Tunisia - Fourth Urban Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 15680 IMPLEMENTATION COMPLETION REPORT REPUBLIC OF TUNISIA FOURTH URBAN DEVELOPMENT PROJECT (LOANS 2736-TIN) Miay 31, 1996 Private Sector Development, Finance and Infrastructure Division Maghreb and Iran Department Middle East and North Africa Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit: Tunisian Dinar (DT) 1989 US$ = DT 0.95 1990 US$ = DT 0.88 1991 US$ = DT 0.92 1992 US$ = DT 0.88 1993 US$ = DT 1.00 1994 US$ = DT 1.01 1995 US$ = DT 0.95 FISCAL YEAR January I - December 31 GLOSSARY OF ACRONYMS AFH Land Development Agency ARRU Urban Upgrading and Renewal Agency ASM Association for the Safeguard of Medina BCT Central Bank of Tunisia BDET Economic Development Bank BH Bank for Housing (replaced the CNEL after its restructuring) CNEL National Housing and Savings Fund CPSCL Local Communities Support Fund FOPROLOS Workers' Housing Fund MOE Ministry of Equipment MOH Ministry of Housing MOINT Ministry of Interior MOPF Ministry of Planning and Finance MTC Ministry of Transport and Communications ONAS National Sewerage Authority SNIT National Real Estate Company SONEDE National Water Production and Distribution Company SPROLS Social Housing Company STEG Public Electricity and Gas Company  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT REPUBLIC OF TUNISIA FOURTH URBAN DEVELOPEMTN PROJECT (LOAN 2736-TUN) CONTENTS PREFACE EVALUATION SUMMARY ...................................... i-iv PART I: PROJECT IMPLEMENTATION ASSESSMENT. 1 A. INTRODUCTION .1 Housing Sector Situation .1 Bank's Role and Experience in the Sector. 2 B. EVALUATION OF PROJECT OBJECTIVES .3 C. IMPLEMENTATIOIN EXPERIENCE. 3 Upgrading of Substandard Settlements. 4 Sites and Services. 4 Subloans to the Beneficiaries. 5 Technical Assistance. 5 D. FACTORS AFFECTING THE IMPLEMENTATION PROJECT. 5 Delays in Implementation Schedule .5 Project Amendment. 6 Conditions for Provision of Subloans. 6 Financial Arrangements .7 Cost Recovery. 7 E. PROJECT RESULTS. 8 Physical Results. 8 Social and Poverty Alleviation Results. 9 Institutional Results. 9 Project Costs and Disbursement. 9 F. SUSTAINABILITY OF THE PROJECT .10 G. BORROWER'S PERFORMANCE .11 dTs doctument has a restricted disuribution and may be used by recipients only in the performance of their |ofricial duties. Its contents may not otherwise be disclosed wiihout World Bank authorization.  CONTENTS (Continued) H. BANK PERFORMANCE ..................................... 11 I. KEY LESSONS LEARNED .12 Project Design .12 Sector Development Objectives .12 Cost Recovery .13 Participation of the Population .14 Quality of the Built Environment .14 PART H: STATISTICAL TABLES ........................... 15 Table 1: Summary of Assessments ............................. 16 Table 2: Related Bank Loans/Credits ........................... 17 Table 3: Project Timetable .................................. 18 Table 4: Loan/Credit Disbursement: Cumulative Estimated and Actual ... .... 19 Table 5: Loan Disbursement : Graph ........................... 20 Table 6: Loan Disbursement : By Category ....................... 21 Table 7: Project Costs .................................... 22 Table 8: Project Financing .................................. 23 Table 9: Status of Legal Covenants .............................. 24 Table 10: Execution Agencies' Audit and Reporting Compliance ............ 27 Table I1: Bank Resources - Staff Imputs ........................... 28 Table 12: Bank Resources - Missions ............................. 29 ANNEX: BORROWER'S REPORT ............................ 30 I. PROJECT OBJECTIVES ........ ......... .................... 32 1.1 General Objectives ....................................... 32 1.2 Specific Objectives ...................................... 32 II. RESULTS ........... . .................................... 33 2.1. Designing and Programming ................................ 34 2.2. Project Implementation .................................... 35 2.3. Project Impact ......................................... 36 2.4. Factors Affecting Project Implementation ........................ 37 III. EXPECTED PROJECT PERFORMANCE .......................... 38 IV. CONCLUSIONS ........................................... 38  IMPLEMENTATION COMPLETION REPORT REPUBLIC OF TUNISIA FOURTH URBAN DEVELOPMENT PROJECT (LOAN 2736-TUN) EVALUATION SUMMARY Background 1. The Fourth Urban Development Project (UDP) falls within the framework of a series of operations that started with the Second UDP with the objective of assisting the Government of Tunisia (GOT) in implementing its new housing sector policy. This policy was aimed, principally, at rationalizing Government intervention in the delivery of housing and urban services. The project was approved by the Board on July 3,1986, and declared effective on April 17, 1987. The total project cost was in the amount of US$ 67.4 million, out of which US$ 30.2 million was financed by the Bank. 2. The persistent housing backlog, despite the substantial efforts of the GOT over more than two decades, had necessitated the adoption of a new approach to the housing situation. Supported by the Bank, this approach was based on the principle