stakeholders to obtain consensus; and (v) agreement onthe course of actions by the IACC.

The Bank will finance the Valuation, Finance and Fee Structure, Forest Boundaries Demarcation,and Land Development Studies, while AusAID will finance the Institutional Structure for LandAdministration and Fragmented Land Laws and Regulations Studies.

A. Property Valuation Study

Objective. The study would aim to support the development of a national real property valuationframework, which is acceptable to all stakeholders and in line with international standards and practices.

Description. Distorted land markets and difficulties in obtaining valid sales data have led toformula-driven cost-based valuation. In addition, there is no uniform valuation system or standards andunder-valuation and inequitable valuation are rife, particularly in local government taxation of land andreal estate. Valuation rules are prescriptive and rigid and high tax rates compound the problem. At thesame time, Government revenues are low due to undervaluation. The weaknesses in valuation would beaddressed by the proposed study which would: (i) study and examine current property valuation practice,identify strengths, weaknesses, levels of equitability, and cost of the existing system; (ii) develop optionsand determine the cost of establishing a framnework for a market-based property valuation system inaccordance with internationally accepted standards; (iii) undertake discussions and workshops with keystakeholders in both government and private sectors, NGOs and POs to achieve consensus on a nationalvaluation framework for taxation and compensation purposes; and (iv) identify an action plan to implementthe framework.

Deliverables. Five deliverables: (i) a short report with annexes on the current valuation practices; (ii) adiscussion paper identifying options for the national framework of real property valuation; (iii)consultations on agreed-upon course of action; (iv) the drafting of any necessary acts or laws as agreedduring the consultations; and (v) a recommended a time-bound action plan to implement therecommendations.

B. Finance and Fee Structure

Objectives. The study would recommend revisions in the structure and levels of taxes and charges in thetitling and transfer of land to eliminate current disincentives for registration of land transactions. The

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proposed review would take into account the central and local government revenues from propertytaxation, and the need to correct real property market distortions.

Description. High fees and taxes for first time and subsequent registration together with back taxes haveproduced major disincentives for first time and subsequent land registration. Evidence indicates that lessthan 30% of the landholders in rural areas are able to meet the costs of having their land titled. The highcosts of land titling and registration have been an important factor leading to a high incidence of informaltransactions in land and becoming a contributing factor to loss of confidence in the titling system. Theproposed study would be done in two phases. The first phase would be a quick review and recommendedaction to reduce land titling and transfer fees and taxes as well as related back taxes in order to stimulatelandholders to title their properties in the prototypes. The second phase of the study would be undertakenduring project implementation. It would review the current tax and fee structure and recommend changestaking into account new initiatives under the LAM project, namely: (i) introduction of market-basedmethods of valuation as a basis for tax and fee assessment; and (ii) an increased rate of registration oftransactions together with higher turnover in land markets. The recommendations would aim atmaximizing participation of landholders in land titling and registration, while also ensuring that costrecovery objectives of the Government are met. Using data generated from the prototypes, the study wouldestimate revenue-generated using the recommended tax and fee structure (together with improved methodsof valuation and higher volume of registered transactions) and compare this with revenue-earned in the pastunder the scenario of a high fee and tax structure, together with poor valuation methods and lower volumeof registered transactions. The recommended changes in taxes and fees would be implemented after therelevant authorities have considered the implications of the Government's fiscal policy.

Deliverables. Five deliverables: (i) a short report identifying all taxes and fees currently applied to realproperty; (ii) a short discussion paper on the impact of these taxes and fees on initial patents, theregistration of land transactions, land market, and revenues of central and local government; (iii)identifying options for restructuring the taxes and fees identifying the implications of each of these optionson land registration and government revenues; (iv) undertake consultations and consensus building amongall stakeholders to identify an agreed structure of land taxes and fees; and (v) a recommend a time-boundaction plan to implement the recommendations.

