Document of The World Bank Report No: 34628 IMPLEMENTATION COMPLETION REPORT (SCL-44980) ON A LOAN IN THE AMOUNT OF 14.05 MILLION TO THE REPUBLIC OF SLOVENIA FOR A REAL ESTATE REGISTRATION MODERNIZATION PROJECT December 29, 2005 Environmentally and Socially Sustainable Development Unit ECCU7 Europe and Central Asia Region CURRENCY EQUIVALENTS (Exchange Rate Effective May 1999) Currency Unit = SIT SIT 1 = US$ 0.00556 US$ 1 = SIT 180 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy EU European Union EU CAP European Union ­ Common Agricultural Policy IACS Integrated Administration and Control System IT/IM Information Technology/Information Management (Strategy) LPIS Land Parcel Identification System MAFF Ministry of Agriculture, Forestry and Food MESP Ministry of Environment and Spatial Planning MOF Ministry of Finance MOJ Ministry of Justice PCO Project Coordination Office SC Supreme Court of the Republic of Slovenia SMA Surveying and Mapping Authority of the Republic of Slovenia Vice President: Shigeo Katsu Country Director Daniela Gressani Sector Manager Benoit Blarel Task Team Leader/Task Manager: Victoria Stanley SLOVENIA SLOVENIA REAL ESTATE REGISTRATION PROJECT CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 3 5. Major Factors Affecting Implementation and Outcome 12 6. Sustainability 13 7. Bank and Borrower Performance 14 8. Lessons Learned 16 9. Partner Comments 18 10. Additional Information 19 Annex 1. Key Performance Indicators/Log Frame Matrix 20 Annex 2. Project Costs and Financing 21 Annex 3. Economic Costs and Benefits 23 Annex 4. Bank Inputs 29 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 31 Annex 6. Ratings of Bank and Borrower Performance 32 Annex 7. List of Supporting Documents 33 Annex 8. Excerpt from the Borrower's Completion Report 36 Project ID: P055304 Project Name: SLOVENIA REAL ESTATE REGISTRATION PROJECT Team Leader: Victoria Stanley TL Unit: ECSSD ICR Type: Core ICR Report Date: December 30, 2005 1. Project Data Name: SLOVENIA REAL ESTATE REGISTRATION L/C/TF Number: SCL-44980 PROJECT Country/Department: SLOVENIA Region: Europe and Central Asia Region Sector/subsector: Central government administration (95%); Law and justice (5%) Theme: Personal and property rights (P); Land administration and management (P); Legal institutions for a market economy (P); Tax policy and administration (P) KEY DATES Original Revised/Actual PCD: 02/18/1999 Effective: 02/16/2000 02/16/2000 Appraisal: 04/29/1999 MTR: 05/26/2002 05/26/2002 Approval: 06/22/1999 Closing: 06/30/2005 06/30/2005 Borrower/Implementing Agency: GOVERNMENT OF SLOVENIA/Ministry of Environment and Physical Planning; Ministry of Agriculture; Forests; and Food; Ministry of Finance; Ministry of Justice; Supreme Court Other Partners: STAFF Current At Appraisal Vice President: Shigeo Katsu Johannes Linn Country Director: Daniela Gressani Roger W. Grawe Sector Manager: Benoit Blarel Joseph Goldberg Team Leader at ICR: Victoria Stanley Iain G. Shuker ICR Primary Author: Victoria Stanley; Peter Dale; Raffaele Suppa 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: SU Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: No 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: The aim of the project was to increase the efficiency and effectiveness of real estate administration systems in Slovenia by improving the real estate registration system, upgrading the legal framework for real estate transactions, establishing an agricultural land use monitoring system to meet European Union (EU) accession requirements, and designing and testing a market-based property tax and valuation system. In particular, the development objectives included: a) improvements to the quality of base maps in the land cadastre managed by the Surveying and Mapping Authority (SMA); b) reduction in the backlogs in the district court land book offices; c) creation of a data interface between the computerized land book system and the cadastre; and d) development and testing of laws and procedures to allow the first-time registration of 650,000 apartments. 3.2 Revised Objective: The project development objective remained the same throughout the project. 3.3 Original Components: The project comprised eight components the first seven of which (A ­ G below) addressed policy, physical improvements and capacity building while the eighth (H) addressed project management and institutional development. The components, which included the provision of goods, technical services, consultancy and training, were: A. Land and Building Cadastre (US$13.2 million or 45% of the project total costs) B. Land Register (US$3.9 million or 13% of the project total costs) C. Apartment Registration Development (US$2.8 million or 10% of the project total costs) D. Agriculture Land Use Monitoring (US$3.1 million or 11% of the project total costs) E. Real Estate Tax and Valuation System Development (US$0.2 million or 1% of the project total costs) F. Housing Finance and Mortgage Reform (US$2.3 million or 8% of the project total costs) G. Legal Framework for Property Ownership (US$0.2 million or 1% of the project total costs) H. Project Coordination Support and Strategic Studies (US$3.0 million or 10% of the project total costs) These eight components were in turn made up of a total of 82 activities. The project involved four Ministries and the Supreme Court directly in day-to-day implementation. The components were well related to achieving the objectives of the project and in line with the implementing capacity of the Borrower (i.e. the implementing agencies) and the relevant lessons from previous World Bank projects in Slovenia were taken into account. 3.4 Revised Components: Out of the eight component, three (A, C, E) were modified over the course of the project. Component C, Apartment Registration Development, was modified early on to take into account changes in the law. This Component intended to reduce the transaction costs associated with the process of apartment registration on both a systematic and sporadic basis. However it was found that the systematic apartment registration would not be possible under the Slovenian legislation, therefore the component was limited to only sporadic registration. - 2 - Component E, Real Estate Tax and Valuation System Development, was also modified during implementation. It was agreed that it would be best to separate the mass valuation law preparation and passage from the more politically sensitive issue of property taxation. Specifically, the government of Slovenia decided in 2002 that the law on mass appraisal and the mass appraisal system should be implemented first during the project, and that a new property tax system would not be implemented until 2005-7. Finally, at the request of the client in 2002 an activity called `Modernization of the Real Estate Information System' was added to Component A, Land and Building Cadastre. 3.5 Quality at Entry: Quality at entry is rated satisfactory. There was no assessment of the project by the Quality Assurance Group. Peer reviewers and Bank management considered the project and its development objective appropriate and consistent with the 1997 Country Assistance Strategy (CAS) which focused on supporting Slovenia in the EU accession process, formulating growth oriented policies, supporting institution building, and systemic transformation. Specifically the project supported "the development of legal, regulatory and institutional frameworks for markets, such as markets for land, housing, and local government finance" (CAS, para. 24). The project also directly responded to the Government of Slovenia's Modernization of Real Estate Records Improvement program adopted in October 1998. The project took a holistic approach by supporting the development not only of the registration and cadastre system, but also the legal, regulatory and institutional framework for property markets. This was in recognition of the strong capacity of the client to implement such a complex project, as well as the need for this support given the goal of Slovenia's accession to the European Union. Overall the project design was complex with eight components and five implementing agencies. However project components were prioritized with the cadastre and registration components (A, B, and C) receiving 69% of the total project cost. The project was designed so as to complement the support from European Union PHARE funding (3.0 million) for computer equipment and technical assistance. The institutional structures and capacity for project implementation were in place. The key risks were adequately identified and addressed, including the need for good project coordination. The Government established a high level Project Council in 1998 to guide preparation and implementation of the project. Considering the multiple ministries and agencies involved in project implementation the project management arrangements were suitable and well thought out. 4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: The achievement of the project development objective is rated satisfactory. Implementation of the Real Estate Registration Modernization Project began in 2000 and has resulted in a number of tangible outcomes that are beneficial to a broad cross section of society. Of the six key performance indicators established at the start of the project, several have exceeded their targets and only one, relating to transaction processing times in the land registries, was not fully met. The project has successfully upgraded the legal and regulatory framework for real estate transactions, and put in place the infrastructure to ensure a more efficient and effective land administration system, more optimal spatial planning and management, an effective land use monitoring system, and a mass appraisal system for effective property taxation all meeting EU requirements. - 3 - The project supported the digitizing of cadastral maps and other data to reduce the discrepancy in owners' names between the land book records held in the courts and in the cadastre. The original discrepancies related to 20% of the names and the target was to reduce this to 5%. By the end of the project these discrepancies were below 3%. The project facilitated the successful preparation and adoption of the Real Property Code that regulates the basic principles of real property law - the acquisition of real property rights, and their transfer, security, and discontinuance. The project aimed to support the development of a land use monitoring system to support the EU Integrated Administration and Control System (IACS) for agricultural subsidies. As a result of project support, land use data on agriculture and forest land have now been acquired for the whole territory of Slovenia. These data have been incorporated into a land parcel identification system, known as GERK, that will support IACS and the EU agriculture subsides. The project aimed to support the development of a real estate valuation and tax system. There are now real estate mass valuation models for apartments, industrial buildings and agricultural land that have been tested in three municipalities. The real estate mass valuation law was adopted by government on December 1, 2005 and submitted to Parliament. A draft real estate tax law has also been prepared and will be implemented by the Slovenian government in 2007 after the first real estate mass valuation is planned to be completed. The project aimed to support improvements in the legal framework for land markets, in particular those relating to mortgage law. A comparative analysis of different models of mortgage banking was undertaken, a Mortgage and Municipal Bond Act was adopted by Government in November 2005, and this Act has now been submitted to Parliament. Between 1998 and 2003 the percentage of new loans that were secured by a mortgage rose from 14.4% to 51.5%. The project supported registration of buildings in the building cadastre in an effort to improve the system for apartment registration. The target for the end of the project was to register 300 apartment buildings in the building cadastre. By the end of the project, 1,231,000 apartment buildings had been registered, far exceeding the original target. The project successfully undertook the strategic studies for information technology and information management and for cost recovery in the field of real estate registration. The project originally aimed to reduce transaction processing times in the Land Registry Offices from a duration of 120 days at the start of the project to six working days by project end. This target was subsequently revised to 20 working days because the initial target became unrealistic when the Government updated the apartment registration law to allow apartment owners to register their apartments individually whereas previously only the entire apartment building could be registered. This important simplification of the process resulted in a significant increase in requests for registration in the Land Registry Offices which did not have the capacity to cope with the increased volume, particularly in large cities which already had a backlog of unresolved cases - the main contributing factor to the long registration processing times. By September 2001, the backlog of unresolved cases had increased to 180,000 and it continued to increase by about 2,000 cases per month, reaching a high of 203,000 cases in January 2003. As mentioned above, at mid-term the target for processing times was increased to 20 days to reflect the increased work load resulting from the new law. The backlog has declined by over 40% since its peak in early 2003, to 118,648 cases as of June 30, 2005. While the processing time has been reduced, the 20 day target has not yet been - 4 - met. 4.2 Outputs by components: 4.2.1 Component A - Land and Building Cadastre Overall, the output for this component is rated as satisfactory. The objective was to complete the creation of digital cadastral maps for Slovenia and to