of focusing public investments on lower-income groups that had not been efficiently served under the prevailing policy. It consisted mainly of (a) shifting Government intervention from housing construction, which would be left to private initiative, to the provision of infrastructure and serviced land, in order to remove the constraints to efficient urban growth and to reach a larger portion of the population; and (b) strengthening the performance of the existing institutional framework, while at the same time introducing cost recovery measures and reducing subsidies in the delivery of housing services. Achievement of Project Objectives 3. The project was intended to: (a) improve shelter and urban services for low-income households; (b) provide serviced land in urban areas affordable to low-income families; and (c) strengthen the capacity of sector institutions responsible for upgrading, land development and provision of shelter, as well as improve coordination amongst them. These overall objectives were designed to target, in particular, the low-income population and enhance the capacity of the sector. They were in line with both the ongoing Government sector policy aimed at redressing inequities in public housing intervention and rationalizing public investment, and the Bank lending strategy for the sector in Tunisia. These objectives directly translated into project components to become: (a) the upgrading of infrastructure and rehabilitation of existing underserviced settlements,executed by ARRU; (b) the development of serviced lots for low- income households, undertaken by AFH; and (c) technical assistance to improve AFH's capacity. During project execution, an amendment introduced housing construction by real estate developers as part of the land development component (para. 18 and 19).  - ii - 4. The project achieved the first objective of providing shelter and urban services to low-income population, both in its physical dimension and as a policy measure. The upgrading of substandard set'iements was replicated through a national project due to the success it achieved in the Fourth UDP. The second objective was, however, partially achieved. The quantitative target set for AFH was not entirely met (para.27), and the development objective consisting of increasing the production of affordable sei-viced lots, in order to reach a lairger portion of the population, was not implemented as initially planned. Housing construction by the developers, which had absorbed a fair portion of the Loan amount, -er!aced the production of serviced lots. As a result, the importance of this policy objective was minimized (para. 44). Although the project institutional objective was focused on improving the capacities of AFH, it favorably contributed to further enhance the capacities of all the agencies involved in its BxeLution, and strengthen the coordination amongst them. Implementation Experience 4. The upgrading program has been satisfactorily implemented by ARRU, which proved its ability to successfully undertake rehabilitation operations despite their complexity. This program, initially comprising eighteen sites, was extended to eight more sites identified by ARRU during project execution. The execution of works on most sites was performed smoothly due to ARRU's efficient site management methods. The land development component was faced with serious difficulties from the very start of project execution. Although a list of sub-projects was established at appraisal, on the basis of which target and cost estimates for this component were determined, AFH was unable to begin the works as scheduled. Problems related to site preparation, such as complicated land issues, potential floodability of some sites, difficult road access, and connection to the networks were experienced. This had, evidently, caused delays and prevented AFH from delivering the number of serviced lots initially targeted. The technical assistance that was destined mainly to strengthen AFH in different capacities related to land development, in the form of training, expert services, and computerization had been reduced to the purchase of computer equipment. The expertise was provided by the bilateral aid. The cost recovery measures were not implemented, namely the establishement of the frontage tax by the municipalities, were not implemented. Factors Affecting the Implementation of the Project 5. Two major factors have impacted the execution of the project and have generated some changes in project design. The slow start of the project, mainly due to the problems encountered by AFH in selecting development sites, resulted in slow disbursement. The Bank and the Borrower reacted to this situation by introducing, on November 1988 and under the site and servicing component, developers to undertake housing construction. A number of housing construction sub-projects by public and private developers were identified by BH from its own mortgage loan portfolio to be financed under the project. Immediately operational, this activity was able to absorb, in about two years, a substantial amount of the Loan. It practically became a component by itself, and a major one. This has, however, substantially changed the original setting of the project and some of its objectives (paras. 