C. Land Development Process Study

Objective. The study would recommend an action plan for harmonizing the implementation of interimguidelines for land allocation and would prepare implementation of the proposed National Land Use Actduring the long-term LAM program. The overall goal of the study would be to improve equitability andefficiency in land-use so as to meet requirements for economic growth and housing, while also meeting therequirements for sustainable management of natural resources and food security.

Description. Current processes of land allocation and development have: (i) failed to allocate land to itsmost productive uses; (ii) resulted in unplanned development of urban and settlement areas; and (iii)inadequate protection of natural resources, particularly forests. The study would review current interimguidelines for land use planning and development --- guidelines that have been developed as gap fillmeasures while awaiting enactment of the National Land Use Act (NLUA) --- with a view to harmonizingtheir implementation in terms of policy and institutional arrangements. The interim guidelines which lackconsistency in design and implementation cover, among other things, land use classification, landconversion, land zoning, and land use planning. The harmonization of these guidelines would be expectedto overcome current constraints to the allocation of land, to its most efficient use, orderly development ofurban areas and settlements, food security and sustainable management of natural resources. In addition to

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studying the harnonization of interim guidelines for land allocation and use, the study would support thepreparation of a program to implement, under the long-term LAM program, the draft NLUA once enacted.

Deliverables. (i) prepare a flow chart showing processes, approvals and actions required for each of thereclassification of agricultural to non-agricultural land, and sub-dividing of urban land; (ii) develop optionsfor streamlined procedures for land re-classification; (iii) develop consensus among the stakeholders onchanges to existing interim guidelines and institutional mechanisms for their implementation; and (iii)prepare a time-bound action plan to implement the recommendations.

D. Demarcation of Forest Boundaries Policy Study

Forest Boundary Delineation Study

Objectives. The study would develop a policy framework for forest boundaries demarcation, which ensuresthe legal rights of forest occupants and continued access to forest resources.

Description. The proposed study would have three main components: (i) review the legal framework forthe legal rights of forest occupants and their access to forest resources; (ii) practice and procedures toimplement these legal regulations; and (iii) prepare a short policy framework for forest line demarcationwhich ensures that the demarcation of forest boundaries does not cause negative impact on those livinginside the forests.

Deliverables. A policy framework for forest boundaries demarcation (a few pages), which ensures thelegal rights of forest occupants and continued access to forest resources.

E. Fragmented Land Laws and Regulations

Objectives. The study would aim to recommend changes in the existing land laws and regulations with aview to rationalize and consolidate them so as to avoid overlap and inconsistency in their effects andimplementation. The overall objective is to lay the legal foundation in land policy, management, andadministration consistent with the principles of good governance, efficiency and equity.

Description. The study would support the review of existing land laws and regulations. Currently, there isan abundance of laws governing the administration of land in the Philippines, especially relating to A&Dland. The laws are administered by different agencies. Many of these laws, introduced over a long periodof time, are in conflict, due to subsequent amendments, with existing legislation. Operating an efficient andequitable land administration system under this framework has been difficult and has resulted in longdelays in adjudication and registration of land rights, and in a considerable jurisdictional overlap andduplication of functions. There is also confusion in the mind of the community concerning agencyjurisdiction and uncertainty as to which agency to consult when a particular action is required. The reviewof the existing land laws and regulation would be carried out in close collaboration with all agenciesparticipating.

Deliverables. Recommendations for review and possible consolidation of existing laws and regulationswill be presented in a report.

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F. Institutional Structure for Land Administration Study

Objectives. The study would select the findings and results of the project's testing and learning activitieswith a view to generating an institutional structure that would underpin the implementation of the long-termLAM program.

Description. A major weakness in land administration and management has been the proliferation andfragmentation of organizations in the land sector whose operations have been inadequately coordinated.Under the proposed project, there would be a testing of organizational arrangements centered around theone-stop-shop concept in the administration of the two prototypes and in the review of the role of courts inthe registration of land. Results from the tests would be evaluated and used as a basis by the Government toapprove an organizational structure that would support the efficient implementation of the long-term LAMprogram.