establish a building cadastre. The component entailed the provision of goods, technical services, consultants' services and training for: a. the production of orthophoto maps and improved digital cadastre maps; b. the interpretation of orthophoto maps, data entry of building information and creation of a database for the building register; and c. the creation of a data interface between the computer systems of SMA and other user-agencies. The digital orthophoto maps and the digitization of the cadastral maps were completed for the whole country by the end of 2001. In the latter case 1.8 million parcels were digitized using World Bank funds and 3.3 million from existing resources. The digital maps are now maintained in all district offices of the SMA and are provided nationally on-line through an intranet connection for all cadastre offices. This means that maps can be delivered to customers within 5 minutes compared with hours in the past. Some discrepancies exist between the boundaries indicated on the digital cadastral maps and those seen on digital orthophoto maps. This is caused by poor positional accuracy of the original cadastral maps. While this does not present much of a problem for the registration of title it does present several difficulties when using the maps in the land use monitoring system and for utilities mapping, town planning, etc. The SMA has acquired additional financial resources under a government program "Competitive Position of Republic of Slovenia 2001-2006" to continue improving the positional accuracy of the cadastral maps. The more extensive use of the cadastral maps for purposes other than title registration will increase the opportunities for cost recovery and the long-term sustainability of the system. The photogrammetric survey of some 1 million buildings was a further part of this component of the project. This was to facilitate the development under Component C of a Buildings Cadastre that would support transactions relating to buildings and parts of buildings including apartments, rooms and commercial premises. In fact 1.4 million buildings were surveyed, far exceeding the original target. In 2002 an activity called `Modernization of the Real Estate Information System' was added to this component at the request of the client. The contract for this system integration was terminated in 2004 because the Contractor was unable to deliver on time and to the quality required. There was a lack of available bandwidth to match the needs of the Contractor's solution, the complexity of data migration had been seriously underestimated and the Contractor could not meet the timeframe laid down. The Contractor did however provide a complete functional analysis and data model for the SMA. 4.2.2 Component B - Land Register Overall, the output for this component is rated as unsatisfactory. The objective of this component was to improve the efficiency of the land book registration process as operated in the 44 county courts, reduce the time taken for registration, and eliminate the backlog of cases awaiting registration. The component provided goods, technical services, consultants' services and training: a. to assist in clearing the backlog of title registrations in the 44 county court registers; and b. to create a data-interface between the computer systems of the Supreme Court and SMA. - 5 - Good progress was made on computerizing the registry system (100% computerized) and on conversion of paper records to digital records (98.5% converted in the main register). The Supreme Court IT department has also set up a monitoring system that allows it to monitor processing rates in each of the 44 county courts, thus quickly identifying problems at any specific location. The backlog of cases in the land registry, the main contributing factor to the delay in processing of registrations, has been reduced from a high of 203,000 in January 2003 to 118,648 at the closing of the project on June 30, 2005, a decrease of 42%. In addition, the backlogs have been cleared in 31 out of the 44 land book courts. In August 2005 it was estimated that the time taken to process a basic registration of title was less than 3 months in 31 courts, up to 6 months in a further 11 courts, and 10 to 11 months in Ljubljana and Maribor. As explained in Section 4.1 above, the difficulties in achieving the performance target were in part due to the change in the apartment registration law that vastly increased the work load in the Land Registry Offices during the project implementation period, and partly due to institutional bottlenecks which are now beginning to ease. Table 1: Backlog Clearance January ­ November 2005 All Courts 160,000 141,862 136,896 140,000 132,446 126,702121,239 118,648 119,552118,564 120,000 114,659 109,672 106,213 100,000 Cases 80,000 60,000 Unsolved 40,000 20,000 - July January March April May June February August October September November Month The IT achievements, which appear to have been well implemented, should have allowed for significant improvement in transaction processing times. But even after the full digitization of records was achieved, delays continued due to poor management and organization of the workload and staff within the land registries. Once the project began to address these issues - by adding staff, improving management, and investigating better ways to organize and manage the work load - the backlog began to decrease, and has been decreasing ever since. This progress in reducing the backlog has continued since the project closed in - 6 - June 2005, as indicated in Table 1 above. Part of the persistence of the backlog lies in the fact that management of the real property registration function in Slovenia is complex. The system does not have an overall leader or chief registrar striving for its improvement on a daily basis. The Ministry of Justice is responsible for the promotion and monitoring of laws and regulations for real property registration and provides funding for the Supreme Court, which is otherwise independent of political influence. Registration of title is undertaken at the county court level where each county court has a degree of autonomy. Registration is only one of the many activities that the courts have to carry out and the president of each county court determines the local priorities. At the working level the management function for land registration is under the control of a chief registrar-clerk, who reports to the president of the county court. In most courts there is a land registry judge, though Maribor and Ljubljana share just one. The county courts report to the district courts and finally to the Supreme Court in Ljubljana. The lack of a clear leader within the registration system has had an impact on the success of this component. 4.2.3 Component C - Apartment Registration Development Overall, the output for this component is rated as satisfactory. The objective was to increase the number of apartments registered in the land book and cadastre by removing legal and administrative impediments to apartment registration. About 300 buildings containing about 6,000 apartments were planned to be surveyed and registered. Since 1999, three changes in the legal regulations affected the implementation of this component. The most important occurred in November 1999 when the Government adopted a Law on the Special Conditions for Registering the Ownership Right to Individual Parts of a Building (through the Land Register Act) in order to accelerate the registration process. This law had a five-year lifespan, expiring in mid-November 2004, after which registration of buildings or parts thereof followed the original method ­ meaning that the common property shares have to be agreed on by all apartment owners and registered first before individual owners can register their flats. This component developed a methodology for the rapid registration of apartments through the execution of pilot projects, preparation of a legislative and policy framework and the provision of goods, technical services, consultants' services, and training. 1,318,000 buildings (compared with a target of 1 million) and 1,633,062 parts of buildings have been registered in the new Building Cadastre. To date, around 70% of the estimated total number of apartments in multi-apartment buildings in Slovenia have been recorded in the form required for title registration. As a result, owners of buildings and parts of buildings have begun the process of registering their titles in the Land Registry. 4.2.4 Component D - Agricultural Land Use Monitoring Overall, the output for this component is rated as satisfactory. The goal of this component was to develop a land use monitoring system that would meet both the requirements of the Slovenian Ministry of Agriculture, Forestry and Food (MAFF) and the EU Common Agricultural Policy (EUCAP) by December 2002. It involved the provision of technical services, goods, consultants' services and training. Slovenia's own agricultural land use monitoring system first became operational in 2000 at which time reliable records covered only one third of the country. As a result of project support, MAFF developed and put into operation a Land Parcel Identification System (LPIS) in the form of a comprehensive geographic information system called GERK. GERK covers only the land in use by farmers applying for subsidies or those registered in permanent crop registers. A GERK is defined as a contiguous piece of agricultural land with the same land use, in the use of one single farm, - 7 - and on which one crop is usually grown. GERK supports the graphical control of farmers' subsidy payments, as demanded by the EU. Initial GERKs were built on the cadastral and land use data, orthophoto maps, and farmers' declarations. Improvements in the positional accuracy of graphic data provided by SMA were not sufficient in all areas for the purpose of land use control for agricultural subsidies. GERK will help to improve this overall accuracy of the graphical data for farmers and MAFF. With the help of trained operators, farmers make corrections on the polygons of initial calculation and draw the new borders of their land according to orthophoto maps. The quality of the GERK layer is currently checked in two ways: (i) with the help of a computer program searching for overlapping areas; and (ii) visual on-screen control. The control of the subsidies is done by on-the-spot random checks selected using risk analysis techniques, and by remote sensing data. The EU's Joint Research Center has reviewed the GERK system and found it satisfactory. The GERK system will help support the direct income assistance to farmers under the EUCAP. 4.2.5 Component E - Real Estate Tax and Valuation System Overall, the output for this component is rated as satisfactory. This component entailed the development of a real estate property tax system and an associated real estate valuation system through the provision of goods, technical services, consultants' services and training for: a. the development of the legislative and policy framework; b. the development of a real estate valuation and taxation system; c. the carrying out of pilot evaluations of properties in selected municipalities agreed with the Bank; and d. institutional strengthening in the Ministry of Finance (MOF) and selected municipalities and the development of a public relations strategy. The original goal was to design and test a property tax system (including new real estate valuation system) in two municipalities and to submit a General Property Tax Law to the Parliament by December 2002. However, the Government in 2002 decided that the Law on Real Estate Mass Appraisal and the mass appraisal system must be implemented first and that a new property tax system would not be implemented until 2005-7. This was a reasonable decision based on the rationale that the mass appraisal system could provide data and evidence useful for the Government in its much more political discussions on the real estate tax proposals. The focus on valuation techniques included: a. The development and testing of models and methodology for mass real estate valuation b. The development of a new uniform real estate tax system that would be consistent across the country c. Drafting legislation in support of real estate taxation and valuation; and d. The development of a strategy for implementing real estate taxation and valuation including the possible creation of a Real Estate Valuation Office. The overall result is that a real estate mass appraisal system was developed and successfully tested in three municipalities in 2003. A draft Real Estate Tax Law was also prepared during 2003 and a proposal for a Law on Real Estate Mass Appraisal was produced and reviewed by all parties in mid 2004. The Law on Real Estate Mass Appraisal has been adopted by Government and was submitted to Parliament in December 2005. It is proposed that SMA will be responsible for managing the new mass appraisal system - 8 - once the law is passed. The proposed law on mass appraisal will make an important contribution toward better and more complete real estate databases, establishing a unified system for collecting market evidence, and establishing a state valuation service responsible for the mass appraisal of all real estate based on market value. The valuation system is therefore important not only for introducing a new real estate tax system but also for other governmental and private sector entities. The present levels of revenue from property-related taxes are given in Annex 3, Table 3. The mass appraisal information will then provide the basis for moving forward with the property taxation law, which has been prepared under the project. 