19, 29, and 44).  IMPLEMENTATION COMPLETION REPORT REPUBLIC OF TUNISIA FOURTH URBAN DEVELOPMENT PROJECT (LOAN 2736-TUN) PREFACE This Implementation Completion Report (ICR) describes the results of the analysis of the Fourth Urban Development Project, from preparation to completion. The Loan, in the amount of US$ 30.2 million equivalent, was approved by the Board on July 3, 1986 and became effective on April 17, 1987. The closing date of the Loan was extended by six months, from December 31, 1994 to June 30, 1995. The last disbursements were made on August 8, 1995 and reached 100 percent of the total Loan amount. This ICR was prepared by Dalila Tadjerouni of the Private Sector Development, Finance, and Infrastructure Division, Country Department of the Middle East and North Africa Region and reviewed by Anir Al-Khafaji, Division Chief, and Rene Costa, Project Advisor in Country Department 1. Preparation of the ICR is based on material in the project files, the supervision reports throughout the life of the project, the progress reports prepared by the Borrower, and interviews with task managers who supervised the project. A mission to Tunisia was conducted to examine in the field the accomplishments of the project and discuss with the agencies involved their own experience wilh the project. Visits to sites representative of each project component were also made. A report on project implementation was received from the Borrower and has been attached as an Annex.   - iii - 6. The release of the subloans to the beneficiaries in connection with the upgrading and site servicing components for housing improvement and construction was delayed due to constraining lending conditions, both administratively and financially. In 1989, a ministerial memorandum relieved the administrative constraint by simplifying the whole procedure to one single document and lowering the interest rate applied from 7.5 to 5 percent. The financial constraint concerned the initial contribution that the beneficiaries had to provide. Fixed at 30 percent of the total cost of the lot and 20 percent of the construction cost, this contribution had proved difficult for the targeted low-income families to comply with. It was not, however, until 31 December 1994, the original closing date of the project, that an amendment had brought this downpayment to 20 percent. The extension of the project closing date by six months had made it possible to release the pending credit requests. Project Results 7. The project achieved remarkable physical results, particularly impressive for the upgrading component which was extended to most governorates of the country through 26 rehabilitation sites, and covered as much as 634 hectares. Community facilities were also provided as part of this program, as well as 3,765 housing improvement loans. Not more than 2,262 of the 8,500 planned serviced lots were delivered. In connection with these lots, 1,964 subloans were granted for self-help housing construction. Real estate developers produced 3,196 units, half of which were delivered by the public operator, SNIT. Through its original components; ie; upgrading and land development, the project was successful in reaching the target population. It benefitted directly about 134,000 persons (close enough to the 150,000 planned at apparaisal). This was less evident with the housing construction component both in terms of reaching the same target population and rationalizing the use of public financial resources (para.29). Sustainability 8. The replicability of project activities in their physical dimension is, by all means, possible and has already been proven both by ARRU and AFH, although the latter has still to demonstrate its capacity to develop lots for low-income buyers on a larger scale than it was possible in this project. The housing construction component was brought into the project under special conditions, and it is therefore difficult to assess the likelihood of its replicability (para.34). BH, a viable housing finance institution, has acquired the capacity to provide for long-term financing in similar operations from its own resources. The question remains whether BH would still be interested in continuing such efforts considering the low-profit character of these operations. 9. Most importantly, the poor performance on the cost recovery aspect, would seem to seriously hamper the sustainability of this project. Although it was estimated at appraisal that most project costs would be recovered directly from the beneficiaries, this was not accomplished. Barely 23 percent of the subloan reimbursments were collected by BH, while the municipalities did not implement the frontage tax (taxe des riverains), the instrument through which the infrastructure cost was to be recovered.  - iv - Lessons Learned 10. One lesson learned from the Fourth UDP is that the experience gained from previous Bank projects (Second and Third UDPs) was not used in an efficient and timely manner to benefit this project. The weaknesses of the project discussed in this ICR are, for the most part, a repetition of the same weaknesses experienced in the previous projects. The cost recovery issue remains the perfect example. The findings of this ICR suggest that the project only partially achieved its development objectives. If it has successfully contributed to demonstrate, at both the strategic and operational levels, the rational of the rehabilitation policy, it did not, however, pursue with the same rigor the equally important objective of land development for low-income families that was one of the cornerstones of the Government's housing strategy (para. 44). The experience of this project also suggests that active participation of the target population is necessary for the success of urban operations and their sustainability. Moreover, considering the physical dimension of such projects, more attention should be paid to the qualitative aspects of the buildings and spaces created (para. 49). Assessment of Project Outcome 11. In its physical dimension, the outcome of the project was highly satisfactory for the upgrading component, satisfactory for the housing construction by developers, and unsatisfactory for the land development component. The project succeeded in reaching the targeted low-income population through the upgrading and land development components. This was less evident in the case of the housing construction by developers (para.29). Furthermore, the project did not meet one of its development objectives (para. 4, page ii) and failed in the cost recovery, the most important element for sustainability. The project overall outcome was, therefore, mnixed and, on balance, rated "unsatisfactory".  IMPLEMENTATION COMPLETION REPORT REPUBLIC OF TUNISIA FOURTH URBAN DEVELOPMENT PROJECT (LOAN 2736-TUN) PART I: PROJECT IMPLEMENTATION ASSESSMENT A. INTRODUCTION 1. The Housing Sector Situation: Since its independence, through rigorous and continuous efforts, Tunisia has succeeded in stimulating remarkable development in almost all sectors of its economy. The housing and urban services sector, one of the most visible areas of government intervention, has experienced an interesting and positive evolution over the last three decades. Despite a sustained urban population growth' of 3.7 percent a year since 1975, Tunisia has been able to considerably improve the general economic conditions of the urban poor, bringing the percentage of the urban population living below the Bank-defined poverty treshold from 20 percent in 1975 to 10 percent only ten years later. The urban population accounted in 1986 for about 54 percent of the total population, estimated at 7.6 million inhabitants. 2. Throughout the successive Development Plans, the housing sector has benefitted from a r-elatively important annual investment allocation, representing up to 15 percent of the national budget, in response to the urban housing needs and the growing number of spontaneous settlements generated by the rapid pace of urbanization. The government's prevailing housing policy from the early 1970s to the mid 1980s, consisted mainly of the provision of public housing, slum clearance, and subsidized housing schemes to rehouse displaced families. Building activity intensified during this period and the housing stock increased at an average annual rate of 4 percent reaching 1.3 million units in 1984. Public operators such as SNIT (Societe Nationale Immobiliere de Tunisie), AFH (Agence Fonciere de I'Habitat), and CNEL (Caisse Nationale d'Epargne pour le Logement), with the respective functions of housing construction, land development, and the mobilization of savings for housing, rapidly became important agencies in the sector. Housing conditions improved during this same period, as well as accessto3 basic utility services. 3. Yet, all of these efforts could not keep up with the rate of urbanization, which quickly outpaced the public sector's ability to provide, in an efficient and timely manner, the needed ' This high rate was a combination of a natural population growth of 2.6 percent a year, a massive influx of immigrant workers, in particular during the period 1975-1980, and an intensive rural-urban migration. 2 The bank-defined poverty threshold was estimated in 1984 at about TD 80 per household per month for an average of household size of 5.3 persons. 3 Rudimentary housing and one-room dwellings decreased respectively, from 13 to 9 percent and from 31 to 21 percent of all housing units. Electricity network coverage, water distribution, and household connections to the sewer systems reached respectively, about 97, 80 and 55 percent of urban population.  2 urban infrastructure to accommodate the constantly rising demand. Instead, low-income settlements continued to spread, in the form of unregulated urban growth patterns, in and around the cities, thus, necessitating the post facto provision of infrastructure, usually at a higher cost. The assessment of the sector in the Sixth Development Plan (1982-86) highlighted the persistent housing backlog. It also revealed that while the private sector provided 58 percent of the financing for 75 percent of the total constructed units, public housing had accounted for no more than 25 percent of the stock built since 1975, despite the substantive investments. 