Deliverables. (i) documentation of the results of the testing and learning including evaluation of the resultsand recommendations for the new structure; (ii) consensus on a new organizational structure; and (iii) atime-bound action plan to implement the recommendations.

Project Component 2 -US$4.50 millionPrototypes

The component would include two prototypes to test innovative new solutions to problems currentlyconfronting the land administration and management system of the Philippines as identified in the variousstudies conducted on the land sector issues. The two prototypes are the core component of the Project. Theoutcomes of these two prototypes will provide invaluable information and allow the development ofappropriate implementation strategies for the subsequent phase of the Program.

PROTOTYPE 1: (Land Administration and Titling Prototype -- Leyte)

The DENR, DAR and LRA are primarily involved in land titling and administration, each operatingwithin its own policy and regulatory framework. Consequently, there is no mechanism to avoid outstandingissues and conflicts and all of these entities have the independent ability to award rights to land. Existingland record management systems are inefficient and incomplete with records destroyed through war, theftfire, flood or misplaced during relocation. There are no comprehensive record inventories. No agency has acomplete updated set of cadastral maps, whereby the land tenure picture of the Philippines can bedescribed. Each agency only maintains a portion of the overall comprehensive cadastral map. This has ledto abuses in the producing of titles; a substantial part of them are forged and duplicated. Comprehensivemapping programs in DENR through cadastral surveys have been significantly reduced in recent years.Judicial titling through the courts has become slow and expensive and cadastral proceedings that wereintroduced for expediency and economy have failed to deliver the necessary improvements. Furthermore,there is evidence, confirmed in field units and in discussions with community and NGO groups, that thehigh initial registration cost for issuing titles is a major factor which keeps many poor families fromacquiring titles for their land.

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This prototype would focus on: (i) testing institutional collaboration in land administration in an improvedservice-oriented environment; (ii) streamlining procedures for issuing titles to privately-claimed A&D land;(iii) testing the existing legal framework and its suitability to undertake an accelerated program of landtitling and administration; (iv) assessing the response from the stakeholders of accelerated programs of landadjudication; (v) evaluating the capability and capacity of the private sector on surveying and mapping;(vi) evaluating different technologies such as photomapping, high resolution satellite images, GPS insystematic adjudication process; (vii) introducing cadastral maps to RODs; and (ix) increasing communityawareness of the benefits of land titles.

The area selected for the prototype is in the province of Leyte. An area approximating 68,065 ha in extent,and covering 6 rural municipalities. It is estimated that total A&D lands are 57,190 ha, of which about11,155 ha is already titled. The selected area includes about 10,344 ha of forest land and about 15,114 haof lands, subject to the CARP program. Certificates of Land Ownership Award (CLOA) have been issuedover 7,144 ha, with an estimate 6,108 ha remaining. The estimated population in the prototype area is145,320 in about 36,911 households.

A one-stop-shop (OSS) of land administration would be established by administrative arrangements(through a Memoranda of Agreements (MOA) at the local government level) in Palo City. The purpose ofthe MOAs would be to facilitate and expedite coordination among the different agencies responsible forland adjudication and issuance of titles (to be physically located in one building under the prototype) to allthe eligible land owners in the prototype area (estimated around 30,000, mostly in rural areas), verify theaccuracy of titles, already issued, and produce large scale cadastral maps showing all land parcels andparcel numbers to cover the entire prototype area. All of the above would be done within the one-stop-shopby the various responsible agencies physically located therein, and in accordance with the legal frameworkenforceable at the time adjudication and land titling is done. An overview of the land titling process isdescribed in Annex 2.1. In the process, several technologies and approaches will be tested and evaluated.

The project would finance the cost of building/renovating of the one-stop-shop and the PIO, andthe procurement of office equipment and fumiture. The project would also finance the development cost oftitle production, including aerial photography, surveying, cadastral mapping, the adjudication process(including allowances to government staff, salary, and allowances of contracted staff and other operationalcosts), and title production.