4.2.6 Component F - Housing Finance and Mortgage Reform Overall, the output for this component is rated as satisfactory. This component involved the development of the legal framework related to the housing sector, including mortgages, through the provision of consultants' services and training. Its goal was to identify the constraints to improving the mortgage finance system in Slovenia in order to reduce interest rates, and make longer term mortgage financing more readily available. There were minor delays in finalizing the work under this component as a result of consultations that needed to take place with commercial banks and the preparation by MOF of other laws that had to take priority as they were required for EU accession. The Report on Housing Finance and Mortgage Reform was finalized early in the project. It identified the major constraints on the mortgage finance system and proposed solutions to remove them. A draft law on mortgage and housing finance was developed in mid-2004 and was reviewed by the Slovene banking community and international mortgage experts. With a new government elected and in place in December 2004, the draft mortgage and housing finance law was submitted and adopted by Government in November 2005 and has been submitted to Parliament in late 2005 for consideration. The MOF is committed to its rapid passage and implementation. In recent years the number of mortgages has increased while interest rates on mortgage loans have decreased mainly through competition between banks and as a result of improvements in the legal framework, the banking system and the registration system. The level of housing loans from 1998-2003 is given in Annex 3, Table 2. 4.2.7 Component G - Legal Framework for Property Overall, the output for this component is rated as satisfactory. This component entailed the development of the legal framework for property ownership and registration through the provision of consultants' services and training. The goal was to review and update laws in Slovenia that related to property ownership, bringing them in line with real property legislation in the member states of the European Union. The Real Property Code deals with the acquisition of title, security of title, joint property, law on good neighborliness, condominiums, liens, land debts, superficies, solo credit rights etc. It is the basic legal framework for all property transactions in Slovenia and as such is an essential foundation for the operations of the land market. Consultants helped to complete the preparation of a Property Code and this was passed by Parliament in September 2002. The Code was reviewed by the Bank and found to be of high quality. The goal of this component has therefore been met. An illustration of government reform over and above the project objectives was a new Land Register Act - 9 - prepared by the Ministry of Justice (MOJ), which was passed by Parliament in 2003. The Act was reviewed by the Bank and found to be of high quality. 4.2.8 Component H - Project Coordination Support and Strategic Studies Overall, the output for this component is rated as highly satisfactory. The overall objective was to coordinate the administrative aspects of the project and to carry out strategic, cross-ministerial studies. A Project Coordination Office (PCO) was set up and continued to operate until June 30, 2005 at which time it produced a final report on `The Results of the Real Estate Registration Modernization Project (2000-2005)'. This component involved: a. Provision of technical assistance, training and goods to the PCO to support the PCO in the implementation of the Project including the carrying out of audits required under the Project. b. Provision of consultants' services to the PCO for the development of a strategy for: (i) information technology and management; and (ii) cost recovery for the land registration system and the land and building cadastre. The project was well managed in difficult circumstances ­ there were eight components, four Ministries and the Supreme Court to deal with. The key members of PCO were retained in post throughout the duration of the project so that they grew to understand not only the requirements of the World Bank and co-financiers but also the cultures in the different Ministries. This consistency in staffing was a significant benefit to the project as a whole. Two major studies were carried out, one to develop an Information Technology and Information Management (IT/IM) Strategy and the other a Cost Recovery Strategy. Both strategy documents were completed in 2002-2003. The latter looked at international trends and noted that in general land registries fully recover their costs while at present cadastral offices only partially recover costs. Almost all cadastre and legal land registration systems in EU member states charge for the provision of land information and land information services on the principle that the `user should pay'. The users of the service include Government. 4.3 Net Present Value/Economic rate of return: A detailed description of project benefits by component is given in Annex 3. Overall, the intended project development objectives of improving the efficiency and effectiveness of the real estate administration systems in Slovenia have been met. Project benefits remain difficult to quantify and the economic analysis at project completion follows the approach used at appraisal, capturing project benefits that derive from reduced transaction costs, and risks in real estate and land markets which would be reflected in a reduction in real borrowing rates for mortgages. The analysis takes into account the following assumptions: i) the number of properties in Slovenia that have been mortgaged, ii) their value in current terms, and (iii) the related mortgage rates during the period 1999-2003. Selected financial statistics for this period are given in Annex 3, Table 1, and data on mortgage in housing loans are presented in Annex 3, Table 2. The volume of mortgage loans has increased significantly in recent years. If expressed in constant 2005 prices, mortgage loans were estimated at US$36.9 million in 1999 and reached an estimated value of US$101.6 million in 2005 representing an increase, in real terms, of about 175%. Assuming that, on average, an apartment of 65 square meters, built around 1980, is currently valued at US$80,000 and that the amount of mortgage loans covers 50% of the total value of the apartment, the total number of mortgage transactions has increased from 923 in 1999 to an estimated number of 2,540 in 2005 (Annex 3, Table 2). Mortgage rates, during the same period, have followed the trend of Treasury bill rates with a reduction of about 600 basis points since 1999 (Annex 3, Table 1), as has the spread, from an average of 600 basis points in 1998/1999 to an average of 300 basis points in 2004/2005. The reduction in mortgage rates mirrors the downward - 10 - trend in T-bill rates but also a reduced spread between T-bill and mortgage rates. This reduced spread reflects several factors including: a) competition and increased efficiency in the banking system; b) reduced transaction costs and risks emanating from more secure property rights and a more efficient registration system which the project contributed to; and c) lower risk profile of the borrower. It is expected that the new Mortgage Bond Act developed under the project which the Government plans to implement in 2006 will have a further impact on the maturing of the mortgage market and improved terms for borrowers by further reducing the spread. However, we have not taken these into account in the economic analysis. The reduction in the spread due to the project contributes to the project's economic benefits which, judged against project investment costs, can be used to assess the economic rate of return of the project. In the absence of a solid analytical basis for assigning or deciding the share of the reduction in the spread caused by the project, we follow an alternative approach. In this approach, we respond to the question - how much of the reduction in the spread has to accrue from the project to achieve an ERR of 12%? In this project it turns out that only 40% of the reduction in the spread for mortgage loans above T-bill rates has to accrue from the project to achieve an ERR of 12% (Annex 3, Table 4). It should be noted that in the above analysis we are measuring only part of the economic benefit related to the project. There are many other benefits as outlined in Annex 3 which are not accounted for in this analysis as they are more difficult to quantify. Still we believe that 40% of the reduction of the spread attributed to the project is reasonable and can be considered a significant contribution by the project. 4.4 Financial rate of return: The major positive financial impact would derive from increased property tax revenues, and increased transfer tax and fees from more and higher value transactions. As indicated in Annex 3, Table 3, total tax revenues to local governments have increased, in real terms, from about SIT 145.4 billion in 1999, to SIT 191.0 billion in 2004, representing an increase of 32%. Similarly, real estate taxes estimated, in real terms, at SIT 24.2 billion in 1999 reached SIT 27.7 billion in 2004, representing an increase of 15%. The share of these increases that could be attributed to the project is difficult to quantify but as the property market improves and more properties are formally registered, both the volume of transactions (from 20,000 annually in 2000 to 51,000 annually in 2004) and the worth of these transactions has increased raising the amount of fees and transfer tax collected. In addition, as the number (from 3,024 in 2001 to 16,500 in 2005) and value of mortgages has increased so has the revenues from mortgage registration. 4.5 Institutional development impact: The project has had a significant impact on the culture and operations of the participating ministries and agencies. Through project implementation, SMA has not only increased its capacity to deliver goods and services but has also adopted a more business-like approach. MAFF has an operational system that meets not only the needs of the EUCAP but also provides information that should improve the quality of land management. MOF has developed the framework for real estate valuation and taxation, and the new real estate mass valuation function will be placed in SMA. The Courts have the technological capacity to deliver a faster and still reliable service and the legislative framework in which to do so. Traditionally they have been more concerned with their own internal procedures than with responding to the demands of the land market. They have not begun to operate with a customer focus in the manner that has become common in the rest of Europe. This is judged in part to be a consequence of there being no Chief Registrar with overall responsibility for directing land administration services and in part because the court system is inevitably independent and unaccustomed to serving 'customers.' Since completion of the Project, there are signs that this may be beginning to change and discussions within the Government have taken place. The Government commissioned an analysis of the operations of the two main land registries (Ljubljana and Maribor) from a management perspective and the - 11 - consultants have made a series of recommendations including, unifying the land registry function under a Chief Registrar or central office that could have more power to allocate resources and staff across all land registries, and unify standards and processes. Already there are plans for the provision of a counter service for the public in Ljubljana. The project was designed with the understanding that it would be complex due to the fact that five agencies were involved. As part of the project, a Program Council was established to act as a high level coordination body through which land administration and property rights issues could be addressed and any required action initiated. The Council has helped to increase the flow of information and understanding among agencies, stimulating a more comprehensive and integrated approach to government. Although the project is now complete, cooperation between agencies is continuing and the Program Council will continue to provide a forum for high level decision making and guidance. 5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: The project was planned in 1998/1999, initiated in 2000 and completed in 2005. Over the last decade there have been important changes in the general area of land administration with an increase in focus on users' needs and aspirations. Across Europe many government land administration services have become nonprofit 'businesses' driven in part by the need to introduce and continually update information technology, replacing hardware and software every four years or so. `Design and build' has given way to `sustain and maintain' and a debate on the ways and means of cost recovery is taking place across Europe. The project was intended as a one-time investment to upgrade the title registration system, cadastre system, land use monitoring system, and property tax system. Continuing investment will be required in order to ensure that the technology in operation meets the needs of the customers using the land administration services, especially in the context of E-Commerce. Funds for `technology refresh' will need to come either from government or through the implementation of appropriate charging mechanisms. Slovenia has been strongly affected by developments throughout Europe and most especially by its becoming a member of the EU and having to abide by European-wide legislation. This noticeably affected the work on Component D on agricultural land use monitoring, with the EU requirements acting as a driver for the needed cooperation between the several agencies/ministries involved (MAFF, SMA). Membership in the EU may affect future government policies, for example with regard to European-wide access to the Slovenian land market and land-related information. 