4. Moreover, housing provided by the public operators was not accessible4 to the low to medium-income population, and, actually benefitted, rather, the better off. It was, in fact, the infonnal sector, which contributed more than half of the stock delivered by the private sector, that could accommodate the urban poor. This, however, has taken place in areas mostly lacking adequate utility services and community infrastructure, often relying on self-help, informal savings, low-cost construction methods and also in violation of the urban regulations. This trend was already acknowledged in the Sixth Development Plan, since it was found that housing construction by both the public and formal private sectors would fall well short of the projected demand. 5. Bank's Role and Experience in the Sector: It was at this stage, that the Bank became involved in the specific area of housing in Tunisia. The partnership in the urban sector at large started earlier, in 1966, through six water supply projects, two sanitation projects, and the First Urban Project, which addressed the transport area. At the policy level, a housing sector study, in 1982, was conducted jointly by the Ministry of Housing and the Bank. It raised concern that housing was, already taking a big share of total public investment and that in light of the budgetary constraints, there was a need to focus this investment on the lower-income groups. 6. The Study recommendations, adopted by both the Bank and the Government, suggested a new approach, focusing on four main aspects: (a) the necessity for Government intervention to move away from housing construction, which would be left to private initiative, towards the provision of infrastructure and serviced land in order to remove the constraint to efficient urban growth; (b) the provision of urban services in squatter settlements and other spontaneous growth areas; (c) strengthening the perforrnance of housing sector institutions in policy making, provision of financing, and implementation of upgrading and land development projects; and (d) the introduction of cost recovery measures and non-subsidized prices in the delivery of housing services. 7. These recommendations became the pillars of the Bank's urban lending strategy in Tunisia. The Second Urban Development Project had already laid the foundation by introducing rational policies of upgrading existing squatter settlements instead of demolishing them, developing low-cost site and service programs, and recovering costs from beneficiaries. The Third Urban Development Project, launched in 1983, addressed mainly these issues, and included upgrading in four settlements in Greater Tunis and the North West area of Tunisia; sites and services in three of them; as well as a pilot program of upgrading and rehabilitation and renewal in the Medina of Tunis. 4 See the Project Completion Report of the Third Urban Project by the same author.  3 B. EVALUATION OF PROJECT OBJECTIVES 8. The Fourth Urban Development Project was intended to: (a) improve shelter and urban services for low-income households; (b) provide serviced land in urban areas affordable to low- income families; and (c) strengthen the capacity of sector institutions responsible for upgrading, land development, and provision of shelter, and improve coordination amongst them. These overall objectives were designed to target, in particular, the low-income population and enhance the capacity of the sector. This was in line with the ongoing Government strategy aimed at redressing inequities in public housing intervention by further addressing the segment of the Tunisian population that could neither afford the type of housing produced by the public sector nor obtain access to the existing housing finance channels. 9. Through its first objective, the project addressed the policy of both the Bank and the Government regarding spontaneous and substandard settlements. Tunisia, in the Second and Third Urban Development Projects, had set up, with Bank assistance, a challenging program aimed at upgrading the existing informal and slum settlements. To continue this effort, the Fourth UDP proposed a substantive upgrading program of selected sites. In line with the Bank's urban lending strategy in Tunisia, the project's second objective addressed an important constraint that the sector was facing: the lack of reasonably priced land for housing. To this end, it sought the development of serviced lots with the provision of the needed accompanying infrastructure and community facilities. 10. Although not spelled out in the statement of objectives, the Fourth UDP also addressed the issue of housing finance by providing funding to beneficiaries for both the acquisition of serviced lot and construction. The third objective was meant to support the Tunisian Government's efforts to strengthen the institutional framework of the sector that had just been consolidated under the authority of one single ministry5, the Ministry of Equipment and Housing created in august 1984, just two months before the project was appraised. The project was also designed to improve the technical, organizational, managerial, and operational capacities of the agencies in charge of implementing the project, through the provision of equipment, training, and consultant services. C. IMPLEMENTATION EXPERIENCE 11. The project objectives were directly translated into the three project components: (1) rehabilitation and upgrading infrastructure in existing underserviced settlements by ARRU6; (2) development of serviced lots for low-income households by AFH7; and (3) technical assistance. 