PROTOTYPE 2: (Title Reconstruction and Record Management Prototype -- Quezon City)

The prototype would support the improvement of land records management and the reconstruction of titlesand cadastral survey maps.

There are many agencies involved in the land administration and management system of the Philippines andeach maintains a large set of records and maps to support its operations. The management of these recordshas been influenced by different factors over time, particularly the Spanish and American administrations,the Second World War and the decentralization of functions and records from head offices to regionaloperations. The majority of the land records held by the various land-related agencies in the Philippines ispaper-based, comprising various of files, indexes, maps and plans. Due to budgetary constraints over theyears and the generally low priority assigned to the management of the land records, most of the landrecords are stored in very poor physical conditions, thus at risk of environmental and vermin damage.

The selected site for this prototype is 5 barangays in District 2 in Quezon City: Bangang, Silangan,Batasan Hills, Commonwealth, Holy Spirit and Patayas. The Quezon City Register of Deeds was destroyed

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by fire in 1988. Although there has been a mass re-constitution program since 1988, only about 121,400 ofthe 300,000 previously registered titles have been reconstituted. The area also has a high incidence of fakeor duplicate titles, an active land market (about 120 transactions per day), and a high incidence oflitigation.

Prototype 2 would conduct a comprehensive inventory of records and undertake a program of titlevalidation and security in the prototype area with the objective to eliminate duplicate and fake titles. Itwould also validate and consolidate maps and plans and develop new processes for the reconstitution oflost/destroyed records and titles, and upgrade records management procedures and physical storagefacilities. The prototype will also test the interface with existing Government land administration initiativesin other agencies (DENR, DAR-Swedesurvey, DOF-RPTA).

Another outcome of the prototype would be the development and implementation of LandInformation Management protocols and policies in relation to: (i) data storage and sharing; (ii) access toland-related data; (iii) security; and (iv) archiving of data.

The component would finance the renovation of the one-stop-shop and the PIO (located next toQuezon City ROD located in the City Hall), procurement of equipment and fumiture, reconstitution oftitles and cadastral and survey maps; the production of large scale, photo-backed cadastral maps showingall land parcels in the prototype area, together with parcel numbers; and the development of modem recordmanagement system.

Project Component 3 - US$ 5.00 millionInstitutional Development

This component will provide support to the LAM Project Management Office to manage andmonitor the project. It would include three sub-components: (i) project management including technicalassistance; (ii) education and training; and (iii) monitoring and evaluation.

(i) Project Management. A Project Management Office (PMO) would be established to providethe management and control essential to ensuring the delivery of the outputs required from the twoprototypes and activities from the policy studies. The project management office would be supported byinternational and local technical assistance oriented towards supporting the project director on: (i) projectmanagement and monitoring; (ii) technical aspects of project implementation; and (iii) the learning andinnovation aspects of the Project. An outline of the TORs of the technical assistance is included in Annex2B.

(ii) Education and Training. The project would support domestic training in the areas ofmanagement, surveying and mapping land administration, and land information system. The project alsowould support focused study tours and overseas training opportunities, designed to enhance theunderstanding of the issues involved in modern land administration and management and to identifypotential institutional arrangements for future implementation.

(iii) Monitoring and Evaluation. This component would be designed to monitor developmentimpact, testing and learning aspects of the project and implementation progress. A monitoring andevaluation system will be developed to measure the performance indicators shown in Annex I of thisdocument, which are based on the testing assumptions in project design. Summary progress reports will besubmitted to IACC, and a full progress report will be submitted to IACC, Bank and AusAID each quarter.This component will include a development impact study (socio-economic study) and two rounds of social

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assessment in prototype areas.

The project would finance the incremental government costs, including contractual staff,consultants and allowances, and other operational costs. The project would also finance international andlocal training and international study tours. The project would also finance the studies and the developmentof a computerized monitoring and evaluation system.

