Moldova - First Cadastre Project (Formerly listed as Urban Cadastre)

Report No. PIC2443 Project Name Moldova-First Cadastre Project (@) Region Europe and Central Asia Sector Privatization Project ID MDPA35771 Borrower Republic of Moldova Implementing Agency National Agency for Geodesy, Cartography and Cadastre Mr. Ion Stratulat Director Tel: (370-2) 21.22.44 Fax: (370-2) 22.63.73 Date This PID Prepared November 27, 1996 Date Initial PID Prepared July 6, 1995 Projected Appraisal Date January 1997 Projected Board Date July 1997 Country and Sector Background Although Moldova initiated a reform program aimed at creating a market economy as early as 1990, serious terms of trade shocks, ethnic conflict and a series of natural calamities caused a precipitous decline in national production and living standards during the first half of the 1990s. Between 1991 and 1994 output and real wages fell by 60 percent, while employment decreased from over 2 million people in 1991 to around 1.3 million in 1994. However, tight fiscal and monetary policy brought inflation down, from 116% in 1994 to 24% in 1995, and 15.1% during 1996. Negative growth slowed down in 1996, with GDP declining by approximately 8%. Monthly wages in Moldova currently average about 184 lei (US$40), varying between 94 lei (US$20) in agriculture and 620 lei (US$135) in banking/insurance (see 1/). Real wages increased by aost 7% in the first half of 1996 compared to a year earlier. Officially recorded unemployment remains low at less than 2%, though this excludes around 10-12% of the labor force on unpaid or on partially paid leave. To support and strengthen recent positive economic trends, significant further structural reforms are needed in the years to come. The Moldovan Government has shown a strong commitment to integrating land reform into its privatization scheme. Privatization has so far been most successful in urban areas, with an initial focus on buildings and apartments, resulting in more than 85% of the housing stock being owned by private individuals in mid 1996. Privatization of urban land is to follow the ownership patterns established through the privatization of buildings. Private ownership of land or buildings is in principle not in question, however, economic development is seriously impeded by insecurity about property rights and related institutional arrangements. Order and stability that are needed for the multiplicity of actual and potential uses of land to emerge can be provided by a land  administration system that would create security not only for landowners and their partners, but also for national and international investors and banks, for traders and dealers, and for Governments. Currently, such security is lacking in Moldova, resulting in a lack of collateralized credit and problematic real estate transactions (trading, inheritance). Moldova inherited a set of institutional obstacles to effective land administration, in the form of an unclear division of responsibilities between different agencies such as the Ministry of Privatization and the Ministry of Agriculture and Food, and differing standards in surveying, registration and titling. Since 1992, the Land Arrangement Service (LAS), under the Ministry of Agriculture and Food, and the Bureau of Technical Inventory (BTI), under the Ministry of Privatization, have played the lead roles in handling cadastral requirements of the agriculture and urban sectors, respectively. However, with unclear and differing objectives, neither institution has been able to effectively establish a national multi-purpose cadastre. The existing and often contradictory legal, regulatory, and institutional frameworks further complicate matters. Registration procedures are cumbersome and costly, in particular with respect to land, resulting in less than 10,000 of land titles issued to date. Recognizing the importance of an effective land management system for the country's economic development, the Moldovan Government has taken first steps towards the creation of a national cadastre, initially focusing on urban land. In 1994, a National Agency for Geodesy, Cartography and Cadastre (NAGCC) was established by Presidential Decree, with a mandate to develop a coordinated approach to the creation and management of a national and unified cadastre. Project Objectives The long-term objective of the First Cadastre Project is to promote the privatization of land and the development of real estate markets in Moldova. The project will be the beginning of a wider effort to assist the Government of Moldova in reaching this objective. The project will establish a national unified multi-purpose real estate (see 2/) registration system that will provide: (a) property owners with security of ownership rights such that they can sell or rent at fair market prices and 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 and location of property as needed for the market to function effectively; (d) government agencies and institutions with basic information for urban planning and land management; (e) the Government with a basis for future revenue generation mechanisms through property taxation (fiscal cadastre); and (f) the private sector with opportunities to develop in areas related to real estate registration (surveyors, notaries, valuators). Project Description The proposed project includes four components, described below - 2 -  Component I: Mapping and Surveying Program. This component will finance production of new maps, and updating of existing maps, as appropriate over five years, in thirty seven (37) municipalities and rayons (see 3/). Financing will be provided for selective surveying in support of mapping activities, and in order to facilitate registration and issuance of real property titles. This component will comprise the first five years (covering about 4000 km2) of a long term national cadastral mapping program for urban as well as rural areas. Component II: Urban Cadastral Services Program. This component will finance activities and investments to provide the institutional basis for cadastral information in urban areas to be registered, provided through titles, stored, administered, and readily available to all potential users. The elements of this component are: (a) a Real Estate Registration and Title Issuance Program, including strengthening of existing registration offices, establishment of new offices, and support of these offices in title issuance, title conversion, registration and day-to-day maintenance of the legal cadastre; and (b) an Information Services Program, including computer systems implementation, facilitating the efficient and expedient provision of up-to-date real estate information services. Component III: Rural Cadastral Services Program. This component will finance activities and investments to provide the institutional basis for cadastral information in rural areas to be registered, provided through titles, stored, administered, and readily available to all potential users. The elements of this program are different to the Urban Cadastral Services Program in that: (a) parcel boundaries and land marks will be determined through decision-making specific to ongoing farm privatization processes; and (b) registration and title issuance will take place through existing local Land Arrangement Services (LAS) offices, by then subordinated to NAGCC for these specific functions. In all other aspects, particularly with respect to Information Services and Institution and Capacity Building, rural areas will be fully integrated in the project. Component IV: Institution and Capacity Building Program. This component will finance seven elements of an Institution and Capacity Building Program, designed to enable Moldovan institutions, agencies and other stakeholders to fully realize the project's potential benefits. In particular, institutions and other stakeholders participating in implementing the project will be equipped with the necessary skills for effective project implementation and systems operations. A Project Implementation Office (PIO) will be established under this component within NAGCC, to implement, coordinate, and oversee the various project components. Project Costs and Financing Total project costs including physical and price contingencies, and excluding taxes, are estimated at US$22.9 million equivalent, of which - 3 -  about 45% are foreign exchange costs. The IBRD loan of US$15.9 million would finance about 69% of the estimated total project cost (net of taxes) including 68% of foreign and 69% of local costs. 32% of estimated foreign costs, amounting to US$3 million equivalent, would be financed through a donation of equipment and related services by the Government of Switzerland. The Government counterpart financing is US$4.0 million or 17% of total project cost (net of taxes). Taxes and duties related to the project are estimated at US$3.6 million. Bilateral donors have been approached to provide grant financing for institution and capacity building requirements involving about US$ 4.5 million or 22% of total project cost (net of taxes). If forthcoming, the loan amount would be reduced appropriately. However, if this amount is not mobilized by negotiations, the technical assistance requirements would be financed from the loan proceeds and counterpart funds. Project Preparation The Government of Moldova requested, in autumn 1995, Bank assistance for the preparation of a project to address the fundamental lack of ownership security with respect to real estate in Moldova. Project preparation was carried out jointly with the National Agency for Geodesy, Cartography and Cadastre (NAGCC) and supported through a PHRD grant (US$681,500) made available to NAGCC in spring 1996, and a Project Preparation Facility of US$700,000. Other Government agencies, such as the Ministry of Agriculture and Food, the Ministry of Privatization and its Bureau of Technical Inventory (BTI), the Ministry of Finance, and several Municipalities were consulted. In order to establish consensus among different Government and foreign financing agencies involved in the sector, a Memorandum of Understanding was drawn up and signed by the Prime Minister, the Bank, and USAID in mid 1996. As part of project preparation, NAGCC initiated a pilot program in three test areas, involving mapping, surveying, and registration activities, as a basis for method development and project design. Extensive public information activities, including regular radio and television broadcasts, accompanied pilot implementation. Before project effectiveness, a second PHRD grant and/or a second Project Preparation Facility are expected to finance the establishment of appropriate business processes in NAGCC, detailed procedures for rural land registration, and