5.2 Factors generally subject to government control: The Government was fully committed to the project and, for example, introduced changes in the law on apartments that helped to facilitate the registration of apartments. It established a Program Council that helped project coordination and the flow of information among participating agencies. During preparation, the Bank and GOS discussed extensively the pros and cons of the existing land administration system with registration separate from the cadastre versus a unified system under one agency. Given the 250 year history of the court based title registration system, the unified system was not considered a feasible option at the time, and the Bank and GOS agreed to design the project based on the existing system. In the course of implementation, it became evident that the existing system was impeding progress in reducing the backlogs and transaction processing times. Based on experience gained in similar - 12 - Bank-supported projects in other countries, the Bank team recommended during mission visits to Slovenia that consideration be given again to the idea of a unified land administration system. In November 2005 the Government initiated the activity of joining all real estate data (land cadastre, building cadastre and land registry) with the final aim of establishing a new joint agency for real estate management to be established by 2008 and fully operational by 2010. Though this has taken place after loan closure, this is a welcome outcome, reflecting the results of the Bank team's perseverance and the Government's commitment. In the run up to Parliamentary elections in December 2004, work on new legislation relating to valuation and taxation, and cost recovery rates slowed down. Since the new Government took office, the pace accelerated. The mass appraisal legislation and the law on mortgage bonds have now been approved by Government and submitted to Parliament. 5.3 Factors generally subject to implementing agency control: There was good coordination throughout the project among the various agencies, the project management team, and the PCO. A Project Council was established for weekly coordination meetings at the working level (to complement the high level Program Council). Overall the project was well managed, specifically due to the skilled leadership and staff at SMA. In fact, the consistency of key staff in all of the implementing agencies throughout the project contributed significantly to its success overall. 5.4 Costs and financing: The project was estimated to cost 27.07 million (US$28.90 million), with the Bank financing 14.05 million (US$15.00 million), the GOS 10.02 million (US$10.69 million) and EU PHARE 3.00 million (US$3.20 million). At completion, the total project costs had reached an estimated 25.00 million, or about 92% of the appraisal estimate. The contribution from the different financing sources were World Bank 12.94 million, or 51.7%, GOS 9.07 million, or 36.3% and EU PHARE 2.99, or 12.0% of the total amount at project-end. Details on project costs and financing are presented in Annex 2. Substantial cost savings occurred in the Technical Services category, which resulted in a loan cancellation of about US$1.1 million. 6. Sustainability 6.1 Rationale for sustainability rating: Sustainability for this project is likely given the clear and positive signals from the Government of Slovenia (GOS). The evidence in support of this view includes: o Government approval for the continuation of the Program Council after June 30, 2005, which means that a high level coordination body will continue to be available to focus attention on land administration and property rights issues, and any required actions. o Senior officials from the Ministry of Environment and Spatial Planning (MESP), the Supreme Court, MOJ, and MOF stated during the final World Bank mission that they were committed to continuing the project goals and to finding the funding necessary after June 30, 2005 to continue initiatives. o SMA, with the financial support of the Government in 2006/2007, is likely to obtain resources for a cadastre/registry records improvement initiative. An EU Transition Facility project will be implemented in 2006 with the aim of the further developing the basic real estate records (land - 13 - cadastre, building cadastre, land registry). o The GERK land use monitoring system was reviewed by the EU's Joint Research Institute and found to be satisfactory. It now has over 600 trained staff. The EUCAP will require geographic information to be regularly updated. o SMA is committed to up-dating the digital orthophoto maps in rural areas on a four-year cycle as part of the GERK process, which demands that the photomaps be less than five years old. o Government adopted the Law on Real Estate Mass Appraisal and has submitted it to Parliament. o The government has submitted the draft law on mortgage bonds to Parliament. o The legal framework improvements continue to be developed particularly in MOJ and SMA. Other Ministries are also interested to continue updating their laws and regulations. The Program Council could provide a mechanism for coordination of these efforts. Working Groups would need to be established to discuss these matters at the working level. o The Supreme Court has a strategy for improving service in the land registry offices and continuing the reduction of the backlogs. The strategy includes the unification of the Land Registries under a Chief Registrar to be appointed, pooling of resources, unification of standards, and the introduction of a Counter System. MOJ intends to form a task force to investigate this reorganization of the Land Registry. o The Supreme Court and SMA are continuing with implementation of the two strategies: `cost recovery' and `information technology and information management' prepared under the project. These are both core pieces of the vision for the future of land registration and cadastre in Slovenia. Cost recovery in particular involves issues of political principle and is being reviewed by the government in a broader context as it has implications for all central and local government agencies. o Finally, the GOS has recently decided to unify the land registration and cadastre functions under one institution to be established by January 1, 2008, and which would begin operating from January 1, 2010. 6.2 Transition arrangement to regular operations: The transition from project operations to the routine delivery of services has run smoothly in line with the overall Government modernization program. Services have either remained operational at pre-project levels (in the case of times for handling initial registrations) or have significantly improved (for instance in issuing cadastral plans where the time required has dropped from hours to minutes). Importantly, most of the staff involved in the project remain in their current positions. The new Property Code appears to be working well but it is premature to comment on the proposed changes that will be needed in order to introduce mass valuation, property taxes and mortgage bonds as these have not yet been implemented. 7. Bank and Borrower Performance Bank 7.1 Lending: The Bank performance during identification, preparation and appraisal is rated satisfactory. The project - 14 - design was consistent with the priorities of the GOS and the Bank CAS. The denationalization of land and property began in 1991 under the Constitution and throughout the 1990s numerous laws were enacted to reinforce private property and a market-based structure. The GOS had already adopted a Modernization of Real Estate Records Improvement Program, which the Bank agreed to support. The Bank team found a strong and willing counterpart in SMA and helped foster strong working relationships among all of the project counterparts. At the suggestion of the Bank, the GOS established a Program Council to guide project preparation and implementation at a high level. The project design took a holistic approach in order to support the GOS agenda and goal of EU accession. While a complex project with eight components and five implementing partners, the Bank team took adequate steps to ensure strong coordination and consistency across all components. The Bank encouraged the adoption of a business model for SMA that included strong links to their key clients, namely, MAFF, the Supreme Court, and MOF. With hindsight, the targets for the land registry component were too ambitious. Otherwise project design was quite foresighted and has been followed to date, all the way to EU accession. 7.2 Supervision: The Bank's supervision performance is rated satisfactory. The Bank team undertook regular monitoring visits details of which are given in Annex 4. Mission staff included appropriate technical experts. The various agencies responded to their findings and recommendations through internal discussion often resulting in direct action. While the Bank was consistent in the guidance that it gave there was some variation in the quality of advice that was offered by external consultants. As implementation proceeded, modifications were made as needed and in the spirit of working together as a team. With respect to the backlog issue, while the Bank team advised the Government during visits to Slovenia on interventions to address the problem, with hindsight the Bank team should have been more pro-active in reaching a mutually satisfactory solution to deal with the bottlenecks. There was a delay of some eighteen months in the procurement of a firm to strengthen staffing for the courts to help with backlogs. This procedure eventually failed and, again with hindsight, more should have been done to speed up the resolution of this difficult procurement. A second issue which had an impact on implementation was the IT procurement procedure. The project in Slovenia was among the first of its kind (cadastre and registration project) to go through the Bank's two-stage IT procurement procedure and the newness of the procedure for both the Bank and the client caused delays and difficulties that were frustrating for all. In spite of the above issues, the client was appreciative of the services and advice provided by the Bank throughout the project. 7.3 Overall Bank performance: The Bank's overall performance is rated satisfactory. Borrower 7.4 Preparation: Borrower performance during preparation is rated satisfactory. The authorities provided competent and experienced counterparts for the Bank's preparation team and contributed vigorously and effectively to the preparation of the project. As an illustration, the Government quickly implemented a law regarding the registration of individual apartments. The preparation time was short and the strong capacity of the client - 15 - made this possible. As mentioned above, the targets set for the land registry component were too ambitious. In addition, it seems clear that there was an over-reliance in the design for IT to solve the problem of the backlogs in the land registry courts. 7.5 Government implementation performance: The Borrower's implementation performance is rated satisfactory. The GOS was committed to achieving the project objectives throughout implementation. The monitoring and evaluation under this project is best practice. Regular monitoring reports were provided to the Bank team and provided a snapshot of project progress and easily identified areas for further investigation. The quality and consistency of the staff involved at the working level was instrumental in the successful implementation of the project. In nearly every component, the key staff were in place from the beginning to the end of the project. Considering that, this consistency of staffing was across four ministries and the Supreme Court, it is a significant achievement. However, more intensive efforts and stronger leadership within the Land Registry Component might have provided better results. 7.6 Implementing Agency: The Implementing Agency's performance is rated highly satisfactory. The project was managed by the project management team and led by the project manager (also the Executive Director of SMA). A PCO was established within SMA. The project management team with the assistance of the PCO successfully developed the project implementation plan, monitored project implementation, managed procedures for procurement and financial management, and coordinated regular reporting on project progress. The project management team and PCO prepared and implemented an electronic archive of project documents, developed and maintained a website, and organized opening, mid-term and final project conferences that promoted the aims of the project and the real estate market development overall. The project management team also managed strategic guidelines for Information Technology and Information Management and for cost recovery in the field of real estate registration. Finally, the project management team and PCO produced `The Results of the Real Estate Registration Modernization Project (2000-2005)'. The majority of staff appointed to project management team and PCO remained in post throughout the project, contributing to the overall management success. 