Document of The World Bank FOR OFFICIAL USE ONLY Report No: 77501 v1 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF LAND ADMINISTRATION AND MANAGEMENT PROJECT LOAN NO L7647-ME APPROVED ON DECEMBER 9, 2008 TO MONTENEGRO APRIL 15, 2013 SUSTAINABLE DEVELOPMENT SECTOR UNITSOUTH EAST EUROPE COUNTRY UNIT EUROPE AND CENTRAL ASIA REGION This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. ABBREVIATIONS AND ACRONYMS MED Ministry of Economic Development ME Ministry of Economy MOF Ministry of Finance MSDT Ministry of Sustainable Development and Tourism READ Real Estate Administration Department SUP Spatial Urban Plan Regional Vice President: Philippe H. Le Houerou Country Manager: Anabela Abreu Sector Manager: Kulsum Ahmed Task Team Leader: Olivera Jordanovic 2 LAND ADMINISTRATION AND MANAGEMENT PROJECT RESTRUCTING PAPER A. SUMMARY This restructuring paper proposes (i) to drop a subcomponent, (ii) several modifications in the results framework to improve the relevance of indicators and take into account the impact of the global financial crisis on the Montenegrin real estate market; (iii) changes to the project’s institutional arrangements, and (iv) extension of the project’s closing date by a year. This restructuring proposal neither intends to modify the Project Development Objective, nor to introduce any change in the environmental category or changes that would require triggering a new safeguards policy. Therefore, this is a level II restructuring. This restructuring paper was prepared upon the request of the Borrower, which was presented to the Bank on December 11, 2012 in the form of correspondence from the Ministry of Finance. This paper is however the result of a year-long negotiation initiated in early 2012 amid concerns regarding READ’s capacity to develop its new IT system by the initial closing date, the complete absence of progress in the implementation of the business environment improvement subcomponent, and the impact of the global financial crisis on some key assumptions upon which the results framework was relying. B. PROJECT STATUS The project’s progress toward the completion of its development objective (PDO) of improving the efficiency of permitting and property registration in Montenegro is moderately satisfactory. The PDO thus continues to be achievable. As of January 2012, improved property registration procedures had been adopted, the average time required to register a property had been reduced from 25 to 13 days, and the average time required to obtain a construction permit had been reduced from 6-12 months to 56 days at central level, and 19 days at local level. Meanwhile, the objective of surveying at least 360,000 hectares had been reached, and the new READ office in the capital city of Podgorica was under construction. At the same time, the project has been rated moderately unsatisfactory on the implementation progress since 2010, and two key activities lag behind schedule. First, the development of READ’s IT system has been delayed, and the first phase of the development process is projected to be completed by September 2014. Second, the preparation of the Spatial Urban Plans (SUPs) in municipalities targeted under the project has been slowed down by procurement issues, and delays in the establishment of the regulatory framework. Two (2) SUPs have been finalized, and seven (7) are in process, including the SUP for Nikšić – the second largest city of the country – that is unlikely to be completed by April 2014. An action plan has been put in place and agreed with the Borrower to improve the implementation progress. The Borrowers’ 3 performance overall remains satisfactory. There are no overdue nor unsatisfactory audits under the project. Finally, two Project Outcomes Indicators are no longer appropriate. The project was expected to generate an increase in property tax and property transfer tax receipts, but the Montenegrin real estate market has been severely hit by the crisis, and receipts have decreased by 29 percent from 2008 to 2009. Latest indicators suggest a timid recovery, but tax receipts will not reach the expected 162 million Euros by 2014. Finally, the anticipated increase of investment activity in targeted municipalities will not be visible by 2014 because of the time lag between the adoption of the plans and the implementation of investment activities. C. PROPOSED CHANGES  Results/indicators {refer to Annex 1} The project results framework will be revised to take into account the impact of the global financial crisis on a number of project outcomes, as well as to better capture the impact of a number of key activities. Two Project Outcome Indicators will be dropped, one Intermediate Outcome Indicator will become a Project Outcome Indicator; and two Intermediate Outcome Indicators will be added. The Project Outcome Indicator increase in real estate transfer tax and property tax receipts will be dropped. This indicator had been designed before the global financial crisis. It was then expected that the project would generate a substantial increase in property transfer tax and property tax receipts. However, the global financial crisis severely hit the Montenegrin economy. Its GDP fell by 5.9 percent from 2008 to 2009, and the aforementioned tax receipts decrease by 29 percent during the same period of time. Tax receipts for 2012 remain below 2010, and show no sign of strong recovery. These figures cannot be attributed to poor project performance. They reflect the impact of the crisis on the Montenegrin economy and its property market. The