related training for all involved staff, thereby ensuring project quality at entry Organization and Implementation The project would be implemented over a period of five years, under the overall coordination and supervision of the National Agency for Geodesy, Cartography, and Cadastre (NAGCC). NAGCC would establish a Project Implementation Office (PIO) in charge of day to day project management, including preparation of work plans, budgets and progress reports, accounting for loan and counterpart funds, procurement and overall coordination of project implementation activities. NAGCC's central Registry and Cadastral Services Division, and NAGCC's regional registration offices (RRO) will be responsible for setting up, implementing and administering a system for real estate registration and issuance of real estate titles, including maintaining a central data base. The existing seventeen (17) Bureau of Technical Inventory (BTI) - 4 -  offices, currently under the Ministry for Privatization, are expected to be transferred, early 1997, under NAGCC's jurisdiction for this purpose. Additional twenty (20) offices will be established such that in each of the thirty seven (37) Moldovan rayons, excluding Transnistria, there will be a Regional Registration Office. NAGCC's headquarters and regional offices will work closely with local Land Arrangement Services (LAS) offices. Coordination with local governments and with the regional offices of the Department of Architecture within the local governments will also be essential. NAGCC's mandate for real estate registration, and for title issuance, will be established through a National Cadastre Law currently being prepared by the Government. Two committees will ensure interdepartmental coordination and cooperation. Since January 1995, NAGCC's operations are overseen by an Interdepartmental Coordinating Committee (ICC), chaired by a Deputy Prime Minister. The ICC will continue to be responsible for overall formulation of policy and coordination with other Ministries and Agencies. In addition, a Project Implementation Committee (PIC) will be formed, chaired by the Project Director and responsible for overseeing direct project progress. Sustainability While the project will introduce a land titling and registration system and involve some institutional changes, it is deliberately designed to build on the sector's existing organization. Care was taken during project design to minimize incremental recurrent costs of a permanent nature, to not endanger sustainability of project achievements beyond project completion. Cost effectiveness considerations were a critical aspect of project design and the least cost option was chosen. A cost recovery system was developed, based on fees for registration of land transactions, mortgages, and other encumbrances, and fees for other services. This should limit the amount of budgetary funds needed to maintain the system. Lessons Learned From Past Bank Experience The proposed project would be the first Bank-supported urban sector operation in Moldova. The Bank's experience with land registration projects in other transition economies, and the Bank's recent experience with investment projects in other sectors in Moldova, have shown that four key factors can help facilitate project implementation: (i) simplicity of project design; (ii) active Government participation in project design; (iii) support with project management for agencies inexperienced in implementing Bank projects; and (iv) intensive supervision efforts by the Bank. All four factors have been taken into consideration during the preparation of the proposed project. The project will be implemented using a phased approach, in urban and rural areas. The Ministries of Agriculture and Food, and Finance, and representatives from local governments have been closely associated with project design. The project allows for an internationally experienced Project Implementation Advisor to help the project director with overall management during the initial project years. It is also foreseen that the Bank allocates above average resources for supervision, particularly during the initial project years, and that the Resident Mission be - 5-  closely involved in project supervision. Poverty The project is likely to have limited direct impact on the poor, as there are no specific interventions targeted at the poor. However, as the poor lack access to finance, but typically own their residence, the project will help create collateral, and possibly capital, and therefore will increase their opportunities for improved living standards. Environment Based on the current project design, the project has been approved for category C rating. It will have a positive effect on the environment by providing reliable and current land information, which will assist in preparation and enforcement of environmental protection programs, and identification of polluters. Private land ownership, which the project would support, is expected to foster prudent use of land and natural resources. Participation Project preparation involved a wide range of stakeholders through participatory events which sought feedback on proposed project activities. Feedback from seminars and workshops was integrated into project design. Project preparation was carried out jointly with the National Agency for Geodesy, Cartography and Cadastre (NAGCC). Other Government agencies, such as the Ministry of Agriculture and Food, local offices of its Land Arrangement Service (LAS), the Ministry of Privatization and its Bureau of Technical Inventory (BTI), the Ministry of Finance, and several Municipalities were consulted. Extensive public information activities, including regular radio and television broadcasts, accompanied a pilot program. Program Objective Category The proposed project would improve the sector economic management through the successful implementation of a land registration program. The project will also support private sector development as it will provide a conducive framework for future market mechanisms for real- estate, including residential buildings and enterprises. Furthermore, the new titling and land registration system would support the development of private surveyor, notary and real estate valuator sectors in Moldova through the increased demand generated by the project for these services. Project Benefits and Risks The direct and immediate beneficiaries of the project will be existing and prospective private owners of real property. In providing Moldova with the institutional, legal and technical basis for effective land administration, the project will have a positive impact for the economy as a whole, as well as for its most direct beneficiaries. The project will spur economic growth through: (a) providing guarantee of ownership and security of tenure; (b) facilitating the functioning of real estate - 6 -  markets; (c) supporting privatization in the agricultural sector by facilitating the break-up of collective farms (kolkhozes); and (d) supporting effective urban planning. The project will also encourage private sector development in those areas that are directly involved in project implementation, in particular the development of a private surveyor industry, private notaries, and possibly private real estate valuators. At the same time, activities under the project will lay the basis for: (a) a fiscal cadastre, and (b) effective environmental land management. There are technical/organizational, institutional, and financial risks associated with the project, as well as risks related to project acceptance. Technical/organizational risks are mainly related to NAGCC's implementation capacity, and the capacity of its regional offices and contracted surveyors to perform project tasks according to targets. In order to mitigate these risks, and to guide project design, a pilot activity was undertaken as part of project preparation. On the basis of this pilot program, and with possible financing through a second PHRD grant and/or Project Preparation Facility, NAGCC will prepare appropriate technical and organizational capacity strengthening. Also, continuos performance monitoring will play an important part in mitigating capacity risks. Institutional risks are that: (a) political disagreements may prevent setting up a full national cadastre that would include rural areas; and (b) legal and institutional changes necessary to fully exploit the opportunities of the registration system may not be adopted, e.g. appropriate mortgage legislation, or regulations for land valuation, urban planning, etc. To mitigate these risks, appropriate conditionalities and covenants to the loan agreement have been developed. Furthermore, the existence of the aforementioned Interdepartmental Coordinating Committee (User Group) will provide a forum for cadastral interest groups to exchange ideas and to reach consensus. Financial risks relate mainly to the availability of Government counterpart funds. This risk is being mitigated through the development of an appropriate cost recovery strategy. Finally, there is the risk that property owners may lack confidence in the registration system, and understanding of the benefits of land registration, and thus may not make appropriate use of it. This risk would be addressed by keeping the project and the system as simple as possible, utilizing public information instruments whenever possible, including an open, transparent process aimed specifically at informing the public about the benefits, procedures, and costs of land registration, specifying the role of appropriate government agencies and other actors involved. 1/ Officially published wage data are based on the Government's monthly household survey, the methodology for which is currently under review with assistance from the Bank. More reliable data are expected to be available as of spring 1997. 2/ The English word 'real estate' refers here to the Moldovan word 'bun imobil', defined as "the land parcels and the goods related to these parcels (soil, water, forests, buildings, construction, etc.) whose removal is impossible without causing direct damage to their usage" (Land Code, Article 2). 3/ Excluding Transnistria, there are two municipalities and 35 rayons -7 -  in Moldova. The inclusion of transnistria in the project scope (two additional municipalities and five rayons) will be reviewed during project implementation. Contact Point: Task Manager: Mats Andersson, EC4MS The World Bank 1818 H Street N.W. Washington D.C. 20433 (202) 458-5578 (tel) (202) 522-3641 (fax) Note: This is information on an evolving project. Certain components may not necessarily be included in the final project. Processed by the Public Information Center week ending May 30, 1997. - 8 -