7.7 Overall Borrower performance: The Borrower's overall performance is rated satisfactory 8. Lessons Learned One of the distinctive features of the Slovenia Real Estate Registration Modernization Project has been its complexity, reflected in the number of agencies involved (four Ministries and the Supreme Court) and the eight components that made up the program. Nevertheless, the project achieved all but one of its performance indicators. This success is largely due to the quality of the management of the project. Lesson One is therefore that management skills are critical. Projects need to address the issues of business and management training for all staff not just for purposes of project implementation, but for strengthening management in the long term. The program of Training/Workshops/Study Tours (see annex 7(f)) was a valuable part of the capacity building under the project. Throughout Europe, land administration agencies are being forced to adopt a business-oriented approach as a result of which the delivery of land information - 16 - goods and services is more dependent on good management than on any other factor. Time and other resources need to be set aside for management training at the most senior levels as well as at the middle and lower management level. Furthermore, resources need to be set aside to fund the continuing professional development of staff so that they may adapt to the changing needs of a dynamic economy. Lesson Two is the importance of having a viable business model with clearly defined performance based targets. The project significantly improved the business model being used by SMA by making it focus on, i) identifying its key clients and potential demands, ii) building a good coordination mechanism to make sure that they were meeting these specific needs, and iii) jointly developing a medium term IT/IM strategy and cost recovery plan so that both SMA and their clients have a common operating platform. In Slovenia the optimal cost recovery strategy being discussed. The Supreme Court needs to prepare for the probable growth in demand for services when the land market becomes more buoyant. Lesson Three is that courts do not provide the most suitable home for registration of title. The backlog of land registration cases that remains is in part due to the culture in the court system and a lack of business focus amongst those involved. Property registration must operate as a service to participants in the land market and meet their needs. Based on experience from this and other similar projects, the Bank has begun strongly advocating for single agency systems to reduce friction and the time and cost to citizens participating in the land market. Placing registration within the courts alongside their many other responsibilities reduces accountability and increases the potential for delays in the conduct of simple land transactions. Related to the above, Lesson Four is that instilling a culture of service provision is as important as new technology. IT alone could not solve the problem of the backlogs. Once this was recognized by the Supreme Court and changes were made to the organization and management of the Land Registry Offices progress accelerated. Property registration is a service to citizens for which they pay a fee - making them customers. The Land Registry Offices should be pro-active in informing their customers about how to use the system and the benefits that it brings, as informed customers are better customers. Lesson Five, building on the previous two, is that a chief registrar would provide clear management and accountability for the land registry function. A chief registrar would be focused only on the land registry offices, their issues and problems, and how to solve them. He would be responsible and accountable for ensuring the land registries are efficient, professional and respond to customers. He would be able to reallocate resources and staff when needed, improve the related laws, regulations and procedures, and ensure professional development of the staff. Though complex, this project took a comprehensive approach to improving the property market infrastructure in Slovenia - addressing legal, regulatory and institutional issues. Lesson Six is that comprehensive, complex projects can work in the right management environment. The Borrower knew what it wanted and provided the necessary personnel to ensure success. Strong leadership and coordination from SMA, and consistent staffing and participation from all of the ministries involved added up to a successful project. - 17 - 9. Partner Comments (a) Borrower/Implementing agency The following comments were received from Mr. Janez Podobnik, Minister of Environment and Spatial Planning and Head of the Program Council appointed by the Government to provide strategic guidance to real estate modernization activities and oversee project implementation: "It is my honour as the head of the Program Council for the Implementation of the Real Estate Registration Modernisation to be able to assess so positively the results of the Real Estate Registration Modernisation Project and emphasise their importance for the development of the real estate field in the Republic of Slovenia. The Government of the Republic of Slovenia realised the importance of the development of the real estate field even before the operative beginning of the implementation of the project and was aware of the complexity of the task of modernising real estate registration, which represents one of the bases for a more efficient real estate market and a requisite for a more successful development of market economy. The Real Estate Registration Modernisation Project was the main generator of activities in the field of real estate management. The main positive results of the project in the field of the operation of the public administration are visible in certain areas of integrated spatial management and implementation of suitable policies, which are of key importance in the development of every national economy. The results and developmental solutions in the field of digitalisation of basic real estate records (the Land Register, the Land Cadastre and the Building Cadastre), the actual use of land, the development of the mass real estate valuation and taxation system, more efficient financing of housing development and the reform of mortgage banking as well as the development of more efficient legislative solutions in the field of real estate ownership all represent considerable developmental progress. These results make it possible to take a giant step forward in Land Register backlog mitigation and in more efficient handling of the Land Register situation in the Republic of Slovenia. Positive trends in the field of backlog mitigation became obvious already in the course of the project and they are continuing with the brisk backlog mitigation even after the conclusion of the project which is evidenced by the positive statistics of backlog mitigation. We take great pride in assessing that the project was concluded very successfully, which was helped by the excellent and constructive cooperation with the experts from the International Bank for Reconstruction and Development and their external experts. Regardless of the operative conclusion of the project, we can assure you that numerous activities in the real estate fields in the Republic of Slovenia are continuing and developing briskly, and therefore Slovenia already belongs in the circle of those better developed European countries which offer their citizens well-organised, publicly accessible records and user-friendly services in the field of real estate management." 18 (b) Cofinanciers: none received (c) Other partners (NGOs/private sector): n.a. 10. Additional Information - 19 - Annex 1. Key Performance Indicators/Log Frame Matrix Outcome / Impact Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate Reduce transaction processing times for 90 working days 90 days in 31 courts registry offices to 6 working days by 3-6 months in 11 courts December 2004. Revised at MTR to 20 days 10-11 months in 2 courts by project end. Increase the accuracy of the real estate 3% 3% registration system by reducing the discrepancy in owner names between the registry and the cadastre from 20% in 1998 to less the 5% by December 2004. Submit to Parliament appropriate laws and New law on registration of apartments in New law on registration of apartments in procedures for registration of apartments, place place reflecting the results of the pilot projects by December 2002. Improve the legal framework for land New law on mortgage prepared New law on mortgage has been submitted to markets during the course of project Parliament. implementation, to be monitored through ongoing dialog with the Government on laws related to mortgage and eviction. Install an agricultural land use monitoring land use monitoring system to be completed land use monitoring system complete system for EU CAP by December 2002. by end-2005 Design and test a property tax system in two Successful completion of pilot market-based Pilot completed in 3 municipalities; law on municipalities by December 2004. valuation system in two districts. mass valuation adopted by government; real estate tax law prepared. 300 Apartment buildings registered by 1,231,000 apartment buildings registered 1,231,000 apartment buildings registered end-project. Output Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate Land and Building Cadastre: 1700 upgraded cadastral maps completed 2035 cadastral maps completed Online digital cadastre maps available in 44 available in all 44 county courts county court offices 1,000,000 buildings mapped in Building 1,318,000 buildings mapped Cadastre Land Register: All 44 land registry offices computerized All 44 computerized Land registry backlogs cleared backlog reduced by 44% Apartment Registration: 6000 apartments registered 143,542 apartments registered in cadastre Agricultural Land Use Monitoring: 2696 map sheets for land use interpretation 2696 map sheets and overlay of cadastre maps Strategic Studies Cost recovery study completed study completed Information technology/information strategy completed management strategy completed 1End of project - 20 - Annex 2. Project Costs and Financing Project Cost by Component (in million equivalent) Appraisal Actual/Latest Percentage Estimate Estimate of Component million million Appraisal A. Land and Building Cadastre 12.36 9.771 79.0 B. Land Register 3.65 5.692 155.9 C. Apartment Registration Development 2.62 2.77 105.7 D. Agriculture Land Use Monitoring 2.91 2.93 100.7 E. Real Estate Tax and Valuation System Development 2.15 1.43 66.5 F. Housing Finance and Mortgage Reform 0.19 0.09 47.4 G. Legal Framework for Property Ownership 0.19 0.03 15.8 H. Project Coordination Support and Strategic Studies 2.81 2.15 76.5 I. Front End Fee 0.19 0.14 73.7 Total Project Costs 27.07 25.00 92.4 Total Financing Required 27.07 25.00 - 1/ Including 1.49 million financed under EU Phare 2/ Including 1.50 million financed under EU Phare Project Costs by Procurement Arrangements (Appraisal Estimate) (in million equivalent) Expenditure Category Procurement Method Total Cost ICB NCB Other N.B.F. 1. Goods 0.00 0.00 0.51 2.40 2.91 (0.00) (0.00) (0.28) (0.00) (0.28) 2. Technical Services 11.83 3.04 0.58 0.00 15.45 (6.34) (1.63) (0.31) (0.00) (8.28) 3. Consultant Services 0.00 0.00 6.18 0.60 6.78 and Training (0.00) (0.00) (3.80) (0.00) (3.80) 4. Incremental 0.00 0.00 1.55 0.24 1.79 Operating Costs (0.00) (0.00) (1.55) (0.00) (1.55) 5. Front End Fee 0.00 0.00 0.14 0.00 0.14 (0.00) (0.00) (0.14) (0.00) (0.14) Total 11.83 3.04 8.96 3.24 27.07 (6.34) (1.63) (6.08) (0.00) (14.05) - 21 - Project Costs by Procurement Arrangements (Actual/Latest Estimate) (in million equivalent) Expenditure Category Procurement Method1 Total Cost ICB NCB Other N.B.F. 1. Goods 1.64 0.00 1.54 2.51 5.69 (0.89) (0.00) (0.83) (0.00) (1.72) 2. Technical Services 10.12 0.02 0.27 0.00 10.41 (5.46) (0.01) (0.15) (0.00) (5.62) 3. Consultant Services 0.00 0.00 6.52 0.48 7.00 and Training (0.00) (0.00) (3.70) (0.00) (3.70) 4. Incremental 0.00 0.00 1.76 0.00 1.76 Operating Costs (0.00) (0.00) (1.76) (0.00) (1.76) 5. Front End Fee 0.00 0.00 0.14 0.00 0.14 (0.00) (0.00) (0.14) (0.00) (0.14) Total 11.76 0.02 10.23 2.99 25.00 (6.35) (0.01) (6.58) (0.00) (12.94) 1/ Figures in parenthesis are the amounts financed by the Bank Project Financing by Component (in million equivalent) Component Appraisal Estimate Actual/Latest Estimate Percentage of Appraisal Bank Govt. CoF. Bank Govt. CoF. 1 Bank Govt. CoF. A. Land and Building Cadastre 5.90 4.96 1.50 4.47 3.81 1.49 76 77 99 B. Land Register 1.12 1.03 1.50 2.26 1.93 1.50 202 187 100 C. Apartment Registration Development 1.40 1.22 1.50 1.27 107 104 D. Agriculture Land Use Monitoring 1.59 1.32 1.58 1.35 99 102 E. Real Estate Tax and Valuation System Development 1.12 1.03 0.77 0.66 69 64 F. Housing Finance and Mortgage Reform 0.10 0.09 0.05 0.04 50 46 G. Legal Framework for Property 0.10 0.09 0.02 0.01 20 15 Ownership H. Project Coordination Support and 2.53 0.28 2.15 0.00 85 0 Strategic Studies I. Front End Fee 0.19 0.00 0.14 0.00 74 Total Project Costs 14.05 10.02 3.00 12.94 9.07 2.99 92 91 99.7 1/ Co-financing provided under the EU Phare - 22 - Annex 3. Economic Costs and Benefits Introduction The economic analysis of most cadastre and registration projects, where base data quality and coverage may often be problematic, would naturally be a function of the impact on the outcome of the various assumptions adopted in the analysis, hence internal Economic Rates of Return (ERR) estimates would be speculative. However, if at all possible, ex-post economic analyses for similar projects, carried out at project completion, have always indicated highly positive results. For example, in Thailand the price for registered land was between 75% and 192% higher than for unregistered land in similar adjacent agricultural areas. Registration also resulted in increased levels of both labor and capital investments in land by farmers, thereby contributing to increases in productivity and household incomes. The World Bank experience in supporting these kinds of projects clearly indicates that secure tenure and efficient registration systems are of basic importance for economic prosperity. Projects in Latin America and Southeast Asia have demonstrated that a secure title can add more than 20% to property value and multiply by several-fold the income generated through registration fees, sales taxes and property taxes. As a matter of fact, the principal reason as to why an indicative ERR analysis is attempted is to demonstrate how little impact on real estate market needs to be generated to more than recover the investment costs. The Economic Analysis Approach Carried out at Appraisal The analysis carried out at appraisal, while indicating