Project Outcome Indicator increased investment activity in the target municipalities will also be dropped. The preparation of the Spatial Urban Plans in the 11 target municipalities has been deferred by procurement issues, delays in the establishment of the regulatory framework, and the participatory approach piloted in the planning process. As a result, most plans will come into effect towards the end of project. It is only after that investment activities will be designed and implemented. Considering the time lag that separates investments design and implementation, and given the impact of the financial crisis on the national economy, it is unlikely that the increase in investment activity will become noticeable before the end of the project. The Intermediate Outcome Indicator average transaction registration time will be upgraded to Project Outcome Indicator. This indicator is very relevant to the Project Development Objective, as an efficient property registration system must offer timely services. This indicator has become one of the Core Land Sector 4 Indicators (CSIs) since July 2012. The project’s Monitoring and Evaluation (M&E) has been monitoring all relevant CSIs since September 2012, and those have been also included in the Implementation Status Report. The restructured project Results Framework however will include only the most relevant CSI for this project -average transaction registration time – as a new Outcome Indicator, while the project will continue to monitor the other CSIs through the project’s regular M&E. The unit of measure of the Project Outcome Indicator increased customer satisfaction with registration services will be changed from a percentage to a rate on a scale from 1, for totally dissatisfied, to 5 for completely satisfied. This rating system has already been adopted to monitor and evaluate in other World Bank operations in the Region, including in Macedonia and Croatia. It is considered more accurate than the percentage of customers that declare being satisfied or very satisfied with registration services. It will be used to measure the level of satisfaction of both natural persons and legal entities. The baseline of this indicator was established by the 2011 customer satisfaction survey. Increased level of participation of citizens in planning process and increase in number of staff trained in planning process will be added as Intermediate Outcome Indicators. These indictors will give a better indication of progress of the Planning and Permitting Component. The initial results framework did not capture the project’s impact on the level of participation of citizens in planning processes, and the capacity of government officials to carry out these processes. However, increasing citizens’ participation, and developing local governments’ capacity to carry out participatory planning are two important expected outcomes of the project. As such, it is appropriate that they be included in the results framework.  Components Sub-component B.4. Business Environment Improvement (Support in improving other business environment related aspects) will be dropped. This was discussed with the Borrower and reflected in the latest Aide Memoire. There have been no activities conducted under this subcomponent so far. This subcomponent had been designed to provide the Ministry of Economic Development (MED) with technical assistance and training as needed to improve other aspects of business licensing and permitting. However, in June 2009, the MED was restructured to create the Ministry of Economy (ME) and the Ministry of Sustainable Development and Tourism (MSDT). The MSDT became responsible for planning, construction permitting and inspections, as well as for implementing the project’s planning component. However, the ME was assigned the responsibility of the other aspects of business licensing and permitting, which explain why the MSDT has not been able to implement the Business Environment Improvement Subcomponent. The funds that were factored in for this component will be used for the other activities under Component B (sub-components B.1.to B.3.) 5  Institutional arrangements The Ministry of Economy and Development (MED) was initially one of the main project implementing institution, but it was restructured in June 2009, a year and a half after the project became effective, to form the Ministry of Economy (ME) and the Ministry of Sustainable Development and Tourism (MSDT). All areas that fell under the responsibility of the MED under the project now fall under the MSDT. The MSDT got the responsibility over spatial and urban planning and construction thus becoming responsible for project implementation. The loan agreement will be amended to reflect this change in institutional arrangements.  