5 The building and housing related activities used to be split between various ministries and the responsibilities were rather diluted. 6 ARRU was created in 1981, before the Third UDP in which it played a major role in its implementation and was instrumental in setting up the national policy for upgrading the low-income settlements and the old traditional quarters. 6 Created in 1973, AFH is a public organization, operating under private law, authorized to assemble and service land.  4 During execution, the project was amended to introduce a fourth component (para. 19), consisting of housing construction by real estate developers. Two lines of credit were to finance the first two components with, respectively, about US$ 18.5 million and US$ 11.1 million. The remaining amount of the Loan was to finance the TA component. The Loan structure was reorganized later, after the amendment. 12. Upgrading of Substandard Settlements: This component concerned the improvement of the living conditions of the low-income groups inhabiting substandard and squatter settlements through the provision of the lacking infrastructure networks, consisting mainly of: primary and secondary roads, water distribution, construction of sewer system, stonn water drainage and electricity. It also included land acquisition, compensation or rehousing of households affected by demolition, regularization of ownership and occupancy status, and construction of community facilities where needed. ARRU was the implementing and coordinating agency for this component, acting on behalf of the municipalities. Eighteen sites were originally identified and appraised. Early in the execution of the project (1989), ARRU was able not only to launch the works on all selected sites but also to identify new sites, bringing the total of project intervention to twenty-six operations. 13. The upgrading program has been satisfactorily implemented by ARRU, which proved its ability to successfully undertake upgrading operations despite their complexity, such as land status and ownership, the precarious state of the buildings, the multiplicity of intervening agencies, and the cumbersome financial mechanisms used. Most importantly, the inhabited character of these settlements not only makes it difficult to proceed with the civil works but often implies the need to resettle the occupants. ARRU, in this project, succeeded in avoiding demolitions and therefore rehousing. The restructuring of these settlements enhanced the market value of the buildings and the land, making the inhabitants reluctant to sell any vacant land or infill plots, in view of the potential profit that could be derived from holding onto it. This, coupled with other factors (dispersement of the sites and the vacant land within the sites) had made it not worthwhile for ARRU to develop infill plots as was originally planned. Furthermore, ARRU extended its experience to a specific operation in one of the core areas of Tunis, "la Petite Sicile", a decayed residential quarter that was falling in ruin, endangering the lives of its inhabitants and necessitating immediate attention8. This intervention was successfully designed and implemented as an integrated operation that comprised upgrading, rehabilitation, site servicing, and rehousing of the affected population. It allowed ARRU to capitalize on the different aspects of its experience. This constituted the perfect example of what urban rehabilitation programs in the city centres should be about and how they should be implemented. 14. Sites and Services: AFH was responsible for implementing this component, which consisted of developing and subdividing land into plots for housing, sized between 80 and 160 sqm; providing the needed infrastructure, and developing serviced land for community facilities. Based on eligibility criteria9 agreed with the Bank, AFH selected twenty sites for a 8 Despite the important character of such an operation, the Bank did not, however, finance it under the project, except for the rehousing of 54 families amongst the most endangered of the quarter's population. 9 These criteria include the availability of nearby and existing infrastructure, site accessibility, growth potential, income of beneficiaries, cost, and expected demand for the serviced sites.  5 total estimated cost of US$ 26.8 million. Due to difficulties encountered at the beginning of project execution (para. 17), the accomplishments for this component were much less than expected. Out of the 8,500 lots originally estimated to be delivered, only 2,262 have been completed. This drop in target was due not so much to AFH's incapacity to deliver as to the design and preparation of the project. Indeed, the difficulties that AFH faced were related to the preparation of the sub-projects. A list of sub-projects'