that efficient real estate registration and cadastre systems are essential parts of the economic infrastructure of modern market economies, underlined the fact that major benefits from similar projects were expected to come from: i. improved security of tenure against unfair land acquisition; ii. the possibility to sell real property at fair prices, in a timely manner, and at low transaction costs; iii. the ability to better use real estate as collateral; and iv. improved access to land for commercial purposes. In the case of Slovenia that had an existing title registration system, the primary benefits from upgrading the without-project situation mainly derived from the reduction in transaction costs associated with the existing system. At appraisal it was estimated that there were delays as long as 18 months in some County Court registration offices and that as many as 650,000 apartments in the country were never registered and/or were still difficult to register. Furthermore, the poor quality of the cadastral mapping system made registration transactions difficult to register and prone to registration errors. This inefficient system, together with the inadequate legal framework for real estate market development, were the cause of the real borrowing rates for mortgages that were up to 600 basis points above the rate for Government bonds, considered to represent "the risk free rate." While the ex-ante estimation of the ERR for the project was not carried out, it was instead possible to determine the order of magnitude of the potential economic return from the relatively small investment project cost of about US$30.0 million. It was assumed that: i) only 10% of the approximately 1 million properties in Slovenia were mortgaged; ii) each property had an estimated value of US$100,000 and that; iii) each property was mortgaged to 50% of its value. Under these conservative assumptions, each 1 percent reduction in the interest rate for mortgages, reflecting a reduced transaction cost and risk premium resulting from the project, would have resulted in a cost saving to individuals and business of approximately US$50 million per year. Based on this analysis, and the high probability of putting in place a more efficient title registry and legal environment for mortgage lending, project investment would have resulted in at least a 1% decrease in mortgage lending rates and therefore sufficient returns to justify the relatively small incremental investment as proposed under the project. - 23 - In addition to the direct benefits of reduced mortgage rates and transaction costs, a number of indirect benefits were likely to result from the project including: i) increased overall economic activity due to a more fluid property market; ii) increased housing construction; and, iii) land consolidation in agricultural areas. The Economic Analysis Approach at ICR. Benefits from different project components include: i. Land and Building Cadastre Cadastral maps have been digitized for 5.1 million parcels, which is the total number of parcels in Slovenia. The main reason for digitizing the cadastral maps was to transform analog cadastral maps into digital form and a homogenous coordinate system. This aided in removing the discrepancy in owners' names between the land book records held in the courts and in the cadastre. The original discrepancy of 20% was reduced, at project completion, to as low as 3%. Digital orthophoto maps and digital cadastral maps now provide better quality spatial information to users including not only government institutions but also local communities, public and private companies which encounter spatial planning issues in the course of their regular operations. The building cadastre has been created and currently includes 1.2 million buildings and 1.6 millions parts of buildings. Overall, about 70% of apartments in multi-apartment buildings are now registered in the building cadastre with sufficient quality that is required for land book registration. Main benefits expected to derive from this activity include less complex updating procedures, better links between data in real estate records (Land and Building Cadastre, Register of Spatial Units, real estate evaluation and Land Register) and simpler system support and its maintenance. ii. Land Register Although the implementation of this component is considered at project completion unsatisfactory (backlogs have so far been reduced only by 42%, well below appraisal estimate), the current GOS strategy is the gradual and complete elimination of the backlog in the Land Register Offices by the end of 2006. iii. Apartment Registration Development At project completion, the effect of the law and efforts to encourage apartment registration has resulted in about 178,088 individual apartments registered in the title registration system (the land book). Benefits from this component mainly include increased security of title and easier access to mortgage financing for apartment owners, and better information for property taxation and urban planning for GOS. iv. Agriculture Land Use Monitoring. The database supports different sectors and bodies within the MAFF in their efforts to set up a land use monitoring system. MAFF uses data to verify applications for subsidies and to assist farmers through counselling and completing their applications for subsidies. The Agricultural and Forestry Fund uses the map interpretation to control and monitor forestry lands managed by the Fund. The MOF has now an efficient tool to obtain more reliable data on land use that will be used as the background for agricultural land valuation. v. Real Estate Tax and Valuation System. The main benefits that would derive from this component include the legal background for the introduction of a real estate tax and the implementation of the methodology of mass real estate valuation, its purpose being the identification of market values of real estate. Users like notaries, lawyers, and real estate agencies will use the data in implementing mortgage banking, assessing real estate values, etc. vi. Housing Finance and Mortgage Reform. MOF expects Parliament to adopt the law on mortgage bonds in 2006. This will settle the legal and systematic issues relative to mortgage banking. It will also - 24 - support the improvement of the effectiveness of housing finance and the development of a mortgage market. On the one hand, the borrowers will be given the possibility of raising long-term and low-interest housing loans. On the other, institutional and other investors will be able to invest their available capital to acquire a secure long-term stock, which the mortgage bond will definitely become. vii. Legal Framework for Property Ownership The creation and adoption of the Real Property Code that regulates the basic principles of real property law in Slovenia, further defining the requirement stipulated in the Constitution which regards private property as one of the fundamental rights of citizens. viii. Project Coordination Support and Strategic Studies. The Project Coordination Office concluded its function with the completion of the project. However, the completion of the two strategic studies i.e. IT/IM strategy and cost recovery strategy will greatly help the management and updating of real estate records. The cost recovery is expected to provide a common background for the development of a pricing policy in the field of real estate records. Overall, the intended project development objectives of improving the efficiency and effectiveness of the real estate administration systems in Slovenia are being met. Because of their nature, project benefits remain difficult to quantify and the economic analysis at project completion follows the approach used at appraisal, focusing only on project benefits that have been derived from reduced transaction costs, specifically the reduction in the spread between mortgage rates and the Treasury bill rate. However, at completion, an attempt has been made to estimate the project's ERR. The analysis takes into account the following assumptions: i) the number of properties in Slovenia that have been mortgaged, ii) their values in current terms and (iii) the related mortgage rates during the period 1999-2003. Selected financial statistics for this period are given in Table 1, and data on the share of mortgage loans in housing loans are presented in Table 2. The volume of mortgage loans has increased significantly in recent years, as shown in Table 2. If expressed in constant 2005 prices mortgage loans estimated at US$29.8 million in 1999 reached an estimated value of US$101.6 million in 2005 representing an increase, in real terms, of more than 200%. Assuming that, on average, an apartment of 65 square meters, built around 1980, is currently valued at US$80,000 and that the amount of mortgage loans have covered 50% of the total value of the apartment, then the total number of mortgage transactions estimated at 923 in 1999 (considered the year without project) increased to an estimated number of 2,540 in 2005. During the same period, mortgage rates have followed the trend of Treasury bill rates with a reduction of about 600 basis points since 1999 (Table 1), as has the spread, from an average of 600 basis points in 1998/1999 to an average of 300 basis points in 2004/2005. The reduction in mortgage rates mirrors the downward trend in T-bill rates but also a reduced spread between T-bill and mortgage rates. This reduced spread reflects several factors including: a) competition and increased efficiency in the banking system; b) reduced transaction costs and risks emanating from more secure property rights and a more efficient registration system which the project contributed to; and c) lower risk profile of the borrower. It is expected that the new Mortgage Bond Act developed under the project which the Government plans to implement in 2006 will have a further impact on the maturing of the mortgage market and improved terms for borrowers by further reducing the spread. However, we have not taken these into account in the economic analysis. The reduction in the spread due to the project contributes to the project's economic benefits which, judged against project investment costs, can be used to assess the economic rate of return of the project. In the absence of a solid analytical basis for assigning or deciding the share of the reduction in the spread caused by the project, we follow an alternative approach. In this approach, we respond to the question - how much of the reduction in the spread has to accrue form the project to achieve an ERR of 12%? In this project it - 25 - turns out that 40% of the reduction in the spread for mortgage loans above T-bill rates has to accrue from the project to achieve an ERR of 12%. Table 4 presents the logic used to calculate the ERR. It is assumed that the value of mortgages will continue to grow at the current trend. We have calculated the reduction in the spread to begin having an impact in year three of the project through year six, with the reduction in spread holding constant after year six. We have then calculated different proportions of the benefits to costs to come up with an ERR of 12%. This analysis measures only part of the economic benefit related to the project as outlined above. Still we believe that 40% of the reduction of the spread attributed to the project is reasonable and can be considered a significant contribution by the project. Table 1: Slovenia. Selected Financial Statistics (1998-2005) Exchange Consumer Deflators Treasury Bill Mortgage Year Spread Rates Price Index (1) SIT Rates (2) Rates (3) (3)-(2) (Tolars/US$) (4) 1998 86.6 150.1 8.00 16.2 820 166.1 1999 91.9 141.5 8.63 12.4 377 181.8 2000 100.0 130.0 10.94 15.4 450 222.7 2001 108.5 119.8 10.88 14.8 390 242.8 2002 116.6 111.5 8.73 13.5 477 240.3 2003 123.1 105.6 6.53 10.8 427 207.1 2004 127.5 102.0 4.17 7.6 343 192.4 2005 130.0 (5) 100.0 3.70 (5) 6.4 (5) 270 186.5 (5) Source: IMF International Financial Statistics (August 2005) (1) Index numbers (year 2000=100) (2) Percent per annum (3) Percent per annum (from Bank of Slovenia Monthly Bulletin) (4) Tolars/US$ (period averages) (5) First semester (2005 average) - 26 - Table 2: Share of Mortgage Loans in Housing Loans (1) 1998 1999 2000 2001 2002 2003 2004 2005 Mortgage Housing Loans (SIT million, current 2,178 4,741 4,279 7,827 13,579 17,934 18,000 19,000 terms) Exchange Rate (Tolars/US$) 166 182 223 243 240 207 192 187 Mortgage Housing Loans (US$ million, current 13.1 26.0 19.2 32.2 56.6 86.6 93.8 101.6 terms) US$ GDP Deflator (2) 85.8 87.0 88.9 91.4 92.6 94.5 96.9 100.0 Mortgage Housing Loans (US$ million, constant 15.2 29.8 21.6 35.2 61.1 91.6 96.8 101.6 2005 terms) Total Value of Apartments (US$ million, 39.4 73.8 50.0 77.2 126.8 183.6 191.4 203.2 constant 2005 terms) Average Value of Apartments of 65 sq.mt. 80.0 80.0 80.0 80.0 80.0 80.0 80.0 80.0 (US$ 000) Number of Transactions 493 923 625 965 1,585 2,295 2,393 2,540 (1) Source: Ministry of Finance (2) Source: IMF International Financial Statistics Table 3: Property Tax Revenue Information for Slovenia (SIT million) 1999 2000 2001 2002 2003 2004 (estimate) Real Estate Tax 19.044 19.491 22.819 24.432 26.024 27.713 Real estate transfer tax 6.090 5.487 6.414 7.522 7.050 6.509 Inheritance and gift tax 391 436 610 642 995 867 Total tax revenue to local government 113.754 125.917 145.117 164.558 178.827 191.424 Source: Ministry of Finance - 27 - Table 4: Economic Rate of Return (ERR) Years 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Costs 1.2 7.8 5.2 4.6 5.8 4.3 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Benefits US$valueofmortgage loans 15.2 29.8 21.6 35.2 61.1 91.6 96.8 101.6 133.59 159.27 191.20 221.00 252.28 289.51 337.57 390.17 444.15 506.69 576.96 657.55 748.46 849.78 changeinspread 0 0 0 0 0.01 0.03 0.04 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 Benefits 0 0 0 0 0.81 2.44 3.86 5.41 7.11 8.47 10.17 11.76 13.42 15.40 17.96 20.76 23.63 26.96 30.69 34.98 39.82 45.21 netbenefits 100% 1.0 -1.2 -7.8 -5.2 -4.6 -5.0 -1.9 3.9 5.4 7.1 8.5 10.2 11.8 13.4 15.4 18.0 20.8 23.6 27.0 30.7 35.0 39.8 45.2 80% 0.8 -1.2 -7.8 -5.2 -4.6 -5.1 -2.4 3.1 4.3 5.7 6.8 8.1 9.4 10.7 12.3 14.4 16.6 18.9 21.6 24.6 28.0 31.9 36.2 70% 0.7 -1.2 -7.8 -5.2 -4.6 -5.2 -2.6 2.7 3.8 5.0 5.9 7.1 8.2 9.4 10.8 12.6 14.5 16.5 18.9 21.5 24.5 27.9 31.6 50% 0.5 -1.2 -7.8 -5.2 -4.6 -5.4 -3.1 1.9 2.7 3.6 4.2 5.1 5.9 6.7 7.7 9.0 10.4 11.8 13.5 15.3 17.5 19.9 22.6 40% 0.38 -1.2 -7.8 -5.2 -4.6 -5.5 -3.4 1.5 2.1 2.7 3.2 3.9 4.5 5.1 5.9 6.8 7.9 9.0 10.2 11.7 13.3 15.1 17.2 20% 0.2 -1.2 -7.8 -5.2 -4.6 -5.6 -3.8 0.8 1.1 1.4 1.7 2.0 2.4 2.7 3.1 3.6 4.2 4.7 5.4 6.1 7.0 8.0 9.0 ERRat100% 23% ERRat80% 20% ERRat70% 18% ERRat50% 15% ERRat40% 12% ERRat20% 6% - 28 - Annex 4. Bank Inputs (a) Missions: Stage of Project Cycle No. of Persons and Specialty Performance Rating (e.g. 2 Economists, 1 FMS, etc.