Closing date The closing date is to be extended from April 30 2014 to April 30, 2015. This is the first extension to the loan closing date. The two main reasons for the extension are the delays in the development of the READ’s IT System, and the delays in the preparation of the Spatial Urban Plan for Nikšić. The project is making good progress toward the completion of its development objective of improving the efficiency of permitting and property registration in Montenegro. Project objective remain achievable but the development of READ’s IT system and the preparation of the Spatial Urban Plans has been delayed. The proposed extension is necessary for READ to complete the first phase of the development of its IT system, which is expected to further reduce the time to register real property rights and therefore contribute to the success of the project. The project development objective (PDO) is still achievable and the progress toward completing the PDO is moderately satisfactory. Implementation progress has been moderately unsatisfactory but the borrower has an action plan put in place to improve the implementation progress and complete the project. Borrower’s overall performance is satisfactory. There are no overdue or unsatisfactory audits. D. APPRAISAL SUMMARY  Economic and financial analyses It was expected that the Real Estate Administration Component would be the principal driving force for the generation of Project benefits, and that the Planning and Permitting Component would have a positive impact on the competitiveness of enterprises, employment opportunities, and government revenues. However, given the impact of the global financial crisis on the Montenegrin economy, and considering the time lag that separates the adoptions of plans and the implementation of investments, such increase is unlikely to materialize. 6 ANNEX 1 Results Framework and Monitoring MONTENEGRO: LAND ADMINISTRATION AND MANAGEMENT PROJECT Project Development Objective (PDO): To improve the efficiency of permitting and property registration system. Revised Project Development Objective: N/A D=Dropp Cumulative Target Values** Data Responsibili ed Frequen Source/ ty for Data C=Contin cy Methodolog Collection Project Outcome ue Unit of Baseline y Indicators N= New Measure (2008) R=Revise YR1 YR2 YR3 YR4 YR5 YR6 Core d (2009) (2010) (2011) (2012) (2013) (2014) PROJECT DEVELOPMENT INDICATORS Increase in real Millions estate transfer tax. D of Euros 41.46 €70m €80m €92m €106m €121m N/A Annual Project PCU monitoring reports – source MOF Investment activity in the D Nil data Nil data Nil data Nil Nil Nil - - Nil data Project PCU municipality data data data monitoring targeted by the reports – planning source MOF component. Average Number transaction N of days 25 22 18 16 12.5 9 8 Annual Project PCU registration time monitoring reduced. reports Increased customer R Rate on a Legal N/A Legal N/A 4.37 N/A 4.47 Biannual Project PCU satisfaction with scale from entity entity: monitoring registration 1 (totally 76.8% 4.27 reports services. dissatisfie d) to 5 Natural Natural (completel persons: persons y 4.18 : 4.18 4.28 4.38 satisfied) Decrease in the time to receive a C Number 6-12 N/A N/A 4-8 3-5 1-2 N/A Biannual Project Municipaliti construction of months months months months months monitoring es, MSDT permit. reports and PCU INTERMEDIATE OUTCOME INDICATORS Intermediate Outcome Indicator C N/A Attribute Strategi N/A Systems N/A 21 local System Annual Project READ and One: only es in place offices provides monitoring PCU Automated available develop connect access reports systems for the via the ed ed on to live REC developed WEB line; at alpha and used by site least numeric professional 100 al data users.1 other users Intermediate 1 Currently all 21 READ branch offices are connected to the headquarters and other users have access to READ data via the web page or geo-portal. Also, some users of the geodetic network are connected. The plan is to upgrade the system, including new services, and make the connection more widespread. 8 Outcome Indicator C Number 0 4 1 5 2 1 1 Annual Project READ and Two: of READ (Podgori monitoring PCU READ offices offices ca new reports physical layout (per year) building improved for ) better customer service. Intermediate Outcome Indicator C N/A N/A N/A N/A New N/A Further N/A Annual Project READ and Three: procedu reforms monitoring PCU Improved res introduc reports procedures for impleme ed registration nted prepared and in use in all offices. Intermediate Outcome Indicator C Percent in Four: Podgorica 15.7% N/A 12% N/A 8% 8% Less Quarter Project READ and Pending cases at than 8% ly monitoring PCU cadastral offices Budva, 24.7% N/A 18% N/A 12% 8% for all reports reduced to less offices than 8% of annual Zabljak 33.2% N/A 25% N/A 12% 8% cases for all offices. All 16.5% N/A 12% N/A 11% 8% offices Intermediate Outcome Indicator C Number 0 N/A 2 N/A 6 1 2 Annual Project Municipaliti Five: of plans monitoring es and PCU Preparation of reports plans in targeted municipalities 9 under the Project (per year). Intermediate Outcome Indicator C Percent 34,386 N/A N/A 35% 70% 95% 95% Annual Project Municipaliti Six: in decrease decrease decrease decrease monitoring es and PCU Decrease in Septemb reports number of new er 2007. illegally Ave constructed increase objects. 3,725% per year. Intermediate Outcome Indicator N Male and Limited N/A N/A Male: Male: Male: Male: Annual Project Municipaliti Seven: female 660 3,500 2,080 1,350 monitoring es and PCU Increased participan Female: Female: Female: Female: reports participation of ts 280 1,500 920 650 citizens in planning process in targeted municipalities under the project. Intermediate Outcome Indicator N Number 0 0 131 703 1417 1700 1900 Annual Project PCU Eight: of staff monitoring Increase in reports number of staff trained in planning process (cumulative). Intermediate 10 Outcome Indicator D Number 18-24 N/A N/A 14-20 10-16 6-12 6-12 Annual Project Municipaliti Nine: of months months months months months months monitoring es and PCU Decrease in time reports to prepare and adopt urban plans. Intermediate Outcome Indicator C Number 6-12 N/A N/A 5-10 3-6 2-4 N/A Annual Project MSDT and Ten: of months months months months months monitoring PCU Decrease in time reports for MSDT approval of local spatial plans and SUPs. 11