Project Component 4 - US$0.30 millionPhase II Preparation

This component would support the preparation of the long-term program based on the output andthe experience of this project. This component will be initiated by Month 20 of project implementation. Bythen, experience from the on-going project will provide adequate knowledge of the Government'scommitment to policy and institutional reform, test the institutional anrangements for prototype 1 and 2,and test the different alternatives and technical approaches. Initiating project preparation at this time willenable the Government to make a decision, on whether to go forward for the long-term program and thedonors to support the program. It will also ensure that there is no gap between the end of this project andthe start of the long-term program.

The project would finance the consultants' services to evaluate the outcome of this project andprepare phase II of the project. Furthermore, the project would finance the expenses of the socialassessment, workshops and stakeholder consultations.

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Annex 3: Estimated Project CostsPHILIPPINES: Land Administration and Management Project

Policy Studies 0.10 0.38 0.48Prototypes 3.81 0.30 4.11Institutional Development 1.38 3.32 4.70Preparation of the Long-Term Program 0.09 0.19 0.28Total Baseline Cost 5.38 4.19 9.57Physical Contingencies 0.10 0.20 0.30Price Contingencies 0.20 0.23 0.43

Total Project Costs 5.68 4.62 10.30Front-end fee 0.05 0.05

Total Financing Required 5.68 4.67 10.35

Goods 0.63 0.06 0.69Works 1.60 0.40 2.00Services and Training 1.10 3.70 4.80Titles Development 0.85 0.36 1.21Incremental Operating Cost 1.50 0.10 1.60

Total Project Costs 5.68 4.62 10.30Front-end fee 0.05 0.05

Total Financing Required 5.68 4.67 10.35

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Annex 4: Cost Benefit Analysis SummaryPHILIPPINES: Land Administration and Management Project

A. Description of Expected Benefits

1. While the proposed project is a LIL that focuses on testing and learning, its prototypes wouldgenerate some outputs and related benefits in the prototype areas. The benefits would flow from theincremental land titles that will be issued under the prototypes, and the improved confidence and efficiencyin the land registration system (with a related reduction in transaction costs).

2. Confidence in the land registration system would arise from the prototypes which would: (i) testand introduce new approaches to improving efficiency in land administration, thereby laying the foundationfor increased efficiency in land registration; and (ii) improve the management and quality of land records,thereby restoring confidence in the land registration system. Improvements in confidence and efficiency inthe land registration system would positively affect about 50,000 existing land titles under the second pilotwhich focuses on improving the quality of land records. In addition, the first protoype would produceabout 50,000 new land titles and improve efficiency in the administration of another 10,000 existing titles.A combination of improved confidence and efficiency together with the new land ditles would provide toregistered landholders investment incentives and access to cheaper and longer term institutional credit forinvestment. Consequently, the prototypes would generate benefits in the way of increased investment andland productivity associated with increased land tenure security and access to credit. This would lead toincreased farm incomes (in rural areas) and rising land values in both rural and urban areas.

3. Other Benefits from the LIL. The LIL would provide additional benefits in the way of: (i)facilitating financial sector development through the recovery in confidence in the land registration systemand in the use of land as collateral; (ii) coordinated institutional support for the comprehensive agrarianreform program (CARP), thereby speeding up the delivery of registered land titles to the beneficiaries ofland reform; (iii) improvement in the management of natural resources through improving the technology ofdelineating and marking forestry boundaries; (iv) improvements in the valuation framework which wouldenhance fairness and equity in taxation and compensation systems for land, as well as enhancing riskanalysis for collateral-based lending and land-related investment decisions in the private sector; and (v)improving the quality of land records which would increase the benefits accruing from the Build, Own andOperate (BOO) computerization initiative being funded separately.

Summary of Benefits and Costs:4. An attempt has been made to undertake a cost-benefit analysis for the project. Due to lack of landtitling impact studies in the Philippines (except for an urban area impact study carried out for Davao city),we will use Thailand data on titling costs and impact to estimate the project's rates of return to investmentin land administration and titling.

5. For the rural sector, economic benefits from land titling are estimated from the titling impact onfarm productivity and incomes. For the urban areas, economic benefits from land titling are based on theimpact of titling on land value