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 09/13/1998 4 LAND ADMINSTRATION S S SPEC.(1); ECONOMIST (2) LAWYER (1) 11/15/1998 4 ECONOMIST (1); LAND S S ADMINISTRATION SPEC. (1); LAWYER (1); GIS/LIS SPECIALIST (1) Appraisal/Negotiation 04/17/1999 3 LAND ADMINISTRATION S S SPEC. (1); ECONOMIST (1); PROCUREMENT SPECIALIST (1) 05/10/1999 SR. AGRIC ECONOMIST (1); S S LAWYER (1); SR. DISBURSEMENT OFFICER (1); SR, PROCUREMENT OFFICER (1); SR. FINANCIAL ANALYST (1) Supervision S S 03/14/2000 3 SR. ECONOMIST (1); LAND S S ADMIN. SPEC. (1); CONSULTANT (1) 11/13/2000 2 SR. ECONOMIST/TTL (1); S S CONS.-LAND ADMIN. SPEC (1) 09/15/2001 3 ECONOMIST/TEAM LEADER S S (1); REGISTRATION SPECIAL (1); MAPPING SPECIALIST (1) 04/17/2002 3 ECONOMIST/TEAM LEADER S S (1); GIS/IT SPECIALIST (1); PROPERTY TAX SPECIALIS (1) 07/11/2003 4 TASK TEAM LEADER (1); S S LAND ADMIN. SPEC. (1); PROCUREMENT SPEC (1); PROP. TAX SPEC (1) 06/04/2004 2 TEAM LEADER (1); MASS S S APPRAISAL (1) 12/13/2004 4 TASK TEAM LEADER (1) S S SR. PROCUREMENT SPEC.(1) OPERATIONS ANALYST (2), LEAD FINANCIAL MGT. SPEC. (1) - 29 - 06/6/2005 3 TASK TEAM LEADER (1); S S INSTITUTIONAL SPECIALIST (1); OPERATIONS ANALYST (1) ICR 10/03/2005 1 TASK TEAM LEADER (1) S S (b) Staff: Stage of Project Cycle Actual/Latest Estimate No. Staff weeks US$ ('000) Identification/Preparation 30 208.2 Appraisal/Negotiation Supervision 78 469.5 ICR 11 29.0 Total 119 706.7 - 30 - Annex 5. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA - 31 - Annex 6. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU 6.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU - 32 - Annex 7. List of Supporting Documents (a) Project Appraisal Document, May 26, 1999 (Report No. 19327) (b) Loan Agreement , November 17, 1999 (LN 4498-SLO) (c) Supervision Mission Aide Memoires and PSRs (d) Bi-yearly Project Monitoring Reports (PCO) (e) Project Completion Report of the Republic of Slovenia, June 2005 (f) Assessment of Project Training (PCO) Annex 7(f) Schedule of Training Workshops and Seminars Subproject/ Title of Place and Topics Number of Benefit / Impact on the Component Training / date participants project activities Workshop / (useful / not useful) Study tour C: National 1. technical registers and data 4 Participant get Apartment Land Survey bases of buildings and parts of acquainted with the Registration of Finland, buildings for taxation purpose: system of registration Developme National · technical solutions, of buildings and parts nt/ Land Survey · legal aspects (eventual of buildings in other SMA_3.1A of Sweden, regulations, laws), European countries _SS National 2. legal registering of buildings (Finland, Denmark, Training Survey and and parts of buildings: Sweden) in order to and Study Cadastre · technical aspects of legal re-establish technical Tours Denmark registering register of buildings September · legal foundations for such and parts of buildings 17 to 21, registering in Slovenia and get 2001 · protection of private data at useful information for legal and technical legal registering of · registering of buildings and buildings and parts of parts of buildings buildings. Practice of other countries was used for the preparation of the Regulation on Building Cadastre Registration (Official Gazette of RS, No. 15/2002). C: Workshop for Ribno near 1. Registration of the Common 53 Finding that property Apartment legal issues Bled, Parts of the Building tax relief that was Registration Slovenia 2. Promotion of the Apartment expected to be reward Developme April 18, Registration for registration of nt/ 2002 building is not SMA_3.1B appropriate because _SS this tax is one of main Workshop municipalities income for and they are unwilling Discussing to give them up. Legal Issues Registration must be for the whole building and not just for part (as allowed in ZPPLPS). - 33 - Apartment registration based on experience of other former socialist countries is not possible because of different circumstances. E: Real Study Tour International 1. Property valuation and 4 Useful Estate Tax Property Tax taxation systems and Institute, 2. Mass appraisal methodology Valuation Toronto, 3. Legislation (valuation, system Canada, taxation) and practice experience developmen 8 days in t Year 2000 E: Real Study Tour Swedesurvey 1. Property valuation and 2 Useful Estate Tax Landmaterie taxation systems and t 3 days in 2. Mass appraisal methodology Valuation Year 2001 3. Legislation (valuation, system taxation) and practice experience developmen t E: Real Participation at Gavle, Presentation Valuation and 2 Important Estate Tax International Sweden, Taxation of real Estate in and Conference 2 days, 2001 Slovenia Valuation UN_ECE system developmen t E: Real Workshop Ljubljana, Workshop on Valuation of Real 39 Very useful and very Estate Tax 1 day Estate organized by the important for making and Consultant Swedesurvey progress on subprojects Valuation results and interim system promotion of developmen subprojects activities t E: Real Training Ljubljana, Training of the staff will perform 16 Very useful and Estate Tax 3 days the work with mass-valuation for important and taxation Valuation Valuation of all types of real system estate and calibration developmen t F: Housing Study tour Prague, Housing Finance in Czech 3 Useful finance and 19..­ 21. republic Mortgage 2002 reform F: Housing Study tour Warsaw, Mortgage banking in Poland 2 Useful finance and 8. - Mortgage 10.9.2002 reform F: Housing Workshop 27.11.2002, Housing Finance and Mortgage 51 Very useful and finance and Bled, Banking in Slovenia Workshop important Mortgage Slovenia - 34 - reform H: Project Workshop Bled ­ Workshop of the Project Council 12 Very important for the Coordinatio Grims·e, members about linking realization and n and Slovenia, coordination of the different execution of the project Strategic 30.11. ­ project thematic fields by goals Studies 1.12.2000 brainstorming method H: Project Workshop Portoroz, Training of the Project Council 14 Very important and Coordinatio Slovenia, members: Team Building and very useful n and 20 ­ 22 Project management Strategic June 2001, Studies H: Project Training Mokrice, Training of the Project Council 12 Very useful Coordinatio Slovenia, members: Development and n and 7.­ 8 initiation of the information Strategic November systems Studies 2001, H: Project Workshop Ljubljana Training of the Project Council10 Very important and Coordinatio Slovenia, members: very useful n and 18 ­ 19 1. Stocks ­ basic about stocks, Strategic June 2003, history, situation in Slovenia, Studies Importance of the Stock Exchange principles and transactions, mortgage bonds 2. Real Estate Valuation: market value of the Real estate, EU Standards, mass-appraisal methods and others valuation methods H: Project Training Ljubljana, Training of the Project Council 16 Very useful Coordinatio Slovenia, members: Preparation, financing n and 7 October and executing of the Strategic 2004, Governmental projects by the Studies Rules of the EU programs H: Project Mid-term Ljubljana, Presentation of the mid-term 198 Very useful Coordinatio Conference Slovenia, results of the Real Estate n and 28 May Registration Modernization Strategic 2002, Project Studies H: Project Final Ljubljana, Presentation of the final results of 142 Very useful Coordinatio Conference Slovenia, the Real Estate Registration n and 8 June 2005, Modernization Project Strategic Studies - 35 - Additional Annex 8 Excerpted from the Borrower's Completion Report of June 2005 PROJECT DESCRIPTION The project development objective was to improve the efficiency and effectiveness of real estate administration systems in Slovenia. That includes improvement of the real estate registration system by simplification of procedures for the registration of real estate with the Land Cadastre and the Land Register, as well as integral, coordinated and rapid acquisition of data, upgrading the legal framework for real estate transactions, establishment of an agricultural land use monitoring system to meet European Union accession requirements, and designing and testing of a market-based property tax and valuation system. In the period from 1998 to 2005, the Programme Council has dealt with organizational issues and issues concerning real estate registration. It has also coordinated the operation of individual agencies engaged in real estate registration. The Program Council has adopted its position regarding various approaches to thematic, technological and organizational linking of the Land Cadastre, Land Register and the Building Cadastre. In accordance with the resolutions of the Government of the Republic of Slovenia, and on the basis of the concept of modernization of real estate records and the detailed definitions of objectives and functions of real estate records (especially the functions of taxation, land and housing policies, and also the functions of state-owned property management), the Program Council coordinated the preparation of the implementation plan for the modernization of real estate registration in the Republic of Slovenia in collaboration with the representatives of various ministries and government bodies and agencies. Based on the proposal defining the real estate data and their respective functions, which was prepared by the Ministries participating and the institutions collaborating at setting out the concept of real estate registration modernization, the Program Council discussed the data model proposed for real estate registration. The proposed data model took into account the census of agricultural holdings and the census of population, households and housings. However, pursuant to the decision of the Constitutional Court of the Republic of Slovenia as to the conformity of the Act Regulating the Census of Population, Households and Housings in the Republic of Slovenia of 13 March 2002 (Official Gazette of RS, No.22 of 13 March 2002), data collected through the census of population may be used for statistical purposes only. Therefore, these data will have to be obtained from other sources. In the preparation of the data model special consideration was given to the issues of data access, data exchange, price of data and the necessity of updating collected data by providing adequate identifiers that ensure continuous use, as well as issues presented in the Green Paper on Public Sector Information adopted by the European Union. The Project completion date is 30 June 2005. The eight Subprojects of the Real Estate Registration Modernization Project consist of 82 components, which can be classified as implementation, operative, advisory, development and procurement. Up to the present (May 2005) a total of 139 contracts have been signed by contractors. Project implementation was carried out by 88 national and 20 foreign contractors, some of them took part in implementation for several times. Project implementation was supported by project plan consisting of more than 6.000 activities. There were total of 194 Project Council meetings and total of 16 Programme Council meetings until the end of May 2005. 1.1 PROJECT STRUCTURE AND PROJECT COMPONENTS - 36 - At the beginning of 2000 the final organization of the Real Estate Registration Modernization Project was established, which paved the way for the implementation of the project. The Project covers the assignments of four Ministries and of the Supreme Court of the Republic of Slovenia, and includes eight Subprojects. The agencies implementing the Project are as follows: · Ministry of Finance, · Ministry of Agriculture, Forestry and Food, · Ministry of Environment and Spatial Planning - Surveying and Mapping Authority of the Republic of Slovenia, · Ministry of Justice and · The Supreme Court of the Republic of Slovenia. In terms of contents, the Project has been divided into Subprojects as follows: A. Land and Building Cadastre, B. Land Registry, C. Apartment Registration Development, D. Agriculture Land Use Monitoring, E. Real Estate Tax and Valuation System Development, F. Housing Finance and Mortgage Reform, G. Legal Framework for Property Ownership and H. Project coordination and strategic studies. The project organizational structure (below) shows mutual relations between programme council, project council, subprojects and implementation agencies. Program council for the implementation of the Real Estate Registration Modernization is the highest strategic and directional body in the field of real estate registration, whose members were appointed by the Government of the Republic of Slovenia. Its assignments were the coordination and organization of activities together with the adoption of strategic guidelines related to the real estate registration issues, further coordination of the operation of individual government agencies and the implementation of the unifying role in the field of real estate registration. An active role of the Council and its responsibility for the coordination and ensuring of efficient implementation of the Real Estate Registration Modernization Project was also one of the conditions for the approval of the project and the International Bank for Reconstruction and Development loan in the negotiations with the Government of the Republic of Slovenia. On the basis of the adopted strategic guidelines the council directed implementation of the activities of the Real Estate Registration Modernization Project. Every year it prepared annual reports on the operation of the program council which were reviewed and approved by the Government of the Republic of Slovenia. The Program Council operated actively between October 1998 and October 2004. It was headed by the Minister of the Minister of Environment and Spatial Planning, and other members were the Minister of Information Society, the State Secretaries from the Ministry of Environment and Spatial Planning, Ministry of Justice, Ministry of Finance and Ministry of Agriculture, Forestry and Food, and the Directors of the Statistical Office of the Republic of Slovenia, Government Center for Informatics, Surveying and Mapping Authority of the Republic of Slovenia, Joint Services of the Government, as well as the representatives of the Supreme Court of the Republic of Slovenia and the Ministry of Finance. The working party coordinating the interagency activities in participating institutions is called the Project Council, whose members are the Heads of Subprojects and their Proxies, the program Council is headed by - 37 - the Executive Director and Project Manager. The project council met on a weekly basis from the beginning of September 1999 and on a bi-weekly basis towards the end of the project. Individual implementing institutions have appointed interagency implementation expert groups coordinating and managing the activities in individual areas. At the beginning of the project implementation the project coordination office was established on the basis of a public tender as a special organizational unit which provided technical support to the parties involved, in line with the adopted Project Organization Regulation. 1.2 OVERALL PROJECT REALIZATION Project results Between 2000 and 2002 the Surveying and Mapping Authority of the Republic of Slovenia and the Supreme Court of the Republic of Slovenia used the funds obtained from the PHARE Program to implement a joint project entitled Modernization of Real Estate Records Management System (Twinning, the purchase of computer equipment). This project included the review of the existing organizational structure of the Surveying and Mapping Authority of the Republic of Slovenia, land legislation, existing data and system architecture for the exchange of land information, and the analysis of the links between the Land Register and Land Cadastre. The results of the project are the recommendations as to the methods and procedures of electronic exchange of real estate data between the two records and their use in administrative procedures, as well as the procurement of IT/IM equipment required for the implementation of project results. The project was successfully completed. The Real Estate Registration Modernization Project began to be operatively implemented at the beginning of 2000. What follows are the main results achieved. In the field of records set-up: · created digital cadastral maps for all land parcels in Slovenia, · created all digital orthophoto maps, · photogrammetric acquisition of all the buildings in Slovenia, · accelerated backlog mitigation in Land Registry courts, · acquisition of data on agriculture and forest land use for the whole territory of Slovenia, · preparation of data on agriculture and forest land use for the purpose of implementing agricultural subsidies control. In the field of systemic solutions: · the setup of the Building Cadastre ­ registry data, · accelerated creation of conditions for faster apartment registration and the registration of common parts of buildings, · created mass real estate valuation models (apartment and industrial buildings, agricultural land), · drafted proposal for the methodology of the implementation of mass real estate valuation, · completed comparative analysis of different models of mortgage banking. In the field of legislation: · creation and adoption of the Real property Code which regulates the basic principles of real property law, title and real property rights and the ways of their acquisition, transfer, security and discontinuance, · the Housing Act ­ the text of the Housing Act, focusing mainly on property ownership and - 38 - management relations, · drafted proposal of the Mass Real Estate Valuation Act and a working draft of the Real Estate Tax Act, · completed draft of Mortgage and Municipal Bond Act. In the field of information technology solutions: · created strategic studies for information technology and information management together with cost recovery in the field of real estate registration. In spite of the results achieved in the implementation of the project not all users' expectations were met, for in some fields, especially lately and with the emergence of new requirements, they proved to be exaggerated. In the implementation of the project two- to five-meter accuracy of digital cadastral maps was used for the better part of Slovenia, which is still insufficient for all types and purposes of use. The backlogs at Land Registry Courts have decreased, however, the time needed for the real estate registration into the Land Registry is still longer than the set objective. Due to their complexity the proposed strategic guidelines in the field of information technology and information management as well as cost recovery were not implemented because appropriate decisions should have been taken at governmental level. The activities in these fields will continue intensively within the institutions involved even after the conclusion of the Real Estate Registration Modernization Project. Implementation of the project results The institutions of public administrations regularly included the project results into their operation and used them as a basis for the implementation of all project related activities in the field of real estate management. The significance of the digitalized records (digital cadastral maps, acquired registry data on buildings and parts of building, digitalized Land Registry and accelerated backlog mitigation, completed digital orthophoto maps, agricultural land use data) is very important both in the design, development and introduction of the proposed systemic solutions in the field of the system of registration, valuation and taxation of real estate, financing apartment building and mortgage reform as well as enabling electronic access to data on real estate to different users (individuals, public and private sector). The implementing institutions, on the basis of the achieved results of the project, are successfully developing systemic solutions and designing the development of faster and more user-friendly solutions of public administration in the field of real-estate management (electronic access to geodetic data, electronic access to Land Registry data, electronic application for agricultural subsidies, real estate market records, support of real estate valuation and taxation). A solid basis for upgrading and multi-purpose use of real estate data for various purposes was enabled (in safeguarding real property rights, real estate market monitoring, activities in the field of agriculture, forestry, natural resources management, support of spatial planning and implementation of the key state and local communities policies). The benefits of the project results for the users The Real Estate Registration Modernization Project could not have been expected to solve all the problems both real estate owners and the implementers of state and municipal functions encounter, however, the achieved results of the project represent a solid basis for the development of the more efficient real estate management in the future. The successful implementation of Real Estate Registration Modernization Project, ensuring the basic real estate data, efficient implementation of the project results and the use of the norms comparable to European norms enabled the modernization and simplification of the procedures in the field of real estate management, the rationalization of the public administration operation and the elimination of administrative obstacles for the citizens. Through the updated and more efficient data situation in the basic real estate records and the enabled - 39 - electronic access to these data institutions and individuals are able to more efficiently realize their interests in the various fields of social operation. The main advantages the results of the project offer the users are: · modernized, better quality and more up-to-data data on real estate · simplified and faster access to these data (electronic access), · multi-purpose use of the real estate data, · more accurate registration of real estate and more secure real estate transactions, · more efficient and faster dealing with applications in administrative procedures and the consequent decrease in the number of visits of the users to the administrative offices, · proposal for the more comprehensive and transparent real estate valuation system, which will serve as a basis for more just real estate taxation, · proposal for the introduction and development of mortgage banking and the consequent availability of long-term housing loans with reasonably high interests, · modernized legislation in the field of real estate management. The results of the project ensure a higher level of legal security in real estate transactions for the citizens, further ensure the development of faster, more comprehensive and user-friendly services of the public administration in the field of real estate management, thus enabling the lowering of transaction expenses in the real estate transactions, which ensures the development of the real estate market and increases the level of domestic and foreign investments. The directions of operation after the conclusion of the project On the basis of the achieved results of the Real Estate Registration Modernization Project in Slovenia an accelerated development of the more efficient real estate management has been enabled, providing the foundation for the more efficient functioning of the real estate market, more optimal spatial management, for the purpose of implementing inclusive social policy and sustainable development and featuring as one of the key components of the economic development of any country. Efficient real estate and real property rights registration increases the value of real estate, the level of investments in the economy and the availability of loans where real estates represent one of the fundamental securities. The multi-purpose use of real estate data enables faster response to the changes in the environment and ensures the more efficient tailoring of products and services to the user's needs. The policies in the modernization and the upgrading of the real estate management processes can be divided into the following areas: · simplification and consolidation of the procedures for real estate and real property rights registration, · unification and linking of the implementing institution in the field of real estate registration, · use of e-operation and · the provision of simple and fast access to data. Due to the substantial increase in the use and the number of users of digital cadastral maps, digital orthophoto maps, the Building Cadastre registry data, agricultural land use data and the real estate market records data additional efforts and funds will have to be invested for regular updating, modernization and linking of the real estate registers on the basis of uniformly designated identifiers. Additional efforts will primarily have to be invested in: · quality linking and mutual exchange of data, · improving positional accuracy of digital cadastral maps, · ensuring funds for the transition from seven-year black and white to the four-year cycle of the - 40 - creation of color digital orthophoto maps, · regular updating of the agricultural land use data and the agricultural land use graphical units layer, · the modernization of the real estate information system, · streamlining of the operation organization at Land Registry Courts and the continuation of the accelerated backlog mitigation, · the introduction of the multi-purpose real estate valuation system for the needs of the tax system, the implementation of various administrative assignments, statistical analyses, insurance, mortgage banking and the implementation of the appropriate policies in the field of real estate management, · the continuation of the development of mortgage banking as an instrument of financing apartment building and the promotion of the instrument of mortgage bond, which will appear in the Slovenian financial market for the first time with the adoption of the proposed Mortgage and Municipal Bond Act. In the field of linking and exchange of data from the information management point of view attention must be paid to the introduction of the proposed strategic guidelines, defined in the strategic studies (Information technology Strategy and Information Management in the Field of Real Estate Registration and Cost Recovery Strategy). Only with the active and coordinated cooperation of all the institutions will it be possible to achieve an efficient mutual linking and harmonization of real estate records and other databases which will provide the expected level and speed of services for the users. For the successful and efficient real estate management both the continuation of the coordinated and systematic inter-agency cooperation as well as the even more active inclusion of other users (local communities, public companies and private sector) is important because it enables more successful dealing with the real estate issues, the development in the field of real estate management and more efficient implementation of real estate policy. - 41 - - 42 -